state dependent exchange rate pass through behavior abstract we estimate a bayesian threshold vector autoregression tvar to study the relationship between exchange rate pass through and economic activity in canada and mexico both the model comparison and the analysis of impulse response functions provide strong evidence of a nonlinear relationship and suggest that the exchange rate pass through is dependent on the state of the economy in particular the pass through coefficient is higher when the growth rate of output is large and this difference is statistically significant across regimes for both countries furthermore the results show that the degree of pass through is complete in the case of import prices and that it falls along the distribution chain of goods

monetary policy housing and heterogeneous regional markets we quantify the importance of heterogeneity for monetary policy using a new heterogeneous agent var havar model that integrates national monetary financial markets with regional housing markets via the mortgage rate although the havar model has linear regional vars its aggregate impulse responses exhibit two nonlinearities 1 time variation stemming from aggregation over heterogeneous regions and 2 state dependence on initial economic conditions in regions thus monetary policy has long and variable lags because monetary transmission depends on the extent and nature of regional heterogeneity which both vary over time the model is estimated with data for u s regions from 1986 to 1996 and simulated to show how coastal housing booms might influence the efficacy of monetary policy

reversing the keynesian asymmetry the assumption that nominal price adjustment is costly for firms there are menu costs has generated a stream of important theoretical papers over the last decade or so insofar as this literature generates asymmetric adjustments it provides a theoretical underpinning for the old keynesian assumption that nominal prices are more flexible upward than downward yet the empirical evidence while confirming that asymmetries exist does not indicate the dominance of any particular form of asymmetry see dennis w carlton 1986 alan s blinder 1991 in this paper we argue that the gap between theory and practice may be the result of the focus of menu cost models on specific forms of market structure existing menu cost models are based on the assumption of relatively uncompetitive market structures monopoly oligopoly or monopolistic competition with a fixed number of firms we widen the scope of the analysis by examining what we call a quasi competitive industry and demonstrate that it displays a pattern of adjustment quite different from that found in other models the keynesian asymmetry is reversed with nominal price being more flexible downward than upward we suggest therefore that a relationship exists between market structure and the pattern of nominal price adjustment since there is presumably a variety of market structures this may help explain the inconclusive empirical evidence we model the most competitive market configuration compatible with menu costs bertrand oligopoly in a dynamic setting with free entry it is assumed that a an incumbent in one period can continue to sell at its existing nominal price in the next period without incurring any additional menu cost whereas an entrant would have to incur a menu cost and b among the firms willing to sell at the lowest price in any given period one is chosen randomly to sell the product these simplifications enable us to abstract from matters such as determining the identity of active firms extraneous to our main concern of establishing a clean connection between market structure and the pattern of price in flexibility to set a benchmark and to obtain a simple solution by backward induction we begin by assuming a two period time horizon then we extend the analysis to the case where the incumbent faces an ever recurring threat of entry that is with an infinite horizon this is the scenario we call quasi competitive comparing these two extreme cases yields an intuitively appealing relationship between competitiveness and the pattern of nominal price adjustment bennett department of economics and finance brunel university uxbridge middlesex united kingdom ub8 3ph la manna department of economics university of st andrews st andrews scotland united kingdom ky16 9al this work developed out of earlier discussions with subhashish gupta we are also grateful to v bhaskar huw dixon elisabetta iossa jonathan thomas and anonymous referees for very helpful comments 1 for surveys see n gregory mankiw and david romer 1991 torben m andersen 1994 and huw david dixon and neil rankin 1994 2 models providing some support for the keynesian asymmetry include daniel tsiddon 1993 and laurence ball and mankiw 1994 however robert j barro 1972 and mankiw 1985 among others produce two directional stickiness the tsiddon and ball mankiw models are based on the assumption of positive trend inflation whereby a firm that wishes to reduce its relative price finds that it can do so costlessly merely by keeping its nominal price unchanged conversely a firm that wishes to raise its relative price finds that inflation widens the gap between its desired and actual nominal price thereby providing a strong incentive to incur a menu cost and raise its nominal price 3 a similar pattern of greater downward flexibility is found in kinked demand curve models but there it occurs essentially by assumption see for example jean tirole 1988 pp 243 44 4 a bertrand duopoly model that yields the keynesian asymmetry can be found in per svejstrup hansen et al 1996 although their model and ours are not directly comparable insofar as they consider real shocks and produce asymmetric price adjustments in the absence of menu costs we conjecture that the opposite asymmetry generated by our model is due to our key assumption of free entry 5 to establish the basic message of the paper it is not necessary to examine the more complicated case of a tperiod model where t 2

