similarities and convergence in g 7 cycles this paper examines the properties of g 7 cycles using a multicountry bayesian panel var model with time variations unit specific dynamics and cross country interdependences we demonstrate the presence of a significant world cycle and show that country specific indicators play a much smaller role we detect di erences across business cycle phases but apart from an increase in synchronicity in the late 1990s find little evidence of major structural changes we also find no evidence of the existence of an euro area specific cycle or of its emergence in the 1990s

macroeconomic impacts of oil price shocks in asian economies abstract this paper analyzes the macroeconomic impact of structural oil shocks in four of the top oil consuming asian economies using a var model we identify three different structural oil shocks via sign restrictions an oil supply shock an oil demand shock driven by global economic activity and an oil specific demand shock the main results suggest that economic activity and prices respond very differently to oil price shocks depending on their types in particular an oil supply shock has a limited impact while a demand shock driven by global economic activity has a significant positive effect in all four asian countries examined our finding also includes that policy tools such as interest rates and exchange rates help mitigating the effects of supply shocks in japan and korea however they can be more actively used in response to demands shocks

the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

econometric analysis of structural systems with permanent and transitory shocks this paper considers the implications of the permanent transitory decomposition of shocks for identification of structural models in the general case where the model might contain more than one permanent structural shock it provides a simple and intuitive generalization of the influential work of blanchard and quah 1989 the dynamic effects of aggregate demand and supply disturbances the american economic review 79 655 673 and shows that structural equations with known permanent shocks cannot contain error correction terms thereby freeing up the latter to be used as instruments in estimating their parameters the approach is illustrated by a re examination of the identification schemes used by wickens and motto 2001 estimating shocks and impulse response functions journal of applied econometrics 16 371 387 shapiro and watson 1988 sources of business cycle fluctuations nber macroeconomics annual 3 111 148 king et al 1991 stochastic trends and economic fluctuations american economic review 81 819 840 gali 1992 how well does the islm model fit postwar us data quarterly journal of economics 107 709 735 1999 technology employment and the business cycle do technology shocks explain aggregate fluctuations american economic review 89 249 271 and fisher 2006 the dynamic effects of neutral and investment specific technology shocks journal of political economy 114 413 451

the value of explicit randomization in the tax code abstract consider individuals who draw income from the same random distribution but who differ in their risk aversion and who decide whether or not to report their income truthfully the government chooses the tax structure including a random tax option audit probabilities and penalties on detected evaders to maximize expected ex post social welfare high income individuals who do not evade then choose to pay either a given amount or draw from a random tax schedule this schedule ensures that everyone complies with more risk averse individuals choosing the deterministic schedule and less risk averse ones choosing the random tax option

the early millennium slowdown replicating the peersman 2005 results summary this paper undertakes both a narrow and wide replication of the constant coefficients vector autoregression var identified with sign restrictions considered by peersman journal of applied econometrics 2005 20 2 185 207 his results for the us are robust to an increase in the sample period from 2002 q2 to 2014 q2 but the extension to time varying parameters highlights the importance of testing the robustness of results against time variation in particular there are differences across models regarding the role of individual shocks during the 2001 us slowdown copyright 2015 john wiley sons ltd

capital flows in the euro area and target2 balances abstract this paper explores how the uneven recourse by national banking systems in the euro area to the ecb s unconventional refinancing operations that led to the accumulation of large target2 balances at the ncbs has contributed to the evolution of aggregate economic activity in important member states of the euro area for the period between 2008 and 2014 we estimate a panel var model and identify the structural shocks by means of sign restrictions our results suggest that the build up of target2 balances was driven mainly by capital flow shocks while being barely responsive to other aggregate shocks furthermore on the basis of counterfactual experiments we find that the ability to build up sizeable target2 liabilities has contributed substantially to avoiding deeper recessions in the distressed euro area member countries like spain italy ireland and portugal while to a smaller extent depressing aggregate economic activity in core member states such as germany the netherlands and finland

