identifying a forward looking monetary policy in an open economy i identify a forward looking monetary policy function in a forecast augmented var foavar model by using forecasted macroeconomic variables in addition to the realized variables used in a standard var i find that forecasted variables play a greater role than realized variables in a central bank s policy decisions i also find that a contractionary policy shock in the foavar generates impulse responses of macroeconomic variables that are consistent with the predictions of economic theory while the same shock causes a price puzzle and a delayed overshooting response of the exchange rate in the standard model

value creation management competencies and global corporate citizenship an ordonomic approach to business ethics in the age of globalization this article develops an ordonomic approach to business ethics in the age of globalization through the use of a three tiered conceptual framework that distinguishes between the basic game of antagonistic social cooperation the meta game of rule setting and the meta meta game of rule finding discourse we address three questions the answers to which we believe are crucial to fostering effective business leadership and corporate social responsibility first the purpose of business in society is value creation companies have a social mandate to organize mutually advantageous cooperation second business ethics should teach the management competencies necessary to fulfill business s societal mandate these competencies are optimization competence in the basic game of value creation governance competence in the meta game of political rule setting and the three discourse related skills of orientation competence reception competence and communication competence necessary for engaging in the meta meta game third companies can help solve global problems through global corporate citizenship if they participate as political and moral actors in rule setting processes and rule finding discourse aimed at laying the foundation for value creation on a global scale

allocation effects of uncertainty on resources in japan this paper provides evidence of a negative association between macroeconomic uncertainty and the cross sectional dispersion of investment rate for a panel of japanese manufacturing firms we show that an increase in uncertainty leads to the narrowing of the cross section dispersion of investment rate and vice versa this finding suggests that firms fixed capital investment behavior becomes more homogeneous in times of increased uncertainty

debt and stabilization policy evidence from a euro area favar abstract the euro area poses a unique problem in evaluating policy a currency union with a shared monetary policy and country specific fiscal policy analysis can be further complicated if high levels of public debt affect the performance of stabilization policy we construct a framework capable of handling these issues with an application to euro area data in order to incorporate multiple macroeconomic series from each country but simultaneously treat country specific fiscal policy we develop a hierarchical factor augmented var with zero restrictions on the loadings that yield country level factors monetary policy then responds to area wide conditions but fiscal policy responds only to its country level conditions we find that there is broad quantitative variation in different countries responses to area wide monetary policy and both qualitative and quantitative variation in responses to country specific fiscal policy moreover we find that debt conditions do not diminish the effectiveness of policy in a significant manner suggesting that any negative effects must come through other channels

forecasting macro variables with a qual var business cycle turning point index one criticism of vector autoregression var forecasting is that macroeconomic variables tend not to behave as linear functions of their own past around business cycle turning points a large amount of literature therefore focuses on nonlinear forecasting models such as markov switching models which only indirectly capture the relation with turning points this article investigates a direct approach to using information on turning points from the national bureau of economic research nber chronology to model and forecast macroeconomic data our qual var model includes a truncated normal latent business cycle index that is negative during nber recessions and positive during expansions we motivate our forecasting exercise by demonstrating that if starting from a linear specification a truncated normal variable is an omitted variable then forecasts of the remaining variables will become nonlinear functions of their own past we apply the qual var model to recursive out of sample forecasting and find th

institutional pressures and ethical reckoning by business corporations prior studies have provided explanations for the presence use and dissemination of codes of corporate ethics or codes of corporate conduct of business corporations most such explanations are functional in nature and are descriptive as they are derived from the codes and their associated documents we search for more underlying explanations using two complementary theories first social contract theories explaining the exogenous and endogenous reasons of organizational behavior and then institutional theory explaining why organizations take similar measures in response to institutional pressures based on our explanations we contend that the codes and their use and dissemination are arising from underlying social and institutional pressures for firms to continuously validate their existence in the face of increasing changes and recurrent uncertainties

the second moments matter the impact of macroeconomic uncertainty on the allocation of loanable funds abstract this paper investigates how variations in macroeconomic uncertainty distort commercial banks allocation of loanable funds by analyzing the dispersion of banks total loan to asset ratios over a quarter century period

corporate autonomy and buyer supplier relationships the case of unsafe mattel toys this article analyses supplier buyer relationships where the suppliers adapt to the buyers needs and expectations to gain mutual advantages in some cases such closely knit relationships lead to violations of the autonomy of one or both partners a concept of corporate autonomy ca is developed to analyze this problem three different facets can be distinguished rule autonomy executive autonomy and control autonomy a case study of mattel s problems with lead contaminated toys produced in china shows that the ca of buyer and supplier can be restricted as a result of a dysfunctional partnership involving a moral dilemma