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

regime switching approach to monetary policy effects even though monetary policy has kept interest rates at historically low levels the japanese economy has experienced long lasting recessions since the 1990s in this paper japanese data are employed to conduct an empirical analysis of changes in the effects of monetary policy on the real economy it is found that monetary policy effects vary depending on the phase of the business cycle and the lending attitudes diffusion indices more precisely policy effects are larger in recession but diminish in extreme recession and monetary policy is more effective when lenders attitudes are severe but less effective when they are excessively severe

changing effects of monetary policy in the u s evidence from a time varying coefficient var we estimate a time varying coefficient var model for the us economy to analyse i if the effect of monetary policy on output has been changing systematically over time and ii if monetary policy has asymmetric effects over the business cycle we find that the impact of monetary policy shocks has been gradually declining over the sample period 1962 to 2002 as some theories of the monetary transmission mechanism imply in addition our results indicate that the effects of monetary policy are greater in a recession than in a boom

market concentration macroeconomic uncertainty and monetary policy abstract this paper studies the effect of market structure and macroeconomic uncertainty on the transmission of monetary policy we motivate our analysis with a simple model which predicts that 1 investment and production in more concentrated sectors are more affected by demand shocks and 2 high uncertainty makes investment and production more sensitive to demand shocks the empirical analysis estimates the effect of monetary shocks on sectoral output for different sectors in the us using a structural vector autoregressive var approach the results are generally consistent with the theoretical predictions

is the response of output to monetary policy asymmetric evidence from a regime switching coefficients model this paper investigates regime switching in the response of u s output to a monetary policy action we find substantial statistically significant time variation in this response that corresponds to high response and low response regimes we then investigate whether the timing of the regime shifts are consistent with three particular manifestations of asymmetry by modeling the transition probabilities governing the switching process as functions of state variables we find strong evidence that policy actions taken during recessions have larger effects than those taken during expansions we find less evidence of asymmetry related to the direction or size of the policy action

loss aversion and the asymmetric transmission of monetary policy there is widespread evidence that monetary policy exerts asymmetric effects on output over contractions and expansions in economic activity while price responses display no sizeable asymmetry to rationalize these facts we develop a dynamic general equilibrium model where households utility depends on consumption deviations from a reference level below which loss aversion is displayed state dependent degrees of real rigidity and elasticity of intertemporal substitution in consumption generate competing effects on output and inflation contractions face the central bank with higher responsiveness of output to interest rate changes as well as a flatter aggregate supply schedule

post crisis business investment in the euro area and the role of monetary policy business investment in the euro area strongly declined during the global financial crisis and the sovereign debt crisis it has not yet rebounded to its pre crisis trend despite the very expansiona

inflation and output dynamics with state dependent pricing decisions this paper studies a state dependent pricing model in which firms face a fixed cost of changing their pricing plans a pricing plan specifies an entire sequence of time varying future prices allowing firms to choose a pricing plan rather than a single price generates inflation inertia in the response of the economy to small changes in the growth rate of money allowing firms to choose when to change their pricing plan generates a non linear response of inflation and output to small and large changes in the money growth rate the non linear solution method also reveals that the model generates an asymmetric response of output and inflation to monetary expansions and contractions

asymmetric nominal flexibility and economic fluctuations recent research has produced strong evidence that supports the asymmetric effects of positive and negative money supply shocks using quarterly data for the united states the evidence of cover 10 suggests that positive money supply shocks do not have an effect on output while negative money supply shocks do the asymmetric impact of demand shocks on real output growth is not addressed in the context of mainstream business cycle theories which include the equilibrium explanation pioneered by lucas 21 and neo keynesian models emphasizing nominal wage rigidity 14 15 or price rigidity 2 in the context of lucas s paradigm agents are scattered in informationaly isolated islands across the economy an unexpected positive or negative change in aggregate demand may be misperceived by agents as being specific to their markets in the case of a positive demand shock producers and workers expand the output and labor supplied to take advantage of the perceived increased demand in their island similarly agents are expected to contract the output produced in response to a perceived reduction in the demand for their output this scenario does not provide an obvious theoretical channel through which the slope of the short run supply curve can be differentiated depending on the direction of the change in aggregate demand in the context of a contractual wage rigidity framework the nominal wage is fixed for a duration that is determined by contractual agreements according to this framework a change in aggregate demand deviates the real wage from its market clearing value for a duration that is determined by the contract length a positive demand shock will raise the price level decrease the real wage and in turn cause an expansion in labor demand and the output produced in the short run a negative demand shock in contrast raises the realized real wage which has a negative impact on labor demand and the output produced in the short run in the absence of any stipulation in contracts that differentiates the degree of wage rigidity in response to a positive and negative demand shock the slope of the short run supply curve is not likely to be differentiated based on the direction of change in aggregate demand in the context of the sticky price explanation of business cycles the price level across sectors of the economy is fixed for a specific duration a change positive or negative in aggregate demand will be absorbed in output as long as the price level remains fixed in the short run in the absence of any stipulation that differentiates the upward and downward stickiness of the price

interest rates and credit risk this paper explores the effects of shifts in interest rates on corporate leverage and default we develop a dynamic model in which the relationship between firms and their outside financiers is affected by a moral hazard problem and entrepreneurs initial wealth is scarce the link between leverage and default risk comes from the lower incentives of overindebted entrepreneurs to guarantee firm survival the need to finance new investment with outside funding pushes firms leverage ratio above some state contingent target towards which they gradually adjust through earnings retention the dynamic response of leverage and default to interest rate rises and cuts is both asymmetric and heterogeneously distributed across firms both rises and cuts increase the aggregate default rate in the short run however a higher interest rate reduces firms target leverage and hence produces lower default rates in the longer run this helps rationalize some evidence regarding the risk taking channel of monetary policy

