the fisher hypothesis and the forecastability and persistence of inflation abstract for the period 1860 to 1939 the simple correlation of the u s commercial paper rate with the contemporaneous inflation rate is 0 17 the corresponding correlation for the period 1950 to 1979 is 0 71 this paper attributes this apparent change in the fisher relation to differences in the stochastic process of inflation rather than a change in any structural relationship between interest rates and expected inflation contrary to recent claims in the literature there is little evidence of inflation non neutrality in data from the pre world war i period

credit spreads an empirical analysis on the informational content of stocks bonds and cds this paper explores the dynamic relationship between stock market implied credit spreads cds spreads and bond spreads a general vecm representation is proposed for changes in the three credit spread measures which accounts for zero one or two independent cointegration equations depending on the evidence provided by any particular company empirical analysis on price discovery based on a proprietary sample of north american and european firms and tailored to the specific vecm at hand indicates that stocks lead cds and bonds more frequently than the other way round it likewise confirms the leading role of cds with respect to bonds

investment specific technological changes the source of long run tfp fluctuations abstract technological innovations originating in the capital producing sector may spillover to the rest of the economy and enhance aggregate tfp in the long run this paper assesses the quantitative importance of investment specific technological changes in long run movements in aggregate tfp to this end we construct a two sector business cycle model where an ist diffusion process influences long run movements in aggregate tfp via spillover we then establish the linkage between the primitive shocks of the model and two shocks that can be identified from a var approach one shock accounting for the long run movement in aggregate tfp and the other accounting for the long run movement in the inverse of the relative price of investment we show analytically that the correlation of these two long run shocks can be fruitful in distinguishing the quantitative importance of ist innovations in long run movements in aggregate tfp using post war u s data we find that these two long run shocks identified by the mfev approach are almost perfectly collinear moreover these two shocks can explain a significant and surprisingly similar fraction of the business cycle fluctuations in other important macro variables our findings suggest that embodied technological changes are an important driver of long run movements in aggregate tfp

why voluntary export restraints are voluntary the paper presents an analysis of the effect upon an oligopolistic equilibrium of introducing a voluntary export restraint ver upon an importing firm a ver set at the free trade level of imports is shown to raise the profits of all firms within the industry the result follows as the imposition of a ver upon a free trade nash price competition forces the domestic firm to become an industry price leader the ver raises industry prices by facilitating collusion and lowers consumer welfare pourquoi les restrictions volontaires d 1 exportation sont volontaires ce memoire presente une analyse des effets de l introduction de restrictions volontaires a l exportation rve sur une entreprise qui importe dans un monde en equilibre oligopolistique on montre que l introduction de rve approximant le niveau des importations en regime de libre echange devrait augmenter les profits de toutes les entreprises dans l industrie cela decoule du fait que l imposition de rve sur un univers de concurrence par les prix a la nash en regime de libre echange force l entreprise domestique a devenir le leader en prix l introduction de rve augmente le niveau des prix de l industrie en facilitant la collusion et de ce fait reduit le niveau de bien etre des consomrnateurs

the inflation output trade off with downward wage rigidities the macroeconomic implications of downward nominal wage rigidi ties are analyzed via a dynamic stochastic general equilibrium model featuring aggregate and idiosyncratic shocks a closed form solution for a long run phillips curve relates average output gap to average wage inflation it is virtually vertical at high inflation and flattens at low inflation macroeconomic volatility shifts the curve outwards and reduces output the results imply that stabilization policies play an important role and that optimal inflation may be positive and dif fer across countries with different macroeconomic volatility results are robust to relaxing the wage constraint for example when large idiosyncratic shocks arise jel e23 e24 e31 e63

the role of investment specific technological change in the business cycle this is a quantitative investigation of the importance of technological change speci c to new investment goods for postwar us aggregate uctuations a growth model that incorporates this form of technological change is calibrated to us data and simulated using the relative price of new equipment to identify the process driving investmentspeci c technology shocks the analysis suggests that this form of technological change is the source of about 30 of output uctuations 2000 elsevier science b v all rights reserved