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

gdp nowcasting application and constraints in a small open developing economy despite data limitations an attempt is made to find out if a gdp nowcasting model can provide reliable forecasts for a small open economy two competing bayesian vector autoregressive models are tested rigorously to obtain the optimal model by minimizing in sample forecasting errors the main finding of this study is that gdp nowcasting can produce reliable results for a small open economy despite the unavailability of sufficient data sets and the lack of high frequency indicators

external shocks u s monetary policy and macroeconomic fluctuations in emerging markets estimated structural vars show that external shocks are an important source of macroeconomic fluctuations in emerging markets furthermore u s monetary policy shocks affect interest rates and the exchange rate in a typical emerging market quickly and strongly the price level and real output in a typical emerging market respond to u s monetary policy shocks by more than the price level and real output in the u s itself these findings are consistent with the idea that when the u s sneezes emerging markets catch a cold at the same time u s monetary policy shocks are not important for emerging markets relative to other kinds of external shocks

what does the bank of japan do to east asia abstract in recent policy debates some have argued that expansionary monetary policy in japan can increase real output in japan and in japan s neighbors while others have warned that it is a beggar thy neighbor policy in this paper we estimate structural vector autoregressions to assess the effects of japanese monetary policy shocks we find that the effects of japanese monetary policy shocks on macroeconomic variation in east asia have been modest and difficult to reconcile with the beggar thy neighbor view we estimate that the asian crisis was preceded by expansionary monetary policy shocks in japan but we fail to find support for the view that these shocks contributed to the crisis

the transmission of us systemic financial stress evidence for emerging market economies abstract we provide empirical evidence that us systemic financial stress shocks us sfsss are an important driver of economic dynamics and fluctuations in emes applying a structural vector autoregression we analyze the international transmission of us sfsss to eight emes using monthly data from 1999 to 2012 us sfsss are identified as unexpected changes in the financial conditions index of the federal reserve bank of chicago findings indicate that a typical emerging market real economy experiences similar negative effects to those seen in the us real economy in response to us sfsss for international transmission our results emphasize that financial interconnectedness with the us is important relative to trade relations the analyzed cases of latin american economies suggest that indirect linkages are also important for transmitting the negative effects of us sfsss in general us sfsss act as a crucial driver of volatility in the emerging world also at business cycle frequencies

comparing dsge var forecasting models how big are the differences abstract i generate priors for a vector autoregression var from a standard real business cycle rbc model an rbc model with capital adjustment costs and habit formation and a sticky price model with an unaccommodating monetary authority the response of hours worked to a tfp shock differs sharply across these models i compare the accuracy of forecasts made from each of the resulting dynamic stochastic general equilibrium vector autoregression dsge var models despite having different structural characteristics the dsge vars are comparable in terms of forecasting performance as in previous work dsge vars compare favorably with atheoretical vars

financial and fiscal interaction in the euro area crisis this time was different abstract this paper highlights the anomalous characteristics of the euro area twin crises by contrasting the aggregate macroecosnomic dynamics in the period 2009 2013 with the business cycle fluctuations of the previous decades we report three novel stylised facts first the contraction in output was marked by an anomalous downfall in private investment and an increase in households savings while consumption and unemployment followed their historical relation with gdp second households and financial corporations debts and house prices deviated from their pre crisis trends while non financial corporations debt followed historical regularities third the jumps in the public deficit gdp and debt gdp ratios in 2008 2009 were unprecedented and so was the fiscal consolidation that followed our analysis points to the financial nature of the crisis as a likely explanation for these facts importantly the anomalous increase in public debt is in large part explained by extraordinary measures in support of the financial sector which show up in the stock flow adjustments and reveal a keyinteraction between the fiscal and the financial sectors

global business cycles convergence or decoupling we analyze the evolution of the degree of global cyclical interdependence over the period 1960 2008 using a dynamic factor model we decompose macroeconomic fluctuations in output consumption and investment into a global factor factors specific to country groups and country specific factors we find that during 1985 2008 there is some convergence of business cycle fluctuations among industrial economies and among emerging market economies surprisingly there is a concomitant decline in the relative importance of the global factor we conclude that there is evidence of business cycle convergence within each of these two groups of countries but divergence or decoupling between them

interconnections between eurozone and us booms and busts using a bayesian panel markov switching var model summary the proposed panel markov switching var model accommodates changes in low and high data frequencies and incorporates endogenous time varying transition matrices of country specific markov chains allowing for interconnections an efficient multi move sampling algorithm draws time varying markov switching chains using industrial production growth and credit spread data several important data features are obtained three regimes appear with slow growth becoming persistent in the eurozone turning point analysis indicates the usa leading the eurozone cycle amplification effects influence recession probabilities for eurozone countries a credit shock results in temporary negative industrial production growth in germany spain and the usa core and peripheral countries exist in the eurozone copyright 2016 john wiley sons ltd