the informational content of prices when policy makers react to financial markets abstract when can policy makers use policy relevant information from financial market prices and how does policy affect price informativeness i analyze a novel setting with noise where a policy maker tries to infer information about a state variable from prices to improve policy decisions and policy in turn affects asset values i derive a necessary and sufficient condition for the possibility of information revelation in equilibrium which might not be possible if the policy reaction to prices punishes traders for revealing their information if the policy maker is uninformed then policy objectives do not change price informativeness but they do if the policy maker has independent information about the state i also analyze policy maker transparency and find that policy makers with objectives having a large impact on asset values should publish their information before trading to make prices more informative in other cases intransparency can be optimal

nonlinear autoregressive leading indicator models of output in g 7 countries this paper studies linear and nonlinear autoregressive leading indicator models of business cycles in g 7 countries our models use the spread between short term and long term interest rates as leading indicators for gdp we examine data admissibility by determining whether these models have the ability to produce time series with classical cycles that resemble the observed classical cycles in the data and then we ask whether this data admissibility lends itself to better predictions of the probability of recession copyright 2007 john wiley sons ltd

on the genesis of multinational foreign affiliate networks multinational enterprises mnes develop their networks of foreign affiliates gradually over time instead of exploring all profitable opportunities immediately they first establish themselves in their home countries and then enter new markets stepwise we argue that this behavior is driven by uncertainty concerning a firm s success in new markets after entry the firm collects information which is used to update its beliefs about its performance in a market as conditions in different markets are correlated the information gathered in one of them can also be used to update beliefs elsewhere with the degree of correlation depending on issues such as the geographical or cultural distance between markets this correlated learning may render it optimal to enter markets sequentially investment in market a is only followed by entry in market b if the firm was sufficiently successful in a the prediction that firms start their expansion in markets that are closer to their home base and then proceed step by step is supported by our empirical analysis which features the universe of foreign affiliates held by german multinationals based on a rich set of benchmark estimates and sensitivity checks we identify correlated learning across markets beyond alternative explanations as a key driver of gradualism in the genesis of mnes foreign affiliate networks

credit growth monetary policy and economic activity in a three regime tvar model we employ a threshold vector autoregression tvar methodology in order to examine the nonlinear nature of the interactions among credit market conditions monetary policy and economic activity we depart from the existing literature on the subject along two dimensions first we focus on a model in which the relevant threshold variable describes the state of economic activity rather than credit market conditions second in contrast to the existing tvar literature which concentrates exclusively on single threshold models we allow for the presence of a second threshold which is overwhelmingly supported by all relevant statistical tests our results indicate that the dynamics of the interactions among credit market conditions monetary policy and economic activity change considerably as the economy moves from one phase of the business cycle to another and that single threshold tvar models are too restrictive to fully capture the nonlinear nature of those interactions the impact of most shocks tends to be largest during periods of sub par economic growth and smallest during times of moderate economic activity by contrast credit risk shocks have the largest impact when output growth is considerably above it long term trend

the asymmetric effects of monetary policy a nonlinear vector autoregression approach this paper tests for nonlinearity in a standard vector autoregression including output prices and money supply using an estimation strategy that is consistent with a wide range of structural macroeconomic models shocks to the money supply are found to have stronger output effects and weaker price effects when output growth is initially low positive and negative monetary shocks are found to have nearly symmetric effects in addition there is some evidence that shocks of different magnitudes have asymmetric effects these results are consistent with the view that the aggregate supply curve is convex

the location choices of multinational firms the role of internationalisation experience and group affiliation cet article s interesse aux choix de localisation des firmes multinationales et determine dans quelle mesure ces choix dependent de l experience internationale de l investisseur et de celle de son groupe a partir de donnees francaises nous constatons que 95 des nouveaux investissements a l etranger sont precedes d exportations dans le meme pays tandis que 73 sont precedes d importations independamment des caracteristiques observables et inobservables des pays exporter vers un pays donne et dans une moindre mesure en importer accroit significativement la probabilite d investir dans ce pays l annee suivante la phase d exportation est plus systematique pour les investissements dans des pays distants et pour les primo investisseurs tandis que l experience d importation est significativement correlee aux ide dans les pays a bas revenu par ailleurs les choix de localisation ne dependent pas seulement de l experience internationale de l investisseur mais aussi de celle de son groupe les firmes tendent a investir dans les pays ou le groupe detient deja une filiale locale et sont plus enclines a investir dans des pays distants si d autres societes affiliees y exportent deja ces resultats suggerent l existence de strategies coordonnees et ou d un partage d informations entre societes affiliees

the asymmetry of the impact of oil price shocks on economic activities an application of the multivariate threshold model this paper applies the multivariate threshold model to investigate the impacts of an oil price change and its volatility on economic activities changes in industrial production and real stock returns the statistical test on the existence of a threshold effect indicates that a threshold value does exist using monthly data of the us canada and japan during the period from 1970 to 2002 we conclude i the optimal threshold level seems to vary according to how an economy depends on imported oil and the attitude towards adopting energy saving technology ii an oil price change or its volatility has a limited impact on the economies if the change is below the threshold levels iii if the change is above threshold levels it appears that the change in oil price better explains macroeconomic variables than the volatility of the oil price and iv if the change is above threshold levels a change in oil price or its volatility explains the model better than the real interest rate

