taming macroeconomic instability monetary and macro prudential policy interactions in an agent based model abstract we develop an agent based model to study the macroeconomic impact of alternative macro prudential regulations and their possible interactions with different monetary policy rules the aim is to shed light on the most appropriate policy mix to achieve the resilience of the banking sector and foster macroeconomic stability simulation results show that a triple mandate taylor rule focused on output gap inflation and credit growth and a basel iii prudential regulation is the best policy mix to improve the stability of the banking sector and smooth output fluctuations moreover we consider the different levers of basel iii and their combinations we find that minimum capital requirements and counter cyclical capital buffers allow to achieve results close to the basel iii first best with a much more simplified regulatory framework finally the components of basel iii are non additive the inclusion of an additional lever does not always improve the performance of the macro prudential regulation

estimating permanent income and wealth of the us farm households farm households are unique in the way they derive income when compared to nonfarm households farm operators and spouses have dual income sources from farm and off farm activities further farm households on an average possess higher wealth than nonfarm households this article estimates permanent income for the us farm households using data from a large national farm level survey the estimated income is then used to identify the determinants of wealth accumulation by the us farm households results confirm that permanent income is closely related to age of the operator education occupation farm size location and number of earners in the household along with age permanent income is a significant determinant of household wealth it was also found that the wealth income curve is nonlinear upward sloping and convex hausman s specification test indicates that variations in farm household wealth is better explained by estimated permanent income than observed total household income off farm income

stochastic convergence in per capita fossil fuel consumption in u s states abstract this study examines the stochastic convergence of per capita fossil fuel consumption across u s states including the district of columbia utilizing lm and rals lm unit root tests with allowance for endogenously determined structural breaks our results indicate that with the exception of nevada the evidence from two break and one break lm and rals lm unit root tests rejects the null hypothesis of a unit root in the relative per capita fossil fuel consumption in the u s this finding indicates the presence of stochastic convergence in relative per capita fossil fuel consumption in the u s states

inflation announcements and social dynamics this paper investigates the eectiveness of central bank communication when rms have heterogeneous ination expectations that are updated through social dynamics the bank s credibility evolves with these dynamics and determines how well its announcements anchor expectations we show that trying to eliminate high ination by abruptly introducing a low ination target can lead to short term overshooting

on the role of small models in macrodynamics abstract this paper focuses on the role of small models in macrodynamics it discusses the insights that i believe these models offer and the extent to which they can address some of the complex issues such as heterogeneity and interactions among agents that are receiving increasing attention in the literature i comment on what i view to be the most productive role for numerical simulations and finally offer some brief comments in defense of the state of modern macroeconomic theory in light of the criticism it has received as a result of the recent financial crisis

conditional convergence in australia s energy consumption at the sector level abstract we examine the convergence of energy consumption per capita at the sector level in australia over the period 1973 74 to 2013 14 to do so we employ recently developed lm and rals lm unit root tests that accommodate up to two endogenously determined structural breaks we find support for energy consumption per capita convergence for six of seven sectors in australia

food versus fuel an updated and expanded evidence abstract this paper replicates the study of zhang et al 2010 food versus fuel what do prices tell us energy policy 38 pp 445 451 we confirm the findings of the original paper that there was only a weak relationship between ethanol and food commodities in the period between march 1989 and july 2008 in addition we extend that study and examine the cointegration relationship between biofuels and related commodities for a considerably enlarged dataset 3 vs 1 market 26 vs 8 commodities analysis up till 2017 vs 2008 weekly vs monthly data frequency focusing on the biofuel markets of brazil the eu and the usa in the three separate periods before during and after the food crisis of 2007 and 2008 we show that studying the time variation of the relationships plays an essential role in their proper understanding our results help to clarify the wide extensive discussion about the role of biofuels prices in food shortages manifested particularly during the food crises in agreement with the original study we confirm that price series data do not support strong statements about biofuels uniformly serving as main leading source of high food prices and consequently the food shortages

co2 emissions energy consumption and economic growth in bric countries abstract this paper examines dynamic causal relationships between pollutant emissions energy consumption and output for a panel of bric countries over the period 1971 2005 except for russia 1990 2005 in long run equilibrium energy consumption has a positive and statistically significant impact on emissions while real output exhibits the inverted u shape pattern associated with the environmental kuznets curve ekc hypothesis with the threshold income of 5 393 in logarithms in the short term changes in emissions are driven mostly by the error correction term and short term energy consumption shocks as opposed to short term output shocks for each country short term deviations from the long term equilibrium take from 0 770 years russia to 5 848 years brazil to correct the panel causality results indicate there are energy consumption emissions bidirectional strong causality and energy consumption output bidirectional long run causality along with unidirectional both strong and short run causalities from emissions and energy consumption respectively to output overall in order to reduce emissions and not to adversely affect economic growth increasing both energy supply investment and energy efficiency and stepping up energy conservation policies to reduce unnecessary wastage of energy can be initiated for energy dependent bric countries

