Search

This paper examines the relative significance of oil supply, oil demand, and monetary policy shocks in explaining US macroeconomic variations. We analyze impulse response functions and variance decomposition to assess the relative importance of these shocks. Using a Bayesian structural VAR framework and the penalty function approach, we identify the shocks of interest. We find that oil supply shocks explain less than 3% of the variation in output, but have a relatively larger impact on inflation, accounting for around 13% of the inflation variation. Oil demand shocks explain 3% of output variation, but contribute significantly to inflation variation (around 16%). In contrast, monetary policy shocks have a greater influence on output, explaining approximately 13% of the observed variation. Monetary policy shocks are also the most influential source of inflation variation, contributing over 24% to the overall variation. Based on historical variance decomposition, we find that the recent inflation surge is attributable to both monetary expansion and oil supply factors. Overall, the study highlights the dominance of monetary policy shocks in explaining US macroeconomic fluctuations, with oil supply and demand shocks playing secondary roles. [ABSTRACT FROM AUTHOR]

We take a practical approach to model the forward-looking monetary policy rule. Unlike existing studies, we recognize that the forward-looking components—future inflation and output growth—are intrinsically unobserved at the time policy formulation. Using the unobserved components framework, we extract the latent components of the policy rule from the short-term and long-term Greenbook forecasts, both individually and in combination, and jointly estimate the policy parameters. We also consider correlations between different components and combine the forecasts from the survey of professional forecasters and the inflation index bonds market. Evidence suggests that the Federal Reserve follows an inflation-tilted policy rule and the long-term state of economy gets a higher weight than the short term. Also, the policy reaction is more aggressive when interconnections between different components of the policy rule are considered. [ABSTRACT FROM AUTHOR]

We empirically investigate the short- and long-run dynamic relationship between security broker–dealer leverage and stock prices. To explore various potential adjustment dynamics, we use the error correction term to construct several threshold indicators that distinguish the deviation from long-run equilibrium. Using these indicators, we estimate different types of threshold cointegration and error correction models and analyze the results in the context of boom and bust cycles in financial markets. Our results show that, in the long run, a 1% increase in the stock price leads to approximately a 0.43% increase in leverage. We show that a momentum autoregressive model with an endogenous threshold does a better job of fitting the financial data. The asymmetric error correction structure shows that changes in leverage experience significant corrective measures when the stock prices plunge during recessions. [ABSTRACT FROM AUTHOR]

An unobserved components model is used to analyse the cyclicality of average labour productivity in Australia since 1980. The model includes a direct estimate of phase shift so that the lead or lag of cycles relative to output can be determined. Average labour productivity is found to be countercyclical with output and employment and lagging the cycle in output by about six quarters. The observations are consistent with a theoretical model in which employment adjustment costs are falling due to lower turnover in employment. A more flexible labour market allows greater variation in employment relative to variation in output which tends to make productivity more countercyclical. The model is also used to determine the relative importance of the intensive and extensive margins of labour supply by examining fluctuations in both employment rates and average hours per worker. The full-time employment rate is significantly procyclical and lagging output as expected. The part-time employment rate is countercyclical, suggesting that there is some substitution of part time for full-time workers during economic downturns. At the intensive margin, average hours are procyclical, but they make a smaller contribution to the cyclicality of productivity than the employment rate. [ABSTRACT FROM AUTHOR]

Business confidence is a well-known leading indicator of future output. Whether it has information about future investment is, however, unclear. We determine how informative business confidence is for investment growth independently of other variables using US business confidence survey data for 1955Q1–2016Q4. Our main findings are: (i) business confidence has predictive ability for investment growth; (ii) remarkably, business confidence has superior forecasting power, relative to conventional predictors, for investment downturns over 1–3-quarter forecast horizons and for the sign of investment growth over a 2-quarter forecast horizon; and (iii) exogenous shifts in business confidence reflect short-lived non-fundamental factors, consistent with the 'animal spirits' view of investment. Our findings have implications for improving investment forecasts, developing new business cycle models, and studying the role of social and psychological factors determining investment growth. [ABSTRACT FROM AUTHOR]

This paper evaluates the consequences of the financial and sovereign debt crises on the evolution of the business cycle synchronization across all the Euro Area members. We take advantage of the dimension reduction properties of dynamic factor models to summarize a large dataset of macroeconomic indicators for the Euro Area countries. Then, we estimate latent state variables based on Markov-switching methodologies to obtain a time-varying measure of business cycle synchronization. The combination of these two techniques allows us to describe the evolution in the degree of coincidence of the business cycle phases along time for this set of countries. Our results suggest that there was a general decline in the degree of business cycle synchronization across the Euro Area countries following the financial and the sovereign debt crises. Although they have recovered the levels of business cycle synchronization exhibited before these events, there are significant differences across countries in the required time to recover those levels. [ABSTRACT FROM AUTHOR]