the enso effect and asymmetries in wheat price dynamics summary climate has historically played a critical role in the development of nations primarily due to its intrinsic linkage with agricultural production and prices this study examines one such relationship between the better known and most talked about climate anomaly el nino southern oscillation enso and the international prices of wheat one of the most produced and consumed grain cereals in the world the enso price relationship moreover is assumed to be characterized by nonlinear dynamics because of the known asymmetric nature of enso cycles as well as that of wheat prices this study applies a vector smooth transition autoregressive vstar modeling framework to monthly spot prices of wheat from the united states the european union australia canada and argentina as well as the sea surface temperature anomalies from the nino3 4 region which serves as a proxy for the enso variable results show that overall wheat prices tend to increase after la nina events and decrease after el nino events the regime dependent dynamics are apparent with more amplified price responses after la nina shocks and with more persistent price responses during the la nina conditions this is consistent with the economics of storage wherein shocks related to expected supply and demand are known to have a more pronounced effect in a low inventory regime findings of this study have strong implications for development economics as they point to an additional channel of adversity due to the enso related climate shocks moreover the enso induced price fluctuations are likely to affect the dynamics of international food and cash programs during extreme episodes of this climate anomaly

the merits of horizontal versus vertical fdi in the presence of uncertainty we examine the impact of uncertainty on vertical and horizontal fdi our model shows that greater supply uncertainty reduces the expected income from vertical fdi but increases the expected income from horizontal fdi greater demand uncertainty adversely affects the expected income under both production modes uncertainty about predatory actions by the host country is more costly to the multinational under vertical than under the horizontal mode we examine sales by foreign affiliates of u s parent companies conditioning on host country characteristics thought to influence fdi we find evidence that volatility and sovereign risk have a greater negative impact on vertical fdi than on horizontal fdi

are economic time series asymmetric over the business cycle it has long been argued that major cyclical variables such as the unemployment rate display an asymmetric behavior over various phases of the business cycle the paper provides a statistical test for this hypothesis using the framework of finite state markov processes i implement a test to see if the behavior of the unemployment rate is characterized by sudden jumps and slower drops it is argued that the framework provided in the paper can also be used to test other sample path properties of economic time series

the asymmetric effects of demand shocks international evidence on determinants and implications the analysis focuses on the asymmetric effects of demand shocks the evidence across a sample of 19 industrial countries differentiates the effects of expansionary and contractionary aggregate demand shocks on real output growth and nominal wage and price inflation the difference appears consistent with a kinked supply curve that is dependent on the asymmetric flexibility of wages and or prices across countries furthermore the evidence does not support the endogeneity of asymmetric nominal flexibility with respect to demand variability or trend price inflation across countries on average across countries demand variability increases nominal wage and price inflation relative to deflation while exacerbating output contraction relative to expansion the apparent trade off between changes in real and nominal trends provides further support to the supply side explanation of asymmetry

venture capital financing moral hazard and learning we consider the provision of venture capital in a dynamic agency model the value of the venture project is initially uncertain and more information arrives by developing the project the allocation of the funds and the learning process are subject to moral hazard the optimal contract is a time varying share contract which provides intertemporal risk sharing between venture capitalist and entrepreneur the share of the entrepreneur reflects the value of a real option the option itself is based on the control of the funds the dynamic agency costs may be high and lead to an inefficient early stopping of the project a positive liquidation value explains the adoption of strip financing or convertible securities finally relationship financing including monitoring and the occasional replacement of the management improves the efficiency of the financial contracting

characterizing nonlinearities in business cycles using smooth transition autoregressive models during the past few years investigators have found evidence indicating that various time series representing business cycles such as production and unemployment may be nonlinear in this paper it is assumed that if the time series is nonlinear then it can be adequately described by a smooth transition autoregressive star model the paper describes the application of these models to quarterly logarithmic production indices for 13 countries and europe tests reject linearity for most of these series and estimated star models indicate that the nonlinearity is needed mainly to describe the responses of production to large negative shocks such as oil price shocks

the asymmetric effects of monetary shocks the case of turkey this paper examines whether there is an asymmetry in the effects of positive versus negative and small versus big money supply shocks and whether the effects of the shocks on output and prices vary over the business cycles in the case of turkey negative shocks to money are found to have greater output and smaller price effects compared to the effects of positive shocks irrespective of the initial state of the economy it is also found that monetary shocks of different size affect output growth and inflation rates proportionately these findings can be interpreted as evidence for the view that the short run aggragate supply curve is convex in such a country like turkey

do recessions permanently change output abstract this paper examines whether negative innovations to gnp are more or less persistent than positive innovations we find that once we allow for the impulse response of gnp to be asymmetric negative innovations to gnp are observed to be much less persistent than positive ones in particular the effect of a recession on the forecast of output is found to be negligible after only eight to twelve quarters while the effect of a positive shock is estimated to be persistent and amplified over time our results may therefore help reconcile two antagonistic views about the nature of business cycle fluctuations