are outcomes driving expectations or the other way around an i 2 cvar analysis of interest rate expectations in the dollar pound market abstract this paper uses consensus forecasts to address empirical puzzles in international macro using the cointegrated var model the data consisting of three month libor rates their three month ahead forecasts prices and exchange rates for the us and uk were all found to be near i 2 consistent with imperfect knowledge expectations the i 2 analysis showed that over the medium run the nominal exchange rate has moved away from equilibrium values with interest rates following suit whereas over the long run the nominal exchange rate was adjusting while the interest rate forecasts pushed the system away from steady state evidence of self reinforcing feedback mechanisms in the system signals the importance of speculative bubbles for the determination of the exchange rate and the interest rates

stochastic divergence or convergence of per capita carbon dioxide emissions re examining the evidence this paper revisits the time series literature on the convergence of per capita carbon dioxide co2 emissions and examines the robustness of previous results using a sample of oecd countries for the period 1950 2002 we employ a battery of stationarity and unit root tests including those that allow for cross sectional dependencies within the panel we also correct for inaccuracies in previous studies that could result in a trend stationary series being labelled as converging even if it were actually diverging from the international average the body of evidence provided by our analysis suggests that per capita co2 emissions have not converged among oecd countries during the period under consideration this finding is of importance to both climate change policy makers and to those who construct climate change models

fiscal and monetary policies in complex evolving economies what is the most appropriate combination of fiscal and monetary policies in economies subject to banking crises and deep recessions we study this issue using an agent based model that is able to reproduce a wide array of macro and micro empirical regularities simulation results suggest that policy mixes associating unconstrained counter cyclical fiscal policy and monetary policy targeting employment is required to stabilise the economy we also show that discipline guided fiscal rules can be self defeating as they depress the economy without improving public finances finally we find that the effects of monetary and fiscal policies become sharper as the level of income inequality increases

beyond dsge models toward an empirically based macroeconomics david colander has been writing about economic methodology for over 30 years but he goes out of his way to emphasize that he does not see himself as a methodologist his pragmatic methodology is applicable to what economists are doing and attempts to answer questions that all economists face as they go about their work the articles collected in this volume are divided with the first part providing a framework underlying colander s methodology and introducing colander s methodology for economic policy within that framework part two presents colander s view on the methodology for microeconomics while part three looks at colander s methodology for macroeconomics the book closes with discussions of broader issues this abstract was borrowed from another version of this item

time to reject the privileging of economic theory over empirical evidence a reply to lawson the present financial and economic crisis has revealed a systemic failure of academic economics and emphasized the need to re think how to model economic phenomena lawson 2009 seems concerned that critics of standard models now will fill academic journals with contributions that make the same methodological mistakes albeit in slightly different guise in particular he is rather sceptical to use of mathematical statistical models such as the cvar approach as a way of learning about economic mechanisms in this paper i discuss whether this is a relevant claim and argue that it is likely to be based on a misunderstanding of what a proper statistical analysis is and can offer in particular i argue that the strong evidence of near unit roots and structural breaks in economic variables suggests that standard economic models need to be modified or changed to incorporate these strong features of the data furthermore i argue that a strong empirical methodology that allows data to speak freely about economic mechanisms such as the cvar would ensure that important information in the data is not over heard when needed adequately applied such models would provide us with an early warnings system signalling that the economy is moving seriously out of equilibrium

convergence in per capita energy use among oecd countries abstract unlike previous studies which mainly focus on the integration properties of energy consumption and production this study examines the convergence of per capita energy use among 25 oecd countries over the period 1960 to 2010 in particular newly developed lm and rals lm unit root tests with allowance for two endogenously determined structural breaks are employed the results indicate significant support for per capita energy use convergence among oecd countries

what is this school called neoclassical economics what is this school called neoclassical economics does it exist should it where does the term neoclassical economics come from and is there any connection between any of the current interpretations of the term and its original meaning how do we make sense of competing current interpretations is there a sustainable formulation these and related questions are raised and answered in an attempt to bring clarity to ongoing economic discussion and debate thereby to under labour for a more relevant academic economics discipline

club convergence in carbon dioxide emissions we examine convergence in carbon dioxide emissions among 128 countries for the period 1960 2003 by means of a new methodology introduced by phillips and sul econometrica 75 6 1771 1855 2007a contrary to previous studies our approach allows us to examine for evidence of club convergence i e identify groups of countries that converge to different equilibria our results suggest convergence in per capita co2 emissions among all the countries under scrutiny in the early years of our sample however there seem to be two separate convergence clubs in the recent era that converge to different steady states interestingly we also find evidence of transitioning between the two convergence clubs suggesting either a slow convergence between the two clubs or a tendency for some countries to move from one convergence club to the other

a method for taking models to the data abstract this paper develops a method for combining the power of a dynamic stochastic general equilibrium model with the flexibility of a vector autoregressive time series model to obtain a hybrid that can be taken directly to the data it estimates this hybrid model via maximum likelihood and uses the results to address a number of issues concerning the ability of a prototypical real business cycle model to explain movements in aggregate output and employment in the postwar us economy the stability of the real business cycle model s structural parameters and the performance of the hybrid model s out of sample forecasts