We revisit the distributional implications of macroeconomic activity in the USA by estimating the effects of the unemployment and inflation rates on the quintile Lorenz ordinates. We have access to 16 years of additional data (1995–2010) that were not available for the earlier studies, covering the deepest recession since the Great Depression. These additional data do not substantively change the results regarding the effects of unemployment and inflation on income inequality (both increase it). Adding controls for other important macroeconomic variables that have increased substantially in recent decades (public transfers, government budget deficits, and openness to trade) also has little effect on the findings regarding unemployment and inflation. Changes in budget deficits are uniformly equalizing, and public transfers increase the share of the bottom 20% across different specifications. Greater openness to international trade increases inequality in some specifications but has little effect when we also include controls for public transfers and budget deficits. [ABSTRACT FROM AUTHOR]

This paper considers the role of financial frictions and the conduct of monetary policy in Uganda. It makes use of a dynamic stochastic general equilibrium model, which incorporates small open-economy features and financial frictions that are introduced though the activities of heterogeneous agents in the household. Most of the parameters in the model are estimated with the aid of Bayesian techniques and quarterly macroeconomic data from 2000q1 to 2015q4. The results suggest that the central bank currently responds to changes in the interest rate spread, despite the fact that capital and financial markets are relatively inefficient in this low-income country. In addition, the analysis also suggests that to reduce macroeconomic volatility, the central bank should continue to respond to these financial sector frictions and that it may be possible to derive a more favourable sacrifice ratio by making use of a slightly more aggressive response to macroeconomic developments. [ABSTRACT FROM AUTHOR]

Recent literature suggests that news shocks could be an important driver of economic cycles. In this article, we use a direct measure of news sentiment derived from media reports. This allows us to examine whether innovations in the reporting tone correlate with changes in the assessment and expectations of the business situation as reported by firms in the German manufacturing sector. We find that innovations in news reporting affect business expectations, even when conditioning on the current business situation and industrial production. The dynamics of the empirical model confirm theoretical predictions that news innovations affect real variables such as production via changes in expectations. Looking at individual sectors within manufacturing, we find that macroeconomic news is at least as important for business expectations as sector-specific news. This is consistent with the existence of information complementarities across sectors. [ABSTRACT FROM AUTHOR]

This paper presents estimates of the New Keynesian Phillips Curve (NKPC) for the agriculture, manufacturing and services sectors of Pakistan's economy. The real marginal cost—derived from dynamic translog cost function—labour share of income and output gap are the indicators of economic activity along with past and expected inflation to determine inflation dynamics in each sector. The estimates of the structural parameters of the NKPC are consistent with economic theory in most of the models. Within-sample forecast performance and diagnostic tests indicate that the derived measure of real marginal cost performs better relative to the specifications with labour share of income or output gap. Further, the NKPC based on restrictive Cobb–Douglas production technology with labour input only does not perform better than the models that considers more inputs and intermediate cost. Our results show that the manufacturing is forward-looking sector followed by services and agriculture sectors. [ABSTRACT FROM AUTHOR]

It has been previously documented that the Hodrick–Prescott (HP) filter exhibits real-time instability such that the estimates of trend and cycle components from an aggregate time series are revised both as more data become available and previously available data are revised. An alternative to the HP filter has recently been suggested by Hamilton (Rev Econ Stat 100(5):831–843, 2018). The current article investigates and compares the HP and the Hamilton filters with respect to real-time stability in US GDP gap estimation. The results reveal that the Hamilton filter outperforms the HP filter when it comes to real-time revisions. The source of the inferior performance of the HP filter is found to be the fact that component estimates close to the end of the sample are revised to a large extent for the HP filter even when only a few more data points are added to the sample. [ABSTRACT FROM AUTHOR]

This paper uses a structural near-VAR to examine the effect of monetary shocks on industry-level job creation and job destruction. I find asymmetry in the job flows' responses to a positive monetary shock for disaggregated industries in the manufacturing, mining and services sectors. These findings indicate that monetary shocks trigger changes in job reallocation and point that monetary policy has important allocative effects. Yet, a test for the absence of job reallocation reveals that monetary shocks have a significant effect on job reallocation for a limited number of industries within these sectors. Moreover, this effect becomes largely insignificant after accounting for data mining. [ABSTRACT FROM AUTHOR]