how low business tax rates attract mne activity municipality level evidence from germany most existing empirical evidences on the impact of profit taxation on multinational firm activity are based on cross country data one major drawback of such data is that countries differ not only with regard to taxes but also with other dimensions which might be hard to capture by means of observable characteristics we compile a database of more than 11 000 municipalities in germany to analyze the sensitivity of location decisions of foreign mnes in germany with respect to business tax rates which are levied directly by the municipalities we find that higher business tax rates have a negative effect on three alternative measures of mne activity after controlling for other determinants of firm location decisions the number of foreign mnes mne employment and mne fixed assets our results suggest that tax competition among regional entities for foreign investors is a game of a few in cross section instrumental variable regressions a one percent reduction of the municipal business tax rate equivalent to a decline by about 0 14 percentage points leads to an increase in the number of legally independent foreign owned firms by about 0 45 the average municipality would have to reduce its business tax rate by about 2 2 percentage points or 15 from its average level to attract one foreign mne hence municipalities need to be attractive in other dimensions to be able to use tax instruments to attract foreign firms at the margin

the mis behaviour of the aggregate price level this paper investigates the response of the price level to random monetary shocks through a model of the fixed cost of changing a nominal price it shows that in an inflationary environment an expansionary monetary shock is accommodated faster than a contractionary monetary shock furthermore when the average rate of monetary expansion increases the lag in response to a positive shock decreases the study also proves that the relationship between the expected rate of inflation and the variance of real prices is positive only above a critical level of expected inflation the most striking result in this area appears in the work of caplin and spulber 1987 they show that in the aggregate when inflation is monotone stickiness disappears even when all firms follow a strict s s rule in their model since firms are uniformly distributed discontinuous price adjustment at the firm level does not create stickiness at the aggregate level caballero and engel 1992 extend this analysis to incorporate idiosyncratic shocks they show that in the presence of monotone idiosyncratic shocks the long run stationary distribution of prices is the uniform distribution but in the short run when the distribution of prices is arbitrary aggregate stickiness can result from firms discontinuous price adjustments in the present work the focus shifts i use a model where aggregate stickiness emerges naturally from firms discontinuous price setting to investigate the effects of the rate of inflation on aggregate stickiness this work shows that aggregate stickiness is negatively correlated with the rate of inflation the higher the rate of inflation the less sticky the response of the aggregate price level with respect to positive nominal shocks and the closer the economy approaches the caplin and spulber model therefore when modeling a dynamic inflation tax one must account not only for the decrease in the monetary base but also for the increase in the speed at which the aggregate price level 889

searching for a better proxy for business cycles with supports using us data this study revises the original current depth of recession cdr to prove that the modified cdr mcdr is more suitable as a threshold variable than the cdr we rebuild the cdr indicator and adjust its positive and negative ranges with the estimation results of the threshold autoregressive tar model we construct two tar models utilizing cdr and mcdr as threshold variables respectively estimation and test results of the root mean square error theil s inequality coefficient and the diebold mariano dm 1995 test suggest that mcdr performs better as a threshold variable than cdr

effects of the us monetary policy shocks during financial crises a threshold vector autoregression approach abstractthis article analyzes the impact of monetary policy during periods of low and high financial stress in the us economy using a threshold vector autoregression model there is evidence that expansionary monetary policy is effective during periods of high financial stress with larger responses having a higher proportionate effect on output the existence of a cost channel effect during periods of high financial stress implies the existence of a short run output inflation trade off during financial crises large expansionary monetary shocks also increase the likelihood of moving the economy out of a high financial stress regime

nonlinearities in the u s corn ethanol oil gasoline price system we use a smooth transition vector error correction model to assess price relationships within the u s ethanol industry monthly ethanol corn oil and gasoline prices from 1990 to 2008 are used in the analysis results indicate the existence of long run relationships among the prices analyzed strong links between energy and food prices are identified

state dependent transmission of monetary policy in the euro area we estimate a logit mixture vector autoregressive model describing monetary policy transmission in the euro area over the period 1999 2015 in contrast to other classes of nonlinear vector autoregressive models regime affiliation is neither strictly binary nor binary with a transition period and based on multiple variables we show that monetary policy transmission in the euro area can be described as a mixture of two states in both states output and prices are found to decrease after contractionary monetary policy shocks however the effects of monetary policy are less enduring in the crisis state

nonlinearities smoothing and countercyclical monetary policy abstract empirical analysis of the fed s monetary policy behavior suggests that the fed smooths interest rates that is the fed moves the federal funds rate target in several small steps instead of one large step with the same magnitude we evaluate the effect of countercyclical policy by estimating a vector autoregression var with regime switching because the size of the policy shock is important in our model we can evaluate the effect of smoothing the interest rate on the path of macro variables our model also allows for variation in transition probabilities across regimes depending on the level of output growth thus changes in the stance of monetary policy affect the macroeconomic variables in a nonlinear way both directly and indirectly through the state of the economy we also incorporate a factor summarizing overall sentiment into the var to determine if sentiment changes substantially around turning points and whether they are indeed important to understanding the effects of policy

estimating asymmetric output cost of lowering inflation for australia the purpose of this paper is to estimate the output cost associated with lowering inflation for australia the paper is particularly motivated by a strand of theoretical and empirical evidence in the literature suggesting nonlinearity in the output inflation relationship namely a nonlinear phillips curve to accommodate this potentially important departure from linearity a vector autoregression var model of output inflation and the terms of trade is augmented with logistic smooth transition autoregression specifications my empirical results indicate that the model captures the nonlinear features present in the data well based on this nonlinear approximation the output costs for reducing inflation are found to vary depending critically on the state of the economy the size of intended inflation change and whether policymakers seek to disinflate or prevent inflation from rising this implies that inferences based on the conventional linear phillips curve may provide misleading signals about the cost of lowering inflation and thus the appropriate policy stance