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

political accountability and the room to maneuver a search for a causal chain many studies of the room to maneuver make no provision for popular evaluation of policy they assert rather than demonstrate popular satisfaction with policy choices and macroeconomic outcomes the authors present a framework that explicitly models channels for popular preferences to influence policies and outcomes results for economic policy making in britain do not support the room to maneuver thesis in the authors sample 1981 to 1997 the british government was responsive to changes in political evaluations and its policy choices effectively fed back into popular evaluations of government policy however this accountability mechanism worked outside the real economy shifts in popular evaluations induced changes in policy but had no impact on inflation and economic growth government capacity to shape macroeconomic outcomes was limited and popular influence over economic policy was ineffectual this form of accountability probably existed because british citizens had difficulty gauging the real impacts of their government s policies

the analytics of svars a unified framework to measure fiscal multipliers ticities implied by the identification schemes generate a large dispersion in the estimates of tax and spending multipliers second i estimate fiscal multipliers consistent with prior distributions of the elasticities computed by a variety of empirical strategies and by employing a simple dynamic stochastic general equilibrium model i document three findings for the u s for the period 1947 2010 first the impact tax multiplier is close to 0 second the impact spending multiplier ranges between 0 35 and 1 third there is a large uncertainty in the estimates of fiscal multipliers at longer horizons yet the probability that the spending multiplier is larger than the tax multiplier is above 0 65 for up to three years after policy interventions

international business cycles world region and country specific factors the paper investigates the common dynamic properties of business cycle fluctuations across countries regions and the world we employ a bayesian dynamic latent factor model to estimate common components in macroeconomic aggregates output consumption and investment in a 60 country sample covering seven regions of the world the results indicate that a common world factor is an important source of volatility for aggregates in most countries providing evidence for a world business cycle we find that region specific factors play only a minor role in explaining fluctuations in economic activity we also document similarities and differences across regions countries and aggregates jel f41 e32 c11 c32

the dynamic impacts of monetary policy an exercise in tentative identification it is currently popular to identify monetary policy shocks with innovations in some measure of reserves or in the federal funds rate these assumptions about the interest elasticity of the supply of or demand for reserves imply monetary policy shocks that produce dynamic responses of macroeconomic variables that are anomalous relative to traditional monetary analyses this paper tentatively identifies supply and demand shocks in the markets for reserves and m2 for the 1980s and contrasts them with results for the 1970s in the later period identified monetary policy shocks have dynamic impacts that are fully consistent with traditional analyses

identifying the role of risk shocks in the business cycle using stock price data i introduction the finance literature on the forecastibility of stock returns has concluded that stock market movements are by and large not because of changes in the expected future cash flow of firms but are primarily because of changes in the risk premium that is how the expected cash flows are discounted by stock market participants cochrane 2011 1 these changes in risk premia also have important implications for real variables in the economy especially for consumption and investment an increase in the risk premium prompts households to reduce current consumption as they start to discount expected future income more heavily more importantly changes in the required return on equity alter the cost of capital of corporations when they finance new investment for firms that rely on external debt to finance marginal investment a lower stock price translates into lower net worth and therefore a higher cost of borrowing bernanke gertler and gilchrist 1999 similarly firms that rely on new equity issues are able to raise less funds from each new share when their stock price is lower even for firms that finance investment exclusively through internal funds i e retained earnings plus depreciation allowance the required return on existing shares reveals the opportunity cost of internally financed investment tobin 1969 tobin and brainard 1977 this is because at least in principle these funds can be returned to existing shareholders as dividends and new funds can then be raised from the markets through new equity shares for which investors would demand a risk premium figure 1 omitted in the aggregate u s corporations are predominantly financed through equity the dotted line in figure 1 plots the credit market liabilities of u s non financial corporations as a percent of the sum of equity and credit market liabilities in their balance sheets 2 by this measure debt financing accounts for about a third of total financing averaged over the whole sample and equity financing accounts for about two thirds the solid line in figure 1 provides an alternative measure which takes into account all financial liabilities including items such as trade payables but nets out financial assets to obtain a measure of net debt mcgrattan and prescott 2005 now debt financing accounts for only 15 of total financing in the post war period and its importance has declined in the last two decades note that both of these series are stock measures as opposed to flow measures that is they refer to financing of all past investments and do not necessarily reflect how corporations are financing investment at the margin these measures can also be biased against debt financing because most debt items are recorded on a book value basis in the flow of funds but equity is recorded on a market value basis to overcome these caveats i consider the flow components of sources of funds i e internal funds net new equity and net new debt as a share of corporate tangible investment in figure 2 several patterns emerge first the ratio of internal funds to gross capital expenditures has been close to 1 throughout the post war period in other words at least in the aggregate u s corporate investment has been by and large financed internally second new equity issuance has not been an important source of financing in fact net new stock issues have been mostly negative in the latter part of the sample this mainly reflects the preference of corporations to distribute resources to shareholders through stock buybacks rather than ordinary dividend payments because of the preferential tax treatment of long term capital gains third net new debt has contributed to about a third of aggregate financing assuming that the discrepancy in the flow account is distributed proportionally to each financing component as internal funds and net new stock issues are fairly reliable data series we can reasonably lump the rather large discrepancy item in the ffa data with net debt

