capital inflows financial structure and housing booms we use a panel var to study the effect of shocks to capital inflows which are identified using sign restrictions on the housing market in oecd countries to explore how effects of these shocks change with the structure of the mortgage market and the degree of mortgage securitization we allow the var coefficients to vary with mortgage market characteristics our results indicate that capital inflow shocks have a significant and positive effect on real house prices real credit available to the private sector and real residential investment the responses of these variables are stronger in countries with more developed mortgage markets and in countries where securitization is allowed

a simple framework for international monetary policy analysis abstract we study the international monetary policy design problem within an optimizing two country sticky price model where each country faces a short run tradeoff between output and inflation the model is sufficiently tractable to solve analytically we find that in the nash equilibrium the policy problem for each central bank is isomorphic to the one it would face if it were a closed economy gains from cooperation arise however that stem from the impact of foreign economic activity on the domestic marginal cost of production while under nash central banks need only adjust the interest rate in response to domestic inflation under cooperation they should respond to foreign inflation as well in either scenario flexible exchange rates are desirable

some empirical evidence on the effects of shocks to monetary policy on exchange rates this paper investigates the effects of shocks to u s monetary policy on exchange rates we consider three measures of these shocks orthogonalized shocks to the federal funds rate orthogonalized shocks to the ratio of nonborrowed to total reserves and changes in the romer and romer index of monetary policy in sharp contrast to the literature we find substantial evidence of a link between monetary policy and exchange rates specifically according to our results a contractionary shock to u s monetary policy leads to i persistent significant appreciations in u s nominal and real exchange rates and ii significant persistent deviations from uncovered interest rate parity in favor of u s interest rates

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

new evidence on the puzzles results from agnostic identification on monetary policy and exchange rates abstract past empirical research on monetary policy in open economies has found evidence of the delayed overshooting puzzle and the forward discount puzzle we revisit the effects of monetary policy on exchange rates by applying uhlig s uhlig h 2005a what are the effects of monetary policy on output results from an agnostic identification procedure journal of monetary economics 52 2 381 419 identification procedure that involves sign restrictions on the impulse responses of selected variables in a first step we leave the response of the exchange rate agnostically open and find sizeable evidence for both puzzles in a second step we additionally rule out the delayed overshooting by construction our results indicate that the forward discount puzzle is robust even without delayed overshooting

global imbalances and financial fragility the united states is currently engulfed in the most severe financial crisis since the great depression the crisis was triggered by the crash in the real estate bubble and amplified by the extreme concentration of risk in a highly leveraged financial sector conventional wisdom is that both the bubble and the risk concentration were the result of mistakes in regulatory policy an expansionary monetary policy during the boom period of the bubble and failure to reign in the practices of unscrupulous lenders in this paper we argue that while correct in some dimensions this story misses two key structural factors behind the securitization process that supported the real estate boom and the corresponding lever age first over the last decade the us has experienced large and sustained capital inflows from foreigners seeking us assets to store value caballero emmanuel farhi and pierre olivier gourinchas 2008 second especially after the nasdaq tech bubble and bust excess world savings have looked predominantly for safe debt investments this should not be surprising because a large amount of the capital flow into the us has been from foreign central banks and governments that are not expert investors and are merely looking for a store of value krishnamurthy and annette vissing jorgenson 2008 in this paper we develop a stylized model that captures the essence of this environment the model accounts for three facts observed during the boom and bust phases of the current crisis first during a period of good shocks which we interpret as the period up to the end

inference in structural vector autoregressions when the identifying assumptions are not fully believed re evaluating the role of monetary policy in economic fluctuations abstract point estimates and error bands for svars that are set identified are only justified if the researcher is persuaded that some parameter values are a priori more plausible than others when such prior information exists traditional approaches can be generalized to allow for doubts about the identifying assumptions we use information about both structural coefficients and impacts of shocks and propose a new asymmetric t distribution for incorporating information about signs in a nondogmatic way we apply these methods to a three variable macroeconomic model and conclude that monetary policy shocks are not the major driver of output inflation or interest rates

the dynamic eects of monetary policy a structural factor model approach we use the structural factor model proposed by forni giannone lippi and reichlin 2007 to study the eects of monetary policy the advantage with respect to the traditional vector autoregression model is that we can exploit information from a large data set made up of 112 us monthly macroeconomic series monetary policy shocks are identified using a standard recursive scheme in which the impact eects

us imbalances the role of technology and policy abstract this paper investigates the role of three likely suspects in driving the steady deterioration of the us external balance us technology developments changes in the us government fiscal position and the fed s monetary policy estimating several vector autoregressions on us data over the period 1982 2 2005 4 we identify five structural shocks a multi factor productivity shock an investment specific technology shock a monetary policy shock and a fiscal revenue and spending shock together these shocks can account for the deterioration and subsequent reversal of the trade balance in the 1980s while productivity improvements and fiscal and monetary policy easing also play an important role in the rapid deterioration since 2000 these structural shocks cannot explain why the trade balance deteriorated in the second half of the 1990s

financial crises and the multilateral response what the historical record shows abstract we provide a synoptic description of financial crises and the multilateral response over the course of the last four decades we present both indicators of economic performance around crisis dates and a comprehensive description of multilateral rescue efforts while emergency lending has grown reliance on debt restructuring broadly speaking has declined this leads us to ask what can be done to rebalance the management of debt problems toward a better mix of emergency lending and private sector burden sharing in particular we explore the idea of sovereign cocos contingent debt securities that automatically reduce payment obligations in the event of debt sustainability problems