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

bank bailouts and bank sovereign risk contagion channels abstract bank bailouts generate risk spillovers between the default risks of banks and governments this paper quantifies the effects of bank bailouts and measures the interdependence risk between the banking sector and government for the us and six european countries the approach allows to distinguish two channels of contagion by identifying bailout and sovereign risk shocks and assessing their effects on the default risks of banks and governments in contrast to europe a bailout shock generates a persistent decrease in the default risk of the us banking sector the bank sovereign risk contagion is stronger in europe relative to the us

sources of fluctuations in hours worked for canada germany japan and the u s a sign restriction var approach abstractthis study empirically examines the sources of fluctuations in hours worked in canada germany japan and the u s it is particularly motivated by gali s 1999 var study which demonstrates that a positive technology shock reduces hours worked at least in the short run however in the present study a technology shock is identified without recourse to gali s long run restriction which has been subject to active controversy furthermore this study uncovers other important sources of fluctuations in hours worked to reflect the concern raised by numerous studies that technology shocks leave most variations in hours worked unexplained specifically there are six shocks underlying our model and they are identified using a set of sign restrictions the empirical results confirm that in all four countries a positive technology shock significantly reduces hours worked this technology shock along with labor supply and demand shocks accounts for most of the short term variations in hours worked

monetary policy and the relative price of durable goods abstract in a structural vector autoregressive model of the us the response of the relative price of durables to a monetary policy contraction is either flat or mildly positive it significantly falls only if narrowly defined as the ratio between new house and nondurables prices these findings are rationalized via the estimation of two sector new keynesian nk models durables prices are estimated to be as sticky as those of nondurables leading to a flat relative price response to a monetary policy shock conversely house prices are estimated to be almost flexible such results survive several robustness checks and a three sector extension of the nk model these findings have implications for building nk models with durable and nondurable goods and for the conduct of monetary policy

macroeconomic factors and microlevel bank behavior we analyze the link between banks and the macroeconomy using a model that extends a macroeconomic var for the u s with a set of factors summarizing conditions in about 1 500 commercial banks we investigate how macroeconomic shocks are transmitted to individual banks and obtain the following main findings backward looking risk of a representative bank declines and bank lending increases following expansionary shocks forward looking risk increases following an expansionary monetary policy shock there is however substantial heterogeneity in the transmission of macroeconomic shocks which is due to bank size capitalization liquidity risk and the exposure to real estate and consumer loans

how do shocks to domestic factors affect real exchange rates of asian developing countries this paper examines real exchange rate responses to shocks in exchange rate determinants for fourteen asian developing countries the analysis is based on a panel structural vector error correction model and the shocks are identified using sign and zero restrictions we find that trade liberalization generates permanent depreciation and higher government consumption causes persistent appreciation traded sector productivity gains induce appreciation but their effects are not immediate and last only for a few years real exchange rate responses to unexpected monetary tightening are consistent with the long run neutrality of money the evidence suggests that trade liberalization and government consumption have a strong effect on real exchange rates while the effects of traded sector productivity shocks are much weaker

inequality and the business cycle evidence from u s survey data we study the effects of macroeconomic shocks on measures of economic inequality obtained from u s survey data to identify aggregate supply aggregate demand and monetary policy shocks we estima

interpreting the macroeconomic time series facts the effects of monetary policy existing theory and evidence on the effects of monetary policy are reviewed substantial room for disagreement among economists remains new evidence based on multivariate time series studies of several countries is presented while certain patterns in the data consistent with effective monetary policy are strikingly similar across countries others particularly the tendency of interest rate increases to predict high inflation are harder to reconcile with effective monetary policy

oil price shocks and real gdp growth empirical evidence for some oecd countries this study assesses empirically the effects of oil price shocks on the real economic activity of the main industrialized countries multivariate var analysis is carried out using both linear and non linear models the latter category includes three approaches employed in the literature namely the asymmetric scaled and net specifications evidence of a non linear impact of oil prices on real gdp is found in particular oil price increases are found to have an impact on gdp growth of a larger magnitude than that of oil price declines with the latter being statistically insignificant in most cases among oil importing countries oil price increases are found to have a negative impact on economic activity in all cases but japan moreover the effect of oil shocks on gdp growth differs between the two oil exporting countries in the sample with the uk being negatively affected by an oil price increase and norway benefiting from it