This paper evaluates the impact of housing market spillovers on a small open economy, namely South Africa, using a small open economy new Keynesian dynamic stochastic general equilibrium model which explicitly incorporates a housing sector. Using quarterly data covering the period of 1971:Q1–2015:Q3, we obtain the following set of results: (a) over the business cycle, the housing preference shock and the technology shock in the consumption sector drive most of the fluctuations of real house price; (b) the spillover effects of the housing market to the boarder economy are not negligible; (c) the central bank of South Africa has actively responded to house price movements over the past 45 years; and (d) the flexible exchange rate policy has helped South Africa maintain the macroeconomic stability to a large extent. [ABSTRACT FROM AUTHOR]

In this paper, we map the growth cycle synchronization across the European Union, specifically focusing on the position of the Visegrad Four countries. We study the synchronization using frequency and time–frequency domain. To accommodate for dynamic relationships among the countries, we propose a wavelet cohesion measure with time-varying weights. Analyzing quarterly data from 1995 to 2017, we show an increasing co-movement of the Visegrad Four countries with the European Union after the countries have accessed the European Union. We show that participation in a currency union increases the co-movement of the country adopting the Euro. Furthermore, we find a high degree of synchronization at business cycle frequencies of the Visegrad Four and countries of the European monetary union. [ABSTRACT FROM AUTHOR]

This paper develops a methodology to investigate which shocks drive asynchrony of business cycles. It unites two strands of literature, those on common features and on structural VAR analysis. In particular, a lack of a common cycle between two GDPs can be traced back to at least one shock with non-collinear structural impulse responses. We apply a Wald test to the collinearity hypothesis. Empirical results on the eurozone reveal that differences in the business cycles in several peripheral countries compared to a eurozone core are triggered mainly by local shocks. Depending on the country, real or nominal shocks turn out to play a more important role. [ABSTRACT FROM AUTHOR]

Evidence in favour of the ability of the term spread to forecast economic growth of the South African economy is non-existent. This could be due to the term spread aggregating information contained in the expected spread and the term premium. To decompose the term spread into its subcomponents, we develop an estimable small open economy new Keynesian dynamic stochastic general equilibrium (SOENKDSGE) model of the inflation targeting South African economy. The SOENKDSGE model is estimated with Bayesian methods over the quarterly period of 2000:01–2014:04. We then use a linear predictive regression framework to analyse the out-of-sample forecasting ability of the aggregate term spread, as well as the expected spread and term premium. Our forecasting results fail to detect forecasting gains from the aggregate term spread and also the term premium, but the expected spread is found to contain important information in forecasting output growth over short- to medium-run horizons, over the period of 2004:01–2014:04, using an in-sample period of 2000:01–2003:04. The results therefore highlight the importance of the forward-looking component of the term spread—the expected spread—in forecasting the output growth of South Africa. [ABSTRACT FROM AUTHOR]

I generalize the New Keynesian Phillips Curve model of Galí and Gertler (J Monet Econ 44:195–222, 1999) to allow for time-varying parameters. The parameter of interest measures the trade-off between inflation and real economic activity, and it is particularly a nonlinear function of three underlying structural parameters: the discount factor, the degree of price rigidity and the strength of backward-looking behavior or information diffusion. The empirical results show that the estimated parameter of output-inflation trade-off is time varying and is larger in high inflation periods. Specifically, the time-variation of the trade-off between inflation and economic activity stems from the degree of price rigidity, which is negatively correlated with inflation. Moreover, the forward-looking price-setting behavior plays a dominant role in explaining inflation dynamics for most part of the sample period. [ABSTRACT FROM AUTHOR]

This study examines the impact of asymmetric oil price shocks on economic activity in selected 13 Asian economies, namely Bangladesh, China, Hong Kong, India, Indonesia, Japan, South Korea, Malaysia, Pakistan, the Philippines, Singapore, Sri Lanka and Thailand by employing nonlinear autoregressive distributed lag approach over the period 1980Q1–2014Q2. Our results provide no evidence of a long-run relationship between positive and negative oil price changes and economic activity in Bangladesh, China, India, Pakistan, the Philippines, Singapore, Sri Lanka and Thailand. In the short run, real GDP responds symmetrically to positive and negative oil price changes in China, South Korea, Malaysia, Pakistan, the Philippines, Singapore, Sri Lanka and Thailand, while it behaves asymmetrically to oil price shocks in Bangladesh, Hong Kong, India, Indonesia and Japan. However, no long-run asymmetry in oil price changes and economic activity was detected in all the countries. The impulse response analysis reveals that oil price shocks have limited asymmetric effects on GDP growth in Bangladesh, Indonesia, Japan, Malaysia, Pakistan and Singapore, while oil price shocks have symmetric impact on the GDP growth in India, South Korea, the Philippines, Sri Lanka and Thailand. It is also observed that the impact of oil price shocks is relatively higher in Bangladesh, China, Indonesia, Malaysia and Pakistan than Hong Kong, Japan, South Korea and Singapore. In case of India, the Philippines, Sri Lanka and Thailand, the impact of oil price shocks is similar to that of Hong Kong, Japan, South Korea and Singapore. [ABSTRACT FROM AUTHOR]