on the short term predictability of exchange rates a bvar time varying parameters approach abstract in this paper we propose a bayesian vector autoregressive model with time varying parameters bvar tvp to examine the short term predictability of exchange rates an important contribution of the paper is the application of the bvar tvp model for the first time to daily data using information from financial markets another contribution is the production of forecasts in real time at the very short horizon of one trading day ahead typically used by traders and investors in financial markets we employ financial criteria and recently developed statistical tests to assess the exchange rate predictability we find that the bvar tvp model outperforms the random walk for all exchange rates these forecast gains are due primarily to the time variation of coefficients and secondly to information from other financial markets it is shown that international investors could have made statistically significant excess profits if they had followed an inter day trading strategy based on the buy sell signals generated by the model s one day ahead exchange rate forecasts even after allowing for transaction costs and risk factors

have standard vars remained stable since the crisis small or medium scale vars are commonly used in applied macroeconomics for forecasting and evaluating the shock transmission mechanism this requires the var parameters to be stable over the evaluation and forecast sample or to explicitly consider parameter time variation the earlier literature focused on whether there were sizable parameter changes in the early 1980s in either the conditional mean or variance parameters and in the subsequent period till the beginning of the new century in this paper we conduct a similar analysis but focus on the effects of the recent crisis using a range of techniques we provide substantial evidence against parameter stability the evolution of the unemployment rate seems particularly different relative to its past behavior we then discuss and evaluate alternative methods to handle parameter instability in a forecasting context while none of the methods clearly emerges as best some techniques turn out to be useful to improve the forecasting performance

macroeconomic uncertainty and banks lending decisions the case of italy this article discusses the role that macroeconomic uncertainty plays in banks decisions on the optimal asset allocation following the portfolio model proposed by baum et al 2005 the article aims at disentangling how italian banks choose between loans and risk free assets when uncertainty on macroeconomic conditions increases the econometric results confirm that macroeconomic uncertainty is a significant determinant of banks investment decisions also after controlling for other factors in periods of increasing turmoil banks ability to accurately forecast future returns is hindered and herding behaviour tends to emerge as witnessed by the reduction of the cross sectional variance of the share of loans held in portfolio

common drifting volatility in large bayesian vars the general pattern of estimated volatilities of macroeconomic and financial variables is often broadly similar we propose two models in which conditional volatilities feature comovement and study them using u s macroeconomic data the first model specifies the conditional volatilities as driven by a single common unobserved factor plus an idiosyncratic component we label this model bvar with general factor stochastic volatility bvar gfsv and we show that the loss in terms of marginal likelihood from assuming a common factor for volatility is moderate the second model which we label bvar with common stochastic volatility bvar csv is a special case of the bvar gfsv in which the idiosyncratic component is eliminated and the loadings to the factor are set to 1 for all the conditional volatilities such restrictions permit a convenient kronecker structure for the posterior variance of the var coefficients which in turn permits estimating the model even with large datasets while perhaps misspecifi

the transmission of international shocks a factor augmented var approach the empirical literature on the transmission of international shocks is based on small scale vars in this paper we use a large panel of data for 17 industrialized countries to investigate the international transmission mechanism and revisit the anomalies that arise in the empirical literature we propose a factor augmented var favar that extends the model in bernanke boivin and eliasz 2003 to the open economy the main results can be summarized as follows first the dynamic effects on the uk economy of an unanticipated fall of short term interest rates in the rest of the world are real house price inflation investment gdp and consumption growth peak after one year wages peak after two years cpi and gdp deflator inflation peak during the third year second a positive international supply shock makes the distribution of the components of the uk consumption deflator negatively skewed third in response to a domestic monetary shock we find no evidence of the exchange rate and liquidity puzzles and little evidence of the forward discount and price anomalies

the sources of financial crises pre and post fed evidence this paper investigates the generation and the propagation mechanism of currency demand and supply shocks before and after world war i the structural determinants of the variability of stock prices and interest rates and the changes introduced by the creation of the fed on the dynamics of the system it is shown that in the pre 1914 era external monetary shocks interacted with a seasonal demand for money to produce financial crises the fed helped to prevent crises by insulating the u s economy from external shocks a structural vector autoregressive model provides evidence for these claims copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

