38 research outputs found
The Dynamics of UK and US Inflation Expectations*
This paper investigates the relationship between short term and long term inflation expectations in the US and the UK with a focus on inflation pass through (i.e. how changes in short term expectations affect long term expectations). An econometric methodology is used which allows us to uncover the relationship between inflation pass through and various explanatory variables. We relate our empirical results to theoretical models of anchored, contained and unmoored inflation expectations. For neither country do we find anchored or unmoored inflation expectations. For the US, contained inflation expectations are found. For the UK, our findings are not consistent with the specific model of contained inflation expectations presented here, but are consistent with a more broad view of expectations being constrained by the existence of an inflation target.smoothly mixing regression, inflation pass through, Bayesian
Revisiting money-output causality from a Bayesian logistic smooth transition VECM perspective
This paper proposes a Baysian approach to explore money-output causality within a logistic smooth transition VECM framework. Our empirical results provide substantial evidence that the postwar US money-output relationship is nonlinear, with regime changes mainly governed by the lagged inflation rates. More importantly, we obtain strong support for long-run non-causality and nonlinear Grangercausality from money to output. Furthermore, our impulse response analysis reveals that a shock to money appears to have negative accumulative impact on real output over the next fifty years, which calls for more caution when using money as a policy instrument.
Asymmetric volatility spillovers between UK regional worker flows and vacancies
This paper investigates volatility spillovers between UK regional job finding, job separation and vacancy rates. Employing a large Bayesian logistic smooth transition vector autoregression (VAR) model, we find high volatility spillovers between UK regional labour markets. Analyses of net spillovers show that, in general, shocks to job separation rates tend to spread into job finding and vacancy rates, while vacancy rates are usually at the receiving end of shocks transmitted from the job separations and job findings. To shed further light on the shock propagation mechanism, we also look into more detailed matters such as the differences in spillovers between regions within the same regime, and that of the same region but in different regimes
Understanding Liquidity and Credit Risks in the Financial Crisis
This paper develops a structured dynamic factor model for the spreads between London Interbank Offered Rate (LIBOR) and overnight index swap (OIS) rates for a panel of banks. Our model involves latent factors which reflect liquidity and credit risk. Our empirical results show that surges in the short term LIBOR-OIS spreads during the 2007-2009 fi
nancial crisis were largely driven by liquidity risk. However, credit risk played a more signi
cant role in the longer term (twelve-month) LIBOR-OIS spread. The liquidity risk factors are more volatile than the credit risk factor. Most of the familiar events in the fi
nancial crisis are linked more to movements in liquidity risk than credit risk.
The dynamics of UK and US inflation expectations
This paper investigates the relationship between short term and long term inflation expectations in the US and the UK with a focus on inflation pass through (i.e. how changes in short term expectations affect long term expectations). An econometric methodology is used which allows us to uncover the relationship between inflation pass through and various explanatory variables. We relate our empirical results to theoretical models of anchored, contained and unmoored inflation expectations. For neither country do we find anchored or unmoored inflation expectations. For the US, contained inflation expectations are found. For the UK, our findings are not consistent with the specific model of contained inflation expectations presented here, but are consistent with a more broad view of expectations being constrained by the existence of an inflation target
Understanding Liquidity and Credit Risks in the Financial Crisis*
This paper develops a structured dynamic factor model for the spreads between London Interbank Offered Rate (LIBOR) and overnight index swap (OIS) rates for a panel of banks. Our model involves latent factors which relect liquidity and credit risk. Our empirical results show that surges in the short term LIBOR-OIS spreads during the 2007-2009 financial crisis were largely driven by liquidity risk. However, credit risk played a more significant role in the longer term (twelve-month) LIBOR-OIS spread. The liquidity risk factors are more volatile than the credit risk factor. Most of the familiar events in the financial crisis are linked more to movements in liquidity risk than credit risk.LIBOR-OIS spread, factor model, credit default swap, Bayesian
The Dynamics of UK and US Inflation Expectations
This paper investigates the relationship between short term and
long term inflation expectations in the US and the UK with a focus
on inflation pass through (i.e. how changes in short term expecta
tions affect long term expectations). An econometric methodology is
used which allows us to uncover the relationship between inflation pass
through and various explanatory variables. We relate our empirical
results to theoretical models of anchored, contained and unmoored
inflation expectations. For neither country do we
find anchored or
unmoored inflation expectations. For the US, contained inflation expectations are found. For the UK, our fi
ndings are not consistent
with the speci
c model of contained inflation expectations presented
here, but are consistent with a broader view of expectations being
constrained by the existence of an inflation target.
Time Variation in the Dynamics of Worker Flows : Evidence from the US and Canada
VAR methods have been used to model the inter-relationships between inflows and outflows into unemployment and vacancies using tools such as impulse response analysis. In order to investigate whether such impulse responses change over the course of the business cycle or or over time, this paper uses TVP-VARs for US and Canadian data. For the US, we find interesting differences between the most recent recession and earlier recessions and expansions. In particular, we find the immediate effect of a negative shock on both inflow and outflow hazards to be larger in 2008 than in earlier times. Furthermore, the effect of this shock takes longer to decay. For Canada, we find less evidence of time-variation in impulse responses
Technical Appendix to : Understanding Liquidity and Credit Risks in the Financial Crisis
This technical appendix to the discussion paper provides a detailed description of the Gibbs sampler for Bayesian estimation, the draw parameters for the measurement and latent risk equations, as well as priors and prior sensitivity analysis