Epstein-Zin preferences and their use in macro-finance models: implications for optimal monetary policy

Epstein-Zin preferences have attracted significant attention within the macro-finance literature based on DSGE models as they allow to substantially increase risk aversion, and consequently generate non-trivial risk premia, without compromising the ability of standard models to achieve satisfactory macroeconomic data coherence. Such appealing features certainly hold for structural modelling frameworks where monetary policy is set according to Taylor-type rules or seeks to minimize an ad hoc loss function under commitment. However, Epstein-Zin preferences may have significant quantitative implications for both asset pricing and macroeconomic allocation under a welfare-based monetary policy conduct. Against this background, the paper focuses on the impact of such preferences on the Ramsey approach to monetary policy within a medium-scale model based on Smets and Wouters (2007) including a wide range of nominal and real frictions that have proven to be relevant for quantitative business cycle analysis. After setting an empirical benchmark that generates a mean value of 100 bp for the ten-year term premium, we show that Epstein-Zin preferences significantly affect the macroeconomic outcome when optimal policy is considered. The level and the dynamic pattern of risk premia are also markedly altered. We show that the effect of Epstein-Zin preferences is extremely sensitive to the presence of real rigidities in the form of quasi-kinked demands. We also analyse how this effect can be linked to a combined e¤ect of capital accumulation and wage rigidities. JEL Classification: E44, E52, E61, G12macroeconometric equivalence, non time-separable preferences, optimal monetary policy, term premium

The Maastricht Convergence Criteria and Optimal Monetary Policy for the EMU Accession Countries.

The EMU accession countries are obliged to fulfill the Maastricht convergence criteria prior to entering the EMU. This paper uses a DSGE model of a two-sector small open economy, to address the following question: How do the Maastricht convergence criteria modify optimal monetary policy in an economy facing domestic and external shocks? First, we derive the micro founded loss function that represents the objective function of the optimal monetary policy not constrained to satisfy the criteria. We find that the optimal monetary policy should not only target inflation rates in the domestic sectors and aggregate output fluctuations but also domestic and international terms of trade. Second, we show how the loss function changes when the monetary policy is constrained to satisfy the Maastricht criteria. The loss function of such a constrained policy is characterized by additional elements penalizing fluctuations of the CPI inflation rate, the nominal interest rate and the nominal exchange rate around the new targets which are potentially different from the steady state of the unconstrained optimal monetary policy. Under the chosen parameterization, the unconstrained optimal monetary policy violates two criteria: concerning the CPI inflation rate and the nominal interest rate. The constrained optimal policy results in targeting the CPI inflation rate and the nominal interest rate that are 0.7% lower (in annual terms) than the CPI inflation rate and the nominal interest rate in the countries taken as a reference. The welfare costs associated with these constraints need to be offset against credibility gains and other benefits related to the compliance with the Maastricht criteria that are not modelled. JEL Classification: F41, E52, E58, E61EMU accession countries, Maastricht convergence criteria, optimal monetary policy

What do asset prices have to say about risk appetite and uncertainty?

Implied volatility indices should have information about risk parameters, once they are cleansed of the influence of normal volatility dynamics and macro-economic uncertainty. Building on intuition from the dynamic asset pricing literature, we uncover unobserved risk aversion and fundamental uncertainty from the observed time series of the VIX and the credit spreads while controlling for realized volatility, expectations about the macroeconomic outlook, and interest rates. We apply this methodology to monthly data from both Germany and the US. We find that implied volatilities contain a substantial amount of information regarding risk aversion whereas credit spreads have a lot to say about both risk aversion and uncertainty. Moreover, there is a significant comovement in the German and US risk aversion. JEL Classification:Credit Spread, Economic uncertainty, risk aversion, Time variation in risk and return, Volatility dynamics

New insights on Cu origin and fate from combined chemical extraction and ᵟ⁶⁵Cu isotopic composition: Application to Cu transfers in a Mediterranean vineyard catchment

Repeated use of Cu based fungicides (Bordeaux mixture: Ca(OH)2+CuSO4) to control vine downy hasled to signi!cant increase of Cu in vineyard soils. In Mediterranean catchments, brief and intense flood events can multiply stream discharge by up to 10 and are responsible for important soil leaching and therefore for high "uxes of Cu exported at the outlet of the catchment. In order to assess the origin and fate of Cu measured in the Baillaury catchment (South of France, combined sequential extraction (SCE) and isotopic Cu compositions (δ65Cu) approaches are proposed in this study

La Gran Recesión y el diferencial salarial por género en España

El artículo examina la evolución de las diferencias salariales entre hombres y mujeres en España entre los años 2002 y 2010. La evidencia obtenida sugiere que el notable empeoramiento de la coyuntura económica tras el inicio de la Gran Recesión ha tenido dos impactos reseñables sobre el diferencial salarial por razón de género. El primero es que se ha revertido la tendencia hacia la reducción de la brecha salarial por género que se venía produciendo en la economía española con anterioridad, durante la expansión económica. El segundo es que se ha generado un perfil creciente de la brecha salarial a lo largo de la distribución de salarios coincidente con el fenómeno de techo de cristal observado para otros países, pero no en períodos previos para España.This article examines the evolution of the gender wage gap in Spain between 2002 and 2010. The evidence suggests that the significant worsening of the economic situation after the onset of the Great Recession has had two significant impacts on the gap. The first is that it has reversed the trend towards the reduction of the gender pay gap in the Spanish economy during the previous economic expansion. The second is that it has generated a growing profile of the wage gap across the wage distribution which is consistent with the glass ceiling phenomenon observed for other advanced countries, but not in previous periods for Spain.Este trabajo se ha beneficiado de la financiación del proyecto de investigación CSO2011-29943-C03-02 del Ministerio de Educación, Cultura y Deporte

