What is this thing called confidence? A comparative analysis of consumer confidence indices in eight major countries

The paper examines the evolution of consumer confidence indices in Australia, Canada, France, Germany, Italy, Japan, the United Kingdom and the United States of America since the 1970s, by modelling them in a multivariate framework of common macroeconomic variables for each country. Results suggest that: (a) the main economic determinants of consumer confidence cannot be summarized only on the basis of some macroeconomic variables; (b) consumer confidence indices have some ability to forecast economic activity, provided that both their coincident nature is taken into account and that a number of data-coherent parameter restrictions are imposed. A number of analyses (both insample and out-of-sample) are devoted to assessing the robustness of previous findings.consumer confidence determinants, GDP indicator, in-sample and out-of-sample forecasting ability

Modelling Inflation in EU Accession Countries: The Case of the Czech Republic, Hungary and Poland

Inflation in Central and East European countries varied considerably over the transition phase, and econometric relationships between prices, money, wages and exchange rates are said to have been unstable during this period. In order to shed some light on the issue, this paper analyses some empirical models of the inflation process in the three earliest east European transition economies: the Czech Republic, Hungary and Poland. Since the end of the 1980s these economies have experienced high rates of inflation, although significant disinflation measures were introduced during the mid-nineties to enhance these countries’ chances of joining the EU, and they succeeded in getting inflation under control without high costs in terms of lost output. Given this, the determinants of inflation need to be empirically analysed not only in order to understand the disinflation measures, but also to assess the possible effects of future pressure on prices. Price stabilisation is an essential complement to the success of transition. Policies to contain inflation are necessary for transition economies to grow and firms to restructure. In the present paper, we first look at inflation within the context of multivariate cointegration, where domestic and foreign price determinants are initially assessed in separate blocks (each single-theory based) in order to obtain a number of long-term attractors. We then formulate consumer and producer inflation equations from more general VEqCMs for each country. The importance of theory-based imbalances (from previous cointegration experiments) in explaining inflation can be assessed at this stage. Our most significant empirical findings seem to substantiate the idea that many, if not all, theoretical determinants of inflation are of importance in those countries in question: the exchange rate and the output gap would appear to be of particular importance in explaining the phenomenon.Inflation modelling, transition economies, European Union enlargement

Real-time determinants of fiscal policies in the euro area: Fiscal rules, cyclical conditions and elections

We examine the impact of four factors on the fiscal policies of the euro-area countries over the last two decades: the state of public finances, the European fiscal rules, cyclical conditions and general elections. We rely on information actually available to policy-makers at the time of budgeting in constructing our explanatory variables. Our estimates indicate that policies have reacted to the state of public finances in a stabilizing manner. The European rules have significantly affected the behaviour of countries with excessive deficits. Apart from these cases, the rules appear to have reaffirmed existing preferences. We find a relatively large symmetrical counter-cyclical reaction of fiscal policy and strong evidence of a political budget cycle. The electoral manipulation of fiscal policy, however, occurs only if the macroeconomic context is favourable.fiscal policy, real-time information, euro-area countries, stabilisation policies, fiscal rules, political budget cycle

Did Growth and Reforms Increase Citizens' Support for the Transition?

How did post-communist transformations affect people's perceptions of their economic and political systems? We model a pseudo-panel with 89 country-year clusters, based on 13 countries observed between 1991 and 2004, to identify the macro and institutional drivers of the public opinion. Our main findings are: (i) When the economy is growing, on average people appreciate more extensive reforms; they dislike unbalanced reforms. (ii) Worsening of income distribution and higher inflation interact with an increasing share of the private sector in aggravating nostalgia for the past regime. (iii) Cross-country differences in the attitudes towards the present and future (both in the economic and political dimensions) are largely explained by differences in the institutional indicators for the rule of law and corruption. (iv) Cross-country differences in the extent of nostalgia towards the past are mainly related to differences in the deterioration of standards of living.economic performance, economic reforms, post-communist transition, political economy, support for reforms, public opinion

Monetary Policy Transmission, Interest Rate Rules and Inflation Targeting in Three Transition Countries

In 1991, the rate of inflation in the Czech Republic, Hungary and Poland was between 35% and 70%. At the end of 2001, it is below 8%. We setup a small structural macro model of these economies to explain the process of disinflation. Contrary to a widespread skepticism, which permeated a large part of previous research on these issues, we show that a simple open macroeconomic model, along the lines of Svensson (2000, Journal of International Economics), with forward-looking inflation and exchange rate expectations, can adequately characterize the relationship between the output gap, inflation, the real interest rate and the exchange rate during the course of transition. We use the estimated models to interpret the main features of monetary policy in each country and identify the channels of policy transmission. We characterize the policy rules and assess the relative importance of the interest rate channel (on aggregate demand) and the exchange rate channel (which affects both aggregate demand and supply) in determining the path of (dis)inflation. In the same context, we also tentatively analyze the consequences of attempting a faster path of disinflation. Finally, we evaluate the appropriateness of the inflation targeting framework which has been adopted recently in all three countries, and discuss to what extent it represents a discontinuity with the past.Disinflation policy, Interest rate rules, Inflation targeting, Transition economies, Small open-economy macro models.

