27 research outputs found

    Matching Theory and Data: Bayesian Vector Autoregression and Dynamic Stochastic General Equilibrium Models

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    This paper shows how to identify the structural shocks of a Vector Autore- gression (VAR) while at the same time estimating a dynamic stochastic general equilibrium (DSGE) model that is not assumed to replicate the data generating process. It proposes a framework to estimate the parameters of the VAR model and the DSGE model jointly: the VAR model is identified by sign restrictions derived from the DSGE model; the DSGE model is estimated by matching the corresponding impulse response functions.Bayesian Model Estimation, Vector Autoregression, Identification.

    Optimal Policy Under Model Uncertainty: A Structural-Bayesian Estimation Approach

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    In this paper we propose a novel methodology to analyze optimal policies under model uncertainty in micro-founded macroeconomic models. As an application we assess the relevant sources of uncertainty for the optimal conduct of monetary policy within (parameter uncertainty) and across models (specification uncertainty) using EU 13 data. Parameter uncertainty matters only if the zero bound on interest rates is explicitly taken into account. In any case, optimal monetary policy is highly sensitive with respect to specification uncertainty implying substantial welfare gains of a robustly-optimal rule that incorporates this risk.Optimal monetary policy, model uncertainty, Bayesian model estimation.

    Nested models and model uncertainty

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    Uncertainty about the appropriate choice among nested models is a central concern for optimal policy when policy prescriptions from those models differ. The standard procedure is to specify a prior over the parameter space ignoring the special status of some sub-models, e.g. those resulting from zero restrictions. This is especially problematic if a model's generalization could be either true progress or the latest fad found to fit the data. We propose a procedure that ensures that the specified set of sub-models is not discarded too easily and thus receives no weight in determining optimal policy. We find that optimal policy based on our procedure leads to substantial welfare gains compared to the standard practice.Optimal monetary policy, model uncertainty, Bayesian model estimation

    Toward a Taylor rule for fiscal policy

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    This paper presents a procedure to determine policy feedback rules in dynamic stochastic general equilibrium (DSGE) models. We illustrate our approach with fiscal feedback rules for tax instruments in a standard medium-scale DSGE model. First, we approximate the optimal dynamic behavior of the economy using simple linear feedback rules. Then we calculate the elasticities of the model variables' moments with respect to the feedback coefficients. The feedback coefficients associated with the highest elasticities form the policy feedback rules to be estimated. Our results stress the importance of carefully modeled fiscal tax policy in two dimensions: (i) with respect to the dynamic responses of fiscal policy to exogenous shocks and (ii) with respect to the historical shock decomposition of fiscal policy. --Fiscal policy,Bayesian model estimation,Identification

    Pre-announcement and Timing - The Effects of a Government Expenditure Shock

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    This paper investigates the effect of a government expenditure shock on consumption and real wages. I identify the shock by exploiting its pre-announced nature, i.e. different signs of the responses in investment, hours worked and output during the announcement and after the realization of the shock. Since pre-announcement leads to a non-stationary moving average representation, I estimate and identify a VMA model. The identifying restrictions are derived from a DSGE model, which is estimated by matching the impulse response functions of the VMA model. Private consumption is found to respond negatively during the announcement period and positively after the realization. The reaction of real wages is significantly positive on impact, decreases during the announcement horizon, and is again significantly positive for two quarters after the realization.Fiscal Policy shock, Bayesian Estimation, DSGE model, Vector Autoregression

    The Impact of Monetary Policy on Structural Reforms in the Euro Area. Bertelsmann Stiftung May 2020.

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    Since the euro area crisis, there has been an intense discussion about the potential side effects of ECB policy on reform efforts of euro area countries. This discussion is set to become even more intense in the wake of the corona crisis and the ECB’s forceful intervention. Opponents of expansionary monetary policy contend that it reduces reforms, whereas proponents argue that it spurs reforms. We test these arguments empirically by studying the effect of monetary policy shocks on structural reform adoption in the euro area. Using an event study approach, we find that surprise monetary expansions causally increase the likelihood of structural reforms significantly: For the period between 2006 and 2016, a monetary surprise expansion of 25 basis points by the ECB increased on average countries’ reform rate by roughly 20 percentage points after two years. This effect is stronger for countries with weaker macroeconomic fundamentals or tighter public budget constraints. The findings are consistent with the ‘room-for-manoeuver hypothesis’ that expansionary monetary policy spurs competition-friendly supply-side policy by reducing the shortrun costs of reforms and increasing governments’ financial leeway. More research will be required to establish whether the results are applicable in a post-corona economic environment

    Neue GrundsĂ€tze im Ethikkodex des Vereins fĂŒr Socialpolitik

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    Dieser Beitrag ist mit Zustimmung des Rechteinhabers (De Gruyter) frei zugĂ€nglich.Die Mitglieder des Vereins fĂŒr Socialpolitik haben auf ihrer Mitgliederversammlung am 8. Dezember 2021 mit deutlicher Mehrheit beschlossen, den seit 2012 bestehenden Ethikkodex um Inhalte der „guten beruflichen Praxis“ zu erweitern. Neben ethischen Standards fĂŒr die wissenschaftliche Arbeit haben sich die Vereinsmitglieder mit diesem Beschluss auch dem Streben nach Inklusion, Nicht-Diskriminierung und Nicht-Feindseligkeit im beruflichen Umfeld verpflichtet. Alexander Kriwoluzky, Aderonke Osikominu, Doris Weichselbaumer und Georg WeizsĂ€cker, Mitglieder einer vom Erweiterten Vorstand des Vereins mit einem ersten Entwurf betrauten Arbeitsgruppe, stellen in diesem Artikel die Motivation, den Forschungshintergrund und die Umsetzung der Erweiterung des Ethikkodexes in die Praxis dar.Peer Reviewe

    The Price of Hesitation: How the Climate Crisis Threatens Price Stability and What the ECB Must Do about It

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    The Effects of Natural Disasters on Price Stability in the Euro Area

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    This paper investigates the impact of natural disasters on price stability in the euro area. We estimate panel and country-specific structural vector autoregression (VAR) models by combining estimated damages of disaster events with monthly data for the Harmonised Index of Consumer Prices (HICP) for all euro area countries over the period 1996-2021. Besides estimating the effect on overall headline inflation, we examine effects on its 12 main sub-indices and further sub-categories of food price inflation. This allows us to disentangle differences in the direction and strength of price effects across consumption categories. Our results suggest significant positive effects of natural disasters on overall headline inflation, with diverging results at the sub-index level. Positive inflation effects are particularly pronounced for prices of food and beverages, while negative effects prevail for other sub-indices. Our country-specific results suggest heterogeneous inflation effects of natural disasters across different countries. A key implication of our findings is that climate change is likely to make it increasingly difficult for the European Central bank to achieve its inflation target

    Matching Theory and Data

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    This paper shows how to identify the structural shocks of a Vector Autore-gression (VAR) while at the same time estimating a dynamic stochastic general equilibrium (DSGE) model that is not assumed to replicate the data generating process. It proposes a framework to estimate the parameters of the VAR model and the DSGE model jointly: the VAR model is identified by sign restrictions derived from the DSGE model; the DSGE model is estimated by matching the corresponding impulse response functions
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