After the onset of the financial crisis, consumption fell in many economies. This paper presents a small-scale DSGE model with occasionally binding credit constraints. Indebted households start facing credit constraints when the value of their main asset, housing, declines. As a response, they stop smoothing consumption and start deleveraging. Even households that only expect to face a credit constraint in the future deleverage. Using the Irish Household Budget Survey, we show that most Irish households continued to smooth consumption during the crisis. However, for highly indebted consumption smoothing is disrupted during the crisis. Households with leverage close to but below the standard loan-to-value ratio of 85% also seem to smooth consumption less than normal households. This is rational if they expect a further house price decline and therefore anticipate the need to deleverage in the near future. We interpret these results as evidence of credit constraints that arise from falling property prices. [ABSTRACT FROM AUTHOR]

This paper provides an empirical evidence on the influence of oil price uncertainty on the real economic activity in Jordan and Turkey during the period 1986:01–2014:12. To measure the effect of uncertainty, the paper combines a bivariate structural VAR with a GARCH-in-mean process that allows oil volatility to affect the growth of industrial production. Our results indicate that oil market uncertainty has a negative influence on the industrial output of Jordan and Turkey. For instance, the increase in one standard error of oil price uncertainty is found to be associated with a decline of 0.81 and 1.01% in the industrial production of Jordan and Turkey, respectively. Moreover, consistent with the recent empirical evidence, we find that output growth increases/decreases after a negative/positive oil price shock. These results imply that sound energy policies that mitigate the effect of oil market uncertainty may help in stabilizing output in both countries. [ABSTRACT FROM AUTHOR]

A key question in development economics is why developing countries as a collective group experience so much growth volatility. This paper introduces a new technique to measure medium-term macroeconomic volatility that is defined by the trend-growth volatility of output. It shows that medium-term volatility, σMT2, can be derived by subtracting the average short-term volatility, 1/n∑jnσSj2, from the total variance of output growth, σLT2. Applying this new measure to the World Bank's output data reveals an inverted-U shaped relationship between medium-term volatility and economic development, indicating that economic development is likely to increase trend-growth volatility for emerging low-income countries. [ABSTRACT FROM AUTHOR]

This paper aims at constructing potential output and output gap measures for the UK which are pinned down by macroeconomic relationships as well as financial indicators. The exercise is based on a parsimonious unobserved components model which is estimated via Bayesian methods where the time-paths of unobserved variables are extracted with the Kalman filter. The resulting measures track current narratives on macroeconomic cycles and trends in the UK reasonably well. The inclusion of summary indicators of financial conditions leads to a more optimistic view on the path of UK potential output after the crisis and adds value to the model via improving its real-time performance. The models augmented with financial conditions have some real-time wage inflation forecasting ability over the monetary policy-relevant 2- to 3-year horizon during the last 15 years. Finally, we also introduce a new approach to construct financial conditions indices, with emphasis on their real-time performance and ability to track the evolution of macro-financial imbalances. Our results can be relevant from both monetary and macro-prudential policy perspectives. [ABSTRACT FROM AUTHOR]

The paper empirically investigated the relationship between remittance flows and output growth volatility for an extensive sample predominated by emerging and developing countries. Following this broad treatment, it goes further to estimate the extent to which the degree of financial development (FD) impacts on the remittances-growth volatility nexus. This novelty distinguishes the work from previous studies. Using the system-generalized method of moments estimator, which corrects for endogenity and omitted variable concerns, on data spanning the period 1996-2012 for a total of 71 countries some interesting findings ensued. One, both remittances and FD had growth volatility dampening effects. Two, the interaction between proxies for FD and remittances produced mixed results. Three, when volatility of FD is accounted for, the interactive term had mixed results. For instance, banking sector credit produces positive and insignificant coefficients, while private sector produced significant and negative coefficients. Summarily putting these results in other words, the counter-cyclicality of remittances was established, while the complementary dampening effect of financial development is dependent upon its measure. On the basis of the foregoing, a few related policy lessons are documented to conclude the paper. [ABSTRACT FROM AUTHOR]

Although there are several mechanisms within theoretical models acknowledging that supply shocks can account for an important part of output fluctuations, even in the short-run, policy practitioners continue endorsing the idea that only demand shocks explain them. This article provides empirical evidence on several Latin American countries and the USA to show that the share of output variance explained by supply shocks in the short-run is substantial. It also offers a more agnostic implementation of the Blanchard-Quah type of structural analysis that focuses on policy evaluation. For this purpose, we propose constructing two indicators out of the historical decomposition of shocks: the goods market unbalance (GMU) and the total cyclical fluctuations (TCF). While GMU is an excess demand measurement that reveals the scope of the distortions caused by shocks, TCF, combined with GMU, helps to understand what type of shock is predominantly explaining (output and inflation) fluctuations. These two pieces of information provide a very different diagnosis than traditional output gaps and should guide monetary policy interventions more adequately. The agnosticism of this proposal has two aspects: the use of a different identification strategy and the assessment of the effects of both supply and demand shocks on output. [ABSTRACT FROM AUTHOR]

