Now showing 1 - 10 of 79
- PublicationThe Past, Present and Future of Euro Area Monetary-Fiscal Interactions(University College Dublin. School of Economics, 2022-02)The EU’s Treaties were designed to limit the interaction between fiscal and monetary policies. However, over the last decade, the introduction of the ECB’s Outright Monetary Transactions (OMT) programme and its sovereign bond purchase programmes have created some strong linkages between monetary and fiscal policies in the Eurosystem. The ECB’s monetary policies have improved fiscal debt sustainability and reduced the probability of sovereign default. However, there may need to be limits to the ECB’s purchases of sovereign bonds. This paper discusses the interactions between fiscal and monetary policies in the euro area and describes how the arguments raised by the European Court of Justice in the Weiss and Gauweiler cases suggest there may be hard limits on the size of the Eurosystem’s sovereign bond holdings. These limits may undermine the positive impact of the OMT announcement and force the ECB into some difficult choices in the coming years.
- PublicationStaggered price contracts and inflation persistence : some general results(Central Bank of Ireland, 2004-10)Despite their popularity as theoretical tools for illustrating the effects of nominal rigidities, some have questioned whether models based on Taylor-style staggered contracts can match the persistence of the empirical inflation process. This paper presents some general theoretical results about the Taylor-style models. It is shown that these models do not have a problem matching high autocorrelations for inflation. However, they fail to explain a key feature of reduced-form Phillips-curve regressions: The positive dependence of inflation on its own lags. It is shown that staggered price contracting models instead predict that the coefficients on these lag terms should be negative.
- PublicationThe ECB’s role in financial supervision(University College Dublin. School of Economics, 2009-10)The European Council’s decisions to implement the De Larosiere recommendations for a reformed approach to micro-level financial supervision and a new European Systemic Risk Board (ESRB) are to be welcomed. The ECB’s central role in the ESRB is also to be welcomed. However, the limited role envisaged for the ESRB means that it may not actually help much in preventing future crises. The ESRB should be given a central role in the implementation of counter-cyclical capital ratios and in promoting (and then overseeing implementation of) other changes such as maximum leverage ratios and limits on non-core funding.
- PublicationUnemployment and the durational structure of exit rates(Federal Reserve, 1997-10)This paper presents a simple model of wage bargaining and employment flows designed to address the effects of policies to increase the rate of exit to employment of the long-term unemployed. Exit rates from long- and short-term unemployment have two effects on the unemployment rate: a positive one as high exit rates strengthen current employees' bargaining positions, and thus wages, and a negative one as faster outflows from unemployment reduce the stock of unemployed. Thus, there is a trade-off between the exit rate from long-term unemployment and the exit rate from short-term unemployment. The paper's principal result is that, in steady-state, increasing the exit rate from long-term unemployment reduces the unemployment rate. Dynamic simulations show that raising the exit rate of the long-term unemployed leads to a decrease in both the mean and variance of the unemployment rate.
- PublicationA note on the cointegration of consumption, income, and wealthLettau and Ludvigson (2001) argue that a log-linearized approximation to an aggregate budget constraint predicts that log consumption, assets, and labour income will be cointegrated. They conclude that this cointegrating relationship is present in U.S. data, and that the estimated cointegrating residual forecasts future asset growth. This note examines whether the cointegrating relationship suggested by Lettau and Ludvigson's theoretical framework actually exists. We demonstrate that we cannot reject the hypothesis that cointegration is absent from the data once we employ measures of consumption, assets, and labor income that are jointly consistent with an underlying budget constraint. By contrast, Lettau and Ludvigson use a set of variables that do not belong together in an aggregate budget constraint, thereby testing a cointegrating relationship that is not implied by their theory.
- PublicationIreland’s Sovereign Debt Crisis(University College Dublin. School of Economics, 2011-05)Among the countries currently experiencing sovereign debt crises, Ireland’s case is perhaps the most dramatic. As recently as 2007, Ireland was seen by many as top of the European class in its economic achievements. Ireland had combined a long period of high economic growth and low unemployment with budget surpluses. The country appeared to be well placed to cope with any economic slowdown as it had a gross debt-GDP ratio in 2007 of 25% and a sovereign wealth fund worth about €5000 a head.
- PublicationBalanced growth revisited : a two-sector model of economic growth(Federal Reserve, 2000-12-05)The one-sector Solow-Ramsey model is the most popular model of long-run economic growth. This paper argues that a two-sector approach, which distinguishes the durable goods sector from the rest of the economy, provides a far better picture of the long-run behavior of the U.S. economy. Real durable goods output has consistently grown faster than the rest of the economy. Because most investment spending is on durable goods, the one-sector model's hypothesis of balanced growth, so that the real aggregates for consumption, investment, output, and the capital stock all grow at the same rate in the long run, is rejected by U.S. data. In addition, to model these aggregates as currently constructed in the U.S. National Accounts, a two-sector approach is required. Implications for empirical macroeconomics are explored.
- PublicationGlobal imbalances and the financial crisis(University College Dublin. School of Economics, 2010-04)Did global imbalances cause the financial crisis? A number of influential figures have argued that inflows of foreign capital into the US due to the current account deficit helped to trigger the crisis. This paper argues that the evidence for this position is weak. The capital inflows into the US associated with the current account deficit were also not the key factor driving foreign purchases of US toxic assets. The so-called global savings glut was not as significant a pattern as is often presented. Macroeconomic policies that reduced global imbalances could have been adopted but these would probably not have prevented the crisis. Global policy efforts to prevent a recurrence of the financial crisis need to focus on improved banking regulation. Reducing global imbalances should be of secondary importance.
- PublicationExplaining the investment boom of the 1990s(Federal Reserve, 2000-02-07)Real equipment investment in the United States has boomed in recent years, led by soaring investment in computers. We find that traditional aggregate econometric models completely fail to capture the magnitude of this recent growth - mainly because these models neglect to address two features that are crucial (and unique) to the current investment boom. First, the pace at which firms replace depreciated capital has increased. Second, investment has been more sensitive to the cost of capital. We document that these two features stem from the special behavior of investment in computers and therefore propose a disaggregated approach. This produces an econometric model that successfully explains the 1990s equipment investment boom.