on the risk spillover across the oil market stock market and the oil related cds sectors a volatility impulse response approach abstract compared to credit default swap cds literature this study focuses on the magnitude of volatility transmission and the risk spillover mechanism across the oil market financial market risks and the oil related cds sectors our dataset includes futures prices of west texas intermediate wti and seven different measures of markets and credit risks four of the vast risk measures are the oil related cdss for auto chemicals natural gas and utility sectors in addition three measures of the financial market risk the one month expected equity volatility measured by vix move and smove are included the daily dataset covers the period from 6 january 2004 to 2 february 2016 the volatility transmission mechanism across the oil and financial markets and cds sectors is examined using the volatility impulse response model we evaluate the risk transmission due to several recent crisis shocks around the world and the results show complicated transmission mechanisms that spread over long periods among these events the lehman brothers bankruptcy has destabilizing effects on all oil related sectors findings also show that all oil market related shocks have significant risk transmission effects

when do long run identifying restrictions give reliable results many recent articles have identified behavioral disturbances in vector autoregressions by imposing restrictions on the long run effects of shocks this article demonstrates that this approach will be unreliable unless the underlying economy satisfies three types of strong restrictions although many aspects of these issues have been raised before this article draws out and illustrates the implications for inferences under the long run scheme furthermore it provides strategies for dealing with the problems

why has u s inflation become harder to forecast we examine whether the u s rate of price inflation has become harder to forecast and to the extent that it has what changes in the inflation process have made it so the main finding is that the univariate inflation process is well described by an unobserved component trend cycle model with stochastic volatility or equivalently an integrated moving average process with time varying parameters this model explains a variety of recent univariate inflation forecasting puzzles and begins to explain some multivariate inflation forecasting puzzles as well

what happened to fortress europe external trade policy liberalization in the european union in an era when many fear the breakdown of the global trading order through the emergence of relatively closed regional trading blocs assessing the effects of european integration on external european union trade is particularly important surprisingly despite a severe recession accompanied by record levels of unemployment a history of increasing protection under similar economic circumstances and alarming predictions about fortress europe external trade policy in the region has liberalized in recent years prominent trade policy explanations emphasizing changing interest group demands or changing ideas of policymakers are inadequate to account for this significant change in trade policy instead much of this liberalization can be best understood as an unforeseen consequence of the single european act completing the single market undermined the effectiveness of national trade measures and made it difficult to enact new trade barriers thus producing a liberal bias in european policy

optimal trade policy under oligopoly a calibrated model of the europe japan rivalry in the eec car market this paper was originally presented at the cefi conference on imperfect competition and international trade aix en provence france june 18 19 1987 we wish to thank avinash dixit who gave the initial impetus to this research we are also grateful to alexis jacquemin and paul krugman for valuable discussion and comments we thank also the french commissariat au plan for financial support and the chambre syndicale des constructeurs automobiles csca for gracious assistance

the long run relationship between inflation and output in postwar economies abstract we investigate the relationship between inflation and real output in a large sample of postwar economies our methodology is to use a structural vector autoregression to estimate the response of the level of real output to permanent inflation shocks separately for each country we find that a permanent shock to inflation is not associated with a permanent movement in the level of real output for most countries in our sample the main exceptions are certain low inflation countries in which permanent inflation shocks permanently increase the level of output we also find that permanent inflation shocks do not permanently influence real output growth rates in our sample

identifying noise shocks abstract we study identifying restrictions that allow news and noise shocks to be recovered empirically within a bayesian structural varma framework in population the identification scheme we consider exactly recovers news and noise shocks monte carlo evidence further demonstrates its excellent performance as it recovers the key features of the postulated data generation process the real business cycle model of barsky and sims 2011 augmented with noise shocks about future total factor productivity tfp with great precision in an empirical application evidence suggests that tfp noise shocks play a minor role in macroeconomic fluctuations

