The Dynamic Effects of Disinflation Policies.

This paper investigates the effects of disinflation policies on key macroeconomic variables. Using postwar US data and episode techniques, we identify disinflation shocks as shocks that drive the inflation rate to a lower level in the long-run. We find that in the immediate aftermath of a disinflation policy, the economy enters in a persistent recession. The inflation rate increases above its long-run level and exhibits a positive hump-shaped response. A similar pattern is found for the nominal interest rate, which responds even more strongly in the short-run. We then show that the standard new Keynesian model fails to account for macroeconomic dynamics in disinflationary times. On the contrary a deep habit version of the model successfully accounts for the effects of disinflation policies.Disinflation policies ; Deep Habits ; New Keynesian Models.

Minimum Distance Estimation and Testing of DSGE Models from Structural VARs

The aim of this paper is to complement the MDE--SVAR approach when the weighting matrix is not optimal. In empirical studies, this choice is motivated by stochastic singularity or collinearity problems associated with the covariance matrix of Impulse Response Functions. Consequently, the asymptotic distribution cannot be used to test the economic model's fit. To circumvent this difficulty, we propose a simple simulation method to construct critical values for the test statistics. An empirical application with US data illustrates the proposed method.MDE, SVAR, DSGE models.

Technology Shock and Employment: Do We Really Need DSGE Models with a Fall in Hours?

The recent empirical literature that uses Structural Vector Autoregressions (SVAR) has shown that productivity shocks identified using long--run restrictions lead to a persistent and significant decline in hours worked. This evidence calls into question standard RBC models in which a positive technology shock leads to a rise in hours. In this paper, we estimate and test a standard RBC model using Indirect Inference on impulse responses of hours worked after technology and non-technology shocks. We find that this model is not rejected by the data and is able to produce impulse responses in SVAR from simulated data similar to impulse responses in SVAR from actual data. Moreover, technology shocks represent the main contribution to the variance of the business cycle component of output under the estimated DSGE model. Our results suggest that we do not necessarily need DSGE models with a fall in hours to reproduce the results deriving from SVAR models.SVARs ; Long--Run Restrictions ; RBC models ; Indirect Inference

La TVA sociale : bonne ou mauvaise idée ?

The quantitative and dynamic consequence of a social VAT reform, i.e. a fiscal reform consisting in substituting VAT for social contributions, is assessed using two general equilibrium models. The first one is a Walrasian model with no other frictions than distortionary taxation of labor and capital incomes and consumption. The second one introduces in addition matching frictions in the labor market. Two alternative financing schemes are considered for the practical details of implementing the social VAT. In all cases, the fiscal reform turns out to generate a small, positive long--run effect on aggregate variables and yields a modest welfare gain. In the no--friction model, this welfare gain is substantially reduced when the reform is pre--announced six quarters prior to implementation. The effect of such a pre-announced reform are smaller when labor market frictions are taken into account.social VAT, DGE, pre-announced fiscal reform.

Chocs d’Offre et Optimalité de la Politique Monétaire dans la Zone Euro

This article assesses monetary policy's performances in the Euro zone in the face of supply shocks. We determine the responses of output, inflation, labor share and the nominal interest rate to a supply shock as identified through a structural VAR model. We then develop a DSGE model with nominal rigidities subject to the optimal monetary policy. The model is estimated and tested on the basis of its ability to reproduce the responses drawn from the VAR model. Our results suggest that assuming optimal monetary policy allows for a satisfying fit to the data.Supply shocks ; SVAR ; Optimal Monetary Policy.

Une estimation de la cible implicite d’inflation dans la zone euro

Euro area countries as a whole have experienced a marked downward trend over the 1980s. Over this period, the unemployment rate has increased and economic activity has been sluggish. Changes in the implicit inflation target, viewed as low frequency movements of inflation, might possibly explain these developments. To highlight this issue, the present study estimates the dynamics of the implicit inflation target in the euro zone over the period 1970Q1-2004Q4. Based on a small macroeconometric model, the implicit target, not known by the econometrician, is identified through a minimal set of theoretical restrictions: (i) the inflation target is a non stationary process, (ii) inflation is a monetary phenomenon in the long-run, and (iii) changes in the implicit target have no long-run effects whatsoever on real variables. The model is estimated so as to match output growth, changes in inflation and the ex post real interest rate. Our main results are: (i) inflation target shocks account for the bulk of nominal fluctuations; (ii) due to monetary policy inertia and nominal stickiness, changes in the target generate large swings in the real interest rate translating into substantial short-run effects on real variables; (ii) in spite of this inflation target shocks moderately impact on output dynamics.Implicit inflation target, Macroeconometric modelling, Euro area.