allowing the data to speak freely the macroeconometrics of the cointegrated vector autoregression all economists agree that reality is complex and that the tools with which we confront it are far simpler theorists sometimes deal with this gap by asking very little of the data start with the stylized facts and develop relatively sim ply theories to account for them unfortunately stylized facts are often too stylized to discrimi nate among plausible candidate theories or to provide a basis for accurate quantification alternative approaches start from the other end and ask much of the data one european tra dition which derives from trygve haavelmo s the probability approach in econometrics 119442 focuses on obtaining good character izations of data before testing and on drawing out the implications of data that ought to con strain economic theorizing the application of the cointegrated vector autoregression 1cvar2

the current economic crisis its nature and the course of academic economics the current crisis has triggered significant debate concerning economic theory and policy largely absent from this debate is an informed discussion of the methods used by economists in analysing the economy and formulating their proposals but method matters here i argue that current academic research practices need to be transformed before real insight can be achieved specifically i indicate why and how a more grounded framework than that presupposed by current research practices facilitates a potentially more fruitful approach to understanding the crisis

modeling macroeconomies as open ended dynamic systems of interacting agents uall models are wrong but some are useful g e p box 1979 macroeconomists seek to understand the structure and performance of economies at a national or regional level and the manner in which government policymakers attempt to influence this structure and performance over time such understanding would seem to require a systematic exploration of the intricate feedback loops connecting micro behaviors interaction patterns and macro regularities as observed in real world economies

investigating the environmental kuznets curve hypothesis in vietnam this study investigates the existence of the environmental kuznets curve ekc hypothesis in vietnam during the period 1981 2011 to realize the goals of this study a pollution model was established applying the autoregressive distributed lag ardl methodology the results revealed that the pollution haven hypothesis does exist in vietnam because capital increases pollution in addition imports also increase pollution which indicates that most of vietnam s imported products are energy intensive and highly polluted however exports have no effect on pollution which indicates that the level of exports is not significant enough to affect pollution moreover fossil fuel energy consumption increases pollution while renewable energy consumption has no significant effect in reducing pollution furthermore labor force reduces pollution since most of vietnam s labor force is in the agricultural and services sectors which are less energy intensive than the industrial sector based on the obtained results the ekc hypothesis does not exist because the relationship between gdp and pollution is positive in both the short and long run

per capita carbon dioxide emissions convergence or divergence understanding and considering the distribution of per capita carbon dioxide co2 emissions is important in designing international climate change proposals and incentives for participation i evaluate historic international emissions distributions and forecast future distributions to assess whether per capita emissions have been converging or will converge i find evidence of convergence among 23 member countries of the organisation for economic co operation and development oecd whereas emissions appear to be diverging for an 88 country global sample over 1960 2000 forecasts based on a markov chain transition matrix provide little evidence of future emissions convergence and indicate that emissions may diverge in the near term i also review the shortcomings of environmental kuznets curve regressions and structural models in characterizing future emissions distributions

animal spirits heterogeneous expectations and the amplification and duration of crises we introduce a simple equilibrium model of a market for loans households lend to firms and form expectations about their loan default probability under heterogeneous expectations with switching between forecasting strategies driven by reinforcement learning even a small fraction of pessimistic traders has a large aggregate effect causing a heterogeneous expectations risk premium i e significantly higher contract rates for loans and significantly lower output our stylized model illustrates how animal spirits and heterogeneous expectations may lead to aconfidence loss and to financial instability amplifying the magnitude of economic crises and slowing down recovery

convergence in carbon dioxide emissions among industrialised countries revisited this paper examines the existence of stochastic and deterministic convergence of carbon dioxide co2 emissions in 23 countries over the period 1960 2002 for that purpose we conduct unit root testing by employing the recently developed panel stationarity test of carrion i silvestre et al carrion i silvestre j l del barrio castro t lopez bazo e 2005 breaking the panels an application to the gdp per capita econometrics journal 8 159 175 which assumes a highly flexible trend function by incorporating an unknown number of structural breaks we accommodate general forms of cross sectional dependence as well as control for finite sample bias through bootstrap methods overall our analysis provides strong evidence supporting both stochastic and deterministic convergence in co2 emissions thus confirming strazicich and list strazicich m c list j a 2003 are co2 emission levels converging among industrial countries environmental and resource economics 24 263 271 and westerlund and basher westerlund j basher s a 2007 testing for convergence in carbon dioxide emissions using a century of panel data environmental and resource economics forthcoming findings of convergence