credit default swaps and ceo compensation a long term perspective in this paper we examine whether the onset of credit default swaps cdss affects a firm s executive compensation the availability of cdss allows lenders to transfer credit risk but not control

an analysis of the spillover effects of exchange traded funds this article used the generalized autoregressive conditional heteroscedasticity autoregressive moving average garch arma and the exponentially generalized autoregressive conditional heteroscedasticity autoregressive moving average egarch arma models to study the impact of the spillover and the leverage effects on returns and volatilities of stock index and exchange trade fund etf for developed and emerging markets previous unexpected returns for developed and emerging markets which have an opposite influence pattern on etfs returns were identified the spillover effects from returns are excellent for hong kong followed by singapore meanwhile taiwan s stock index return was recorded to have a strong negative impact on etf return notably this article shows that the spillover effects on stock index and etf volatilities existed with bilateral influences despite a strong positive asymmetric volatility effect in korea s etf market the leverage effect appears to play important roles in the explana

do tfp and the relative price of investment share a common i 1 component abstract results from cointegration tests clearly suggest that tfp and the relative price of investment rpi are not cointegrated evidence on the alternative possibility that they may nonetheless contain a common i 1 component generating long horizon co variation between them crucially depends on the fact that i structural breaks are or are not allowed for and ii the precise nature and timing of such breaks not allowing for breaks evidence points towards the presence of a common component inducing positive long horizon covariation which is compatible with the notion that the technology transforming consumption goods into investment goods is non linear and the rpi is also impacted upon by neutral shocks allowing for breaks evidence suggests that long horizon covariation is either nil or negative assuming for illustrative purposes that the two series contain a common component inducing negative long horizon covariation evidence based on structural vars shows that this common shock i plays an important role in macroeconomic fluctuations explaining sizeable fractions of the forecast error variance of main macro series and ii generates disinflationary booms characterized by transitory increases in hours and decreases in inflation

news shocks and the slope of the term structure of interest rates abstract we adopt a statistical approach to identify the shocks that explain most of the fluctuations of the slope of the term structure of interest rates we find that one shock can explain the majority of unpredictable movements in the slope impulse response functions lead us to interpret this shock as news about future total factor productivity tfp by showing that slope shocks are essentially tfp news shocks we provide a new explanation for the relationship between the slope and macroeconomic fundamentals our results also provide a new empirical benchmark for structural models at the intersection of macroeconomics and finance jel e23 e43 e52 g12 g14

drift and breaks in labor productivity abstract we use endogenous break tests and the stock watson tvp mub methodology to investigate changes in the equilibrium rate of growth of labor productivity in the u s the eurozone the u k australia and japan since wwii results for the u s well capture the conventional wisdom of a golden era of high productivity growth the 1950s and 1960s a marked deceleration starting from the beginning of the 1970s and a strong growth resurgence starting from mid 1990s results for the eurozone point towards a deceleration since the early 1980s with the equilibrium rate of growth of output per hour falling to 0 9 in 2004 4

multivariate estimates of the permanent components of gnp and stock prices the economic assumption that a present value relation holds between consumption and income and between stock prices and dividends or the statistical assumption that the consumption income ratio and the dividend price ratio are stationary imply that the permanent or random walk component in each series of a pair must be the same as the permanent component in the other series of a pair either assumption then allows us to estimate the variance of the permanent component of one series gnp stock prices from the variance of the permanent component of the other consumption dividends or from the covariance of the two series permanent components this paper presents such estimates and finds that the permanent components are about half those estimated by similar univariate methods a series of recent papers has examined the importance of a potential unit root to the behavior of real gnp campbell and mankiw 1986 1987 cochrane 1986 clark 1987 and stock prices fama and french 1986 lo and mai if by 0 the series is stationary the response can be any real number which is the innovation in these estimates instead of forcing us to ask the dichotomous question is there a unit root or not they allow us to continuously measure the importance of a potential unit root the actual estimating technique used in these papers varied somewhat cochrane poterba and summers and lo and mai if a series is stationary the variance of k differences will tend to a precursor to this paper appeared under the title spectral density estimates of unit roots we thank masanao aoki lam hansen masao ogaki and chris sims for helpful suggestions the computer programs and data used in this paper are available on request from the authors