Fatti stilizzati e metodi econometrici "Moderni": una rivalutazione della Curva di Phillips per l'Italia (1951-1996)

A quarant’anni dalla sua introduzione, la curva di Phillips riveste ancora un ruolo importante negli studi applicati, nonostante le critiche cui è stata sottoposta dalla successiva letteratura. In questo lavoro, utilizzando tecniche di modellazione econometrica di serie storiche non stazionarie per l’Italia dal dopoguerra ad oggi, si evidenzia la stabilità di una relazione di lungo periodo fra il tasso di variazione del salario reale e il tasso di disoccupazione; questo risultato è robusto all’uso di stimatori alternativi. Nel breve periodo si propone un modello interpretativo caratterizzato da un meccanismo non lineare di correzione dell’errore

Fatti stilizzati e metodi econometrici «moderni»: una rivisitazione della curva di Phillips per l’Italia (1951-1996)

A quarant’anni dalla sua introduzione, la curva di Phillips riveste ancora un ruolo importante negli studi applicati, nonostante le critiche cui è stata sottoposta dalla successiva letteratura. In questo lavoro, utilizzando tecniche di modellazione econometrica di serie storiche non stazionarie per l’Italia dal dopoguerra ad oggi, si evidenzia la stabilità di una relazione di lungo periodo fra il tasso di variazione del salario reale e il tasso di disoccupazione; questo risultato è robusto all’uso di stimatori alternativi. Nel breve periodo si propone un modello interpretativo caratterizzato da un meccanismo non lineare di correzione dell’errore

Why demand uncertainty curbs investment: Evidence froma a panel of Italian manufacturing firms

From a theoretical point of view, uncertainty over the demand for a firmÂ’s product may not have clear effects on investments, because of the influence of a number of factors, such as the production technology and the amount of competition in the product market.Until now, a deeper investigation of the interplay of different factors in the temporal dimension has not been possible because the empirical research has been based on cross-section analysis. This omission makes biased estimates of the investment-uncertainty relationship likely.The aim of this paper is to extend the findings of the empirical literature by using a panel of Italian firms over the period 1996-2004, covering a complete business cycle. The availability of a panel of survey data on companiesÂ’ investment plans, expected future sales and demand uncertainty allows us to account for unobservable individual firm differences, macroeconomic shocks and the temporal evolution of the investment-uncertainty relationship. A key finding of our paper concerns the role of the competition faced by Italian firms in 1996-2004. The gradual loss of market power experienced by Italian manufacturing firms along with the increasing flexibility of labour input may have weakened the negative effect of uncertainty on investment decisions. We show that, in repeated cross-section estimates, the omission of firm-specific effects together with the dynamic interplay described above, would have lead to misleading conclusions about the relevance of demand uncertainty in explaining investment decisions.planned investments, demand uncertainty, survey data, panel estimation.

Family firms and investments

Family firms are a widespread control structure in most countries, especially among smaller firms. A vast literature addresses the question of whether they are performing better or worse than comparable non family firms, with not entirely conclusive results. Here we take a different, indirect approach and test whether investment decisions in family firms are more sensitive to uncertainty than in other firms. By using a novel dataset that includess both a better definition of family firms than commonly used (through self evaluation) and a very good proxy of the uncertainty on future demand that firms face, we are able to verify that – as compared to other firms – family firms are significantly more sensitive to uncertainty: this might contribute to explain why in some situations they perform better, whereas in others they do worse. We find evidence that this greater sensitivity to uncertainty in family firms is basically due to the effects of risk aversion and capital irreversibility, where the latter appear to be associated to a greater opaqueness of family firms rather than to the degree of sunkness of fixed capital. Finally, we propose some evidence that the prevalence of family firms in Italy might be associated to long standing institutional factors, such as an inefficient law enforcement system and a low social capital.Family firms; investments; uncertainty; risk aversion; capital irreversibility

Forecasting Industrial Production in the Euro Area

The creation of the Euro area has increased the importance of obtaining timely information about short-term changes in the area's real activity. In this paper we propose a number of alternative short-term forecasting models, ranging from simple ARIMA models to more complex cointegrated VAR and conditional models, to forecast the index of industrial production in the euro area. A conditional error-correction model in which the aggregate index of industrial production for the area is explained by the US industrial production index and the business confidence index from the European Commission harmonised survey on manufacturing firms achieves the best score in terms of forecasting capacity.