budgetary rigour with stimulus in lean times policy advices from an agent based model abstract the 2008 financial crisis and the subsequent global recession triggered a wide spread economic and political debate on the proper policy combination to deal with the crisis and to prevent similar ones in the future probably the main dispute has been around the use of fiscal instruments in order to foster growth while keeping public debt under control the european union for instance endorsed austerity measures for fiscal consolidation but has been sharply criticized by several scholars this paper aims at contributing to the current debate by presenting the outcomes of a computational study performed with the eurace agent based model we set up an experiment with two base policy scenarios i e stability and growth pact and fiscal compact incrementally enriching them with complementary policies which relax fiscal rigidity and introduce quantitative easing results show that budgetary rigour performs well if and only if some mechanisms of fiscal relaxation and monetary accommodation are considered during bad times thus confirming in a richer and more realistic model setting the fundamental tenet of keynesian economics about the importance of sustaining aggregate demand during recessions

convergence of per capita carbon dioxide emissions in the eu legend or reality abstract designing appropriate environmental and energy policies in order to meet the kyoto protocol s carbon dioxide co 2 reduction targets in the european union eu requires a detailed examination and thorough understanding of co 2 emission trends across the eu member states this paper investigates whether co 2 emissions have converged across 22 european countries over the 1971 to 2006 period the bayesian shrinkage estimation method is employed to do this work and the results reveal the following first the hypothesis of absolute convergence in per capita co 2 emissions is supported and a slight upward convergence is observed second the fact that countries differ considerably in both their speed of convergence and volatility in emissions makes it possible to identify different groups of countries third the results with respect to convergence do not vary much once the share of industry in gdp is accounted for in a conditional convergence analysis however a decreasing share of industry in gdp seems to contribute to a decline in per capita emissions these findings may carry important implications for both national and eu environmental policies

robbins on economic generalizations and reality in the light of modern econometrics this paper examines lionel robbins critical attitude towards formal empirical work from the standpoint of modern econometrics it argues that his attitude towards empirical work rested on indefensible assumptions and that he failed to realise that the role he saw for empirical work undermined his belief in the primacy of economic theory this matters because robbins attitudes are echoed in modern economics best exemplified by the calibration methodology of kydland and prescott which is vulnerable to similar criticisms

is there convergence in per capita renewable energy consumption across u s states evidence from lm and rals lm unit root tests with breaks abstract given the federal and state policy initiatives to curb fossil fuel consumption and expand the use of renewable energy sources in the u s this study investigates the convergence properties of per capita renewable energy consumption across u s states including the district of columbia in addition to cross sectional tests of and convergence our study employs lm and rals lm unit root tests with endogenously determined structural breaks to test for stochastic convergence traditional cross sectional tests indicate that both and convergence of per capita renewable energy consumption exists across u s states moreover our results also provides clear support for stochastic convergence of per capita renewable energy consumption for a majority of u s states including the district of columbia once allowance is made for structural breaks

the impact of budget deficits on national saving in the usa this paper analyses the effect of government budget deficits on national saving in the usa utilizing annual time series data from 1967 to 1996 a model that includes budget deficits money supply real exchange rate real interest rate and the proportion of working age population to total population to explain national saving is developed after examining the time series properties of the data an error correction model is estimated the overall results suggest that an increase in government budget deficits tend to reduce national saving the working age population coming out of the baby boom generation has positively contributed to an increase in national saving

stochastic convergence in per capita co2 emissions evidence from emerging economies 1921 2014 abstract we employ the recently developed lm and rals lm unit root tests that allow for endogenously determined structural breaks to study stochastic convergence in relative per capita co2 emissions over the period 1921 to 2014 for a balanced panel of emerging market economies the results provide mixed evidence of the presence of stochastic convergence in particular stochastic convergence is achieved for eleven out of the seventeen countries under investigation this implies that the energy regulatory framework in these countries needs to be revaluated in order to reduce the carbon footprint to further comprehend the factors behind the observed disparities in emission stability we analyse the determinants of the identified groups an examination of the determinants of the observed behaviour in relative per capita co2 emissions reveal that income population financial development and trade are significant drivers with trade predominantly playing a larger role in emission growth also weak evidence is found in terms of a catching up effect in the growth of relative per capita co2 emissions

monetary policy through the credit cost channel italy and germany pre and post emu we present an empirical analysis of the credit cost channel ccc of monetary policy transmission this channel combines bank credit supply and interest rates on loans as a cost to firms the thrust of the ccc is that it makes both aggregate demand and aggregate supply dependent on monetary policy as a consequence 1 credit market conditions e g risk spreads are important sources and indicators of macroeconomic shocks 2 the real effects of monetary policy are larger and persistent we have applied the cointegrated vector autoregression cvar econometric methodology to italy and germany in the hard ems period and in the european monetary union emu period the short run and long run effects of the ccc are detectable for both countries in both periods simulation of the estimated model also confirms that inflation targeting by way of inter bank rate control stabilizes inflation through structural shifts of the stochastic equilibrium paths of both inflation and the output

