C32 Multiple or Simultaneous Equation Models: Time-Series Models

December 18, 2012

This paper investigates the relationship between the main features of business cycles and the institutional and structural characteristics of countries of up to 62 industrial, emerging and formerly centrally planned economies from all continents. We derive the business cycle characteristics using the nonparametric Harding-Pagan approach. Our analysis reveals that institutional factors have significant associations with the duration and amplitude of business cycles. Examining the determinants of business cycle synchronization for the countries in our sample, we also demonstrate that the bilateral proximity of institutional and policy environments matters in addition to the gravity arguments, trade intensity and bilateral financial linkages used in earlier studies.

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June 10, 2011

This paper provides an empirical investigation of both the within-US and international channels of transmission of macroeconomic and financial shocks by means of a 50-country macroeconometric model (estimated over the 1980-2009 period), including measures of excess liquidity and financial fragility, specifically designed in order to evaluate the relevance of the boom-bust credit cycle view put forward as an interpretation of the recent "Great Recession" episode. We find that such a view is consistent with the empirical evidence. Moreover, concerning the real effects of financial shocks within the US, we detect stronger evidence of an asset prices channel, rather than a liquidity channel. Concerning the spillovers to the world economy, we find that while financial disturbances are transmitted to foreign countries through US house and stock price dynamics, as well as excess liquidity creation, the trade channel is the key trasmission mechanism of real shocks.

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April 18, 2011

I estimate the dynamic effects of respectively traditional interest rate innovations and unconventional monetary policy actions on the Euro area economy. The results show that the Eurosystem can stimulate the economy beyond the policy rate by increasing the size of its balance sheet. The ultimate consequences on output and consumer prices are however more sluggish compared to interest rate innovations. Furthermore, the transmission mechanism via financial institutions - very likely the risk-taking channel - turns out to be different.

Paper not available.

April 8, 2011

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October 1, 2010

We propose a benchmark prior for the estimation of vector autoregressions: a prior about initial growth rates of the modeled series. We first show that the Bayesian vs frequentist small sample bias controversy is driven by dierent default initial conditions. These initial conditions are usually arbitrary and our prior serves to replace them in an intuitive way. To implement this prior we develop a technique for translating priors about observables into priors about parameters. We find that our prior makes a big dierence for the estimated persistence of output responses to monetary policy shocks in the United States.

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March 9, 2011

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August 1, 2010

This paper characterizes business cycle phenomena in a sample of 27 developed and developing economies using a univariate Markov regime switching approach. It examines the efficacy of this approach for detecting business cycle turning points and for identifying distinct economic regimes for each country in question. The paper also provides a comparison of the business cycle turning points implied by this study and those derived in other studies. Our findings document the importance of heterogeneity of individual countries’ experiences. We also argue that consideration of a large and diverse group of countries provides an alternative perspective on the comovement of aggregate economic activity worldwide.

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August 1, 2010

This paper studies business cycle interdependence among the industrialized countries since 1958. Using the spillover index methodology recently proposed by Diebold and Yilmaz (2009) and based on the generalized VAR framework, I develop an alternative measure of comovement of macroeconomic aggregates across countries. I have several important results. First, the spillover index fluctuates over time, increasing substantially following the post-1973 U.S. recessions. Secondly, the band within which the spillover index fluctuates follows an upward trend since the start of the globalization process in the early 1990s. Thirdly, the spillover index recorded the sharpest increase ever following the peak of the global financial crisis in September 2008, reaching a record level as of December 2008 (See http://data.economicresearchforum.org/erf/bcspill.aspx?lang=en for updates of the spillover plot). I also derive measures of directional spillovers and show that the U.S. (1980s and 2000s) and Japan (1970s and 2000s) are major transmitters of shocks to other countries. Finally, during the 2008-2009 global recession shocks mostly originated from the United States and spread to other industrialized countries.

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March 1, 2010

Since the 1970s the characteristics of international business cycles have changed and deeper economic integration has modified the features of cross-country comovement. We formally test for correlation shifts in measures of real economic activity and economic/financial integration. In Europe we find evidence of significantly higher correlations following the creation of the EMU in 1999 for several subgroups of countries. We detect significantly more pronounced correlations between Mexico and the US and between Mexico and Canada in North America after the enforcement of the NAFTA in 1994. Results are derived from an econometric framework based on nonparametric iterated stationary bootstrap methods, whose statistical reliability and performance we assess through Monte Carlo simulations.

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March 27, 2011

Since the 1970s the characteristics of international business cycles have changed and deeper economic integration has modified the features of cross-country comovement. We formally test for correlation shifts in measures of real economic activity and economic/financial integration. In Europe we find some statistically significant evidence of higher correlations following the creation of the EMU in 1999 for several subgroups of countries. We detect significantly more pronounced correlations between Mexico and the US and between Mexico and Canada in North America after the enforcement of the NAFTA in 1994. Results are derived from an econometric framework based on nonparametric iterated stationary bootstrap methods, whose statistical reliability and performance we assess through Monte Carlo simulations.

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