Now showing 1 - 10 of 20
- PublicationDealing with Financial Instability under a DSGE modeling approach with Banking Intermediation: a predictability analysis versus TVP-VARs(University College Dublin. School of Economics, 2016-08)
; ; ;In the dynamic stochastic general equilibrium (DSGE) literature there has been an increasing awareness on the role that the banking sector can play in macroeconomic activity. We present a DSGE model with financial intermediation as in Gertler and Karadi (2011). The estimation of shocks and of the structural parameters shows that time-variation should be crucial in any attempted empirical analysis. Since DSGE modelling usually fails to take into account inherent nonlinearities of the economy, we propose a novel time-varying parameter (TVP) state-space estimation method for VAR processes both for homoskedastic and heteroskedastic error structures. We conduct an exhaustive empirical exercise to compare the out-of-sample predictive performance of the estimated DSGE model with that of standard ARs, VARs, Bayesian VARs and TVP-VARs. We find that the TVP-VAR provides the best forecasting performance for the series of GDP and net worth of financial intermediaries for all steps-ahead, while the DSGE model outperforms the other specifications in forecasting inflation and the federal funds rate at shorter horizons. 419
- PublicationForecasting with Instabilities: an Application to DSGE Models with Financial Frictions(University College Dublin. School of Economics, 2015-10)
; ;This paper examines whether the presence of parameter instabilities in dynamic stochastic general equilibrium (DSGE) models affects their forecasting performance. We apply this analysis to medium-scale DSGE models with and without financial frictions for the US economy. Over the forecast period 2001-2013, the models augmented with financial frictions lead to an improvement in forecasts for inflation and the short term interest rate, while for GDP growth rate the performance depends on the horizon/period. We interpret this finding taking into account parameters instabilities. Fluctuation test shows that models with financial frictions outperform in forecasting inflation but not the GDP growth rate. 535
- PublicationThe Effectiveness of Forward Guidance in an Estimated DSGE Model for the Euro Area: the Role of Expectations(University College Dublin. School of Economics, 2017-01)
; ;We assess the effectiveness of the forward guidance undertaken by European Central Bank using a standard medium-scale DSGE model à la Smets and Wouters (2007). Exploiting data on expectations from surveys, we show that incorporating expectations should be crucial in performance evaluation of models for the forward guidance. We conduct an exhaustive empirical exercise to compare the pseudo out-of-sample predictive performance of the estimated DSGE model with a Bayesian VAR and a DSGE-VAR models. DSGE model with expectations outperforms others for inflation; while for output and short term-interest rate the DSGE-VAR with expectations reports the best prediction. 184
- PublicationIn search of the Euro area fiscal stance(University College Dublin. School of Economics, 2016-08)
; ;This paper investigates the role of fiscal policies over the aggregate EMU business cycle. Previous studies, based on the assumption of non-separability between public and private consumptions, obtain a large public consumption multiplier, a small fraction of non-Ricardian households and, consequently, a relatively small multiplier for public transfers. We provide motivations for assuming separability and, on these grounds, we estimate a relatively large share of non-Ricardian households. As a result, we obtain that both multipliers are large. We also find that, in spite of their potentially strong effects, fiscal policies were substantially muted during the EMU years. This result is confirmed even for the post 2007 period. In fact fiscal policies did not complement the monetary policy stimulus in response to the financial crisis. Further, we cannot detect any substantial aggregate effect of austerity measures. Finally, the post-2007 surge in expenditure-to-GDP ratios was apparently determined by non-policy shocks that reduced output growth. 332
- PublicationGreat Recession, Slow Recovery and Muted Fiscal Policies in the US(University College Dublin. School of Economics, 2016-03)
; ;This paper reconsiders the role of macroeconomic shocks and policies in determining the Great Recession and the subsequent recovery in the US. The Great Recession was mainly caused by a large demand shock and by the ZLB on the interest rate policy. In contrast with previous findings, the subsequent jobless recovery is explained by the ZLB effect. We estimate a fraction of non-Ricardian households which is close to 50%, and obtain comparatively large fiscal multipliers. However we cannot detect a significant contribution of fiscal policies in stabilizing the US economy. For instance, the 2007-2009 large increase in expenditure-to-GDP ratios was apparently determined by the adverse non-policy shocks that caused the recession. 392
- PublicationDoes Trade Foster Institutions? An Empirical AssessmentThe relationship between trade and institutions has been extensively debated by trade economists and political scientists. The aim of the present paper is to provide some empirical evidence on the causal relationship between institutions and trade flows in a panel framework. We present a Granger causality test (1969) as well as a Hurlin and Venet (2001) test for panel data using a bilateral trade flows panel that covers 29 years. The issue of zero flows of trade is handled by using a panel Poisson Pseudo-Maximum Likelihood estimator.