the impact of classes of innovators on technology financial fragility and economic growth in this article we study innovation processes and technological change in an agent based model by including a behavioral switching among heterogeneous innovative firms the model is able to replicate via simulations well known industrial dynamic and growth type stylized facts the main original element of the model is that firms are allowed to endogenously change among three different classes namely single innovators collaborative innovators and imitators moreover our analysis focuses on the impact of these three innovation categories on micro meso and macro aggregates we find that collaborative companies are those having the highest positive impact on the economic system furthermore we have paid particular attention to the role of credit market in promoting smart growth for this purpose we analyze the role of banks as sources of external funds for innovative entrepreneurs our results suggest a trade off between short term profit maximization and long term efficiency which prevents banks to foster investment in r d and technological progress the model is then used to study the effect that different innovation policies have on macroeconomic performance

structural reforms animal spirits and monetary policies abstract we use a new keynesian behavioral macroeconomic model to analyze how structural reforms affect the economy there are two types of structural reforms the first one increases price flexibility the second one increases competition in the labor market and raises potential output we find that in a rigid economy business cycle movements are dominated by movements of animal spirits increasing price flexibility reduces the power of animal spirits and the boom bust nature of the business cycle we study the trade offs between output and inflation volatility faced by the central bank we find that flexibility improves these trade offs making it easier for the central bank to stabilize output and inflation

convergence in energy consumption per capita among asean countries abstract we test for convergence in energy consumption per capita among asean countries over the period 1971 to 2011 using the panel kpss stationarity test and panel lagrange multiplier lm unit root test the results for the panel stationarity and unit root tests with structural breaks find support for energy convergence in asean

fiscal policy and national saving this paper uses structural vector autoregressions along with structural measures of fiscal policy to measure the dynamic impact of fiscal policy shocks on the output gap and national saving positive shocks to government purchases and negative shocks to real net taxes are found to increase the output gap positive shocks to the government s structural surplus increases national saving although the effects are small positive shocks to government purchases are found to substantially reduce national saving negative shocks to real net tax revenues as a share of potential gdp have a small negative impact on national saving

fiscal sustainability and dollarization the case of ecuador abstractthis article tries to disentangle the dynamic relationships between fiscal variables and economic activity in a small emerging economy characterized by full dollarization namely ecuador we find that fiscal policy in ecuador seems to be sustainable explained by its policy of debt payment through oil revenues rather than by a fiscal discipline that dollarization is supposed to encourage the non oil tax revenues variable is a purely adjusting variable this result suggests that in a dollarized country that cannot benefit from the seignorage revenues the reliance on volatile oil revenues and on smoothing tax revenues leaves the economy s fiscal sustainability vulnerable

exchange rate economics is always and everywhere controversial abstractthis article reviews the major developments in the recent literature on exchange rate economics it is argued that the link between the exchange rate and economic fundamentals is breaking new ground evidence indicates that alternative analytical frameworks such as the new open economy macroeconomics and exchange rate arrangements such as the euro have their theoretical and analytical elegance but are proving empirically very difficult to implement the role of methodological advances and alternative fundamental instruments such as world commodity prices is also highlighted

international parity relationships between germany and the usa revisited evidence from the post dm period in this study we show the interrelation of the purchasing power parity and the uncovered interest rate parity between the us and germany for the recent period running from 1999 01 to 2014 04 this study extends the literature by testing both hypotheses simultaneously in a multivariate ecm this has the advantage that interactions between capital and goods markets can be considered simultaneously our finding of two long run relationships between the variables shows that a disequilibrium in one of the two markets leads to a disequilibrium in the other while analysing the reaction to cumulative shocks we show that us variables have a greater impact on german variables than vice versa therefore the rising importance of the euro and the increased integration of the european union in the recent decade have not changed this relation

convergence of carbon emissions at the household level in china a distribution dynamics approach abstract since household carbon emissions hces have become a new growing source and a significant contributor to global emissions the reduction of hces is crucial to formulate targeted and effective emission mitigation policies we need to fully understand the characteristics of the distribution and evolution of per capita hces and their urban rural and regional heterogeneity this paper explores the transitional dynamics of per capita hces in china by employing the distribution dynamics approach with panel data compiled at the household level we find that the overall per capita hces are unimodal distribution in the long run and the distribution dynamics of the per capita hces between the urban and rural areas or among the regional subgroups are quite different however the speed of convergence has accelerated over time moreover our findings indicate that the per capita hces in the urban areas will achieve convergence to an emission level much higher than that of the rural areas meantime the per capita hces in northeast china will converge to an emission level much higher than those of the other three regions these findings provide valuable insights for policymakers in implementing differentiated environmental policies for different regions and between urban and rural households in china

national saving and budget deficits it has been widely argued that government budget deficits reduce national saving estimated relations indicate otherwise both for the traditional or conventional official measure of national saving and a broader more relevant measure encompassing government and household as well as private business investment in tangible capital greater price adjusted high employment deficits increases in the real monetary base and declines in real exchange rates have all been associated with more subsequent national saving these relations manifest in ar 1 regressions over the 1972 91 period were confirmed in vector autoregressions copyright 1994 by mit press