transmission of business cycle shocks between the us and the euro area we analyse the transmission of structural shocks between the us and the euro area within a two country vector autoregressive var framework for that purpose we simultaneously identify cost push demand and monetary policy shocks for both countries using sign restrictions our results show that domestic shocks explain the largest share of the forecast error variances for gross domestic product gdp consumer prices and interest rate in both countries in the short run whilst spillovers from the other country and global factors gain importance in the medium run the strength of the shock transmission between the two countries is quite symmetric our approach to the identification of structural shocks allows us to construct confidence bands that account both for estimation and identification uncertainty we find impulse responses to domestic shocks to be significant while spillovers across countries are insignificant

identifying terms of trade shocks in a developing country using a sign restrictions approach using annual data for botswana from 1960 to 2012 we examine the responses of macroeconomic variables to four generalized positive terms of trade shocks global demand globalizing sector specifi

the dynamic effects of aggregate demand and supply disturbances we interpret fluctuations in gnp and unemployment as due to two types of disturbances disturbances that have a permanent effect on output and disturbances that do not we interpret the first as supply disturbances the second as demand disturbances demand disturbances have a hump shaped mirror image effect on output and unemployment the effect of supply disturbances on output increases steadily over time peaking after two years and reaching a plateau after five years

fiscal policy in good and bad times in this paper we analyze whether the effect of fiscal policy differs across the business cycle to tackle this question we use a regime switching error correction framework where nonlinearities are only modeled in the short run and have no impact on the long run equilibrium regime specific shocks to government revenue and government purchases are identified using sign restrictions linear combinations of the impulse responses of these basic shocks are used to construct a deficit spending shock and a deficit financed tax cut shock we find that active spending policies have a stronger impact in recession with multipliers exceeding unity and should be preferred to deficit financed tax cuts

identification of financial factors in economic fluctuations we estimate demand supply monetary investment and nancial shocks in a var identified with a minimum set of sign restrictions on us data we find that financial shocks are major drivers of fluctuations in output stock prices and investment but have a limited effect on inflation in a second step we disentangle shocks originating in the housing sector shocks originating in credit markets and uncertainty shocks in the extended set upfinancial shocks are even more important and a leading role is played by housing shocks that have large and persistent effects on output

oil and the euro area economy we examine the macroeconomic effects of different types of oil shocks and the oil transmission mechanism in the euro area a comparison is made with the us and across individual member countries first we find that the underlying source of the oil price shift is crucial to determine the repercussions on the economy and the appropriate monetary policy reaction second the transmission mechanism is considerably different compared to the us in particular inflationary effects in the us are mainly driven by a strong direct pass through of rising energy prices and indirect effects of higher production costs in contrast euro area inflation reacts sluggishly and is much more driven by second round effects of increasing wages the monetary policy reaction of the ecb to oil shocks is also strikingly different compared to the fed the inflation objective relative to the output stabilization objective appears more important for euro area monetary authorities than for the fed third there are substantial asymmetries across member countries these differences are due to different labour market dynamics which are further aggravated by a common monetary policy stance which does not fit all gert peersman and ine van robays

dynamics of worker flows and vacancies evidence from the sign restriction approach this paper establishes robust dynamic features of the worker reallocation process in the us labor market i use structural vars with sign restrictions which take the form of restricting the short run negative relationship between vacancies and unemployment i e beveridge curve despite the weakness of these restrictions they reveal a clear unambiguous pattern that when unemployment increases and vacancies drop i both the separation rate and gross separations rise quickly and remain persistently high ii the job finding rate and vacancies drop in a hump shaped manner and iii gross hires respond little initially but eventually rise these results point to the importance of job loss in understanding us labor market dynamics this pattern also holds with respect to different kinds of shocks that induce the same beveridge curve relationship this paper also considers the disaggregate model which uses data disaggregated into six demographic groups and incorporates transitions into and out of the labor force i show that the separation rate continues to play a dominant role among prime age male workers while for other groups changes in the job finding rate are more important copyright 2009 john wiley sons ltd

