Transmission Channels, Risk Sharing, and EMU Dispersions

First, using a small theoretically founded general equilibrium model fitted to the data by Bayesian techniques, the article assesses the contribution of interest rates and housing prices to dispersions within the European Monetary Union (EMU). It finds that the different behavior of interest rates just before and after the introduction of the euro has contributed significantly to growth dispersions in the EMU. However, this has been a one-off shock whose effects, particularly on construction, should decline over time. Second, the article analyzes the contribution of the financial system to sharing country-specific risks in a panel framework. It finds that further financial sector integration in the EMU could do much more to insure countries against shocks and increase consumption smoothing.consumption smoothing, output and inflation dispersions, risk sharing

What Explains Growth and Inflation Dispersions in EMU?

This paper’s analysis of growth and inflation dispersions in the euro area reveals several findings. First, these dispersions have declined appreciably since EMU. Second, the remaining dispersions are small but persistent, relating mainly to country-specific shocks, not differences in the transmission of common shocks. Third, the role of income convergence in explaining the dispersions has increased over time, while the role of price level convergence has declined. However, the increased role of income convergence should be viewed with caution, as it may reflect temporary rather than fundamental convergence factors, which may lead to growing macroeconomic imbalances.common and country-specific shocks, output and inflation dispersions, convergence

Driving Forces of Inflation in New EU Countries (in English)

Driving forces of inflation in the eight new EU member states from Central and Eastern Europe are analyzed using the generalized dynamic-factor model (GDFM) developed by Forni et al. the impact of various macroeconomic variables on inflation is estimated by regressing the GDFM idiosyncratic component on these variables; the importance of second-round and indirect effects from energy shocks is assessed using a bivariate VAR. The author´s results suggest that, first, a significant part of inflation in the new members is driven by common factors, and, second, common component inflation is a better estimator of underlying inflation than a core inflation measure (i.e., headline inflation, excluding energy, food, alcohol, and tobacco).generalized dynamic-factor model, idiosyncratic components, inflation

Share Equations versus Double Logarithmic Functions in the Estimation of Income, Own- and Cross-Price Elasticities

In this paper, we compare the results obtained by using double logarithmic demand functions with the one obtained by using functions that relate budget shares to the logarithms of prices and incomes in order to estimate income elasticities and own- and cross-price elasticities for a number of categories of goods. The share equation functional form allows us to model households which do not purchase all goods and estimate unconditional demands that are of interest for policy purposes. We report income elasticities and own- and cross-price elasticities for eight goods for 1993. We compare these estimates with those obtained by using the double logarithmic demand specification.Own- and Cross-Price Elasticities, Income Elasticities, Unit Values, Quality Effects, Transition

Central Bank Seigniorage: Czech Republic 1993-1997

In this paper the concept of total gross seigniorage is used to analyze sources and uses of central bank seigniorage revenues in the Czech Republic during the period 1993-1997. A comprehensive framework for measuring total gross seigniorage and its main components is presented and estimates of seigniorage revenues (sources and uses) are computed and analyzed. The study shows that the conventional concept of monetary seigniorage should not be used as an estimate of government gains from money creation. Moreover, the analysis of the scope of budget deficit financing through money printing in the considered period in the Czech Republic presented in the paper shows that revenue from the creation of money has never been extensively used as a tool for financing government expenditures.Seigniorage, Economies in transition, Czech National Bank

Estimation of Income, Own- and Cross-Price Elasticities. An Application for Bulgaria

In this paper we estimate income elasticities and own- and cross-price elasticities for a number of categories of goods. The methodology used was proposed by Deaton (1987). Expenditure and quantity data from Household Budget Surveys for Bulgaria are used. The households are geographically separated into clusters. The prices are assumed to be the same within each of the clusters, so that the effects of income and other demographic factors on unit values are determined and the variances and covariances of the measurement errors estimated in the first stage. Then, in the second stage, the spatial price variation between the different clusters is used for the estimation of own- and cross-price elasticities for various categories of goods. We report income elasticities and own- and cross-price elasticities for eight goods.Own- and Cross-Price Elasticities, Income Elasticities, Unit Values, Quality Effects

A Comparative Analysis of the Czech Republic and Hungary. Using small Continuous-Time Macroeconometric Models

In this paper we estimate a continuous-time macroeconometric model of the Hungarian economy and compare it with the Czech model described in Stavrev (1998). On the basis of the estimated models we provide simulations and compare the results between the two countries for i) anti-inflationary policy; ii) monetary and fiscal policies; iii) the effect of different wage indexation schemes; iv) the effect of nominal wage rigidities and v) the effect of price and nominal wage freeze.Lucas critique, Policy simulations, Macroeconometric model, Anti-inflationary policy, Effectiveness of monetary and fiscal policies

The ECB's monetary analysis revisited

Monetary aggregates continue to play an important role in the ECB's policy strategy. This paper revisits the case for money, surveying the ongoing theoretical and empirical debate. The key conclusion is that an exclusive focus on non-monetary factors alone may leave the ECB with an incomplete picture of the economy. However, treating monetary factors as a separate matter is a second-best solution. Instead, a general-equilibrium inspired analytical framework that merges the economic and monetary pillars of the ECB's policy strategy appears the most promising way forward. The role played by monetary aggregates in such unified framework may be rather limited. However, an integrated framework would facilitate the presentation of policy decisions by providing a clearer narrative of the relative role of money in the interaction with other economic and financial sector variables, including asset prices, and their impact on consumer prices. --ECB,monetary analysis,monetary pillar,New Keynesian model,DSGE model,P* model,Twopillar Phillips curve,VAR model,generalized dynamic factor model

The information content of money in forecasting euro area inflation

This paper contributes to the debate on the role of money in monetary policy by analyzing the information content of money in forecasting euro-area inflation. We compare the predictive performance within and among various classes of structural and empirical models in a consistent framework using Bayesian and other estimation techniques. We find that money contains relevant information for inflation in some model classes. Money-based New Keynesian DSGE models and VARs incorporating money perform better than their cashless counterparts. But there are also indications that the contribution of money has its limits. The marginal contribution of money to forecasting accuracy is often small, money adds little to dynamic factor models, and it worsens forecasting accuracy of partial equilibrium models. Finally, non-monetary models dominate monetary models in an all-out horserace

The ECB’s monetary analysis revisited

Monetary aggregates continue to play an important role in the ECB’s policy strategy. This paper revisits the case for money, surveying the ongoing theoretical and empirical debate. The key conclusion is that an exclusive focus on non-monetary factors alone may leave the ECB with an incomplete picture of the economy. However, treating monetary factors as a separate matter is a second-best solution. Instead, a general-equilibrium inspired analytical framework that merges the economic and monetary “pillars” of the ECB’s policy strategy appears the most promising way forward. The role played by monetary aggregates in such unified framework may be rather limited. However, an integrated framework would facilitate the presentation of policy decisions by providing a clearer narrative of the relative role of money in the interaction with other economic and financial sector variables, including asset prices, and their impact on consumer prices