Testing the New Keynesian Phillips Curve through Vector Autoregressive models: Results from the Euro area.

In this paper we set out a test of the New Keynesian Phillips Curve (NKPC) based on Vector Autoregressive (VAR) models. The proposed technique does not rely on the Anderson and Moore (1985) method and can be implemented with any existing econometric software. The idea is to use a VAR involving the inflation rate and the forcing variable(s) as the expectation generating system and find the restrictions that nest the NKPC within the VAR. The model can be estimated and tested through maximum likelihood methods. We show that the presence of feedbacks from the inflation rate to the forcing variable(s) can affect solution properties of the NKPC; when feedbacks are detected the VAR should be regarded as the final form solution of a more general structural model. Possible non-stationary in the variables can be easily taken into account within our framework. Empirical results point that the standard "hybrid" versions of the NKPC are far from being a good first approximation to the dynamics of inflation in the Euro area

Highly rotating viscous compressible fluids in presence of capillarity effects

In this paper we study a singular limit problem for a Navier-Stokes-Korteweg system with Coriolis force, in the domain $\R^2\times\,]0,1[\,$ and for general ill-prepared initial data. Taking the Mach and the Rossby numbers to be proportional to a small parameter \veps going to $0$, we perform the incompressible and high rotation limits simultaneously. Moreover, we consider both the constant capillarity and vanishing capillarity regimes. In this last case, the limit problem is identified as a $2$-D incompressible Navier-Stokes equation in the variables orthogonal to the rotation axis. If the capillarity is constant, instead, the limit equation slightly changes, keeping however a similar structure. Various rates at which the capillarity coefficient can vanish are also considered: in most cases this will produce an anisotropic scaling in the system, for which a different analysis is needed. The proof of the results is based on suitable applications of the RAGE theorem.Comment: Version 2 includes a corrigendum, which fixes errors contained in the proofs to Theorems 6.5 and 6.

Present value relations, Granger non-causality and VAR stability

When in "exact" present value (PV) relations the decision variables do not Granger cause the explanatory variables and a VAR process is used to derive restrictions, the system embodies explosive roots. Hence any test of the PV restrictions would reject the null if the system incorporates Granger non-causality constraints. This paper investigates the issue.Granger non causality; Present value model; VAR

Estimation of quasi-rational DSGE monetary models

This paper proposes the estimation of small-scale dynamic stochastic general equilibrium (DSGE) monetary models under the quasi-rational expectations (QRE) hypothesis. The QRE-DSGE model is based on the idea that the determinate reduced form solution associated with the structural model, if it exists, must have the same lag structure as the ‘best fitting’ vector autoregressive (VAR) model for the observed time series. After discussing solution properties and the local identifiability of the model, a likelihood-based iterative algorithm for estimating the structural parameters and testing the data adequacy of the system is proposed. A Monte Carlo experiment shows that, even controlling for the omitted dynamics bias, the over-rejection of the nonlinear cross-equation restrictions when asymptotic critical values are used and variables are highly persistent is a relevant issue in finite samples. An application based on euro area data illustrates the advantages of using error-correcting formulations of the QRE-DSGE model when the inflation rate and the short-term interest rate are approximated as difference stationary processes. A parametric bootstrap version of the likelihood-ratio test for the implied cross-equation restrictions does not reject the estimated QRE-DSGE model.Dynamic stochastic general equilibrium model, Maximum Likelihood estimation, Quasi-Rational Expectations, VAR. Modelli DSGE, Stima di massima verosimiglianza, Aspettative Quasi-Razionali, Modelli VAR.