on the sources of business cycles in the g 7 abstract this paper examines sources of cyclical movements in output inflation and the term structure of interest rates in the g 7 it employs a novel identification approach which uses the sign of the theoretical cross correlation function in response to shocks to catalog orthogonal disturbances we find that demand shocks are the dominant source of output and inflation fluctuations in several of the g 7 countries the proportion of term structure variability explained by different structural sources does not depend on the horizon apart from the us and canada structural shocks are nearly uncorrelated across countries

business cycle convergence in emu a first look at the second moment we analyse the dynamics of the standard deviation of demand and supply shocks as well as of the demand component of gdp across countries in the european monetary union emu this analysis allows us to evaluate the patterns of cyclical comovement in emu and compare them the cyclical performance of the new members of the eu and other oecd countries we make use of sigma convergence methods to identify synchronization patterns in business cycles the eurozone has converged to a stable lower level of dispersion across business cycles during the end of the 80s and the beginning of the 90s the new eu members have also experienced a strong pattern of convergence from 1998 to 2005 when a strong divergence trend appears an enlargement of the emu to 22 members would not significantly decrease its optimality as a currency area there is evidence for some europe specific characteristics as compared to global comovements in business cycles authors abstract

monetary policy inflation expectations and the price puzzle this article re examines the var evidence on the price puzzle and proposes a new theoretical interpretation using actual data and two identification strategies based on zero restrictions and model consistent sign restrictions we find that the positive response of prices to a monetary policy shock is historically limited to the sub samples that are typically associated with a weak interest rate response to inflation using pseudo data generated by a sticky price model of the us economy we then show that the structural vars are capable of reproducing the price puzzle only when monetary policy is passive the omission in the vars of a variable capturing expected inflation is found to account for the price puzzle observed in simulated and actual data structural vector autoregressions svars are widely used for measuring and understanding the effects of monetary policy innovations on the aggregate economy while most results in the var literature are consistent with economic intuition and macroeconomic theory the typically found positive and significant reaction of the price level on impact to a monetary policy shock is a fact that most monetary models

examining asymmetries in the transmission of monetary policy in the euro area evidence from a mixed cross section global var model abstract i estimate the transmission of a common euro area monetary policy shock across individual euro area economies to do so i develop a global var model in which all euro area economies are included individually while at the same time their common monetary policy is modelled as a function of euro area aggregate output growth and inflation the results suggest that the transmission of monetary policy across euro area economies displays asymmetries and that in line with economic theory these are driven by differences in economies structural characteristics in particular euro area economies in which a higher share of aggregate output is accounted for by sectors servicing interest rate sensitive demand exhibit a stronger transmission of monetary policy to real activity similarly even though the evidence is less conclusive euro area economies which feature more real wage and or fewer unemployment rigidities also appear to display a stronger transmission of monetary policy to real activity

what caused the early millennium slowdown evidence based on vector autoregressions this paper uses a simple var for the usa and euro area to analyse the underlying shocks of the early millennium slowdown i e supply demand monetary policy and oil price shocks the results of two identification strategies are compared one is based on traditional zero restrictions and as an alternative an identification scheme based on more recent sign restrictions is proposed the main conclusion is that the recent slowdown is caused by a combination of several shocks negative aggregate supply and aggregate spending shocks the increase of oil prices in 1999 and restrictive monetary policy in 2000 these shocks are more pronounced in the usa than the euro area the results are somewhat different depending on the identification strategy it is illustrated that traditional zero restrictions can have an influence on the estimated impact of certain shocks copyright 2005 john wiley sons ltd

growth expectations undue optimism and short run fluctuations this paper proposes a two step procedure in order to identify belief shocks shocks to expectations about the current state of the economy first we use the survey of professional forecasters to me

is the exchange rate a shock absorber or a source of shocks new empirical evidence this paper analyses the role of the real exchange rate in a structural vector autoregression framework for the united kingdom euro area japan and canada vis a vis the united states a new identification strategy is proposed building on sign restrictions the results are compared to the benchmark conventional approach of clarida and gali 1994 based on longrun zero restrictions although the restrictions are derived from the same theoretical model the results are strikingly different in contrast to the benchmark model an important role for nominal shocks in explaining real exchange rate fluctuations is found hence the exchange rate can rather be considered as a source of shocks instead of a shock absorber

