Fiscal Shocks and the Consumption Response when Wages are Sticky

In this paper we study the impact of a government spending shock on aggregate consumption, building on the GLV (Gali, Lopez-Salido and Valles (2007)) model. We show that the GLV model implies a counterfactual increase in the real wage, the interest rate and the in.ation rate. The introduction of sticky wages solves these problems and preserves the main result of the model, i.e. the positive response of consumption. Moreover, once we relax the common wage assumption, sticky wages are even essential to reproduce the positive response of consumption.sticky wages; rule-of-thumb consumers; fiscal shocks; firm-specific capital

Does Monetary Policy React to Asset Prices? Some International Evidence

This paper attempts to measure the reaction of monetary policy to the stock market. We apply the procedure of Rigobon and Sack (2003) to identify and estimate a VAR in the presence of heteroskedasticity. This procedure fully takes into account the endogeneity of interest rates and stock returns that is ignored in the traditional VAR literature. We find a positive and significant reaction in the US and the UK. However, since the end of the 1990s, in a period of large stock market fluctuations, this reaction declines in the US and disappears in the UK. In Japan and the EU, we do not find any reaction. We provide evidence that the lower response to stock prices in the last part of the sample in the US is compensated by a higher response to real estate prices.monetary policy; stock market; identifcation; VAR; heteroskedasticity

Explaining Deviations from Okun’s Law

Despite its stability over time, as for any statistical relationship, Okun’s law is subject to deviations that can be large at times. In this paper, we provide a mapping between residuals in Okun’s regressions and structural shocks identified using a SVAR model by inspecting how unemployment responds to the state of the economy. We show that deviations from Okun’s law are a natural and expected outcome once one takes a multi-shock perspective, as long as shocks to automation, labor supply and structural factors in the labor market are taken into account. Our simple recipe for policy makers is that, if a positive deviation from Okun’s law arises, it is likely to be generated by either positive labor supply or automation shocks or by negative structural factors shocks.publishedVersio

Immigration and the macroeconomy : some new empirical evidence

Proponemos un nuevo esquema de identificación VAR que nos permite separar perturbaciones migratorias de otras perturbaciones macroeconómicas. La identificación se logra imponiendo restricciones de signo a datos noruegos para el período I TR 1990-II TR 2014. La disponibilidad de series trimestrales para la inmigración neta es crucial para lograr identificación. En particular, la inmigración es una variable endógena en el modelo y puede responder al estado de la economía. Encontramos que las perturbaciones de oferta de mano de obra doméstica y las perturbaciones migratorias están bien identificadas y son los principales impulsores de la dinámica migratoria. Una perturbación exógena de inmigración reduce el desempleo (incluso entre los trabajadores nativos), tiene un pequeño efecto positivo sobre los precios y sobre las finanzas públicas, no afecta a los precios de la vivienda ni al crédito de los hogares y tiene un efecto negativo sobre la productividadWe propose a new VAR identification scheme that enables us to disentangle immigration shocks from other macroeconomic shocks. Identification is achieved by imposing sign restrictions on Norwegian data over the period 1990Q1 - 2014Q2. The availability of a quarterly series for net immigration is crucial to achieving identification. Notably, immigration is an endogenous variable in the model and can respond to the state of the economy. We find that domestic labour supply shocks and immigration shocks are well identified and are the dominant drivers of immigration dynamics. An exogenous immigration shock lowers unemployment (even among native workers), has a small positive effect on prices and on public finances, no impact on house prices and household credit, and a negative effect on productivit

Has the Fed responded to house and stock prices? : a time-varying analysis

En este trabajo utilizamos un modelo VAR estructural con parámetros variables en el tiempo y volatilidad estocástica para investigar si la Reserva Federal ha respondido sistemáticamente a los precios de los activos y si esta respuesta ha cambiado con el tiempo. Para recuperar el componente sistemático de la política monetaria, interpretamos la ecuación de la tasa de interés en el VAR como una regla extendida de política monetaria que responde a la inflación, el output gap, los precios de la vivienda y los precios de las acciones. Detectamos variación temporal en los coeficientes de precios de la vivienda y precios de las acciones, mientras que los coeficientes de la inflación y el output gap son bastante estables en el tiempo. Nuestros resultados indican que el componente sistemático de la política monetaria en Estados Unidos i) tuvo un peso positivo sobre el crecimiento real de los precios de la vivienda, que disminuyó antes de la crisis y eventualmente volvió a aumentar, y ii) solo tuvo en cuenta el crecimiento real de los precios de las acciones en momentos concretos del tiempoIn this paper we use a structural VAR model with time-varying parameters and stochastic volatility to investigate whether the Federal Reserve has responded systematically to asset prices and whether this response has changed over time. To recover the systematic component of monetary policy, we interpret the interest rate equation in the VAR as an extended monetary policy rule responding to infl ation, the output gap, house prices and stock prices. We find some time variation in the coefficients for house prices and stock prices but fairly stable coefficients over time for inflation and the output gap. Our results indicate that the systematic component of monetary policy in the US, i) attached a positive weight to real house price growth but lowered it prior to the crisis and eventually raised it again, and ii) only episodically took real stock price growth into accoun