measuring the effects of dollar appreciation on asia a favar approach abstract exchange rate shocks have mixed effects on economic activity in both theory and empirical var models in this paper we extend the empirical literature by considering the implications of a positive shock to the u s dollar in a factor augmented vector autoregression favar model for the u s and three large asian economies korea japan and china the favar framework allows us to represent a country s aggregate economic activity by a latent factor generated from a broad set of underlying observable economic indicators to control for global conditions we also include in the favar a global conditions index which is another latent factor generated from the economic indicators of major trading partners we find that a dollar appreciation shock reduces economic activity and inflation not only for the u s economy but also for all three asian economies this result which is robust to a number of alternative specifications suggests that in spite of their disparate economic structures and policy regimes the dollar appreciation shock affects the asian economies primarily through its impact on u s aggregate demand and this demand channel dominates the expenditure switching channel that affects a country s export competitiveness

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

assessing monetary policy in the euro area a factor augmented var approach in order to overcome the omitted information problem of small scale vector autoregression var models this study combines the var methodology with dynamic factor analysis and assesses the effects of monetary policy shocks in the euro area in the period during which there is a single monetary policy using the factor augmented vector autoregressive favar approach of bernanke et al 2005 we summarize the information contained in a large set of macroeconomic time series with a small number of estimated factors and use them as regressors in recursive vars to evaluate the impact of the nonsystematic component of the european central bank s ecb s actions overall our results suggest that the inclusion of factors in the var allows us to obtain a more coherent picture of the effects of monetary policy innovations both by achieving responses easier to understand from the theoretical point of view and by increasing the precision of such responses moreover this framework allows us to compute impulse res

signalling effects of monetary policy we develop a dynamic general equilibrium model in which the policy rate signals the central bank s view about macroeconomic developments to price setters the model is estimated with likelihood methods on a u s data set that includes the survey of professional forecasters as a measure of price setters inflation expectations this model improves upon existing perfect information models in explaining why in the data inflation expectations respond with delays to monetary impulses and remain disanchored for years in the 1970s u s monetary policy is found to signal persistent inflationary shocks explaining why inflation and inflation expectations were so persistently heightened the signalling effects of monetary policy also explain why inflation expectations adjusted more sluggishly than inflation after the robust monetary tightening of the 1980s

financial intermediaries instability and euro area macroeconomic dynamics abstract fitting a markov switching structural vector autoregression to euro area data we show that after taking into account heteroskedasticity the differences in the behavior of the economy between tranquil and financial distress periods e g great recession and sovereign debt crisis reflect variations in the transmission mechanism when and only when a period of financial distress occurs disruptions in financial intermediation trigger adverse effects for the real economy and turn out to be the primary source of business cycle fluctuations finally we provide strong evidence that ecb interventions in the financial sector had beneficial effects on the real economy during the sovereign debt crisis

debt dependent effects of fiscal expansions abstract economists often postulate that fiscal expansions are less stimulative when government debt is high than when it is low empirical evidence however is ambiguous using a nonlinear neoclassical growth model we show that the difference in government spending effects between high and low debt environments depends on the wealth effect on labor supply and on whether the government uses taxes or spending to retire debt because of interrelated state variables structural var estimations conditioning on debt alone can fail to isolate debt dependent effects also uncertainty on when the government will conduct fiscal consolidations generates wide confidence bands for spending multipliers further complicating efforts to estimate debt dependent government spending effects

fiscal stimulus with spending reversals abstract the short run effects of fiscal policy depend not only on current tax and spending choices but also on expectations about future policy adjustment while general equilibrium models typically restrict medium term adjustment to taxation we highlight the importance of government spending dynamics first we provide time series evidence for the united states suggesting that an exogenous increase in government spending prompts a rise in public debt followed over time by a reduction in spending below trend second we show how expected spending reversals alter the short run impact of fiscal policy in a new keynesian model bringing it closer in line with the evidence

monetary policy shocks and foreign investment income evidence from a large bayesian var abstract this paper assesses the transmission of monetary policy in a large bayesian vector autoregression based on the approach proposed by banbura et al 2010 the paper analyzes the impact of monetary policy shocks in the united states and canada not only on a range of domestic aggregates trade flows and exchange rates but also foreign investment income the analysis provides three main results first a surprise monetary policy contraction has a statistically important impact on both gross and net foreign investment income flows in both countries against the background of growing foreign wealth and investment income this result provides preliminary evidence that foreign balance sheet channels might play an increasingly significant role for monetary transmission second the impact of monetary policy on foreign investment income flows differs considerably across asset categories and over time suggesting that the investment instruments and the currency denomination of a country s foreign assets and liabilities are potentially relevant for the way in which monetary policy affects the domestic economy finally the results support existing evidence on the effectiveness of large vector autoregressions and the bayesian shrinkage approach in eliminating price and exchange rate puzzles

