Understanding the effects of government spending on consumption

Recent evidence on the effect of government spending shocks on consumption cannot be easily reconciled with existing optimizing business cycle models. We extend the standard New Keynesian model to allow for the presence of rule-of-thumb (non-Ricardian) consumers. We show how the interaction of the latter with sticky prices and deficit financing can account for the existing evidence on the effects of government spending. JEL Klassifikation: E32, E62

Understanding the Effects of Government Spending on Consumption

Recent evidence on the effect of government spending shocks on consumption cannot be easily reconciled with existing optimizing business cycle models. We extend the standard New Keynesian model to allow for the presence of rule-of-thumb (non-Ricardian) consumers. We show how the interaction of the latter with sticky prices and deficit financing can account for the existing evidence on the effects of government spending.Rule-of-Thumb Consumers, Fiscal Multiplier, Government Spending, Taylor Rules

Synchronization of Time Delayed Fractional Order Chaotic Financial System

The research on a time delayed fractional order financial chaotic system is a hot issue. In this paper, synchronization of time delayed fractional order financial chaotic system is studied. Based on comparison principle of linear fractional equation with delay, by using a fractional order inequality, a sufficient condition is obtained to guarantee the synchronization of master-slave systems. An example is exploited to show the feasibility of the theoretical results

Understanding the effects of government spending on consumption

Recent evidence on the effect of government spending shocks on consumption cannot be easily reconciled with existing optimizing business cycle models. We extend the standard New Keynesian model to allow for the presence of rule-of-thumb (non-Ricardian) consumers. We show how the interaction of the latter with sticky prices and deficit financing can account for the existing evidence on the effects of government spending. JEL Classification: E32, E62fiscal multiplier, government spending, rule-of-thumb consumers, Taylor rules

Spatial Autoregressive Models for House Price Dynamics in Italy

This paper elaborates a Spatial Autoregressive and Spatial Error Model (SAR-SE Model) to investigate the Italian house price dynamics. House prices in real terms have been modelled for the period 1995-2008 in all the 103 Italian provinces along with affordability ratio, persistency term, some social-economic variables and credit market variables. One of the key results of this paper, is the evidence on house price spatial autocorrelation, verified through the Baltagi, Song and Koh (2003) LM test. On the contrary, no evidence of housing price overvaluation has been found, in comparison with the fundamental values determined by interest rates, households income, rents, employment and construction cost.house prices, fundamentals, mean reversion, serial correlation, spatial dependence

(I)rationality of Investors on Croatian Stock Market – Explaining the Impact of American Indices on Croatian Stock Market

This study aims to detect and explain co-movements and spill over effects between American and Croatian stock markets. Following the methodology and findings of Erjavec and Cota (2007), the dependency of the Crobex index to the main US indices (DJIA, S&P500, NASDAQ) is further examined. The econometric study is widened, and the persistent relationship between Croatian and American indices is additionally elaborated using ARIMA and GARCH models using a different data set (January 3rd, 2005 to November 6th, 2008). Despite the fact that intra-sectoral connections between Croatian and American business sectors are rather weak, it is clear that the investors on the Croatian stock market dominantly rely on American indices movements. This was especially apparent during the beginning of the World Financial Crisis in October 2008 when the prices of Croatian companies had almost nothing to do with their business results. The behaviour of Croatian investors was largely based on the psychological effects of the crisis, and this is why behavioural finance is introduced to explain what pure financial reasoning could not. High correlation and co-movements between Croatian and American indices could be explained by three concepts; global factors, contagion and irrational escalation.ARIMA, GARCH, Crobex, Zagreb Stock Exchange, financial crisis, behavioural finance

Discretisation of Stochastic Control Problems for Continuous Time Dynamics with Delay

As a main step in the numerical solution of control problems in continuous time, the controlled process is approximated by sequences of controlled Markov chains, thus discretizing time and space. A new feature in this context is to allow for delay in the dynamics. The existence of an optimal strategy with respect to the cost functional can be guaranteed in the class of relaxed controls. Weak convergence of the approximating extended Markov chains to the original process together with convergence of the associated optimal strategies is established.Markov, Markov chain, time dynamics, stochastic control problem

The Response of Hours to a Technology Shock: a Two-Step Structural VAR Approach

The response of hours worked to a technology shock is an important and a controversial issue in macroeconomics. Unfortunately, the estimated response is generally sensitive to the specification of hours in SVARs. This paper uses a simple two-step approach in order to consistently estimate technology shocks from a SVAR model and the response of hours that follow this shock. The first step considers a SVAR model with a set of relevant stationary variables, but excluding hours. Given a consistent estimate of technology shocks in the first step, the response of hours to this shock is estimated in a second step. When applied to US data, the two-step approach predicts a short-run decrease of hours after a technology improvement followed by a hump-shaped positive response. This result is robust to the specification of hours, different sample periods, measures of hours and output and to the variables included in the VAR in the first step.SVARs, long-run restriction, technology shocks, consumption to output ratio, hours worked