- PublicationDoes Trade Foster Institutions?The field of institutional economics stresses the role of institutions as a possibledeterminant of many economic phenomena (see among many others North, 1990). On the other hand, recent contributions suggest that economicfeatures may determine the development of a country’s institutional setting(Acemoglu and Robinson, 2006). Therefore, the issue of the endogeneity of institutions is well known and widely debated whenever a causal relationship between economic variables and institutions is suggested.
- PublicationDealing with Financial Instability under a DSGE modeling approach with Banking Intermediation: a predictability analysis versus TVP-VARs(Elsevier, 2016-10)
; ; ;In DSGE literature there has been an increasing awareness on the role that the banking sector can play in macroeconomic activity. In most of recent works, purely financial instabilities and frictions are derived from intermediaries that affect the real economy by means of a credit channel or a balance sheet channel. We model financial intermediation as in Gertler and Karadi (2011) to take into account the bank leverage constraint in the propagation of shocks to the real economy. Within this framework, the evolution of estimated shocks and the instabilities in the structural parameters show that time-variation should be crucial in any attempted empirical analysis. However, DSGE modelling usually fails to take into account inherent nonlinearities of the economy, especially in crisis time periods. Hence, we propose a novel time-varying parameter (TVP) state-space estimation method for VAR processes both for homoskedastic and heteroskedastic error structures. We conduct an exhaustive empirical exercise that includes the comparison of the out-of-sample predictive performance of the estimated DSGE model with that of standard VARs, Bayesian VARs and TVP-VARs. Overall, a first attempt is made to find macro-financial micro-founded DSGE models as well as adaptive TVP-VARs, which are able to deal with financial instabilities via incorporating banking intermediation. 285Scopus© Citations 10
- PublicationThe Macroeconomic Determinants of the US Term-Structure During The Great Moderation(Elsevier, 2016-01)We study the relation between the macroeconomic variables and the term structure of interest rates during the Great Moderation. We interpolate a term structure using three latent factors of the yield curve to analyze the responses of all maturities to macroeconomic shocks. A Nelson–Siegel model is implemented to estimate the latent factors which correspond to the level, the slope, and the curvature of the curve. As policy implication, the interpolated term structure informs the policymaker how all the macroeconomic shocks impact the whole term structure, even if the impact has a different magnitude across maturities.
256Scopus© Citations 12
- PublicationLimited Asset Market Participation and the Euro Area Crisis: An Empirical DSGE Model(Wiley, 2019-07)
; ;We estimate a medium‐scale dynamic stochastic general equilibrium model for the Euro area with limited asset market participation (LAMP). Our results suggest that in the recent European Monetary Union years LAMP is particularly sizable (39% during 1993–2012) and important to understand business cycle features. The Bayes factor and the forecasting performance show that the LAMP model is preferred to its representative household counterpart. In the representative agent model the risk premium shock is the main driver of output volatility in order to match consumption correlation with output. In the LAMP model this role is played by the investment‐specific shock, because non‐Ricardian households introduce a Keynesian multiplier effect and raise the correlation between consumption and investments. We also detect the contractionary role of monetary policy shocks during the post‐2007 years. In this period consumption of non‐Ricardian households fell dramatically, but this outcome might have been avoided by a more aggressive policy stance. 371Scopus© Citations 5