Long Memory and Non-Linearities in International Inflation

This paper investigates inflation dynamics in a panel of 20 OECD economies using an approach based on the sample autocorrelation function (ACF). We find that inflation is characterized by long-lasting fluctuations, which are similar across countries and that eventually revert to a potentially time-varying mean. The cyclical and persistent behavior of inflation does not belong to the class of linear autoregressive processes but rather to a more general class of nonlinear and long memory models. Recent theoretical contributions on heterogeneity in price setting and aggregation offer a rationale to our results. Finally, we draw the monetary policy implications of our findings.AutoCorrelation Function, long-memory, inflation persistence, inflation targeting, heavy tails.

Migration and Elastic Labour in Economic Development: Southeast Asia before World War II

Between 1880 and 1939, Burma, Malaya and Thailand received inflows of migrants from India and China comparable in size to European immigration in the New World. This article examines the forces that lay behind this migration to Southeast Asia and asks if experience there bears out Lewis' unlimited labor supply hypothesis. We find that it does and, furthermore, that immigration created a highly integrated labor market stretching from South India to Southeastern China. Emigration from India and China and elastic labor supply are identified as important components of Asian globalization before the Second World War.

A note on the empirics of the neoclassical growth model

This paper shows that the widely used log-linearization of the neoclassical model of growth implies a relevant loss in terms of the ability of the model in replicating the patterns of convergence of an economy to its equilibrium level.

Nelson-Plosser Revisited: the ACF Approach

We detect a new stylized fact about the common dynamics of macroeconomic and financial aggregates. The rate of decay of the memory (or persistence) of these series is depicted by their autocorrelation functions (ACFs), and they all fit very closely a parsimonious four-parameter functional form that we present. Not only does our formula fit the data better than the ones that arise from autoregressive models, but it also yields the correct shape of the ACF. This can help policymakers understand the lags with which an economy evolves, and its turning points.

Are more data always better for factor analysis? Results for the euro area, the six largest euro area countries and the UK

Factor based forecasting has been at the forefront of developments in the macroeconometric forecasting literature in the recent past. Despite the flurry of activity in the area, a number of specification issues such as the choice of the number of factors in the forecasting regression, the benefits of combining factor-based forecasts and the choice of the dataset from which to extract the factors remain partly unaddressed. This paper provides a comprehensive empirical investigation of these issues using data for the euro area, the six largest euro area countries, and the UK. JEL Classification: C100, C150, C530Factors, Forecast Combinations, Large Datasets

Estimating Fiscal Multipliers: News From A Non-linear World

open4siCaggiano acknowledges the financial support received by the Visiting Research Scholar programme offered by the University of MelbourneWe estimate non-linear VARs to assess to what extent fiscal spending multipliers are countercyclical in the US. We deal with the issue of non-fundamentalness due to fiscal foresight by appealing to sums of revisions of expectations of fiscal expenditures. This measure of anticipated fiscal shocks is shown to carry valuable information about future dynamics of public spending. Results based on generalised impulse responses suggest that fiscal spending multipliers in recessions are greater than one, but not statistically larger than those in expansions. However, non-linearities arise when focusing on 'extreme' events, that is, deep recessions versus strong expansionary periods.openCaggiano, Giovanni; Castelnuovo, Efrem; Colombo, Valentina; Nodari, GabrielaCaggiano, Giovanni; Castelnuovo, Efrem; Colombo, Valentina; Nodari, Gabriel

Nelson-Plosser revisited: the ACF approach

We detect a new stylized fact about the common dynamics of macroeconomic and financial aggregates. The rate of decay of the memory of these series is depicted by their Auto-Correlation Functions (ACFs). They all share a common four-parameter functional form that we derive from the dynamics of an RBC model with heterogeneous firms. We find that, not only does our formula fit the data better than the ACFs that arise from autoregressive models, but it also yields the correct shape of the ACF. This can help policymakers understand better the lags with which an economy evolves, and the onset of its turning points. Classification-JEL: JEL E32, E52, E63

Are Fiscal Multipliers Estimated with Proxy-SVARs Robust?

How large are government spending and tax multipliers? The fiscal proxy-SVAR literature provides heterogenous estimates, depending on which proxies - fiscal or non-fiscal - are used to identify fiscal shocks. We reconcile the existing estimates via a flexible vector autoregressive model that allows to achieve identification in presence of a number of structural shocks larger than that of the available instruments. Our two main findings are the following. First, the estimate of the tax multiplier is sensitive to the assumption of orthogonality between total factor productivity (non-fiscal proxy) and tax shocks. If this correlation is assumed to be zero, the tax multiplier is found to be around one. If such correlation is non-zero, as supported by our empirical evidence, we find a tax multiplier three times as large. Second, we find the spending multiplier to be robustly larger than one across different models that feature different sets of instruments. Our results are robust to the joint employment of different fiscal and non-fiscal instruments

Fiscal Fragility and Sovereign Risk in the Euro Area

Abstract We study the relative weight of macroeconomic (i.e., fiscal policy, banking exposure, growth perspectives, etc.) and financial (i.e., aggregate and idiosyncratic risk, and sovereign bond markets liquidity) conditions as determinants of movements of 10-years sovereign bond spreads (over the Bund benchmark) in the Eurozone from 2000 to 2009, relying on cross-country quarterly data panel analysis. We find that aggregate and idiosyncratic risk factors are fundamental drivers of sovereign spreads, both directly and interacting with structural conditions. With respect to the literature, we find a wider set of macroeconomic conditions -fiscal policy stance (i.e., level and maturity structure of outstanding debt, and fiscal balance), banking sector exposure (namely, level and structure of assets by borrowing sector), and short and medium-term growth perspectives -driving sovereign default risk. In line with the literature, we find strong evidence of regime switching in parameters' estimation