bayesian methods for dynamic multivariate models if dynamic multivariate models are to be used to guide decisionmaking it is important that probability assessments of forecasts or policy projections be provided when identified bayesian vector autoregression var models are presented with error bands in the existing literature both conceptual and numerical problems have not been dealt with in an internally consistent way in this paper the authors develop methods to introduce prior information in both reduced form and structural var models without introducing substantial new computational burdens their approach makes it feasible to use a single large dynamic framework for example twenty variable models for tasks of policy projections copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

changing macroeconomic dynamics at the zero lower bound this article develops a change point var model that isolates four major macroeconomic regimes in the us since the 1960s the model identifies shocks to demand supply monetary policy and spread yield using restrictions from a general equilibrium model the analysis discloses important changes to the statistical properties of key macroeconomic variables and their responses to the identified shocks during the crisis period spread shocks became more important for movements in unemployment and inflation a counterfactual exercise evaluates the importance of lower bond yield spread during the crises and suggests that the fed s large scale asset purchases helped lower the unemployment rate by about 0 6 percentage points while boosting inflation by about 1 percentage point

unconventional economic policies and sentiment an international assessment this paper estimates using bayesian and global vars the spillover effects of unconventional fiscal and monetary policies implemented in the united states and in the eurozone during the last decade consumer confidence and investor sentiment indicators are introduced in the models in order to highlight the signalling channel in the responses to economic policy innovations in times of crisis our results reveal that consumer and investor perceptions of innovative economic measures are relevant to study the pass through of economic policies to the real sector in times of crisis and zero lower bound interest rates in particular the signalling channel plays an important role in successful unconventional economic policies moreover if unconventional economic policies have an impact abroad the effects are similar to those measured in the domestic country region consequently coordination and transparency are a prerequisite for ensuring short term growth after a global financial crisis

monetary transmission mechanisms in a small open economy a bayesian structural var approach abstract this paper develops a bayesian structural var model for canada in order to estimate the effects of monetary policy shocks using the overnight rate target as the policy instrument i allow the policy variable and other home and foreign variables to interact with each other contemporaneously the key finding is that monetary policy affects the real economy through both the market interest rate and the exchange rate i also find that the bank of canada responds to any home and foreign variables that embodies information about future inflation and that external shocks are an important source of output fluctuations

real time forecasting with a mixed frequency var this article develops a vector autoregression var for time series which are observed at mixed frequencies quarterly and monthly the model is cast in state space form and estimated with bayesian methods under a minnesota style prior we show how to evaluate the marginal data density to implement a data driven hyperparameter selection using a real time dataset we evaluate forecasts from the mixed frequency var and compare them to standard quarterly frequency var and to forecasts from midas regressions we document the extent to which information that becomes available within the quarter improves the forecasts in real time this article has online supplementary materials

were there regime switches in u s monetary policy working paper 2004 14 june 2004 abstract a multivariate model identifying monetary policy and allowing for simultaneity and regime switching in coefficients and variances is confronted with u s data since 1959 the best fit is with a model that allows time variation in structural disturbance variances only among models that also allow for changes in equation coefficients the best fit is for a model that allows coefficients to change only in the monetary policy rule that model allows switching among three main regimes and one rarely and briefly occurring regime the three main regimes correspond roughly to periods when most observers believe that monetary policy actually differed and the differences in policy behavior are substantively interesting though statistically ill determined the estimates imply monetary targeting was central in the early 80s but was also important sporadically in the 70s the changes in regime were essential neither to the rise in inflation in the 70s nor to its decline in the 80s jel classification e52 e47 c53 key words counterfactuals lucas critique policy rule monetary targeting simultaneity volatility model comparison i the debate over monetary policy change in an influential paper clarida gali and gertler 2000 cgg presented evidence that us monetary policy changed between the 1970 s and the 1980 s indeed that in the 70 s it was drastically worse they found that the policy rule apparently followed in the 70 s was one that when embedded in most stochastic general equilibrium models would imply non uniqueness of the equilibrium and hence vulnerability of the economy to sunspot fluctuations of arbitrarily large size their estimated policy rule for the later period on the other hand eliminated this indeterminacy these results are a possible explanation of the volatile and rising inflation of the 70 s and of its subsequent decline the cgg analysis has two important weaknesses one is that it fails to account for stochastic volatility us macroeconomic variables and particularly the federal funds rate have gone through periods of tranquility and of agitation with forecast error variances varying greatly from period to period ignoring such variation does not lead to inconsistent estimates of model parameters when the forecasting equations themselves are constant but it strongly biases toward a finding of changed parameters tests of the stability of the forecasting equations the other weakness is that the cgg analysis rests on powerful and implausible identifying assumptions they require that we accept that the response of the monetary authority to expected future inflation and output does not depend on the recent history of inflation money growth or output it is hard to understand why this should be so especially in the 70 s when monetarism was a prominent theme in policy debates congress was requiring reports from the fed of projected time paths of monetary aggregates and financial markets were reacting sensitively to weekly money supply numbers the requirement for existence and uniqueness of equilibrium in dynamic models is that the monetary policy rule show a more than unit response of interest rates to the sum of the logs of all nominal variables that appear on the right hand side of the reaction function if we force a particular measure of expected future inflation to proxy for all the nominal variables that actually appear independently in the reaction function we are bound to get distorted conclusions on the one hand because expected future inflation will be a noisy measure of the full set of nominal influences on policy we might get downward bias in our estimates from the usual errorsin variables effect on the other hand to the extent that expected future inflation like most expected future values shows less variation than current nominal variables we could find a mistaken scaling up of coefficients