business cycle measurement with some theory a method to evaluate cyclical models not requiring knowledge of the dgp and the exact specification of the aggregate decision rules is proposed we derive robust restrictions in a class of models use some to identify structural shocks in the data and others to evaluate the class or contrast sub models the approach has good properties even in small samples and when the class of models is misspecified the method is used to sort out the relevance of a certain friction the presence of rule of thumb consumers in a standard class of models

investigating inflation persistence across monetary regimes under inflation targeting estimates of the indexation parameter in hybrid new keynesian phillips curves are either equal to zero or very low in the united kingdom canada sweden and new zealand analogous results hold for the euro area under the european monetary union and for switzerland under the new monetary regime under stable regimes with clearly defined nominal anchors inflation appears to be purely forward looking these results question the notion that the intrinsic inflation persistence found in post wwii u s data is structural in the sense of lucas carnegie rochester conference series on public policy 1 1976 19 46 and suggest that hardwiring inflation persistence in macroeconomic models is potentially misleading

trade restrictions as facilitating practices abstract the effect of quantitative restrictions in oligopolistic markets is shown to depend on whether imports are substitutes or complements for domestic products in the former case they have profound effects even when set at free trade levels because they impede the ability of the foreign firm to compete in the domestic market thereby acting to facilitate collusion and raise prices and profits for this reason tariffs and quotas are fundamentally non equivalent with substitute goods when goods are complements a voluntary export restriction ver at the free trade level has no effect and tariffs and quotas are equivalent

the long run phillips curve a structural var investigation both cointegration methods and non cointegrated structural vars identified based on either long run restrictions or a combination of long run and sign restrictions are used in order to explore the long run trade off between inflation and the unemployment rate in the post wwii u s u k euro area canada and australia overall neither approach produces clear evidence of a non vertical trade off the extent of uncertainty surrounding the estimates is however substantial thus implying that a researcher holding alternative priors about what a reasonable slope of the long run trade off might be will likely not see her views falsified

the labour income share and the relative price of investment in the us an empirical investigation abstractseveral studies argue that the recent decline in the secular trend of the labour income share is mostly driven by capital embodied technological progress which is typically identified with trend reductions in the relative price of investment in this paper i use data from the united states to assess the nature of the relationship between trends in the labour share and the relative price of investment results from co integration tests reveal that the share and the relative price of investment are most likely not co integrated however co variation tests indicate that both time series share a common stochastic component and additional tests of structural breaks point at the presence of a common change in the mean or trend of both series these results suggest that capital embodied or investment specific technological progress may have played an important role in the decline of the secular trend of the labour share

drawing conclusions from structural vector autoregressions identified on the basis of sign restrictions abstract this paper discusses the problems associated with using information about the signs of certain magnitudes as a basis for drawing structural conclusions in vector autoregressions we also review available tools to solve these problems for illustration we use dahlhaus and vasishtha s 2019 study of the effects of a u s monetary contraction on capital flows to emerging markets we explain why sign restrictions alone are not enough to allow us to answer the question and suggest alternative approaches that could be used

identifying the global transmission of the 2007 2009 financial crisis in a gvar model abstract the paper analyses and compares the role that the tightening in liquidity conditions and the collapse in risk appetite played for the global transmission of the financial crisis dealing with identification and the large dimensionality of the empirical exercise with a global var approach the findings highlight the diversity of the transmission process while liquidity shocks have had a more severe impact on advanced economies it was mainly the decline in risk appetite that affected emerging market economies the tightening of financial conditions was a key transmission channel for advanced economies whereas for emerging markets it was mainly the real side of the economy that suffered moreover there are some striking differences also within types of economies with europe being more adversely affected by the fall in risk appetite than other advanced economies