are co2 emission levels converging among industrial countries time paths of carbon dioxide emissions intwenty one industrial countries are examinedfrom 1960 1997 to test for stochastic andconditional convergence both panel unit roottests and cross section regressions areperformed overall we find significantevidence that co2 emissions haveconverged

the savings growth nexus for the malaysian economy a view through rolling sub samples the purpose of this study is to re investigate the savings growth nexus for the malaysian economy using bounds testing approach to cointegration and toda and yamamoto 1995 and dolado and lutkepohl 1996 tydl granger causality test this study covered the sample period from 1971 q1 to 2008 q4 the cointegration results suggest that the variables are moving together in the long run and the tydl granger causality results indicate that the relationship between savings and economic growth is bilateral in addition the rolling sub samples tydl granger causality test exhibited a relatively stable causal relationship running from savings to economic growth in malaysia particularly before the onset of asian financial crisis in 1997 1998

a neoclassical perspective on budget deficits i n the 1988 presidential campaign virtually every serious candidate spoke of the urgent need to trim government budget deficits public opinion polls have identified federal deficits as a key economic issue second only to unemployment while many economists are relieved by what they perceive to be a long overdue political response to a critical economic problem others regard the fuss as much ado about nothing it is indeed remarkable that economists can disagree so severely over an issue which commands such a uniform reaction from laymen of widely different ideologies and political affiliations generally speaking there are three schools of thought concerning the economic effects of budget deficits neoclassical keynesian and ricardian before proceeding further it is useful to review the basic structure and implications of each paradigm the neoclassical paradigm envisions farsighted individuals planning consumption over their own life cycles budget deficits raise total lifetime consumption by shifting taxes to subsequent generations if economic resources are fully employed increased consumption necessarily implies decreased saving interest rates must then rise to bring capital markets into balance thus persistent deficits crowd out private capital accumulation in the current economic environment most economists would agree that these consequences would be highly detrimental

towards an accounting view on money banking and the macroeconomy history empirics theory in this paper three views are considered which are traditionally associated with money cranks and brave heretics the first is that the credit nature of money has macroeconomic significance the second is that financial development can be bad for economic growth the third is that macroeconomic models need to be explicitly monetary macroeconomic models it is argued that in each of these three areas there has been a recent shift in mainstream economic opinion this suggests new opportunities for meaningful debate between heterodox and orthodox schools on money and finance it is further argued following skaggs 2003 that a common meeting ground could be an accounting view of economics this is a mode of macroeconomic analysis which explicitly uses accounting definitions identities that credit is also debt or that flows of a variable affect the stock of that variable or accounting methods e g decomposing different kinds of liabilities or linking flows of liquidity to flows of transactions to structure and direct the analysis the accounting view is highly pluralist yet clearly defined i discuss its applications to each of the three views

the long run relationship between co2 emissions and economic activity in a small open economy uruguay 1882 2010 abstract the long term relationship between carbon dioxide co 2 emissions from energy use and economic activity level is estimated for uruguay between 1882 and 2010 we include co 2 emissions both in levels and in per capita terms which allows to analyze if a decoupling exists both in absolute and in relative terms we also test for the functional form of the relationship something that is usually missed in the literature but which is very relevant because a misspecification could lead to biased estimates we apply cointegration techniques and estimate a vector error correction model vecm for testing whether these variables are endogenous over the long term while also considering the short term dynamics the economic productive structure the degree of openness and the share of clean sources in the total energy supply are also considered as explanatory variables in addition other variables that measure changes in the economic structure are included to check for robustness of the estimates the results show that there is a linear relationship when a log log transformation is employed between co 2 emissions and per capita economic activity level which would involve an exponential relationship between the non transformed variables moreover we cannot reject the level log model indicating that emissions increase at a decreasing rate in reference to the increase in economic level activity emissions increase jointly with the industrial sector s participation in the total output as a consequence of the intensity of this activity in the consumption of energy from fossil fuel sources the degree of openness is inversely related to co 2 emissions this is because the periods of major opening were based on primary input exports which are lower in energy intensity than industrial products the changes in co 2 emission are inversely related to the variation in the share of clean sources in the total energy supply finally all the variables included in the cointegration vector are endogenous adjusting together to the deviations from the long term relationship as a consequence of the above economic growth appears not to be enough for diminishing uruguayan emissions in the long term changes in the energy matrix should be encouraged and emissions reduction should come not through energy constraints but through the development of clean sources or improvements in energy use efficiency given the impact of energy on the economic activity level

agent based macroeconomics a baseline model abstract this paper develops a baseline agent based macroeconomic model and contrasts it with the common dynamic stochastic general equilibrium approach although simple the model can reproduce a lot of the stylized facts of business cycles the author argues that agent based modeling is an adequate response to the recently expressed criticism of macroeconomic methodology because it allows for aggregate behavior that is more than simply a replication of microeconomic optimization decisions in equilibrium at the same time it allows for absolutely consistent microfoundations including the structure and properties of markets most importantly it does not depend on equilibrium assumptions or fictitious auctioneers and does therefore not rule out coordination failures instability and crisis by definition a situation that is very close to a general equilibrium can instead be shown to result endogenously from non rational micro interaction