business cycle transmission from the us to germany a structural factor approach abstract this paper investigates the transmission of us macroeconomic shocks to germany using a large dimensional structural dynamic factor model this framework allows us to investigate many transmission channels simultaneously including new channels such as stock markets foreign direct investment bank lending and the confidence channel we find that us shocks affect the us and germany largely symmetrically trade seems to be the most relevant transmission channel monetary policy reactions to strong price movements seem to play a role as well no clear conclusion can be drawn yet on the role of financial markets and the confidence channel negative domestic influences apparently more than offset positive us influences in the german economy between 1995 and 2000 but the us recession in 2001 appeared to be the main culprit in the german slump

cross country differences in the effects of oil shocks abstract we compare the macroeconomic consequences of several types of oil shocks across a set of industrialized countries that are structurally very diverse with respect to the role of oil and other forms of energy in the economy the results crucially depend on the underlying source of the oil price shift when a rise in oil prices is caused by increased global economic activity or a rise in oil specific demand almost all countries experience respectively a temporary increase and transitory decline of real gdp the role of oil and other forms of energy cannot explain the differences in the effects of both shocks across countries in contrast this role is very important to explain asymmetries in the effects of exogenous oil supply shocks whereas net oil and energy importing countries typically face a permanent fall in economic activity the impact is insignificant or even positive in net energy exporting countries in addition countries that improved their net energy position the most over time became less vulnerable to oil supply shocks relative to other countries

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

how to solve the price puzzle a meta analysis the short run increase in prices following an unexpected tightening of monetary policy constitutes a frequently reported puzzle yet the puzzle is surprisingly easy to explain away when all published models are quantitatively reviewed we collect about 1 000 point estimates of impulse responses from 70 articles using vector autoregressive models and present a simple method of research synthesis for graphical results our ndings indicate publication selection in favor of the intuitive response of prices to a tightening the estimates depend systematically on study design when misspecications are

the effectiveness of conventional and unconventional monetary policy evidence from a structural dynamic factor model for japan abstract i investigate the effectiveness of both conventional and unconventional japanese monetary policy measures targeting either the short term interest rate or the monetary base using a 1985 2014 data set covering 135 variables the analysis is based on a structural dynamic factor model an expansionary monetary policy shock identified via theoretically plausible sign restrictions is found to significantly increase real and nominal economic activity with regard to the policy instrument its effectiveness differs a shock that decreases the short term interest rate has a strong positive effect on output and a modest effect on prices a monetary policy shock that raises the monetary base has a positive but weak and rather transitory effect on output and a strong effect on goods and stock prices

how well does the is lm model fit postwar u s data postwar u s time series for money interest rates prices and gnp are characterized by a multivariate process driven by four exogenous disturbances those disturbances are identified so that they can be interpreted as the four main sources of fluctuations found in the is lm phillips curve model money supply money demand is and aggregate supply shocks the dynamic properties of the estimated model are analyzed and shown to match most of the stylized predictions of the model the estimated decomposition is also used to measure the relative importance of each shock to interpret some macroeconomic episodes and to study sources of permanent shocks to nominal variables

econometric methods for modelling systems with a mixture of i 1 and i 0 variables summary this paper considers structural models with both i 1 and i 0 variables the structural shocks associated with either set of variables could be permanent or transitory we classify the shocks as p1 p0 and t1 t0 where p t distinguishes permanent transitory while 1 0 means they are attached to structural equations with either i 1 or i 0 variables as their dependent variable we show that p0 shocks can affect cointegration analysis and provide a formula to compute the permanent component if they are present finally we reformulate a well known empirical structural vector autoregression showing the impact of p0 shocks when there are just long run parametric and sign restrictions copyright 2015 john wiley sons ltd

oil price shocks and their transmission mechanism in an oil exporting economy a var analysis informed by a dsge model abstract this paper examines the macroeconomic effects of oil price shocks and the oil shock transmission mechanism in an oil exporting country canada we use a structural var with sign restrictions that comes from a two country dynamic stochastic general equilibrium dsge model to jointly identify oil price domestic supply and u s and domestic monetary policy shocks this identification strategy not only controls for reverse causality from the canadian and u s macroeconomic conditions to the real oil prices but more importantly it also allows for contemporaneous interactions between the canadian and u s variables we find that oil shocks have a stimulative effect on canadian aggregate demand appreciate the canadian dollar improve the terms of trade and reduce real wages foreign disturbances including innovations in oil prices and the u s interest rate have a significant influence on canadian economic activities our counterfactual analysis indicates that the reaction of the u s interest rate as an indirect transmission channel for oil price shocks plays a moderate role in explaining the real exchange rate and inflation but has negligible impacts on the canadian output and interest rate