the financing of innovation learning and stopping we consider the financing of a research project under uncertainty about the time of completion and the probability of eventual success we distinguish between two financing modes namely relationship financing where the allocation decision of the entrepreneur is observable and arm s length financing where it is unobservable we find that equilibrium funding stops altogether too early relative to the efficient stopping time in both financing modes the rate at which funding is released becomes tighter over time under relationship financing and looser under arm s length financing the tradeoff in the choice of financing modes is between lack of commitment with relationship financing and information rents with arm s length financing

asymmetric responses of consumer spending to energy prices a threshold var approach abstract we document asymmetric responses of consumer spending to energy price shocks using a threshold vector autoregressive model estimated with bayesian methods on u s data with high and low real energy inflation regimes positive energy price shocks have a greater negative effect on consumption compared with the increase in consumption that arises from negative energy price shocks for large shocks the cumulative consumption responses are three to five times greater for positive than negative shocks in disaggregated spending data the asymmetric responses are strongest for durable goods consumption but asymmetries are also present in the responses of nondurables and services consumption

are the effects of monetary policy asymmetric huntley schaller by building on the hamilton 1989 markov switching model we examine questions like does monetary policy have the same effect in expansions and recessions given that the economy is currently in a recession does a fall in interest rates increase the probability of an expansion does monetary policy have an incremental effect on the growth rate within a given state or does it only affect the economy if it is sufficiently strong to induce a state change e g from recession to expansion as suggested by models with sticky prices or finance constraints interest rate changes have larger effects during recessions jel e52 e32 much of the recent work in macroeconomics has proceeded under the assumption that variables follow linear stochastic processes with constant coefficients as a result some of the richness of the burns mitchell analysis such as its focus on asymmetries between recessions and expansions may well have been lost blanchard and fischer 1989 7 i introduction for decades macroeconomists have debated whether monetary policy has the same effect on real output in expansions and recessions as far back as the 1930s keynes and pigou debated whether monetary policy would have less effect on output during a severe economic downturn in the 1960s there were active debates on a very different proposition namely whether the rightward portion of the aggregate supply curve was vertical so that monetary policy would have less effect on real output during expansions in this article we provide a new type of evidence on whether monetary policy has different effects depending on whether the economy is in an expansion or recession empirical evidence on this issue is particularly relevant in light of new theoretical work in macroeconomics that predicts asymmetric effects of demand shocks conditional on the state of the economy two examples of this work are s s type models of price adjustment and models in which there are agency costs of financial intermediation 1 the intuition for the latter class of models is simple 2 when there is information asymmetry in financial markets agents may behave as if they were constrained for a variety of reasons these finance constraints are more likely to bind during recessions when the net worth of agents is low an increase in interest rates will then have two effects on investment the standard effect of increasing the cost of capital and therefore reducing investment demand and an additional effect of reducing liquidity e g by increasing debt service obligations and thus reducing investment demand for constrained agents as a result monetary policy actions that change interest rates will have greater effects during a recession 3 the s s type price adjustment models of ball and mankiw 1994 caballero and engel 1992 and tsiddon 1993 lead to a convex aggregate supply curve and therefore also imply that monetary policy will have stronger effects during recessions one of the more frequently cited empirical papers on the potentially asymmetric effects of monetary policy is cover 1992 which finds evidence that positive monetary shocks have different effects from negative monetary shocks we are looking at a different type of asymmetry namely between booms and recessions we study asymmetries using an extension of the markov switching model developed by hamilton 1989 estimated over the period 1955 93 in hamilton s econometric specification the growth rate of output depends on a state variable that corresponds to an expansion or recession this approach has several advantages first unlike linear projections it allows for nonlinearities and asymmetries second in estimating the recession coefficients it gives greater relative weight to observations that most clearly correspond to recessions and similarly for the expansion coefficients

what do we know about investment under uncertainty recent theoretical developments relating to investment under uncertainty have highlighted the importance of irreversibility for the timing of investment expenditures and their expected returns this has subsequently stimulated a growing empirical literature which examines uncertainty and threshold effects on investment behaviour this paper presents a review of this literature a variety of methods have been used to investigate the empirical implication of irreversibility in investment the majority focusing on the relationship between investment flows and proxy measures of uncertainty a general conclusion is that increased uncertainty at both aggregate and disaggregate levels leads to lower investment rates this suggests that there is an irreversibility effect under which greater uncertainty raises the value of the call option to delay a commitment to investment this effect appears to dominate any positive impact on investment arising from the fact that greater uncertability under certain circumstances increases the marginal profitability of capital the methods used raise a number of issues which call into question the reliability of the findings and these are addressed in the paper however if such irreversibility effects are present then their omission from traditional investment models casts doubt on the efficacy of such specifications jel classification d81 d92 e22

an empirical characterization of the dynamic effects of police spending on violent and property crime the study estimates the dynamic effects of shocks to police expenditures on measures of violent and property crime rates using annual u s state level data for the period 1960 2015 we employ a structural panel var model and achieve identification by imposing the restriction that police spending responds to structural shocks to crime with at least a lag of 1 year results indicate that a shock to police spending leads to a persistent and significant decreases in violent and property crime rates and b significant and persistent negative impacts on crime rates in periods of high crime but little impacts in periods of low crime variance decompositions show that shocks to police spending account for moderate to large proportions of the variability of u s state level crime rates our findings are robust across separate measures of violent and property crime rates as well as to the inclusion of additional variables to the baseline panel var model jel k42