does the euro dominate central and eastern european money markets the so called german dominance hypothesis gdh claimed that bundesbank policies were transmitted into other european monetary system ems interest rates during the pre euro era we reformulate this hypothesis for the central and eastern european cee countries that are on the verge of accessing the eurozone we test this euro dominance hypothesis edh in a novel way using a global vector autoregressive gvar approach that combines country specific error correction models in a global system we find that euro area monetary policies are transmitted into cee money market rates providing evidence for monetary integration between the eurozone and cee countries our framework also allows for introducing global monetary shocks to provide at least tentative empirical evidence regarding the effects of the recent financial crisis on monetary integration in europe

priors from general equilibrium models for vars abstract this paper uses a simple new keynesian dynamic stochastic general equilibrium model as a prior for a vector autoregression shows that the resulting model is competitive with standard benchmarks in terms of forecasting and can be used for policy analysis jel classification c11 c32 c53 key words bayesian analysis dsge models forecasting vector autoregressions 1 introduction dynamic stochastic general equilibrium dsge models are popular nowadays in macroeconomics they are taught in virtually every economics ph d program and represent a predominant share of publications in the field yet when it comes to policy making these models are scarcely used at least from a quantitative point of view the main quantitative workhorse for policy making at the federal reserve system is frb us a macro econometric model built in the cowles foundation tradition a style of macroeconomics that is no longer taught in many ph d programs 1 in their decision process fed policy makers rely heavily on forecasting they want to know the expected path of inflation in the next few quarters and by how much a 50 basis point increase in the federal funds rate would affect that path frb us offers answers to these questions answers that many macroeconomists would regard with suspicion given both the lucas 1976 critique and the fact that in general the restrictions imposed by cowles foundation models are at odds with dynamic general equilibrium macroeconomics sims 1980 general equilibrium models on the other hand have a hard time providing alternative answers the fact that these models are perceived to do badly in terms of forecasting as they are scarcely parameterized is perhaps one of the reasons why they are not at the forefront of policy making while progress is being made in the development of dsge models that deliver acceptable forecasts e g smets and wouters 2003 this paper proposes an approach that combines a stylized general equilibrium model with a vector autoregression var to obtain a specification that both forecasts well and is usable for policy analysis specifically the approach involves using prior information coming from a dsge model in the estimation of a vector autoregression loosely speaking this prior can be thought of as the result of the following exercise i simulate time series data from the dsge model ii fit a var to these data in practice we replace the sample moments of the simulated data by population moments computed from the dsge model solution since the dsge model depends on unknown structural parameters we use a hierarchical prior in our analysis by placing a distribution on the dsge model parameters a tightness parameter controls the weight of the dsge model prior relative to the weight of the actual sample markov chain monte carlo methods are used to generate draws from the joint posterior distribution of the var and dsge model parameters the paper shows that the approach makes even a fairly stylized new keynesian dsge model competitive with standard benchmarks in terms of forecasting real output growth inflation and the nominal interest rate the three variables that are of most interest to policy makers 2 up to this point our procedure borrows from the work of dejong ingram and whiteman 1993 and ingram and whiteman 1994 who are the first to use priors from dsge models for vars ingram and whiteman showed that prior information from the bare bones stochastic growth model of king plosser and rebelo 1988 is helpful in forecasting real economic activity such as output consumption investment and hours worked in addition to documenting the forecasting performance of a trivariate var with a prior derived from a monetary dsge model this paper makes two contributions that significantly extend the earlier work first we show formally how posterior inference for the var parameters can be translated into posterior inference for dsge model parameters

dynamics and drivers of per capita co2 emissions in asia abstract the aim of this paper is to document recent trends in asia s co2 emissions and explore the mechanisms that drive those emissions for fourteen countries over the period 1971 to 2017 we apply a sequential method which has a strong relationship to policy indicators first an analysis of the dynamics is undertaken to identify if convergence is occurring followed by a study of the determinants of those dynamics this approach overcomes some of the limitations of previous work analyzing emission convergence by focusing on country specific characteristics such as energy mix and energy efficiency the analysis reveals per capita co2 emissions energy intensity carbonization and per capita incomes are slowly converging over the full sample yet this behavior is not uniform there were differences in transition paths prior to and after the asian financial crisis the per capita income driver was the most important driver in explaining the dynamics and variation of emissions while carbonization and energy intensity drivers were less pronounced the analysis reveals that the energy needs of the region s extraordinary economic growth favored fossil fuels and a surprising revelation is that despite having different per capita income levels china korea and vietnam all share a common convergence path this paper provides further evidence against using carbon intensity solely as a target for climate policy

