Fiscal policy, pricing frictions and monetary accommodation

We investigate the theoretical conditions for effectiveness of government consumptionexpenditure expansions using US, Euro area and UK data. Fiscal expansions taking placewhen monetary policy is accommodative lead to large output multipliers in normal times.The 2009-2010 packages need not produce significant output multipliers, may havemoderate debt effects, and only generate temporary inflation. Expenditure expansionsaccompanied by deficit/debt consolidations schemes may lead to short run output gains buttheir success depends on how monetary policy and expectations behave. Trade opennessand the cyclicality of the labor wedge explain cross-country differences in the magnitude ofthe multipliers.

Bridging DSGE models and the raw data

A method to estimate DSGE models using the raw data is proposed. The approachlinks the observables to the model counterparts via a flexible specification which doesnot require the model-based component to be solely located at business cycle frequencies,allows the non model-based component to take various time series patterns, andpermits model misspecification. Applying standard data transformations induce biasesin structural estimates and distortions in the policy conclusions. The proposed approachrecovers important model-based features in selected experimental designs. Twowidely discussed issues are used to illustrate its practical use.

Estimating overidentified, nonrecursive, time-varying coefficients structural VARs

This paper provides a method to estimate time varying coefficients structuralVARs which are non-recursive and potentially overidentified. The procedureallows for linear and non-linear restrictions on the parameters, maintainsthe multi-move structure of standard algorithms and can be used toestimate structural models with different identification restrictions. We studythe transmission of monetary policy shocks and compare the results with thoseobtained with traditional methods.

Has the Euro-Mediterranean partnership affected Mediterranean business cycles?

We date turning points of the reference cycle for 19 Mediterranean countries andanalyze their structure and interdependences. Fluctuations are volatile and not highlycorrelated across countries; recessions are deep but asynchronous making average outputlosses in the area limited. Heterogeneities across countries and regions are substantial.Mediterranean cycles are time varying but their evolution is not linked withthe Euro-Mediterranean partnership process. The concordance of cyclical fluctuationsis poorly related to trade and financial linkages and to their evolution over time.

Productivity and the welfare of nations

We show that the welfare of a representative consumer can be related to observable aggregatedata. To a first order, the change in welfare is summarized by (the present value of) the Solowproductivity residual and by the growth rate of the capital stock per capita. We also show thatproductivity and the capital stock suffice to calculate differences in welfare across countries, withboth variables computed as log level deviations from a reference country. These results hold forarbitrary production technology, regardless of the degree of product market competition, and applyto open economies as well if TFP is constructed using absorption rather than GDP as the measureof output. They require that TFP be constructed using prices and quantities as perceived byconsumers. Thus, factor shares need to be calculated using after-tax wages and rental rates, andwill typically sum to less than one. We apply these results to calculate welfare gaps and growthrates in a sample of developed countries for which high-quality TFP and capital data are available.We find that under realistic scenarios the United Kingdom and Spain had the highest growth ratesof welfare over our sample period of 1985-2005, but the United States had the highest level ofwelfare.

Species of Oukuriella Epler (Diptera, Chironomidae) inside freshwater sponges in Brazil

Larvae of Oukuriella Epler, 1986 (Diptera, Chironomidae) inside freshwater sponges are reported for the first time in Brazil.

International consumption risk sharing

This paper formally examines the implications of international consumptionrisk sharing for a panel of industrialized countries. We theoretically derivethe international consumption insurance proposition in a simple setup and showhow it should be modified in more complicated models. We empirically analyzethe implications of the theory for pairs of countries across frequencies of thespectrum and find that aggregate domestic consumption is almost completelyinsured against idiosyncratic real, demographic, fiscal and monetary shocksover short cycles, but that it covaries with these variables over medium andlong cycles. The cross equation restrictions imposed by the theory are, ingeneral, rejected. The policy implications of the results are discussed.

The equity premium and the risk free rate: A cross country, cross maturity examination

This paper examines the relationship between the equity premium and the risk free rate at three different maturities using post 1973 data fora panel of 7 OECD countries. We show the existence of subsample instabilities,of some cross country differences and of inconsistencies with the expectations theory of the term structure. We perform simulations using a standard consumptionbased CAPM model and demonstrate that the basic features of Mehra and Prescott's(1985) puzzle remain, regardless of the time period, the investment maturity and the country considered. Modifications of the basic setup are also considered.

Business cycle measurement with some theory

A method to evaluate cyclical models not requiring knowledge of the DGP and the exact specificationof the aggregate decision rules is proposed. We derive robust restrictions in a class of models; use someto identify structural shocks in the data and others to evaluate the class or contrast sub-models. Theapproach has good properties, even in small samples, and when the class of models is misspecified. Themethod is used to sort out the relevance of a certain friction (the presence of rule-of-thumb consumers)in a standard class of models.

The macroeconomic effects of German unification: Real adjustments and the welfare state

We study the effects of German unification in a model with capital accumulation, skill differences and a welfare state. We argue that this event is similar to a mass migration of low-skilled agents holding no capital into a foreign country. Absent a welfare state, we observe an investment boom, depressed output and employment conditions. Capital owners and high-skilled agents are willing to give up to 4% of per-capita consumption to favor unification. When a welfare state exists the investment boom disappears and the recession is prolonged. Now, with unification, capital owners and high-skilled agents lose 4% of per-capita consumption.

Monetary policy misspecification in VAR models

We examine the effects of extracting monetary policy disturbances with semi-structural and structural VARs, using data generated bya limited participation model under partial accommodative and feedback rules. We find that, in general, misspecification is substantial: short run coefficients often have wrong signs; impulse responses and variance decompositions give misleadingrepresentations of the dynamics. Explanations for the results and suggestions for macroeconomic practice are provided.

The ins and outs of unemployment: An analysis conditional on technology shocks

We analyze how unemployment, job finding and job separation rates reactto neutral and investment-specific technology shocks. Neutral shocks increaseunemployment and explain a substantial portion of it volatility; investment-specificshocks expand employment and hours worked and contribute to hoursworked volatility. Movements in the job separation rates are responsible for theimpact response of unemployment while job finding rates for movements alongits adjustment path. The evidence warns against using models with exogenousseparation rates and challenges the conventional way of modelling technologyshocks in search and sticky price models.

Testing for convergence clubs in income per-capita: A predictive density approach

The paper proposes a technique to jointly test for groupings of unknown size in the cross sectional dimension of a panel and estimates the parameters of each group, and applies it to identifying convergence clubs in income per-capita. The approach uses the predictive density of the data, conditional on the parameters of the model. The steady state distribution of European regional data clusters around four poles of attraction with different economic features. The distribution of incomeper-capita of OECD countries has two poles of attraction and each grouphas clearly identifiable economic characteristics.

Back to square one: Identification issues in DSGE models

We investigate identifiability issues in DSGE models and their consequences for parameter estimation and model evaluation when the objective function measures the distance between estimated and model impulse responses. We show that observational equivalence, partial and weak identification problems are widespread, that they lead to biased estimates, unreliable t-statistics and may induce investigators to select false models. We examine whether different objective functions affect identification and study how small samples interact with parameters and shock identification. We provide diagnostics and tests to detect identification failures and apply them to a state-of-the-art model.