congressional committees and the political economy of federal outlays the literature on the organization of the united states congress has been dominated by distributive and informational theory one important source of disagreement between these two theories is their characterization of whether individual legislators can engage in pork barrel activities here we provide evidence which indicates that the pork barrel is alive and well in the contemporary united states congress we focus on whether members of power and constituency committees can direct disproportionate federal expenditures to their districts finding strong and systematic evidence of pork barrel activities by committee members provides empirical support for distributive theories of legislative organization

searching and learning by trial and error i study a dynamic model of trial and error search in which agents do not have complete knowledge of how choices are mapped into outcomes agents learn about the mapping by observing the choices of earlier agents and the outcomes that are realized the key novelty is that the mapping is represented as the realized path of a brownian motion i characterize for this environment the optimal behavior each period as well as the trajectory of experimentation and learning through time applied to new product development the model shares features of the data with the well known product life cycle jel d81 d83 d92 l26

the location of financial sector fdi tax and regulation policy abstract this paper analyzes how corporate taxation and regulatory requirements affect the location of financial sector fdi we use novel information on new financial services entities established by multinational firms in 83 host countries we find a negative effect of host country taxes on the probability of choosing a particular host location we can also confirm a significant influence of the regulatory environment for example stricter equity capital requirements negatively affect location probabilities our empirical approach allows us to provide new insight in how a policy measure of a given country affects other countries by estimating cross country tax and regulation elasticities

estimating the liquidity effect in post reform chile do inflationary expectations matter abstract in this paper we estimate the dynamic effects of domestic money supply shocks in chile over its post reform era we analyze chile since inflationary expectations could be very sensitive to changes in the money supply given past inflationary experience in the context of a var model containing both chilean and us variables we identify money supply shocks using long run monetary neutrality and block exogeneity restrictions our findings suggest that in chile over the period from 1977 to 1998 unexpected domestic money supply shocks have had a positive impact on interest rates in the short run and a negative impact on real money balances this differs markedly from the estimated responses of the us the findings are consistent with the notion that at least in chile inflationary expectations are very sensitive to news about the nominal money supply possibly due to high inflationary uncertainty and the lack of credibility of monetary reforms our results are generally robust to alternative model specification and identifying restrictions

asymmetries in the dynamic interrelationship between energy consumption and economic growth evidence from turkey abstract in this study we examine possible nonlinearities in dynamic interrelationship between energy consumption and economic growth in turkey for the 1960 2010 period by using a smooth transition vector autoregressive model in order to trace the effects of one variable on another we calculate generalized impulse response functions girfs the computed impulse response functions demonstrate asymmetric effects of positive versus negative and small versus large energy consumption shocks on output growth and vice versa specifically we find that negative energy shocks have a greater effect on output growth than positive energy shocks and that big negative energy shocks affect output much more than small negative energy shocks similarly we find that positive output shock has a greater effect on energy consumption whereas negative shocks have almost no effect on energy consumption the results of this study have clear and important implications for energy economists and policymakers in turkey

preferential trade agreements and tax competition for foreign direct investment abstract this paper examines how free trade agreements and customs unions affect the location of foreign direct investment fdi and social welfare taking into account that governments may adjust taxes and external tariffs to compete for fdi conditions are identified under which a free trade agreement leads to fdi and under which this improves welfare the welfare effect is shown to depend on the relative size of efficiency gains in production and government revenue losses due to tax competition a free trade agreement may fail to induce welfare improving fdi creating a role for a customs union

asymmetric reactions of the us natural gas market and economic activity this paper provides new empirical evidence on the asymmetric reactions of the us natural gas market and us economy to its market fundamental shocks we find that results based on a smooth transition vector autoregressive stvar model provides a plausible and robust explanation to the behavior of the us natural gas market which asymmetrically reacts in bad times and good times during times of recession natural gas production shrinks in response to a positive oil price shock while the corresponding response is found to be positive in times of expansion the positive relationship between the price of natural gas and crude oil is found to be more prominent in expansions especially in the long run in addition the results also reveal that us economic activity is much more sensitive to oil and natural gas price shocks occurring in bad times than in good times

the asymmetric effects of oil price and monetary policy shocks a nonlinear var approach in this paper we investigate the asymmetric effects of oil price shocks and monetary policy on macroeconomic activity using monthly data for the united states over the period from 1983 1 to 2008 12 in doing so we use a logistic smooth transition vector autoregression var as detailed in terasvirta and anderson 1992 and weise 1999 and make a distinction between two oil price volatility regimes high and low using the realized oil price volatility as a switching variable we isolate the effects of oil price and monetary policy shocks and their asymmetry on output growth and following koop et al 1996 and weise 1999 we employ simulation methods to calculate generalized impulse response functions girfs to trace the effects of independent shocks on the conditional means of the variables our results suggest that in addition to the price of oil oil price volatility has an impact on macroeconomic activity and that monetary policy is not only reinforcing the effects of oil price shocks on output it is also contributing to the asymmetric response of output to oil price shocks