schumpeter meeting keynes a policy friendly model of endogenous growth and business cycles this paper studies an agent based model that bridges keynesian theories of demandgeneration and schumpeterian theories of technology fueled economic growth we employ the model to investigate the properties of macroeconomic dynamics and the impact of public polices on supply demand and the fundamentals of the economy we find profound complementarities between factors influencing aggregate demand and drivers of technological change that affect both short run fluctuations and longterm growth patterns from a normative point of view simulations show a corresponding complementarity between keynesian and schumpeterian policies in sustaining long run growth paths characterized by milder fluctuations and relatively lower unemployment levels the matching or mismatching between innovative exploration of new technologies and the conditions of demand generation appear to suggest the presence of two distinct regimes of growth or absence thereof characterized by different short run fluctuations and unemployment levels

the agent based approach to post keynesian macro modeling the paper presents a survey of post keynesian pk agent based ab models and ab models with pk features it is argued that ab modeling is fully consistent with the pk approach and that the cross fertilization can benefit both areas of research the survey focuses on how the various models have faced the issues implied by adopting a bottom up approach in a traditionally aggregative structure and highlights the additional insights coming from this modeling strategy particular attention is devoted to stock flow consistent ab models for theivvr potential in defining a new benchmark for this type of research

distribution dynamics of co2 emissions this paper uses nonparametric methods to examine the convergence in co2 emissions per capita on a sample of 100 countries for the period 1966 1996 industrial countries show a convergence pattern however there is little evidence of convergence for the whole sample

the impact of commodity price shocks in the presence of a trading relationship a gvar analysis of the nafta this paper investigates the commodity price shocks and monetary shocks in the region covered by the north american free trade agreement nafta using a global vector autoregression gvar approach our focus is on commodity price shocks which impact both directly through the aggregate price level as well as through monetary policy related aggregates such as short term interest rates we first contrast the response of the real economy to commodity price shocks in two periods 1983q2 2015q2 and 1994q1 2015q2 where the beginning of the second sample coincides with a statistically identified structural break as well as the introduction of nafta the results indicate that the commodity price shocks such as for oil and metal have a bigger impact on the real economy after nafta came into force withmetal prices having a larger quantitative impact on output in comparison to oil prices next we investigatewhether these changes have different implications for the impact of domestic monetary shocks in the three countries we find that while the post nafta period is characterized by a stronger domestic monetary policy response to commodity price shocks the response to monetary shocks per se varies in the two time periods in particular u s monetary policy as reflected in shocks to short term interest rates has a weaker influence in the post nafta period overall the influence of global commodity price shocks in the region relative to domestic monetary shocks is greater in the post nafta period

does global liquidity drive commodity prices abstract this paper tackles the question of whether a cross sectional perspective on monetary policy is capable of explaining movements in global commodity prices in this vein we contribute to the rich literature on global liquidity in two different ways on the one hand to achieve a global series in terms of common monetary policy shocks we propose a distinction between common and idiosyncratic factors across economies as proposed by bai and ng 2004 our second innovation stems from the consideration of a markov switching vector error correction model when analyzing time varying short run dynamics having identified the long run structure which includes a proportional relationship between commodity prices and global liquidity in the first step our results indeed show that the impact of a global liquidity measure on different commodity prices is significant and varies over time one regime approximately accounts for times where commodity prices significantly adjust to disequilibria while the second regime is characterized by either a weak or no commodity price adjustment the fact that global liquidity also reacts to disequilibria in a specific regime demonstrates the two way causality between monetary policy and commodity prices

out of the corridor keynes and the crisis we should learn from keynes to focus on the macroproblems of our day today s problem is the financial crisis and the resulting great recession neither the standard keynesian policies of decades past nor the monetary policy doctrine of recent years provides useful solutions dynamic stochastic general equilibrium theory is part of the crisis wreckage but turning to old or to new keynesian theory will be of little use a balance sheet recession requires that policy address the problems in the private sector s capital as well as its income accounts we need serious theoretical work on problems of system stability using for example agent based methods monetary theory needs to develop analysis of processes in which intertemporal budget constraints are violated network theory will be useful in that quest

testing for convergence in carbon dioxide emissions using a century of panel data this paper tests the convergence in per capita carbon dioxide emissions for a collection of developed and developing countries using data spanning the period 1870 2002 for this purpose three recently developed panel unit root tests that permit for dependence among the individual countries are employed the results lend strong support in favor of convergence for the panel as a whole estimates of the speed of this convergence is also provided

financial development and economic growth views and agenda this critique argues that the preponderance of theoretical reasoning and empirical evidence suggests a positive first order relationship between financial development and economic growth the body of work would push even most skeptics toward the belief that the development of financial markets and institutions is a critical and inextricable part of the growth process and away from the view that the financial system is an inconsequential sideshow responding passively to economic growth many gaps remain however and the paper highlights areas in acute need of additional research

adaptive consumption behavior abstract in this paper we propose and study a theory of adaptive consumption behavior under income uncertainty and liquidity constraints we assume that consumption is governed by a linear function of wealth whose coefficients are revised each period by a procedure that places few informational or computational demands on the consumer we show that under a variety of settings the procedure converges quickly to a set of coefficients with low welfare cost relative to a fully optimal nonlinear consumption function