252 research outputs found
Is the UK productivity slowdown unprecedented?
We estimate trend UK labour productivity growth using a Hodrick-Prescott filter method. We use the results to compare downturns where the economy fell below its pre-existing trend. We find that the current productivity slowdown has resulted in productivity being 19.7 per cent below the pre-2008 trend path in 2018. This is nearly double the previous worst productivity shortfall ten years after the start of a downturn. On this criterion the slowdown is unprecedented in the past 250 years. We conjecture that this reflects a combination of adverse circumstances, namely, a financial crisis, a weakening impact of ICT and impending Brexit
Measuring the Euro area output gap using multivariate unobserved components models containing phase shifts
This paper analyses the impact of using different macroeconomic variables and output decompositions to estimate the euro area output gap. We estimate twelve multivariate unobserved components models with phase shifts being allowed between individual cyclical components. As output decomposition plays a central role in all multivariate models, three different output decompositions are utilised; these are a first-order stochastic cycle combined with either a local linear trend or a damped slope trend, and a second-order cycle plus an appropriate trend specification (a trend following a random walk with a constant drift is generally preferred). We also extend the commonly used trivariate models of output, inflation and unemployment to incorporate a fourth variable, either investment or industrial production. We find that the four-variate model incorporating industrial production produces the most satisfactory output gap estimates, especially when the output gap is modelled as a first-order cycle. In addition, measuring phase shifts and calculating contemporaneous correlations between individual cyclical components provides a better understanding of the different gap estimates. We conclude that the output gap estimate in all models leads the cyclical components of inflation and unemployment, but lags those of industrial production and investment. Furthermore, the output gap estimates obtained from the four-variate model including investment present the longest leads-and-lags with respect to other cyclical components, implying that investment appears to be more of a leading indicator than a coincident variable for the euro area.output gap, higher-order cycle, industrial production, state-space, Kalman filter.
Fiscal policy in a depressed economy : was there a ‘free lunch’ in 1930s’ Britain?
We report estimates of the fiscal multiplier for interwar Britain based on quarterly data and timeseries
econometrics. We find that the government-expenditure multiplier was in the range 0.3 to
0.9 even during the period that interest rates were at the lower bound. The scope for a ‘Keynesian
solution’to recession was much less than is generally supposed. In the later 1930s but not before
Britain’s exit from the gold standard, there was a ‘fiscal free lunch’in that deficit-financed
government spending would have improved public finances enough to pay for the interest on the
extra debt
Rearmament to the rescue? New estimates of the impact of ‘Keynesian’ policies in 1930s’ Britain
We report estimates of the fiscal multiplier for interwar Britain based on quarterly data, time-series econometrics, and ‘defense news’. We find that the government expenditure multiplier was in the range 0.3 to 0.8, much lower than previous estimates. The scope for a
Keynesian solution to recession was less than is generally supposed. We find that rearmament gave a smaller boost to real GDP than previously claimed. Rearmament may,
however, have had a larger impact than a temporary public works program of similar magnitude if private investment anticipated the need to add capacity to cope with future defense spending
Does the exchange rate regime affect the economy?
Foreign exchange rates ; Great Britain
Stochastic modelling of rainfall for the island of Ireland
This paper analyses a recently created continuous 305-year (1711–2016) monthly rainfall series for the island of Ireland. The
findings are as follows. The excess skewness in the monthly series may be eradicated by using a Box-Cox transformation with
parameter equal to 0.6: a value very similar to that found for the U.K. and its regions. There is no evidence of either an overall
stochastic trend or of evolving monthly seasonal patterns, but positive linear trends are found for January, March, and December
and a negative linear trend is found for July. Analysis of the seasonal and annual series (which require no transformation)
confirms the implication from the monthly data that winters have become progressively wetter and summers progressively drier,
with the positive linear trend for winter being twice the size of the negative summer trend. Since there is no trend in either spring
or autumn rainfall, annual rainfall shows a positive linear trend. Given that the rainfall series exists for over three centuries, breaks
and structural shifts in the model were investigated. Five breaks were identified, three of which occurred in the early portion of the
series during the eighteenth century. However, trends were found to be much more stable from the middle of the nineteenth
century. For the seasonal series, only a single break, at 1790 for the winter series, was found: it was only after this break that
winters became wetter; before then, winter rainfall had a negative trend. In terms of predictability, predictions from the model
were found to be more volatile during the second half of the eighteenth century and again from 1976 onwards
Econometric modelling of the relationship between money, income and interest rates in the U.K. : 1963-1978
This thesis investigates empirically the relationship
between money, income and interest rates in the U.K. over the
period 1963 to 1978. After developing univariate models of
the time series' proxying these theoretical variables, the
paradox existing between the conventional theoretical model, the
IS/LM framework, and the usual empirical practice of directly
estimating the demand for money function is investigated. It
is shown that the crucial issues are the exogeneity assumptions
placed on the IS/LM framework. As such assumptions cannot be
tested in a static framework, a dynamic analogue of the IS/LM
model is developed, along with appropriate methods for testing
exogeneity in dynamic multivariate systems. Empirical tests
show that the assumptions of the exogeneity of money and government
expenditure are invalid, but that the direct estimation of
demand for money functions is appropriate. This leads to an
investigation of the dynamic structure and functional form of
this function using recently developed techniques based on specification
search procedures.
A major conclusion of this study is that the IS/LM model is
an invalid framework for empirical research, and in particular
money cannot be regarded as being exogenously determined. Indeed,
there is no evidence of feedback from money to either real income
or prices, although both statistical and economic reasons are
advanced for the possibility that such feedback cannot be detected
by the techniques employed. Important short run dynamic effects
are found on the demand for money with respect to real income,
prices and interest rates. Furthermore, both the wage rate and
an own rate of interest variable are also important determinants
of money demand. The demand for narrow money function also
exhibits sensible long run behaviour and has an adequate
predictive performance but, unfortunately, the broad money function
has no long run properties and predicts unsatisfactorily
Trends and cycles in Euro area real GDP
This paper examines the time series properties of real GDP in the Euro area (EU 11), both prior to and after the adoption of the Euro in January 1999. We employ the relatively recent "optimal approximation" band pass filter developed by Christiano and Fitzgerald (2003) in order to identify a Euro-zone business cycle. We also utilise two alternative assumptions regarding the behaviour of the trend component of Euro area real GDP. The empirical results suggest that the single currency experiment appears to have reduced trend growth in the Euro zone, both ex-ante during the Maastricht nominal convergence phase, and also ex-post, during the period 2001Q1 to 2005Q4. With respect to cyclical behaviour, we identify a very robust measure of the Euro zone business cycle in the post 1994 period which does not appear to be sensitive to the particular assumption made regarding the trend rate of growth of real GDP. This type of result should facilitate a more accurate assessment of the extent to which individual countries and groups of countries are converged with respect to the Euro area business cycle
Multivariate Markov switiching common factor models for the UK
We estimate a model that incorporates two key features of business cycles,
comovement among economic variables and switching between regimes of boom and
slump, to quarterly U.K. data for the last four decades. A common factor, interpreted
as a composite indicator of coincident variables, and estimates of turning points from
one regime to the other, are extracted from the data by using the Kalman filter and
maximum likelihood estimation. Both comovement and regime switching are found
to be important features of the U.K. business cycle. The composite indicator produces
a sensible representation of the cycle and the estimated turning points agree fairly
well with independently determined chronologies. These estimates are sharper than
those produced by a univariate Markov switching model of GDP alone. A fairly
typical stylised fact of business cycles is confirmed by this model - recessions are
steeper and shorter than recoveries
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