Comovement in international equity markets: A sectoral view

We investigate shifts in correlation patterns among international equity returns at the market level as well as the industry level. We develop a novel bivariate GARCH model for equity returns with a smoothly time- varying correlation and then derive a Lagrange Multiplier statistic to test the constant-correlation hypothesis directly. Applying the test to weekly data from Germany, Japan, the UK and the US in the period 1980- 2000, we find that correlations among the German, UK and US stock markets have doubled, whereas Japanese correlations have remained the same. Both dates of change and speeds of adjustment vary widely across countries and sectors.stock market linkages; financial integration; smooth transition

The role of regional information in the optimal composition of a committee

In this paper we present a model for the optimal composition of a federal or supra-national committee. The involvement of regional (national) entities in federal committees is typically motivated by their knowledge of regional information about the state of the economy. Using this argument we show that if the uncertainties regarding the state of the economy are not evenly distributed across the currency area, the optimal representation of regions in the federal committee increases with the overall uncertainty about their economic performance. Second, if certain parts of the economic area behave in a relatively synchronized way, it may not be necessary that all these regions are equally represented in the federal committee.Composition of a committee, currency union, optimal representation, information uncertainty

Cross-country differences in monetary policy transmission

This paper examines possible explanations for observed differences in the transmission of euro area monetary policy in central bank large-scale macroeconomic models. In particular it considers the extent to which these differences are due to differences in the underlying economies or (possibly unrelated) differences in the modelling strategies adopted for each country. It finds that, against most yardsticks, the cross-country variations in the results are found to be plausible in the sense that they correspond with other evidence or observed characteristics of the economies in question. Nevertheless, the role of differing modelling strategies may also play a role. Important features of the models - for instance in the treatment of expectations or wealth - can have a major bearing on the results that may not necessarily reflect differences in the underlying economies. JEL Classification: C53, E52, E37euro area differences, macroeconometric models, monetary transmission

Inflation persistence in structural macroeconomic models (RG10)

This paper analyses the response of inflation in the euro area to five macroeconomic shocks through the use of results derived from Eurosystem large-scale macroeconomic models. The main finding is that only a fiscal shock, and to a lesser extent a TFP shock, generate marked inflation persistence. In contrast, an indirect tax and an oil price shock appear much less persistent and a social security shock generates less inflation persistence in the majority of the countries (although some weak persistence was observed at the euro area level). The paper also considers evidence on the sources of persistence, which indicates that it is crucially affected by the responsiveness of wages to employment, by the sluggishness in the adjustments of the demand components, and by the speed of adjustment of employment to output and wage changes. JEL Classification: C53, E31, E52impulse response function, Inflation persistence, large-scale macroeconomic models

Cross-country differences in monetary policy transmission

This paper examines possible explanations for observed differences in the transmission of euro area monetary policy in central bank large-scale macroeconomic models. In particular it considers the extent to which these differences are due to differences in the underlying economies or (possibly unrelated) differences in the modelling strategies adopted for each country. It finds that, against most yardsticks, the cross-country variations in the results are found to be plausible in the sense that they correspond with other evidence or observed characteristics of the economies in question. Nevertheless, the role of differing modelling strategies may also play a role. Important features of the models –for instance in the treatment of expectations or wealth– can have a major bearing on the results that may not necessarily reflect differences in the underlying economies.[resumen de autor

Wage inequality, segregation by skill and the price of capital in an assignment model

Some pieces of empirical evidence suggest that in the U.S., over the last few decades, (i) wage inequality between-plants has risen much more than wage inequality within-plants and (ii) there has been an increase in the segregation of workers by skill into separate plants. This paper presents a frictionless assignment model in which these two features can be explained simultaneously as the result of the decline in the relative price of capital. Additional implications of the model regarding the skill premium and the dispersion in labor productivity across plants are also consistent with the empirical evidence. [resumen de autor

Exchange rate pass-through in the Netherlands: has it changed?

This study assesses whether the degree of exchange rate pass-through in the Netherlands has changed during the run-up to Economic and Monetary Union. VAR models are estimated on rolling sample periods to show that the pass-through of changes in the guilder-mark exchange rate has increased, while the pass-through of changes in the guilder-pound and guilder-dollar have remained more or less stable. This supports the view that the Netherlands and Germany have become increasingly integrated. This is in contrast to Taylor's (Economic Review 44, 1384-408, 2000) claim that the decline in inflation has been associated with a significant decline in the degree to which firms pass-through changes in costs.