how have inflation targeting central banks responded to supply shocks abstract this paper examines how inflation targeting central banks have responded to supply shocks based on the sign restriction var approach it is found that inflation targeting central banks have become accommodative to adverse supply shocks following the adoption of inflation targeting

what are the effects of fiscal policy shocks we propose and apply a new approach for analyzing the effects of fiscal policy using vector autoregressions specifically we use sign restrictions to identify a government revenue shock as well as a government spending shock while controlling for a generic business cycle shock and a monetary policy shock we explicitly allow for the possibility of announcement effects i e that a current fiscal policy shock changes fiscal policy variables in the future but not at present we construct the impulse responses to three linear combinations of these fiscal shocks corresponding to the three scenarios of deficit spending deficit financed tax cuts and a balanced budget spending expansion we apply the method to us quarterly data from 1955 to 2000 we find that deficit financed tax cuts work best among these three scenarios to improve gdp with a maximal present value multiplier of five dollars of total additional gdp per each dollar of the total cut in government revenue 5 years after the shock copyright 2009 john wiley sons ltd

loan supply shocks during the financial crisis evidence for the euro area this paper employs a panel vector autoregressive model for the member countries of the euro area to explore the role of banks during the slump of the real economy that followed the financial crisis in particular we seek to quantify the macroeconomic effects of adverse loan supply shocks which are identified using sign restrictions we find that loan supply shocks significantly contributed to the evolution of the loan volume and real gdp growth in all member countries during the financial crisis however concerning both the timing and the magnitude of the shocks our results also indicate that the euro area was characterized by a considerable degree of cross country heterogeneity

technology shocks and robust sign restrictions in a euro area svar we use a model based identification strategy to estimate the impact of technology shocks on hours worked and employment in the euro area the sign restrictions applied in the vector autoregression var analysis are consistent with a large class of dynamic stochastic general equilibrium dsge models and are robust to parameter uncertainty the results are in line with the conventional real business cycle rbc interpretation that hours worked rise as a result of a positive technology shock by comparing the sign restrictions method to the long run restriction approach of gali quaterly journal of economics 1992 709 38 we show that the results do not depend on the stochastic specification of the hours worked series or the data sample but only on the identification scheme

labor supply factors and economic fluctuations we propose a new v ar identication scheme that enables us to disentangle labor supply shocks from wage bargaining shocks identication is achieved by imposing robust sign restrictions that are derived from a new keynesian model with endogenous labor force par ticipation according to our analysis on us data over the period 1985 2014 labor supply shocks and wage bargaining shocks are important drivers of output and unemployment both in the short run and in the long run these results suggest that identication strategies used in estimated new keynesian models to disentangle labor market shocks may be misguided we also analyze the behavior of the labor force participation rate through the lenses of our model wend that labor supply shocks are the main drivers of the participation rate and account for about half of its decline in the aftermath of the great recession

agglomeration effects in foreign direct investment and the pollution haven hypothesis does environmental regulation impair international competitiveness of pollution intensive industries to the extent that they relocate to countries with less stringent regulation turning those countries into pollution havens we test this hypothesis using panel data on outward foreign direct investment fdi flows of various industries in the german manufacturing sector and account for several econometric issues that have been ignored in previous studies most importantly we demonstrate that externalities associated with fdi agglomeration can bias estimates away from finding a pollution haven effect if omitted from the analysis we include the stock of inward fdi as a proxy for agglomeration and employ a gmm estimator to control for endogenous time varying determinants of fdi flows furthermore we propose a difference estimator based on the least polluting industry to break the possible correlation between environmental regulatory stringency and unobservable attributes of fdi recipients in the cross section when accounting for these issues we find robust evidence of a pollution haven effect for the chemical industry