money prices interest rates and the business cycle the mechanisms governing the relationship of money prices and interest rates to the business cycle are the most studied and most disputed topics in macroeconomics in this paper we first document key empirical aspects of this relationship we then ask how well three benchmark rational expectations macroeconomic models a real business cycle model a sticky price model and a liquidity effect model account for these central facts while the models have diverse successses and failures none can account for the fact that real and nom inal interest rates are inverted leading indicators of real economic activity that is none of the models captures the post war u s business cycle fact that a high real or nominal interest rate in the current quarter predicts a low level of real economic activity two to four quarters in the future i introduction the positive correlation of monetary aggregates and real economic activity over the course of many business cycles is a key empirical fact about the u s economy indeed the dynamic dimension of this covariation is so strong and stable that a monetary variable has long been included in the commerce department s index of leading economic indica tors while this pattern of cyclical comovement is widely agreed upon its interpretation is not some macroeconomists view money as purely passive with a positive response to varying levels of economic activity producing the positive correlation others view changes in the quantity of money as an important perhaps dominant source of economic fluctua tions frequently the real effects of monetary changes are suggested to arise from frictions in commodity labor or financial markets in economic theories that describe the influence of these frictions the transmission mechanism from monetary changes to real activity is typically viewed as involving interest rates and the price level the primary goal of this paper is to evaluate three models that explain the link between money prices interest rates and the business cycle we do this in three steps first we docu ment the cyclical behavior of these variables in the united states over the postwar period second we construct three quantitative rational expectations models of macroeconomic activity i a real business cycle model with endogenous money ii a model of commodity market frictions with mon etary non neutralities arising from gradual adjustment of goods prices and iii a model of financial market frictions with monetary non neutralities arising from gradual adjust ments of portfolios finally we compare the models predic tion for the business cycle behavior of money prices and interest rates with the data in exploring the predictions of these models we take the stock of money to be one of several exogenous variables in the system all of our models are capable of generating a forecasting role for money relative to real economic activity similar to that found in the u s data in the real business model monetary changes can forecast real activity because productivity is related to many underlying sources of shocks and because these real shocks also affect the money stock in the models with sticky prices and liquidity effects short hand names for the models with frictions in the com modity and financial markets monetary changes have an additional direct positive effect on aggregate output the outline of the paper is as follows section ii describes the data and documents its business cycle characteristics section iii outlines the three macroeconomic models and develops the particular quantitative versions of the models used in our analysis our main empirical results are pre sented in section iv and section v summarizes our results and concludes

vertical mergers and market foreclosure ythe model in this paper illustrates three effects of vertical mergers when both stages are oligopolistic and vertically integrated and unintegrated producers coexist first the merging firm increases its final good output second the resulting backward shift in the residual demand curve facing unintegrated final good producers ylowers their demand for the intermediate good third the merged firm withdraws from the intermediate good market the increased concentration pushes the intermediate good price upward which effect dominates depends on market structure under some conditions a vertical merger causes the price of the final good to increase

disinflation inequality and welfare in a tank model we investigate the redistributive and welfare effects of disinflation in a two agent new keynesian tank model characterized by limited asset market participation lamp and wealth inequality we highlight two key mechanisms driving our long run results i the cash in advance constraint on firms working capital cia ii dividends endogeneity these two channels point in opposite directions lower inflation softens the cia and by raising labor demand lowers inequality but the disinflation also raises dividends and this increases inequality the disinflation is always welfare improving for asset holders we obtain ambiguous results for non asset holders who suffer substantial consumption losses during the transition

news shocks and business cycles abstract this paper proposes and implements a novel structural var approach to the identification of news shocks about future technology the news shock is identified as the shock orthogonal to the innovation in current utilization adjusted tfp that best explains variation in future tfp a favorable news shock leads to an increase in consumption and decreases in output hours and investment on impact more suggestive of standard dsge models than of recent extensions designed to generate news driven business cycles though news shocks account for a significant fraction of output fluctuations at medium frequencies they contribute little to our understanding of recessions