Les modèles DSGE – leur intérêt pour les banques centrales.

Depuis une cinquantaine d’années, les modèles macro-économétriques ont franchi plusieurs étapes. Les modèles DSGE représentent aujourd’hui l’étape la plus aboutie de ce processus et sont en voie de devenir l’un des principaux outils d’aide à la décision en économie.Modèles d’équilibre général, politique monétaire.

Life and Death at the Edge of a Windy Cliff

The survival probability of a particle diffusing in the two dimensional domain $x>0$ near a ``windy cliff'' at $x=0$ is investigated. The particle dies upon reaching the edge of the cliff. In addition to diffusion, the particle is influenced by a steady ``wind shear'' with velocity $\vec v(x,y)=v\,{\rm sign}(y)\,\hat x$, \ie, no average bias either toward or away from the cliff. For this semi-infinite system, the particle survival probability decays with time as $t^{-1/4}$, compared to $t^{-1/2}$ in the absence of wind. Scaling descriptions are developed to elucidate this behavior, as well as the survival probability within a semi-infinite strip of finite width $|y|<w$ with particle absorption at $x=0$. The behavior in the strip geometry can be described in terms of Taylor diffusion, an approach which accounts for the crossover to the $t^{-1/4}$ decay when the width of the strip diverges. Supporting numerical simulations of our analytical results are presented.Comment: 13 pages, plain TeX, 5 figures available upon request to SR (submitted to J. Stat. Phys.

Survival Probability in a Random Velocity Field

The time dependence of the survival probability, S(t), is determined for diffusing particles in two dimensions which are also driven by a random unidirectional zero-mean velocity field, v_x(y). For a semi-infinite system with unbounded y and x>0, and with particle absorption at x=0, a qualitative argument is presented which indicates that S(t)~t^{-1/4}. This prediction is supported by numerical simulations. A heuristic argument is also given which suggests that the longitudinal probability distribution of the surviving particles has the scaling form P(x,t)~ t^{-1}u^{1/3}g(u). Here the scaling variable u is proportional to x/t^{3/4}, so that the overall time dependence of P(x,t) is proportional to t^{-5/4}, and the scaling function g(u) has the limiting dependences g(u) approaching a constant as u--->0 and g(u)~exp(-u^{4/3}) as u--->infinity. This argument also suggests an effective continuum equation of motion for the infinite system which reproduces the correct asymptotic longitudinal probability distribution.Comment: 6 pages, RevTeX, 5 figures includes, to be submitted to Phys. Rev.

A Bayesian spatio-temporal model of panel design data: airborne particle number concentration in Brisbane, Australia

This paper outlines a methodology for semi-parametric spatio-temporal modelling of data which is dense in time but sparse in space, obtained from a split panel design, the most feasible approach to covering space and time with limited equipment. The data are hourly averaged particle number concentration (PNC) and were collected, as part of the Ultrafine Particles from Transport Emissions and Child Health (UPTECH) project. Two weeks of continuous measurements were taken at each of a number of government primary schools in the Brisbane Metropolitan Area. The monitoring equipment was taken to each school sequentially. The school data are augmented by data from long term monitoring stations at three locations in Brisbane, Australia. Fitting the model helps describe the spatial and temporal variability at a subset of the UPTECH schools and the long-term monitoring sites. The temporal variation is modelled hierarchically with penalised random walk terms, one common to all sites and a term accounting for the remaining temporal trend at each site. Parameter estimates and their uncertainty are computed in a computationally efficient approximate Bayesian inference environment, R-INLA. The temporal part of the model explains daily and weekly cycles in PNC at the schools, which can be used to estimate the exposure of school children to ultrafine particles (UFPs) emitted by vehicles. At each school and long-term monitoring site, peaks in PNC can be attributed to the morning and afternoon rush hour traffic and new particle formation events. The spatial component of the model describes the school to school variation in mean PNC at each school and within each school ground. It is shown how the spatial model can be expanded to identify spatial patterns at the city scale with the inclusion of more spatial locations.Comment: Draft of this paper presented at ISBA 2012 as poster, part of UPTECH projec