Macroeconomic Theory: A Dynamic General Equilibrium Approach

Macroeconomic Theory is the most up-to-date graduate-level macroeconomics textbook available today. This book truly offers something new by emphasizing the general equilibrium character of macroeconomics to explain effects across the whole economy, not just part. It is also the perfect resource for economists who need to brush up on the latest developments. Michael Wickens lays out the core ideas of modern macroeconomics and its links with finance. He presents the simplest general equilibrium macroeconomic model for a closed economy, and then gradually develops a comprehensive model of the open economy. Every important topic is covered, including growth, business cycles, fiscal policy, taxation and debt finance, current account sustainability, exchange-rate determination, and an up-to-date account of monetary policy through inflation targeting. Wickens addresses the interrelationships between macroeconomics and modern finance and shows how they affect stock, bond, and foreign-exchange markets. While the mathematics needed for this book is rigorous, the author describes fundamental concepts in a way that helps make the book self-contained and easy to use. Accessible, comprehensive, and wide-ranging, Macroeconomic Theory will become the standard text for students and is ideal for economists, particularly those in government, central and commercial banking, and financial investment.macroeconomics, theory, general equilibrium, growth, business cycles, fiscal policy, taxation, debt finance, monetary policy, inflation targeting

Macroeconomic Theory: A Dynamic General Equilibrium Approach

Macroeconomic Theory is the most up-to-date graduate-level macroeconomics textbook available today. This book truly offers something new by emphasizing the general equilibrium character of macroeconomics to explain effects across the whole economy, not just part. It is also the perfect resource for economists who need to brush up on the latest developments. Michael Wickens lays out the core ideas of modern macroeconomics and its links with finance. He presents the simplest general equilibrium macroeconomic model for a closed economy, and then gradually develops a comprehensive model of the open economy. Every important topic is covered, including growth, business cycles, fiscal policy, taxation and debt finance, current account sustainability, exchange-rate determination, and an up-to-date account of monetary policy through inflation targeting. Wickens addresses the interrelationships between macroeconomics and modern finance and shows how they affect stock, bond, and foreign-exchange markets. While the mathematics needed for this book is rigorous, the author describes fundamental concepts in a way that helps make the book self-contained and easy to use. Accessible, comprehensive, and wide-ranging, Macroeconomic Theory will become the standard text for students and is ideal for economists, particularly those in government, central and commercial banking, and financial investment.macroeconomics, theory, general equilibrium, growth, business cycles, fiscal policy, taxation, debt finance, monetary policy, inflation targeting

Macroeconomic Theory: A Dynamic General Equilibrium Approach

Macroeconomic Theory is the most up-to-date graduate-level macroeconomics textbook available today. This book truly offers something new by emphasizing the general equilibrium character of macroeconomics to explain effects across the whole economy, not just part. It is also the perfect resource for economists who need to brush up on the latest developments. Michael Wickens lays out the core ideas of modern macroeconomics and its links with finance. He presents the simplest general equilibrium macroeconomic model for a closed economy, and then gradually develops a comprehensive model of the open economy. Every important topic is covered, including growth, business cycles, fiscal policy, taxation and debt finance, current account sustainability, exchange-rate determination, and an up-to-date account of monetary policy through inflation targeting. Wickens addresses the interrelationships between macroeconomics and modern finance and shows how they affect stock, bond, and foreign-exchange markets. While the mathematics needed for this book is rigorous, the author describes fundamental concepts in a way that helps make the book self-contained and easy to use. Accessible, comprehensive, and wide-ranging, Macroeconomic Theory will become the standard text for students and is ideal for economists, particularly those in government, central and commercial banking, and financial investment.macroeconomics, theory, general equilibrium, growth, business cycles, fiscal policy, taxation, debt finance, monetary policy, inflation targeting

Macroeconomic Theory: A Dynamic General Equilibrium Approach

Macroeconomic Theory is the most up-to-date graduate-level macroeconomics textbook available today. This book truly offers something new by emphasizing the general equilibrium character of macroeconomics to explain effects across the whole economy, not just part. It is also the perfect resource for economists who need to brush up on the latest developments. Michael Wickens lays out the core ideas of modern macroeconomics and its links with finance. He presents the simplest general equilibrium macroeconomic model for a closed economy, and then gradually develops a comprehensive model of the open economy. Every important topic is covered, including growth, business cycles, fiscal policy, taxation and debt finance, current account sustainability, exchange-rate determination, and an up-to-date account of monetary policy through inflation targeting. Wickens addresses the interrelationships between macroeconomics and modern finance and shows how they affect stock, bond, and foreign-exchange markets. While the mathematics needed for this book is rigorous, the author describes fundamental concepts in a way that helps make the book self-contained and easy to use. Accessible, comprehensive, and wide-ranging, Macroeconomic Theory will become the standard text for students and is ideal for economists, particularly those in government, central and commercial banking, and financial investment.macroeconomics, theory, general equilibrium, growth, business cycles, fiscal policy, taxation, debt finance, monetary policy, inflation targeting