ethical differentiation and market behavior an experimental approach abstract does ethical differentiation of products affect market behavior we examined this issue in triopolistic experimental markets where producers set prices one producer s costs were higher than the others in two treatments the additional costs were attributed to compliance with ethical guidelines in the third no justification was provided many consumers reduced their experimental gains by purchasing the ethically differentiated products at higher prices individual differences were important business economics students paid smaller premia finally we speculate about the observed demand function for ethics and emphasize using experimental methodology to complement empirical studies in assessing markets for ethically differentiated products

is fiscal consolidation self defeating a panel var analysis for the euro area countries abstract this paper studies the effects of fiscal consolidation on the debt to gdp ratio of 11 euro area countries over the period 2000q1 2012q1 using a quarterly panel var allows us to trace out the dynamics of the debt to gdp ratio following a fiscal shock and to disentangle the main channels through which fiscal consolidation affects the debt ratio we define a fiscal consolidation episode as self defeating if the level of the debt to gdp ratio does not decrease compared to the pre shock level our main finding is that when consolidation is implemented via a cut in government primary spending the debt ratio after an initial increase falls to below its pre shock level when instead the consolidation is implemented via an increase in government revenues the initial increase in the debt ratio is stronger and eventually the debt ratio reverts to its pre shock level resulting in what we call self defeating consolidation

scale economies and rent seeking in legislative parties this paper examines equilibrium legislative party size based upon scale economies in producing political outcomes political production finding policies legislators desire and votetrading to pass them has strong scale economies up to but not far beyond a majority of the voters either one or two parties is efficient but a larger number is not a single party s optimal long run strategy is to benefit a dominant majority by avoiding the creation of an effective second party but short term rent seeking is in legislators and leaders interests which eventually causes a second effective party and a stable two party equilibrium estimates of party size for the u s congress suggest considerable short term rent seeking

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

global implications of self oriented national monetary rules author s obstfeld maurice rogoff kenneth abstract it is well known that if international linkages are relatively small the potential gains to international monetary policy coordination are typically quite limited but what if goods and financial markets are tightly linked is it then problematic if countries unilaterally design their institutions for monetary stabilization are the stabilization gains from having separate currencies largely squandered in the absence of effective international monetary coordination we argue that under plausible assumptions the answer is no unless risk aversion is very high lack of coordination in rule setting is a second order problem compared to the overall gains from monetary policy stabilization

capital inflows and the u s housing boom we estimate an open economy vector autoregressive var model to study the effect of capital inflow shocks on the u s housing market we look at different external shocks that generate capital inflows to the u s in particular saving glut shocks and foreign monetary policy expansions the shocks are identified with theoretically robust sign restrictions derived from an open economy dynamic stochastic general equilibrium dsge model our findings suggest that capital inflows that result from saving glut shocks have a positive and persistent effect on real house prices and real residential investment

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

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

welfare and macroeconomic interdependence we develop a baseline model of monetary and fiscal transmission in interdependent economies the welfare effects of expansionary policies are related to monopolistic supply in production and monopoly power of a country in trade an unanticipated exchange rate depreciation can be beggar thyself rather than beggar thy neighbor as gains in domestic output are offset by deteriorating terms of trade smaller and more open economies are more prone to suffer from inflationary shocks larger economies benefit from moderate demand led expansions but may be worse off if policy makers attempt to close the output gap fiscal shocks are generally beggar thy neighbor in the long run in the short run they raise domestic demand at given terms of trade thus reducing the welfare benefits from monetary expansions analytical tractability makes our model uniquely suitable as a starting point to approach the recent new open economy macroeconomic literature

target2 and central bank balance sheets the euro area s target2 payments system has featured heavily in academic and popular discussions of the euro crisis some of this commentary has described the system as being responsible for a secret bailout of europe s periphery another common theme has been that the system has built up large credit risks for germany should the euro break up this paper discusses the target2 system focusing in particular on how it impacts the balance sheets of the central banks that participate in the system it discusses the factors driving target2 balances considers some counterfactual cases in which euro area monetary policy operated differently examines the risks to germany and considers proposals for settlement of these balances

the effects of government purchases shocks review and estimates for the eu in this article we review the theoretical consequences of government purchases shocks for both closed and open economies followed by a discussion of the empirical literature next we provide our own estimates for the eu countries we find that an increase in government purchases raises output consumption and investment and reduces the trade balance however the stimulating effect is weaker and the trade balance reduction is larger for the more open eu economies consistent with larger leakage effects further we show that government purchases shocks in large eu economies have non negligible consequences for economic activity in the main trading partners

the new open economy macroeconomics a survey since the 1995 publication of obsteld and rogoff s redux model there has been an outpouring of research on open economy dynamic general equilibrium models that incorporate imperfect competition and nominal rigidities this paper offers an interim survey of this recent literature 2001 elsevier science b v all rights reserved

capital inflows and asset prices evidence from emerging asia abstract the withdrawal of foreign capital from emerging countries at the height of the recent financial crisis and its quick return sparked a debate about the impact of capital flow surges on asset markets this paper addresses the response of property prices to an inflow of foreign capital for that purpose we estimate a panel var on a set of asian emerging market economies for which the waves of inflows were particularly pronounced and identify capital inflow shocks based on sign restrictions our results suggest that capital inflow shocks have a significant effect on the appreciation of house prices and equity prices capital inflow shocks account for roughly twice the portion of overall house price changes they explain in oecd countries we also address cross country differences in the house price responses to shocks which are most likely due to differences in the monetary policy response to capital inflows