volatility spillovers and connectedness among credit default swap sector indexes this article studies volatility spill over effects and market connectedness using daily data of credit default swap spreads for u s companies over a period from 2007 to 2012 we quantify volatilit

do technology shocks lead to a fall in total hours worked this paper contributes to the debate initiated by gali in 1999 i provide a theory with capital income taxation labor hoarding as well as long run shifts in the social attitudes to the workplace modelled as leisure at the workplace to argue that there are other shocks that may influence labor productivity in the long run i introduce medium run identification and show it to be superior to long run identification or standard short run identification when applied to artificial data with u s data and medium run identification i find the robust result that technology shocks lead to a hump shaped response of total hours worked which is mildly positive following a near zero initial response jel e32 e24 c32 c15 copyright c 2004 the european economic association

meteor showers or heat waves heteroskedastic intra daily volatility in the foreign exchange market this paper seeks to explain the causes of volatility clustering in exchange rates careful examination of intra daily exchange rates provides a test of two hypotheses heat waves and meteor showers the heat wave hypothesis is that the volatility has only country specific autocorrelation alternatively the meteor shower is a phenomenon of intra daily volatility spillovers from one market to the next using the garch model to specify the heteroskedasticity across intra daily market segments we find that the empirical evidence is generally against the null hypothesis of the heat wave using a volatility type of vector autoregression we examine the impact of news in one market on the time path of per hour volatility in other markets

an economic theory of vertical restraints vertical restraints imposed by manufacturers on the prices locations and sales of retail firms represent a puzzling departure from the simple price mediated exchange of conventional markets in this article we analyze the theoretical basis for these restraints in a setting where retailers inform consumers and are imperfectly competitive and where a manufacturer has some monopoly power we identify three potential externalities affecting retailers decisions these externalities lead to the failure of simple uniform price contracts to coordinate the incentives of retailers with the objective of maximizing combined manufacturer and retailer profits we identify the packages of vertical restraints that are minimally sufficient under various conditions to neutralize the externalities and to achieve the joint profit maximum

intraday bidirectional volatility spillover across international stock markets does the global financial crisis matter this article studies volatility spillover between the us and the three largest european stock markets frankfurt london and paris around the time of the recent subprime crisis in order to investigate the impact of the latter we break our sample down into two sub periods a pre crisis period and a post crisis period using a structural break test that has the advantage of endogenously testing for further breaks in the data unlike previous studies that have frequently investigated this issue using low frequency data our article makes use of intraday data accordingly using threshold generalized autoregressive conditional heteroscedasticity garch model estimations we find weak evidence of volatility transmission between the two regions before the subprime crisis however during the post crisis period we record returns and volatility spillover from us to european markets and vice versa at different times of the trading day indicating that the two regions became more dependent during the recent su

monetary policy shocks choleski identification and dnk models abstract a popular identifying assumption in structural var studies is that the monetary policy shock does not affect macroeconomic variables contemporaneously we examine the consequences of using this identification strategy when the data generating process is a basic dynamic new keynesian dnk model but without these assumed time delays the principle conclusion is that the standard choleski assumption can severely distort the impulse response functions producing price puzzles and muted responses of inflation and the output gap to monetary shocks

price quality and welfare effects of european vers on japanese autos abstract this paper examines the impact of the vers negotiated by the u k france and germany with japanese car makers market share analysis shows that the vers did not arrest the declines in apparent consumption by local producers further analysis from a sample of japanese and other cars sold on the french and german markets indicates quality upgrading between 1981 and 1983 the data also suggest that the ver was strictly binding in france starting around 1984 but not in germany until 1985 the end of the sample period finally the paper shows that the french german and japanese car producers supplied an increasingly similar product mix on the french market throughout the sample period 1979 1985 but the italian producers shifted towards a lower fiscal horsepower mix