The paper analyzes economic stabilization in Brazil in the context of a New Keynesian model estimated with Bayesian techniques. Dataset covers the period 1975-2012. Our methodology is based on tests for multiple structural breaks at unknown dates and counterfactual exercises. The results show that inflation and output volatility present an inverted U-shape pattern, peaking at the 1985-1994 sample. Changes in the monetary policy stance and milder shocks accounted for the reduced inflationary volatility (about 50% each, in some specifications). However, some assumptions indicated that a sharp decline in the Phillips curve slope was also important for controlling inflation. Concerning to output, the sole explanation for its volatility fall seemed to be smaller shocks. Therefore, we conclude that a mix of the “good luck” and “good policy” hypotheses mainly originated the current period of increased stability in the country. [ABSTRACT FROM AUTHOR]

The concept of the natural or equilibrium rate of interest has attracted a lot of attention from monetary policymakers in recent years. Most attempts to estimate the natural rate use a closed-economy framework. We argue that in the face of greater integration of global product and capital markets, an open economy framework is more appropriate. We provide some initial estimates of the natural rate for the USA and Japan in a two-country framework. Our identifying assumptions include a close relationship between the time-varying natural rate of interest and the low-frequency fluctuations of potential output growth in both the home country and the foreign country. Our results suggest that the natural rates in both countries are mainly determined by their own trend growth rates of potential output. Nevertheless, the other country’s trend growth plays an important role in several specific periods. The gap between the actual real interest rate and our estimated natural rate offers valuable insights into the recent stance of monetary policy in both of these two countries. [ABSTRACT FROM AUTHOR]

We analyze six relevant economic and financial variables for the period 2000M1-2015M3 in the context of the Spanish economy: a financial index (IBEX35), a commodity (crude oil price in euros), a foreign exchange index (EUR/USD), a bond (Spanish 10-year bond), the Spanish national debt and the consumer price index. The goal of this paper is to analyze the main relationships between them by computing, using a special toolbox in MATLAB, the wavelet power spectrum and the cross-wavelet coherency associated with Morlet wavelets, focusing our interest on the period variable. We decompose the time-frequency effects and improve the interpretation of the results by non-expert users in the theory of wavelets. This yields empirical evidence on instability periods and reveals various changes and breaks in the causality relationships for the data available from recent years. Moreover, we introduce a comparison with Gaussian wavelets and use the MATLAB software suite for computing, taking the scale instead of the period as the reference variable. These same variables were analyzed individually in a previous paper that specifically considered the decomposition of non-stationary monthly rate series in the period 2000M1-2014M12 using Daubechies wavelets db8 to visualize high frequency variance, seasonality and trend. [ABSTRACT FROM AUTHOR]

Ever since the end of the Great Recession, the US economy has experienced a period of mild inflation, which contradicts with the output-inflation relationship depicted by a traditional Phillips curve. This paper examines how the permanent output loss during the Great Recession has affected the ability of the Phillips curve to explain US inflation dynamics. We find great similarity among several established trend-cycle decomposition methods: potential output declined substantially after the Great Recession. Due to the fact that a lower level of potential output implies a lesser deflationary pressure, we then show that the Phillips curve does predict a period of mild inflation. This finding is largely consistent with the observed data. [ABSTRACT FROM AUTHOR]

We study the forecasting performance of three alternative large data forecasting approaches. These three approaches handle the dimensionality problem evoked by a large dataset by compressing its informational content, yet at different stages of the forecasting process. We consider different factor models, a large Bayesian vector autoregression and model averaging techniques, where the data compression takes place before, during and after the estimation of the respective forecasting models. We use a quarterly dataset for Germany that consists of 123 variables and find that overall the large Bayesian vector autoregression and the Bayesian factor augmented vector autoregression provide the most precise forecasts for a set of 11 core macroeconomic variables. Further, we find that the performance of these two models is very robust to the exact specification of the forecasting model. [ABSTRACT FROM AUTHOR]