Did monetary policy kill the Phillips Curve? Some simple arithmetics

An apparent disconnect has taken place between inflation and economic activity in the US over the last 25 years, with price inflation remaining remarkably stable in spite of large fluctuations in the output gap and other measures of economic slack. This observation has led some to believe that the Phillips curve–a summary measure of aggregate supply–has flattened. We argue that this view may be premature and put forward a few, simple arithmetics which give rise to testable implications for demand and supply curve slopes. Equipped with New Keynesian theory and estimated SVAR models, we decompose the unconditional variation in US macro data into the components driven by demand and supply disturbances, and confront the inflation disconnect with our simple arithmetics. This exercise reveals a relatively stable supply curve slope once shocks to supply have been properly accounted for. The demand curve, instead, has flattened substantially in recent decades. Our results are at odds with a decline in the Phillips curve slope, but fully consistent with a shift towards a more firm monetary policy commitment to inflation stability.publishedVersio

Has the fed responded to house and stock prices? : a time-varying analysis

Published: 8 March 2017In this paper we use a structural VAR model with time-varying parameters and stochastic volatility to investigate whether the Federal Reserve has responded systematically to asset prices and whether this response has changed over time. To recover the systematic component of monetary policy, we interpret the interest rate equation in the VAR as an extended monetary policy rule responding to inflation, the output gap, house prices and stock prices. We find some time variation in the coefficients for house prices and stock prices but fairly stable coefficients over time for inflation and the output gap. Our results indicate that the systematic component of monetary policy in the US i) attached a positive weight to real house price growth but lowered it prior to the crisis and eventually raised it again and ii) only episodically took real stock price growth into account

On merger bias and the clustering of quasars

We use the large catalogues of haloes available for the Millennium Simulation to test whether recently merged haloes exhibit stronger large-scale clustering than other haloes of the same mass. This effect could help to understand the very strong clustering of quasars at high redshift. However, we find no statistically significant excess bias for recently merged haloes over the redshift range 2 < z < 5, with the most massive haloes showing an excess of at most ~5%. We also consider galaxies extracted from a semianalytic model built on the Millennium Simulation. At fixed stellar mass, we find an excess bias of ~ 20-30% for recently merged objects, decreasing with increasing stellar mass. The fact that recently-merged galaxies are found in systematically more massive haloes than other galaxies of the same stellar mass accounts for about half of this signal, and perhaps more for high-mass galaxies. The weak merger bias of massive systems suggests that objects of merger-driven nature, such as quasars, do not cluster significantly differently than other objects of the same characteristic mass. We discuss the implications of these results for the interpretation of clustering data with respect to quasar duty cycles, visibility times, and evolution in the black hole-host mass relation.Comment: 10 pages, 9 figures. Submitted to MNRAS. Comments welcom

The 21 centimeter emission from the reionization epoch: extended and point source foregrounds

Fluctuations in the redshifted 21 centimeter emission from neutral hydrogen probe the epoch of reionization. We examine the observability of this signal and the impact of extragalactic foreground radio sources. We use cosmological simulations to predict the angular correlation functions of intensity fluctuations due to unresolved radio galaxies, cluster radio halos and relics and free-free emission from the interstellar and intergalactic medium at the frequencies and angular scales relevant for the proposed 21cm tomography. In accord with previous findings, the brightness temperature fluctuations due to foreground sources are much larger than those from the primary 21cm signal at all scales. In particular, diffuse cluster radio emission, which has been previously neglected, provides the most significant foreground contamination. However, we show that the contribution to the angular fluctuations at scales \theta > 1' is dominated by the spatial clustering of bright foreground sources. This excess can be removed if sources above flux levels S > 0.1 mJy are detected and removed. Hence, efficient source removal may be sufficient to allow the detection of angular fluctuations in the 21cm emission free of extragalactic foregrounds at \theta > 1 arcmin. In addition, the removal of sources above S=0.1 mJy also reduces the foreground fluctuations to roughly the same level as the 21cm signal at scales \theta < 1 arcmin. This should allow the substraction of the foreground components in frequency space, making it possible to observe in detail the topology and history of reionization.Comment: 13 pages, submitted to MNRAS, added referenc