comovements and heterogeneity in the euro area analyzed in a non stationary dynamic factor model this paper establishes stylized facts on comovements and heterogeneity of individual euro area countries output and price developments in the past two decades for this purpose a non stationary structural dynamic factor model is fitted to a large dataset of euro area macroeconomic variables the main results are as follows both common factors and idiosyncratic components are important in explaining individual countries output and price developments in the euro area and are also both very persistent idiosyncratic shocks and adjustments to these shocks are mainly responsible for cross country heterogeneity the asymmetric transmission of common shocks plays a minor role finally there is no strong evidence that some common shocks lead to greater heterogeneity than others copyright 2009 john wiley sons ltd

optimal observability in a linear income tax abstract we study the optimal observability of the tax base within the standard linear income tax problem where observability is determined by the government s investment into the accurate measurement of the tax base we characterize the optimal level of observability and derive a new expression for the optimal progressivity which in addition to the standard equity efficiency trade off accounts for the limited accuracy of an income tax system

asset prices exchange rates and the current account this paper analyses the role of asset prices in comparison to other factors in particular exchange rates as a driver of the us trade balance it employs a bayesian structural var model that requires imposing only a minimum of economically meaningful sign restrictions we find that equity market shocks and housing price shocks have been major determinants of the us current account in the past accounting for up to 30 of the movements of the us trade balance at a horizon of 20 quarters by contrast shocks to the real exchange rate have been less relevant explaining about 9 and exerting a more temporary effect on the us trade balance our findings suggest that large exchange rate movements may not necessarily be the key element of an adjustment of today s large current account imbalances and that in particular relative global asset price changes could be a potent source of adjustment

time varying macroeconomic effects of energy price shocks a new measure for china abstract in this paper we examine the effects of world energy price shocks on china s macroeconomy over the past two decades we begin by showing that the use of oil prices as a proxy for more general energy price dynamics is not appropriate for the case of china having established this fact we propose a new energy price index which accurately reflects the structure of china s energy expenditure shares and intertemporal fluctuations in international energy prices we then employ a sufficiently rich set of time varying vars identified through a new set of agnostic sign restrictions to estimate the effects of energy price shocks on china s macroeconomy our main result is that positive energy price shocks generate statistically significant reductions in real gdp growth and increases in inflation interestingly both the sets of responses have consistently declined over the sample period next the interest rate responses are found to be consistently positive over the sample period given the aforementioned stagflation result this suggests that the pboc is more focused on inflation stabilization as compared to facilitating output growth all presented results are shown to be robust under both official national data and those developed by chang et al 2015 thus strengthening our conclusion that energy price shocks have significant time varying effects on china s macroeconomy

commodity prices and fiscal policy design procyclical despite a rule recent studies offer evidence of reduced fiscal procyclicality to commodity price changes in resource rich countries a feature commonly attributed to the adoption of fiscal policy rules we revisit this issue and find that by controlling for global activity shocks while allowing for time varying changes in both fiscal policy and the volatility of shocks this finding does not hold to show this we develop a time varying dynamic factor model allowing for a multiple of shocks stochastic volatility and time varying parameters and estimate it on data for norway whose handling of resource wealth is often cited as exemplary

is it fair to make work pay the design of the income transfer program for the lower incomes is a hot issue in current public policy debate should we stick to a generous welfare state with a sizeable basic income but high marginal tax rates for the lower incomes and thus little incentives to work or should we make work pay by subsidizing the work of low earners but possibly at the cost of a smaller safety net we think it is difficult to answer this question without making clear what individuals are held responsible for and what not first we present a new fair allocation coined a pareto efficient and shared resources equivalent pese allocation which compensates for different productive skills but not for different tastes for working we also characterize a fair social ordering which rationalizes the pese allocation second we illustrate the optimal second best allocation in a discrete stiglitz 1982 1987 economy the question whether we should have subsidies for the low earners or not crucially depends on whether the low skilled have a strictly positive or zero skill third we simulate fair taxes for a sample of belgian singles our simulation results suggest that making work pay policies can be optimal according to our fairness criterion but only in the unreasonable case in which none of the unemployed are ever willing to work