This paper develops a New Keynesian model featured with financial frictions in the form of an exogenous credit constraint to explore the employment and output effects of financial shocks. I show that the equity payout adjustment costs are crucial for the transmission mechanism of financial shocks. The model is estimated using the Bayesian methods and simulated using the observed exogenous shocks for two periods, 1954:III-1983:IV and 1984:I-2015:I. Overall, it is found that financial shocks can account for the observed dynamics of employment and output, especially the sharp decreases during the Great Recession 2007-2008. Additionally, the financial shock is the third and second biggest contributor to output and employment variations, respectively, in the earlier period, but it turns out to be the main source of employment and output fluctuations in the later period. I find that firms are faced higher equity payout adjustment costs in the period 1984:I-2015:I, which accounts for greater variations in the equity payouts in the period. [ABSTRACT FROM AUTHOR]

The aim of this paper is to determine whether the propagation and transmission mechanism of Malaysian monetary policy differed during the Asian Financial Crisis of 1997/1998 and the Global Financial Crisis of 2007/2008. The methodology employs a time-varying vector autoregression framework. The primary result is that despite having no evidence of time-variation within the propagation mechanism of Malaysian monetary policy the average contribution of a monetary policy shock to the variability of each macroeconomic variable: real GDP, inflation and the nominal effective exchange rate, differs between the two crises. This finding suggests that despite the propagation mechanism being relatively constant, Malaysia’s monetary policy transmission mechanism evolves over time. We believe that the main mechanism driving this evolution is the time-variation in the variance-covariance matrix of the shocks of the model, not the coefficients. We also find some evidence that the implementation of capital controls reduced the influenceability of monetary policy on the Malaysian economy. [ABSTRACT FROM AUTHOR]

It is commonly believed that public investments play a central role in Japan’s discretionary fiscal policies, but the majority is implemented by local governments. After distinguishing between public investment by the central government and that by local governments, this paper utilizes wavelet techniques to examine macroeconomic policy coordination between Japanese central and local governments. We demonstrate that local government investments fail to coordinate with central government investments during the lost two decades, and such a coordination failure is a one-time phenomenon in nearly a half-century. In this period, local government investments exhibit no countercyclical behavior to business cycles, which is contributory to the ineffectiveness of fiscal stimulus that is pointed out by our predecessors. [ABSTRACT FROM AUTHOR]

In this paper, we review the Lucas hypothesis that the impact on real output to unanticipated nominal shocks is inversely related across countries to the variability of such shocks. In doing so, we model money supply volatility explicitly to capture important volatility effects that previous work has ignored. Using postwar data from 39 countries, we find empirical evidence in favor of the hypothesis. Our results are robust to data mining, alternative data frequencies, alternative measures of nominal shocks and monetary policy instruments, and alternative measures of the level of economic activity. [ABSTRACT FROM AUTHOR]

Under a currency board, the central bank relinquishes control over its monetary policy and domestic interest rates converge towards the foreign rates. Nevertheless, a spread between both usually remains. This spread can be persistently positive due to elevated risk in the economy. This paper models that feature by building a DSGE model with a currency board, where the domestic interest rate is endogenously derived as a function of the foreign rate, the external debt position and an exogenous risk premium component. Time variation in the volatility of the risk premium component is then modelled via a Markov-switching component. Estimating the model with Bayesian methods and Estonian data shows that the economy does not react much to shocks to domestic interest rates in quiet times but is much more sensitive during crises, and matches the financial and banking crises, which cannot be captured by the standard DSGE model. [ABSTRACT FROM AUTHOR]

In this paper, we investigate whether there are benefits in disaggregating GDP into its components when nowcasting GDP. To answer this question, we conduct a realistic out-of-sample experiment that deals with the most prominent problems in short-term forecasting: mixed frequencies, ragged-edge data, asynchronous data releases and a large set of potential information. We compare a direct leading indicator-based GDP forecast with two bottom-up procedures—that is, forecasting GDP components from the production side or from the demand side. Generally, we find that the direct forecast performs relatively well. Among the disaggregated procedures, the production side seems to be better suited than the demand side to form a disaggregated GDP nowcast. [ABSTRACT FROM AUTHOR]

US inflation and output developments since the 1970s are considered using the P-star model and the VAR-based Diebold–Yilmaz spillover index approach. Shocks to monetary variables explain a substantial share of US GDP deflator inflation shocks over time, particularly in the late 1980s and early 1990s but also in recent years, a time when quantitative easing was employed by the Federal Reserve. Monetary factors, and not oil shocks, underlie price developments in the 1970s and early 1980s. Monetary shocks’ influence on oil prices has become noticeably stronger over the past ten years or so, supporting the greater attention being paid of late to the impact of the monetary environment on commodity markets. Shocks to the velocity-of-money variable affect output developments, with the exception of the 1970s and early 1980s when inflation shocks and, to a lesser extent, oil inflation shocks dominate the cross-variance share of output gap shocks. After the Volcker disinflation, the influence of both inflation and oil price shocks on the output gap wane and those of velocity gap shocks increase. [ABSTRACT FROM AUTHOR]