did established early warning signals predict the 2008 crises abstract over the past 60 years a voluminous literature has painstakingly developed crises theories and their associated early warning signals the hallmark of this literature is the consistency with which selected early warning signals such as the level of reserves and exchange rate appreciations are presumed to predict different types of crises across countries and time the diversity of crises theories that motivate early warning signals presents however a challenge to empirical implementations given that the true model of early warning signals is unknown omitted variable bias contaminates estimates and confidence levels when the uncertainty surrounding a particular theory has been ignored after addressing model uncertainty in early warning signal regressions using an extended version of frankel and saravelos 2012 j int econ 87 216 231 dataset we do not find a single early warning signal that alerts to all dimensions of the 2008 crisis instead distinct sets of early warning signals identify different dimensions of the crisis banking balance of payments exchange rate pressure and recession

is the unemployment inflation trade off still alive in the euro area and its member countries it seems so the unemployment inflation trade off can be interpreted as a proposition concerning the response of these two variables to aggregate demand shocks in this paper we study the possible presence of the trade off in the euro area and in a wide group of euroarea countries in the last 20 years i e since the start of emu we use the structural var methodology that allows the separation between supply and demand shocks our main finding is that the existence of a trade off is largely confirmed both at the euro area and at the national level nevertheless the size of the trade off measured at different horizons shows some heterogeneity among countries no less important when we augment the var model by introducing monetary policy in the context of an open economy we find that monetary policy shocks push inflation and unemployment in opposite directions in the currency area another interesting result concerns the evidence of a relatively flat relation between unemployment and inflation conditionally to monetary policy shocks

the dynamic effects of neutral and investment specific technology shocks the neoclassical growth model is used to identify the short run effects of neutral technology shocks which affect the production of all goods homogeneously and investment specific shocks which affect only investment goods the real equipment price crucial for identifying the investment shocks experiences an abrupt increase in its average rate of decline in 1982 so the analysis is based on a split sample on the basis of the preferred specification the two technology shocks account for 73 percent of hours and 44 percent of output s business cycle variation before 1982 and 38 percent and 80 percent afterward the shocks also account for more than 40 percent of hours and 58 percent of output s forecast errors over a three to eight year horizon in both samples the majority of these effects are driven by the investment shocks

crash risk of the euro in the sovereign debt crisis of 2009 2010 the economic political instability of a country which is tied to its credit risk often leads to sharp depreciation and heightened volatility in its currency this paper shows that not only the creditworthiness of the euro area countries with weaker fiscal positions but also that of the member countries with more sound fiscal positions are important determinants of the deep out of the money euro put option prices which embedded information on the euro crash risk during the sovereign debt crisis of 2009 2010 we also find evidence of information flow from the sovereign credit default swap market to the currency option market during the crisis

sufficient information in structural vars abstract necessary and sufficient conditions under which a var contains sufficient information to estimate the structural shocks are derived on the basis of this theoretical result we propose two simple tests to detect informational deficiency and a procedure to amend a deficient var a simulation based on a dsge model with fiscal foresight suggests that our method correctly identifies and fixes the informational problem in an empirical application we show that a bivariate var including unemployment and labor productivity is informationally deficient once the relevant information is included into the model technology shocks appear to be contractionary

the dynamics of spillover effects during the european sovereign debt turmoil abstract in this paper we modify and extend the framework of diebold and yilmaz 2011 to quantify spillovers between sovereign credit markets and banks in the euro area spillovers are estimated recursively from a vector autoregressive model of daily changes in credit default swap cds spreads with exogenous common factors we account for interdependencies between sovereign and bank cds spreads and derive generalized impulse response functions specifically we assess the systemic effect of an unexpected shock to the creditworthiness of a sovereign or country specific bank index on other sovereigns and bank cdss between october 2009 and july 2012 channels of shock transmission from or to sovereigns and banks are summarized in a contagion index and its four components i among sovereigns ii among banks iii from sovereigns to banks and iv from banks to sovereigns we also highlight the impact of policy related events on the contagion index