heterogeneous transmission mechanism monetary policy and financial fragility in the eurozone the eurozone economic activity and banking sector have shown substantial fragility over the last years with remarkable country heterogeneity using detailed data on lending conditions and standards we analyse along several key dimensions of heterogeneity how financial fragility has affected the transmission mechanism of the single eurozone monetary policy the analysis shows that the monetary transmission mechanism is time varying and influenced by the financial fragility of the sovereigns banks firms and households the impact of monetary policy on aggregate output is stronger during the financial crisis especially in countries facing increased sovereign financial distress this amplification mechanism moreover operates through the credit channel both the bank lending and the non financial borrower balance sheet channels our results suggest that the bank lending channel has been to a large extent neutralized by the ecb non standard monetary policy interventions but the policy framework until the end of 2011 was insufficient to overcome credit availability problems stemming from deteriorated firm net worth and risk conditions especially for small firms in countries under stress matteo ciccarelli angela maddaloni and jose luis peydro

spillover effects from euro area monetary policy across europe a factor augmented var approach i analyze spillover effects from a euro area monetary policy shock to fourteen european countries outside the euro area the analysis is based on a factor augmented var model with two blocks which exploits a large cross country data set after a euro area monetary policy expansion production increases in most non euro area countries whereas short term interest rates and financial uncertainty decline these effects are on average comparable to the responses in the aggregate euro area however the size of spillover effects varies with country characteristics spillovers on production are larger in non euro area economies with higher trade openness whereas financial variables react to a higher extent in countries with higher financial integration regarding the exchange rate regime countries with fixed exchange rates show stronger spillovers both in terms of production and interest rates finally prices increase in western european economies outside the euro area but decline or do not respond in central and eastern europe

understanding the evolution of world business cycles abstract this paper studies the changes in world business cycles during the period 1960 2003 we employ a bayesian dynamic latent factor model to estimate common and country specific components in the main macroeconomic aggregates output consumption and investment of the g 7 countries we then quantify the relative importance of the common and country components in explaining comovement in each observable aggregate over three distinct time periods the bretton woods bw period 1960 1 1972 2 the period of common shocks 1972 3 1986 2 and the globalization period 1986 3 2003 4 the results indicate that the common g 7 factor explains on average a larger fraction of output consumption and investment volatility in the globalization period than it does in the bw period

monetary instability the predictability of prices and the allocation of investment an empirical investigation using u k panel data it is often argued that monetary instability reduces the informational content of market signals and thereby hinders the efficient allocation of investment in this paper we use a signal extraction framework to give empirical content to this idea in particular we show why this framework predicts that as monetary uncertainty decreases the cross sectional distribution of investment widens we then explore this hypothesis using panel data information for uk companies over twenty years our data generally support the view that monetary instability may affect investment allocation through its effect on the predictability of prices this abstract was borrowed from another version of this item

energy consumption and projected growth in selected caribbean countries this paper examines two issues that are central to the understanding of the need to increase efficiency in the use distribution and production of energy in the caribbean region the empirical results of this paper suggest the following first the three caribbean countries provide evidence of short run bi directional granger causality from energy consumption to real gross domestic product per capita second the forecasts with a bvar model indicate that significant growth in energy demand could be expected in haiti jamaica and trinidad and tobago until at least 2010 third the increased growth in energy consumption suggests the need for long term commitments from caribbean countries to undertake a series of policy economic market and research and development measures to advance the adoption and deployment of new energy technologies