This paper investigates the responses of house prices and household credit to monetary policy shocks in Norway, using Bayesian structural VAR models. The analysis indicates that the effect of a monetary policy shock on house prices is large, while the effect on household credit is muted. This is consistent with a relatively small refinancing rate (refinancing rate refers to the share of outstanding mortgages that are refinanced each period due to changes in, for example, house prices or interest rate) of the mortgage stock each quarter. Using monetary policy to guard against financial instability by mitigating property-price movements may prove effective, but trying to mitigate household credit may prove costly in terms of GDP and inflation variation. [ABSTRACT FROM AUTHOR]

This paper empirically investigates US fiscal policy sustainability and cyclicality in an empirical structure that allows fiscal policy responses to exhibit asymmetric behavior. We investigate this over two quarterly intervals, both of which begin in 1955:1. The short sample ends in 1995:2 and is most similar to the one used by Bohn (Q J Econ 113:949-963, 1998), whereas the full sample ends in 2013:3. Our estimation results show that the full sample period is sufficiently different from the short sample period, that the asymmetric (nonlinear) empirical models used in this paper are important and that the sustainability of US government debt topic needed to be revisited. Indeed, the short sample provides evidence of fiscal policy sustainability in line with Bohn's (1998) findings. However, when considering the full sample, US fiscal policy is found sustainable during good economic times only according to the best fitting nonlinear model, but unsustainable for all specifications studied during times of distress. With regard to cyclicality, both samples show policy is asymmetric. Moreover, both samples show countercyclical policy during times of distress and the full sample results show some evidence that policy may be procyclical during good economic times. [ABSTRACT FROM AUTHOR]

The current paper extends previous results on Hodrick-Prescott (HP) filtering and shows that it is possible to implement the judgement-augmented, or restricted, HP filter within the state-space framework. The implementation entails augmenting the vector of measurements and altering one of the system matrices of the state-space model for the HP filter. Restrictions can thereby be incorporated in the HP filter, making, e.g., estimation more accessible. An application to US GDP gap estimation illustrates how the restricted filter could be usefully applied in an empirical macroeconomic setting. [ABSTRACT FROM AUTHOR]

This paper seeks to identify evidence of regime-switching behaviour in the monetary policy response function and the variance of the shocks. It makes use of various specifications of a small open-economy Markov-switching dynamic stochastic general equilibrium model that is applied to South African data from 1989 to 2014. While the in-sample statistics suggest that some of the regime-switching models may provide superior results, the out-of-sample statistics suggest that the inclusion of various forms of regime-switching does not significantly improve upon the forecasting performance of the model. The results also suggest that the central bank response function has been consistently applied over the sample period. [ABSTRACT FROM AUTHOR]

This paper investigates the housing price-volume nexus based on different levels of liquidity for the US new one-family housing market over the period between January 1963 and November 2009. We mainly analyze the differential responses of trading volumes to housing price changes (denoted as price elasticity), employing a quantile cointegrating approach that allows us to capture housing boom-bust cycles earlier. In addition, we also explore the long-term impacts of monetary policies on housing sales. According to our findings, the price elasticities perform differently across the booms and busts of housing markets. Shifts in price elasticities can transmit signals of oncoming upturns, recovery, and downturns of housing cycles, which possibly relate to the business cycle. On the other hand, a contractionary monetary policy exerts a much effective control over an overheated housing market, but an expansionary monetary policy has a relatively small influence on stimulating a depressed housing market. Our findings offer some important suggestions and policy implications. [ABSTRACT FROM AUTHOR]

This study empirically examines the impact of credit guarantees for small and medium enterprises (SMEs) on the business cycle in Korea, using quarterly time series data over the period 2002-2012. Credit guarantees are denoted by the total amount of credit guarantees provided by three authorities in Korea, and the business cycle consists of two volatilities, that is, real GDP per capita and industrial product index. We used Toda and Yamamoto Granger causality test and autoregressive distributed lag (ARDL) bounds test approach to examine the existence of cointegration and to find out the short-run and long-run relationship between credit guarantees and business cycle. The ARDL bounds testing approach has an advantage that it can be used when I (0) and I (1) variables are mixed. Based on the ARDL bounds test approach, we find that credit guarantees for SMEs mitigate business cycle fluctuations in the short run, but find no significant effects in the long run. [ABSTRACT FROM AUTHOR]