Distributional Patterns of Pseudacteon Associated with the Solenopsis saevissima Complex in South America

Classical biological control efforts against imported fire ants have largely involved the use of Pseudacteon parasitoids. To facilitate further exploration for species and population biotypes a database of collection records for Pseudacteon species was organized, including those from the literature and other sources. These data were then used to map the geographical ranges of species associated with the imported fire ants in their native range in South America. In addition, we found geographical range metrics for all species in the genus and related these metrics to latitude and host use. Approximately equal numbers of Pseudacteon species were found in temperate and tropical regions, though the majority of taxa found only in temperate areas were found in the Northern Hemisphere. No significant differences in sizes of geographical ranges were found between Pseudacteon associated with the different host complexes of fire ants despite the much larger and systemic collection effort associated with the S. saevissima host group. The geographical range of the flies was loosely associated with both the number of hosts and the geographical range of their hosts. Pseudacteon with the most extensive ranges had either multiple hosts or hosts with broad distributions. Mean species richnesses of Pseudacteon in locality species assemblages associated with S. saevissima complex ants was 2.8 species, but intensively sampled locations were usually much higher. Possible factors are discussed related to variation in the size of geographical range, and areas in southern South America are outlined that are likely to have been under-explored for Pseudacteon associated with imported fire ants

Environmental Determinants of the Distribution and Abundance of the Ants, Lasiophanes picinus and L. valdiviensis, in Argentina

The distribution and abundance variation of the terrestrial ants, Lasiophanes picinus and Lasiophanes valdiviensis Emery (Formicinae: Lasiini), which are endemic in Patagonia (Argentina and Chile), are described and a set of environmental factors are examined to explain the observed patterns. Ants were collected using 450 pitfall traps arranged in 50, 100 m2 grid plots each with nine traps within a roughly 150 × 150 km area representative of the subantartic-patagonian transition of Argentina. Five sampling periods each 8-days long were carried out between November 2004 and March 2006. To understand the distributional patterns and their link to environmental variables discriminant analysis was used. Path analysis was performed to test for direct and indirect effects of a set of environmental variables on species abundance variation. L. picinus was more frequently captured and attained higher abundance in the forests, while L. valdiviensis was more frequently captured and more abundant in the scrubs. The maximum daily temperature and mean annual precipitation explained L. picinus distribution (i.e. presence or absence) with an accuracy of 90%. L. valdiviensis distribution was predicted with almost 70% accuracy, taking into account herbal richness. The maximum daily temperature was the only climatic variable that affected ant abundance directly; an increase in temperature led to an increase of L. picinus abundance and a decrease of L. valdiviensis abundance. The amount of resources, as indicated by the percent plant cover, explained the variation of the abundance of both species better than the variety of resources as indicated by plant richness (i.e. models including plant richness had low fit or no fit at all). A direct effect of habitat use by cattle was found, as indicated by the amount of feces in the plots, only when variables related to the amount of resources were replaced by variables with less explanatory power related to the variety of resources. This study provides new data on the ecology of Lasiophanes species in relation to existing hypotheses proposed to explain patterns of abundance variation. Evidence is provided that changes in temperature (i.e. global climate change) may have important consequences on populations of these species

A zero potential vorticity model of the North Brazilian Coastal Current

The North Brazilian Coastal Current (NBCC) is idealized as an inertial, surface layer jet of equatorial origin, intruding along the coast into a northern water mass of constant, positive potential vorticity. Dissipation is accounted for by supposing that some equatorial water leaks out in the northwest corner of the intrusion. The problem is closed by adopting the free streamline boundary condition (between the northern and equatorial water masses) of continuous layer depth and velocity.Calculations are made for flow (intruding and return) supposed parallel to the coast; this approximation is verified à posteriori. The results show a narrow intrusion region along the coast, equatorial fluid flowing northwestward next to the coast, peeling off and returning along the boundary streamline. When no leakage is postulated, the northern limit of the intrusion becomes a stagnation point where the coast and the boundary streamline meet. With substantial leakage postulated, the flow chokes at some limiting latitude, where the inviscid inertial model breaks down. However, a realistic intrusion-return flow pattern is calculated south of the choking latitude for a number of different illustrative cases. The key control parameter is the potential vorticity of the northern water mass, or in a nondimensional form, the ratio of the rest-depths, at a given latitude, of the equatorial and northern water masses.The model accounts for a number of observed facets of NBCC behavior, notably its seasonal cycle, magnitude of the transports, intrusive and return flow