No News in Business Cycles

This paper uses a structural, large dimensional factor model to evaluate the role of 'news' shocks (shocks with a delayed effect on productivity) in generating the business cycle. We find that (i) existing small-scale VECM models are affected by 'non-fundamentalness' and therefore fail to recover the correct shock and impulse response functions; (ii) news shocks have a limited role in explaining the business cycle; (iii) their effects are in line with what predicted by standard neoclassical theory; (iv) the bulk of business cycle fluctuations are explained by shocks unrelated to technology.structural factor model, news shocks, invertibility, fundamentalness.

No news in business cycles

This paper uses a structural, large dimensional factor model to evaluate the role of `news' shocks (shocks with a delayed effect on productivity) in generating the business cycle. We find that (i) existing small-scale VECM models are affected by `non-fundamentalness' and therefore fail to recover the correct shock and impulse response functions; (ii) news shocks have a limited role in explaining the business cycle; (iii) their effects are in line with what predicted by standard neoclassical theory; (iv) the bulk of business cycle flucuations is explained by shocks unrelated to technology.structural factor model; news shocks; invertibility; fundamentalness

Back to square one: identification issues in DSGE models

We investigate identifiability issues in DSGE models and their consequences for parameter estimation and model evaluation when the objective function measures the distance between estimated and model impulse responses. We show that observational equivalence, partial and weak identification problems are widespread, that they lead to biased estimates, unreliable t-statistics and may induce investigators to select false models. We examine whether different objective functions affect identification and study how small samples interact with parameters and shock identification. We provide diagnostics and tests to detect identification failures and apply them to a state-of-the-art model. JEL Classification: C13, C51, C52, E32DSGE Models, Identification

Back to square one: identification issues in DSGE models

We investigate identifiability issues in DSGE models and their consequences for parameter estimation and model evaluation when the objective function measures the distance between estimated and model impulse responses. We show that observational equivalence, partial and weak identification problems are widespread, that they lead to biased estimates, unreliable t-statistics and may induce investigators to select false models. We examine whether different objective functions affect identification and study how small samples interact with parameters and shock identification. We provide diagnostics and tests to detect identification failures and apply them to a state-of-the-art modelidentification, dsge models

The Fed and the Stock Market

The Fed closely monitors the stock market and the stock market continuously forms expectations about the Fed decisions. What does this imply for the relation between the fed funds rate and the S&P500? We find that the answer depends on the conditions prevailing on the financial market. During periods of high (low) volatility in asset price inflation an unexpected 5 fall in the stock market index implies that the Fed cuts the interest rate by 19 ($6$) basis points while an unanticipated policy tightening of 50 basis points causes a 4.7 (2.3) decline in the S&P500. The Fed reaction to asset price return is however statistically different from zero only in the high volatility regime, whereas the fall in asset price return following an interest rate rise is highly significant during normal times onlyasset price volatility, nonlinear policy, threshold SVAR, system GMM.

Monetary Transmission in the Euro Area: A Factor Model Approach

This paper studies the transmission of common monetary shocks across European countries by using a dynamic factor model (Forni-Reichlin (1998)). This technique allows to extract the common European monetary shock and to compute country-specific responses. Our identification employs rotations of the shocks space and a loss function (as in Uhlig (1999)). European countries display responses in line with a broad set of theoretical models and are characterized by quantitatively different responses. Spain and Germany are the most sensitive countries to common monetary shocks, while France, the Netherlands and especially Italy are the least. The interest rate channel is significant in explaining these asymmetries while we find no role for the credit channel.factor models, monetary transmission, monetary shocks

Feasibility study to implement resource dissipation in LCA

The assessment of potential impacts associated to resource use in Life Cycle Assessment (LCA) is a highly debated topic. At present, there is neither a consensus on the safeguard subject of the natural resource Area of Protection (AoP), nor on the approach to use for modeling the impacts in the life cycle impact assessment (LCIA) step. This technical report focuses on the aspects related to dissipative use of resources and explores the feasibility of its implementation for the assessment of abiotic resources. One of the critical aspects of abiotic resource modelling is related to the concept of depletion. Depletion is currently one of the most common aspects taken into account among existing LCIA models addressing resources, assuming that once a resource is extracted from the Earth’s crust, it is considered depleted. However, abiotic resources may remain in the anthropogenic system and may be available for further use for a long time after they have been extracted from the Earth’s crust. When assessing the dissipative use of resources, it is relevant to focus both on the Life Cycle Inventory (LCI) and the Life Cycle Impact Assessment (LCIA): LCIs will require to be modified compared to current practise, in order to exploit the advantages that this new approach may provide. Initial results form this study indicate that a dissipation approach is feasible and can have several advantages, e.g providing more detailed results for several life cycle stages, but also has some drawbacks, e.g. a higher data demand on the life cycle inventory side. Both, advantages and drawbacks of the dissipation modelling will have to be further explored.JRC.D.1-Bio-econom