Testing a DSGE model of the EU using indirect inference

We use the method of indirect inference, using the bootstrap, to test the Smets and Wouters model of the EU against a VAR auxiliary equation describing their data; the test is based on the Wald statistic. We find that their model generates excessive variance compared with the data. But their model passes the Wald test easily if the errors have the properties assumed by SW but scaled down. We compare a New Classical version of the model which also passes the test easily if error properties are chosen using New Classical priors (notably excluding shocks to preferences). Both versions have (different) difficulties fitting the data if the actual error properties are used.Bootstrap, DSGE Model, VAR model, Model of EU, indirect inference, Wald statistic.

Asset Pricing with Observable Stochastic Discount Factors.

The stochastic discount factor model provides a general framework for pricing assets. By specifying the discount factor suitably it encompasses most of the theories currently in use, including CAPM and consumption CAPM. The SDF model has been based on the use of single and multiple factors, and on latent and observed factors. In most situations, and especially for the term structure, single factor models are inappropriate, whilst latent variables require the somewhat arbitrary specification of generating processes and are difficult to interpret. In this paper we survey the principal different implementations of the SDF model for FOREX, equity and bonds and we propose a new approach. This is based on the use of multiple factors that are observable and modelling the joint distribution of excess returns and the factors using a multi-variate GARCH-in-mean process. We argue that in general single equation and VAR models, although widely used in empirical finance, are inappropriate as they do not satisfy the no-arbitrage condition. Since risk premia arise from conditional covariation between returns and the factors, both a multi-variate context and having conditional covariances in the conditional mean process, is essential. We explain how apparent exceptions, such as the CIR and Vasicek models, in fact meet this requirement - but at a price. We explain our new approach, discuss how it might be implemented and present some empirical evidence, mainly from our own researches. Partly, to enable comparisons to be made, the survey also includes evidence from recent empirical work using more traditional approaches.Asset Pricing; Stochastic Discount Factors; Forex; Equity Term Structure; Affine Factor Models; Consumption CAPM; Financial Econometrics; GARCH

The ‘Puzzles’ Methodology: En Route to Indirect Inference?

We review the methods used in many papers to evaluate DSGE models by comparing their simulated moments with data moments. We compare these with the method of Indirect Inference to which they are closely related. We illustrate the comparison with contrasting assessments of a two-country model in two recent papers. We conclude that Indirect Inference is the proper end point of the puzzles methodology.Bootstrap, US-EU Model, DSGE, VAR, Indirect Inference, Wald Statistic, Anomaly, Puzzle.

Consumption, Size and Book-to-Market Ratio in Equity Returns

This study extends the standard consumption-based capital asset pricing model (C-CAPM) to include two additional factors related to firm size (SMB) and book-to-market value ratio (HML). The inclusion of HML improves mainly the fit of the low book-to-market portfolios, SMB, and HML that are not correctly priced in the standard C-CAPM. Consumption premium varies across size and coincides with the size effect. The effect of a HML premium is to reduce the amount of consumption premium, implying that low book-to-market ratio and, to a lesser degree, small portfolios are not as risky as consumption predicts. The HML premium across size is contradictory to the size effect as small firms have a larger negative HML premium.Risk Premium; Equity Return; Stochastic Discount Factor; Consumption

A Cross Section of Equity Returns: The No-Arbitrage Test

We propose a new test based on the no-arbitrage condition that compares cross-sectional variation in equity returns to the cross-sectional variation in their conditional covariance with the discount factors. Using the multivariate generalized heteroskedasticity in mean model (MGM) to estimate the 25 portfolios formed on size and book-to-market ratio, together with each with its own arbitrage condition, we find that the no-arbitrage test rejects the consumption-based capital asset pricing model (C-CAPM). Although the conditional covariances of returns with consumption exhibit negative variation across size, they do not vary across the book-to-market ratio. Thus, the C-CAPM can capture size effect, but not value effect. Allowing the coefficients on the consumption covariances to be different largely improves the fit of the C-CAPM, however. The value effect appears to be associated with book-to-market ratio as well as size. Book-to-market ratio separately does not generate information about average returns that cannot be explained by the C-CAPM.Risk Premium; Equity Return; Stochastic Discount Factor; No-arbitrage Condition

Comparing different data descriptors in Indirect Inference tests on DSGE models

Indirect inference testing can be carried out with a variety of auxiliary models. Asymptotically these different models make no difference. However, in small samples power can differ. We explore small sample power with three different auxiliary models: a VAR, average Impulse Response Functions and Moments. The latter corresponds to the Simulated Moments Method. We find that in a small macro model there is no difference in power. But in a large complex macro model the power with Moments rises more slowly with increasing misspecification than with the other two which remain similar