(WP 2010-09) Does Money Matter? An Empirical Investigation

This paper uses a simultaneous-equations model of the new consensus macroeconomic model to examine whether the inclusion of the money stock in the aggregate demand function improves the statistical fit of the model. The results indicate that the consensus model is accurate for the U.S. in that the inclusion of money does not increase the predictive power of the model. However, the results reveal that the estimated coefficients are more robust when money is included as an instrumental variable in the simultaneous equations consensus model

Does Money Matter? An Empirical Investigation

This paper uses a simultaneous-equations model of the new consensus macroeconomic model to examine whether the inclusion of the money stock in the aggregate demand function improves the statistical fit of the model. The results indicate that the consensus model is accurate for the U.S. in that the inclusion of money does not increase the predictive power of the model. However, the results reveal that the estimated coefficients are more robust when money is included as an instrumental variable in the simultaneous equations consensus modelConsensus Macro Model; Monetary Policy; Phillips Curve; Taylor Rule

Effective electrothermal analysis of electronic devices and systems with parameterized macromodeling

We propose a parameterized macromodeling methodology to effectively and accurately carry out dynamic electrothermal (ET) simulations of electronic components and systems, while taking into account the influence of key design parameters on the system behavior. In order to improve the accuracy and to reduce the number of computationally expensive thermal simulations needed for the macromodel generation, a decomposition of the frequency-domain data samples of the thermal impedance matrix is proposed. The approach is applied to study the impact of layout variations on the dynamic ET behavior of a state-of-the-art 8-finger AlGaN/GaN high-electron mobility transistor grown on a SiC substrate. The simulation results confirm the high accuracy and computational gain obtained using parameterized macromodels instead of a standard method based on iterative complete numerical analysis

Modeling and Forecasting Short-term Interest Rates: The Benefits of Smooth Regimes, Macroeconomic Variables, and Bagging

In this paper we propose a smooth transition tree model for both the conditional mean and variance of the short-term interest rate process. The estimation of such models is addressed and the asymptotic properties of the quasi-maximum likelihood estimator are derived. Model specification is also discussed. When the model is applied to the US short-term interest rate we find (1) leading indicators for inflation and real activity are the most relevant predictors in characterizing the multiple regimes’ structure; (2) the optimal model has three limiting regimes. Moreover, we provide empirical evidence of the power of the model in forecasting the first two conditional moments when it is used in connection with bootstrap aggregation (bagging).short-term interest rate, regression tree, smooth transition, conditional variance, bagging, asymptotic theory

Macroeconomic Determinants of the Term Structure of Corporate Spreads

We investigate the macroeconomic determinants of corporate spreads using a no-arbitrage technique. Structural shocks are identified by a New-Keynesian model. Treasury bonds are priced in an affine model with time-varying risk premia. Corporate bonds are priced in a reduced-form credit risk model where default risk depends on macroeconomic state variables. Using U.S. data, we find that the monetary policy shock contributes to more than 50% the corporate spread variations at different forecasting horizons. Its contribution, in general, declines with credit classes. In contrast, the aggregate supply and demand shocks contribute more to the spread variations in low credit classes than in high credit classes. In addition, they in general contribute more for longer forecasting horizons.Debt management; Financial markets; Interest rates

Briefing Note 1A - Life-Cycle Costs Approach: Costing Sustainable Services

This briefing note uses an accounting framework, the life-cycle costs approach (LCCA), to explain the main cost components for water and sanitation in rural and peri-urban areas. The briefing note explains the building blocks used in the LCCA, then shows how this approach estimates the true cost of extending sustainable and good quality water and sanitation services to the poorest. The LCCA approach provides the most useful answer to: "What is the cost per year per person of delivering clean water and good sanitation services?" Detailed cost breakdowns are available in the annex

Rational Expectations in the Macro Model

macroeconomics, macro model

Heterogeneity, Asymmetries and Learning in InfIation Expectation Formation: An Empirical Assessment

Relying on Michigan Survey' monthly micro data on inflation expectations we try to determine the main features -- in terms of sources and degree of heterogeneity - of inflation expectation formation over different phases of the business cycle and for different demographic subgroups. We identify three regions of the overall distribution corresponding to different expectation formation processes, which display a heterogeneous response to main macroeconomic indicators: a static or highly autoregressive (LHS) group, a "nearly" rational group (middle), and a group of "pessimistic" agents (RHS), who overreact to macroeconomic fluctuations. Different learning rules have been applied to the data, in order to test whether agents' are learning and whether their expectations are converging towards rational expectations (perfect foresight). The results obtained by applying conventional and recursive methods confirm our initial conjecture that behaviour of agents in the RHS of distribution is more associated with learning dynamics. We also regard the overall distribution as a mixture of normal distributions. This strategy allows us to get a deeper understanding of the existence and the main features of convergence and learning in the data, as well as to identify the demographic participation in each subcomponentHeterogeneous Expectations, Adaptive Learning, Survey Expectations

The political conditioning of subjective economic evaluations: the role of party discourse

Classic and revisionist perspectives on economic voting have thoroughly analyzed the role of macroeconomic indicators and individual partisanship as determinants of subjective evaluations of the national economy. Surprisingly, however, top-down analysis of parties’ capacity to cue and persuade voters about national economic conditions is absent in the debate. This study uses a novel dataset containing monthly economic salience in party parliamentary speeches, macroeconomic indicators and individual survey data covering the four last electoral cycles in Spain (1996–2011). The results show that the salience of economic issues in the challenger’s discourse substantially increases negative evaluations of performance when this challenger is the owner of the economic issue. While a challenger’s conditioning of public economic evaluations is independent of the state of the economy (and can affect citizens with different ideological orientations), incumbent parties are more constrained by the true state of the economy in their ability to persuade the electorate on this issue

Monetary policy and rejections of the expectations hypothesis

We study the rejection of the expectations hypothesis within a New Keynesian business cycle model. Earlier research has shown that the Lucas general equilibrium asset pricing model can account for neither sign nor magnitude of average risk premia in forward prices, and is unable to explain rejection of the expectations hypothesis. We show that a New Keynesian model with habit-formation preferences and a monetary policy feedback rule produces an upward-sloping average term structure of interest rates, procyclical interest rates, and countercyclical term spreads. In the model, as in U.S. data, inverted term structure predicts recessions. Most importantly, a New Keynesian model is able to account for rejections of the expectations hypothesis. Contrary to earlier work, we identify systematic monetary policy as a key factor behind this result. Rejection of the expectation hypothesis can be entirely explained by the volatility of just two real shocks which affect technology and preferences.term structure of interest rates; monetary policy; sticky prices; habit formation; expectations hypothesis