Robust Control and Persistence in the New Keynesian Economy

Since Keynes no economist would deny that expectations under uncer- tain conditions matter for the conduct of monetary policy, but still opin- ions about their formation are diverse. We build a hybrid New Keynesian Framework to analyze the influence of model uncertainty on optimal in- terest rates under di¤erent degrees of rational forward-looking behavior, using recently developed robust control techniques. Impulse response functions illustrate that uncertainty seems to be a rationale for more aggressive interest rate reactions, but also suggest that the degree of forward-looking behavior seems to be more important than an appro- priate fear about the misspecification of a given model. Furthermore, we argue that assuming to control inflation through expectations is a policy on the razor's edge, since robust expectations overestimate shock impacts. This questions the gains from commitment under uncertainty.Robust Control, Knightian Uncertainty, Monetary Policy, Forward-Looking Expectations, Model Uncertainty.

What Can an Open-Economy DSGE Model Tell Us about Hong Kong’s Housing Market?

This paper develops an open-economy DSGE model with a housing-market sector and a borrowing constraint. Contrary to standard conventions, domestic households are allowed to invest in foreign housing and vice versa. Using Bayesian methods, the model is applied to data for Hong Kong. The results show that Hong Kong’s housing market is quite open to foreign investment, and perhaps more significantly, that variations in the loan-to-value ratio and housing preference shocks largely explain business cycle volatility.DSGE models; housing; open economy; Hong Kong

Stock market wealth effects in an estimated DSGE model for Hong Kong

This paper develops and estimates an open economy dynamic stochastic general equilibrium (DSGE) model of the Hong Kong economy. The model features short-run price rigidities generated by monopolistic competition and staggered reoptimisation. The model is enhanced with wealth effects due to stock price dynamics, which we believe to be important. For this reason we adopt a perpetual youth approach. Model parameters and unobserved components are estimated with a Bayesian maximum likelihood procedure, conditional on prior information concerning the values of parameters.DSGE models; wealth effects; open economy; Hong Kong

Environmental policy under model uncertainty: a robust optimal control approach

Model uncertainty is inherent in the design of optimal environmental policy. We investigate the consequences in a simple linear model, where the aim of the policymaker is to stabilize the carbon content of the atmosphere. We study how decision-makers' concerns about robustness alter policy using the Hansen and Sargent (2000, 2003, 2007) approach. The analysis shows that a policymaker, who fears model misspecification should react more aggressively to changes in the stock of atmospheric carbon and implement policies which deliver a greater reduction of emissions

Adjustment in EMU: Is Convergence Assured?

Using a modified version of the model presented by Belke and Gros (2007), we analyze the stability of adjustment in a currency union. Using econometric estimates for parameter values we check the stability conditions for the 11 original EMU countries and Greece. We found significant instability in the model for a large number of countries. We then simulate the adjustment process for some empirically observed parameter values and find that even for countries with relatively smooth adjustment, the adjustment to a price shock in EMU might take several decades. Keywords: EMU, convergence, stability.EMU, convergence, stability, inflation

Coronabonds are a pragmatic response to a crisis – and are not about cross-EU transfers or solidarity

Common debt instruments created by the European Union, of which coronabonds are currently the most urgent and salient example, evoke in some countries the fear that the Eurozone may be heading towards a ‘transfer union’. Some advocates also misleadingly justify these innovations by an appeal to European ‘solidarity’. Yet, in practice, Michael Paetz and Patrick Kaczmarczyk argue that such instruments require only a dose of pragmatism. We need to fundamentally reframe the debate around ‘debt mutualisation’ in Europe on more evidence-based and realistic lines if the Eurozone is to survive

Adjustment in EMU: Is Convergence Assured?

Using a modified version of the model presented by Belke and Gros (2007), we analyze the stability of adjustment in a currency union. Using econometric estimates for parameter values we check the stability conditions for the 11 original EMU countries and Greece. We found significant instability in the model for a large number of countries. We then simulate the adjustment process for some empirically observed parameter values and find that even for countries with relatively smooth adjustment, the adjustment to a price shock in EMU might take several decades

Adjustment in EMU: Is Convergence Assured?

Using a modified version of the model presented by Belke and Gros (2007), we analyze the stability of adjustment in a currency union. Using econometric estimates for parameter values we check the stability conditions for the 11 original EMU countries and Greece. We found significant instability in the model for a large number of countries. We then simulate the adjustment process for some empirically observed parameter values and find that even for countries with relatively smooth adjustment, the adjustment to a price shock in EMU might take several decades. Keywords: EMU, convergence, stability

Stock price dynamics and the business cycle in an estimated DSGE model for South Africa

This paper develops and estimates an open economy dynamic stochastic general equilibrium model of South Africa. We devote special attention to the impact of stock price wealth effects on output and the interest rate. For this reason we adopt a perpetual youth approach, which allows for a limited decision horizon. We estimate the model using Bayesian techniques and find that (i) about 9 percent of the volatility in production can be explained by financial shocks, and (ii) the SARB does not and should not react on stock price disturbances. Moreover, stock prices seem to be unaffected by shocks from the real economy.http://www.elsevier.com/locate/intfin2017-09-30hb2016Economic

Blumenols as shoot markers of root symbiosis with arbuscular mycorrhizal fungi.

High-through-put (HTP) screening for functional arbuscular mycorrhizal fungi (AMF)-associations is challenging because roots must be excavated and colonization evaluated by transcript analysis or microscopy. Here we show that specific leaf-metabolites provide broadly applicable accurate proxies of these associations, suitable for HTP-screens. With a combination of untargeted and targeted metabolomics, we show that shoot accumulations of hydroxy- and carboxyblumenol C-glucosides mirror root AMF-colonization in Nicotiana attenuata plants. Genetic/pharmacologic manipulations indicate that these AMF-indicative foliar blumenols are synthesized and transported from roots to shoots. These blumenol-derived foliar markers, found in many di- and monocotyledonous crop and model plants (Solanum lycopersicum, Solanum tuberosum, Hordeum vulgare, Triticum aestivum, Medicago truncatula and Brachypodium distachyon), are not restricted to particular plant-AMF interactions, and are shown to be applicable for field-based QTL mapping of AMF-related genes