the autonomy of the contracting partners an argument for heuristic contractarian business ethics due to the domain characteristics of business ethics a contractarian theory for business ethics will need to be essentially different from the contract model as it is applied to other domains much of the current criticism of contractarian business ethics cbe can be traced back to autonomy one of its three boundary conditions after explaining why autonomy is so important this article considers the notion carefully vis a vis the contracting partners in the contractarian approaches in business ethics autonomy is too demanding a condition for the realm of cbe but a less stringent version of the contract may be possible a version which uses the contract as a heuristic device which merely requires moral responsibility furthermore it is argued that views of human agency and the moral subject should be made explicit in such a theory

fragility and the effect of international uncertainty shocks abstract when economic systems are fragile even modest shocks for example a shock to international capital movements can have strong negative effects on key macroeconomic fundamentals this paper proposes a large scale bayesian vector autoregression with factor stochastic volatility to investigate the macroeconomic consequences of international uncertainty shocks in g7 countries and shows that uncertainty increases fragility the factor structure enables us to identify an international uncertainty shock by assuming that it is the joint volatility process that determines the dynamics of the variance covariance matrix of the common factors to allow for first and second moment shocks we moreover assume that the uncertainty factor enters the var equation as an additional regressor our findings suggest that an international uncertainty shock has negative effects across all economies and variables under consideration leading to strong declines in output prices exports interest rates and equity prices the precise degree of fragility varies across countries a simple correlation exercise suggests that structural differences may be partially responsible for the observed differences

the eects of fiscal policy and its interactions with monetary policy in brazil this paper analyzes the eects of fiscal policy shocks on the dynamics of the economy and the interaction between fiscal and monetary policy using structural vector autoregressions svars we test the fiscal theory of the price level for brazil analyzing the response of public sector liabilities to primary surplus shocks for the hybrid identification we find that it is not possible to distinguish empirically between ricardian monetary dominance and non ricardian fiscal dominance regimes however using sign restrictions there is some evidence that the government followed a ricardian monetary dominance regime from january 2000 to june 2008

shocks and government beliefs the rise and fall of american inflation working paper 2004 22 september 2004 abstract the authors use a bayesian markov chain monte carlo algorithm to estimate a model that allows temporary gaps between a true expectational phillips curve and the monetary authority s approximating nonexpectational phillips curve a dynamic programming problem implies that the monetary authority s inflation target evolves as its estimated phillips curve moves the authors estimates attribute the rise and fall of post world war ii inflation in the united states to an intricate interaction between the monetary authority s beliefs and economic shocks shocks in the 1970s altered the monetary authority s estimates and made it misperceive the tradeoff between inflation and unemployment that misperception caused sharp rise in inflation in the 1970s the authors estimates indicate that policy makers updated their beliefs continuously by the 1980s policy makers beliefs about the phillips curve had changed enough to account for fed chairman paul volcker s conquest of u s inflation in the early 1980s jel classification e3 e5 key words updating beliefs policy evaluation self confirming equilibrium nash inflation ramsey outcomes i introduction today many statesmen and macroeconomists believe that inflation can largely be determined by a government monetary authority then why did the federal reserve board preside over high us inflation during the late 1960s and the 1970s and why under paul volcker did it rapidly bring inflation down during the early 1980s this paper answers these questions by estimating a model that features a particular process that makes a procession of economic shocks induce the monetary authority to alter its model of inflation unemployment dynamics the phillips curve at each date t the monetary authority updates its beliefs about the phillips curve and then recomputes a first period action recommended by a phelps problem a discounted dynamic programming problem that minimizes the expected value of a discounted quadratic loss function of inflation and unemployment 1 the monetary authority pursues the same objectives at each date using the same structural model with only its estimates of that model changing over time 2 this model of the systematic part of inflation puts the monetary authority s beliefs about the phillips curve front and center 3 we assume that the monetary authority s model of the phillips curve deviates in two subtle but important ways from what it would be in a rational expectations model e g kydland and prescott 1977 the first deviation is that while the true phillips curve is like kydland and prescott s we assume that the monetary authority omits the public s expected rate of inflation from its phillips curve by itself this omission need not prevent the outcomes of our model from coinciding with those of kydland and prescott s nor need it imply that the government s model is wrong in a way that could be detected from even an infinite sample whether the monetary authority s model is wrong in a statistically detectable way depends on how we allow the monetary authority to reestimate the parameters of its model in particular if the monetary authority were to believe that the coefficients of its phillips curve are constant over time then its estimates would converge to ones that support a self confirming equilibrium sce after convergence its estimated phillips curve would correctly describe occurrences along the sce path for inflation and unemployment such an after convergence version of our model has little hope of explaining the rise and fall of us inflation that model would have inflation fluctuating randomly around a constant sce level that coincides with kydland and prescott s time consistent suboptimal i e excessive level 4 this outcome motivates our second subtle deviation from a rational expectations equilibrium