measuring the interdependence of multinational firms foreign investments earlier work found evidence for geographic linkages of aggregate foreign direct investment across countries and country pairs from a theoretical point of view such linkages at the macroeconomic level may root in between firm as well as within firm linkages and originate from information spillovers across or within firms in exploring unknown markets and vertical linkages between production plants across different locations within the firm we use data on the universe of german multinational enterprises mnes to empirically explore how marginal investments at one foreign affiliate depend on investments at other affiliates within the same mne the empirical approach employs two channels or modes of cross affiliate interdependence mere geography capturing horizontal linkages through correlated learning and horizontal competition within the firm and input output relationships within or across industries which capture vertical linkages adding to earlier findings at the aggregate level we find evidence of a significant interdependence of investments within the firm in the firm level data at hand vertical linkages appear to be more important than horizontal ones investments at one location tend to stimulate investments at other locations of the same mne particularly if input linkages are strong the opposite seems to be true for output linkages beyond vertical linkages mere geographic proximity matters only to a minor extent this suggests that evidence of linkages through geographic closeness at aggregate data levels accrue mainly to reasons of vertical linkages within networks of affiliates jel c31 d22 f21 f23 f68 g31 h32

conventional monetary policy transmission during financial crises an empirical analysis summary this paper studies the effects of a conventional monetary policy shock in the usa during times of high financial stress the analysis is carried out by introducing a smooth transition factor model where the transition between states normal and high financial stress depends on a financial conditions index employing a quarterly dataset over the period 1970 q1 to 2008 q4 containing 108 us macroeconomic and financial time series i find that a monetary policy shock during periods of high financial stress has stronger and more persistent effects on macroeconomic variables such as output consumption and investment than it has during normal times differences in effects among the regimes seem to originate from nonlinearities in both components of the credit channel i e the balance sheet channel and the bank lending channel copyright 2016 john wiley sons ltd

business cycle asymmetry a deeper look this paper distinguishes two types of asymmetry in business cycles deepness and steepness deepness is defined as the characteristic that troughs are further below trend than peaks are above most previous research has focused exclusively on steepness which refers to cycles in which contractions are steeper than expansions a test for deepness is proposed and applied to u s post war quarterly unemployment real gnp and industrial production evidence of deepness is found for unemployment and industrial production while the evidence for real gnp is weaker previous evidence of steepness in unemployment is confirmed

household debt overhang and transmission of monetary policy we investigate how the level of household indebtedness affects the monetary transmission mechanism in the u s economy using state dependent local projection methods we find that the effects of monetary policy are less powerful during periods of high household debt in particular the impact of monetary policy shocks is smaller on gdp consumption residential investment house prices and household debt during a high debt state we then build a partial equilibrium model of borrower households with financial constraints to rationalize these facts the model points to the weakening of the home equity loan channel as a possible reason for the decline in monetary policy effectiveness when initial debt levels are high

market power price adjustment and inflation we study the responses of real and nominal prices to random flutuations in costs and money growth using a monetary search economy in which there are no costs or temporal restrictions on sellers ability to change prices the economy exhibits a form of price stickiness in that the price level may react incompletely to either type of shock as a result of endogenous changes in the average mark up driven by movements in consumers search intensity the average mark up falls as inflation rises a finding consistent with emprical observations as a result of this reduction in market power prices become more responsive to shocks as inflation rises our results are consistent with empirical findings that the degree of price adjustment in response to both cost and money growth shocks is increasing in the average rate of inflation that the variance of inflation increases with its average level and that positive and negative shocks to money growth have asymmetric effects

asymmetric effects of positive and negative money supply shocks this paper examines whether positive and negative money supply shocks have symmetric effects on output the results are consistent with the hypothesis that positive money supply shocks do not have an effect on output while negative money supply shocks do have an effect on output this finding is independent of whether or not expected money is assumed to affect output the results reported in this paper imply that the fed could increase the growth rate of real output by reducing the standard deviation of unexpected changes in the money supply

financial stress regimes and the macroeconomy some financial stress events lead to macroeconomic downturns while others appear to be isolated to financial markets we identify financial stress regimes using a model that explicitly links financial variables to macro economic outcomes the stress regimes are identified using an unbalanced panel of financial variables with an embedded method for variable selection our identified stress regimes are associated with corporate credit tightening and with nber recessions an exogenous deterioration in our financial conditions index has strong negative effects in economic activity and negative amplification effects on inflation in the stress regime these results are obtained with a novel factor augmented vector autoregressive model with smooth transition regimes fastvar

monetary policy effectiveness and stock market cycles in asean 5 this article examines the asymmetric effects of monetary policy on real output in bull and bear phases of stock market in five asean economies malaysia singapore indonesia the philippines and thailand using the recently developed pooled mean group pmg technique stock market cycles are identified by employing markov switching models and the rule based nonparametric approach estimating the models using monthly data from 1991 1 to 2011 12 the results show that monetary policy measured by short term interest rate has a negative and statistically significant long run effect on real output in bull and bear market periods while the effects are stronger in bear periods than bulls in the short run there is no statistically significant relationship between monetary policy and real output these results are consistent with finance constraints capital market imperfection models that predict that monetary policy is more effective during bear periods than bulls