This article proposes a new multivariate method to construct business cycle indicators. The method is based on a decomposition into trend-cycle and irregular. To derive the cycle, a band-pass filter is applied to the estimated trend-cycle. The whole procedure is fully model based. Its performance is evaluated in relation to the approach by Creal et al. (J Appl Econom 25:695-719, 2010). Using the same set of monthly and quarterly US time series as in Creal et al. two monthly business cycle indicators are obtained for the US. They are represented by the cycles of real GDP and the industrial production index. Both indicators can reproduce previous recessions very well. Series contributing to the construction of both indicators are allowed to be leading, lagging, or coincident relative to the business cycle. Their behavior is assessed by means of spectral concepts after cycle estimation. The proposed method can serve as an attractive tool for policy making, in particular due to its good forecasting performance and quite simple setting without elaborate mechanisms that account for, e.g., volatility changes. [ABSTRACT FROM AUTHOR]

Gibbs sampling for Bayesian VAR with mixed-frequency series draws latent high-frequency series and model parameters sequentially. Applying the multivariate Beveridge-Nelson (B-N) decomposition in each Gibbs step, one can simulate the joint posterior distribution of the B-N permanent and transitory components in latent and observable high-frequency series. This paper applies the method to mixed-frequency series of macroeconomic variables including quarterly real GDP to estimate the monthly natural rates and gaps of output, inflation, interest, and unemployment jointly. The resulting monthly real GDP and GDP gap are complementary coincident indices, measuring classical and deviation cycles, respectively. [ABSTRACT FROM AUTHOR]

In this paper we build forecasts for Chilean year-on-year inflation using both multivariate and univariate time series models augmented with different measures of international inflation. We consider two versions of international inflation factors. The first version is built using year-on-year inflation of 18 Latin American countries (excluding Chile). The second version is built using year-on-year inflation of 30 OECD countries (excluding Chile). We show sound in-sample and pseudo out-of-sample evidence indicating that these international factors do help forecast Chilean inflation at several horizons by reducing the root-mean squared prediction error of our benchmarks models. Our results are robust to a number of sensitivity analyses. Several transmission channels from international to domestic inflation are also discussed. Finally, we provide some comments about the implications of our findings for the conduction of domestic monetary policy. [ABSTRACT FROM AUTHOR]

This paper examines the importance of house prices on the US business cycle since the mid-1970s. The point of departure is to construct and estimate a baseline Markov-switching common factor model in which the co-movement of several individual economic series and the inherently different behavior of the economy across expansion/recession phases are accommodated. The importance of house price variables is then evaluated by comparing the results of the baseline model and those of the extended models that have been augmented with the house price variables. Two strands of extended models are considered: one in which house prices directly affect the individual macroeconomic series (and thereby the business cycle) and another in which house prices affect the probabilities of transitions between expansion/recession phases. The results for the first extension support that only house price decreases have nontrivial effects on the movements in macroindicators (and consequently on the business cycle), while house price increases do not. In the second extension, we find strong evidence that changes in house prices significantly affect the transition of the US economy between the recession-expansion phases. It is also reaffirmed that the influence of house price decreases is more important than that of the increases. Finally, the above results are generally robust to using a different data frequency, a subsample of the data excluding the recent episode of housing boom-bust, replacing house price with housing permits, and incorporating financial variables as additional driver of the business cycle. [ABSTRACT FROM AUTHOR]

This paper adopts a flexible framework to assess both short- and long-run business cycle linkages between the Latin American (LA) bloc and the four largest economies in the world (namely the US, the Euro area, Japan and China) over the period 1980:I-2011:IV. The result indicates that the LA region is largely dependent on external developments, especially in the years after the great recession of 2008 and 2009. The trade channel appears to be the most important source of business cycle co-movement, whilst capital flows are found to have a limited role, especially in the very short run. [ABSTRACT FROM AUTHOR]

This paper aims to shed light on the characteristics and particularly the determinants of credit-less recoveries. After documenting some stylised facts of credit-less recoveries in emerging market economies, this paper uses panel probit models to analyse key determinants of credit-less recoveries. Our main findings are the following. First, our frequency analysis shows that credit-less recoveries are not unusual. Moreover, the frequency of credit-less recoveries doubles after a banking or currency crisis. Second, results from estimated panel probit models suggest that credit-less recoveries are typically preceded by large declines in economic activity and by financial stress, in particular if private sector indebtedness is high and the country is reliant of foreign capital inflows. Finally, our model performs well in predicting the credit-less recoveries experienced by emerging market economies in recent years. [ABSTRACT FROM AUTHOR]

Studies show that the relationship between openness and output volatility is theoretically ambiguous, but most of these studies provide an empirical estimation for this relationship. This paper investigates the impact of trade openness on output volatility, and how this impact may be affected by the country's level of development. We use a panel dataset for 33 countries for the years of 1980 through 2009. A standard deviation of quarterly real GDP over a 5-year span is used as the dependent variable. Controlling for the country and period-specific effects, the main results are as follows: trade openness increases the output volatility. And, the output volatility of countries with a higher level of development is less affected by trade openness. [ABSTRACT FROM AUTHOR]