Selected Reference and Reading Materials compiled by Dan Villanueva


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Record ID

66     [ Page 62 of 68, No. 1 ]

Date

2005-04

Author

Esa Jokivuolle, Juha Kilponen, and Tero Kuusi

Affiliation

Bank of Finland, Monetary Policy and Research Department

Title

GDP at risk in a DSGE model: an application to banking sector stress testing

Summary /
Abstract

We suggest a complementary tool for financial stability analysis based on stochastic simulation of a dynamic stochastic general equilibrium model (DSGE)of the macro economy. The paper relates to financial stability research in which financial aggregates crucial to financial stability are modelled as functions of macroeconomic variables. In these models, stress tests for eg banking sector loan losses can be generated by considering adverse scenarios of macro variables. A DSGE model provides a systematic way of generating coherent macro scenarios which can be given a rigorous economic interpretation. The approach is illustrated using a DSGE model of the Finnish economy and a simple model of Finnish banking sector loan losses.

Keywords

DSGE models, financial stability, loan losses, stress testing

URL

http://www.bof.fi/NR/rdonlyres/79A1CBAE-93FE-4C59-876B-680A310C6928/0/0726netti.pdf

Remarks

This empirical paper by the staff of the Finnish central bank is practical and does not involve new conceptual insights compared to the existing literature on macro stress testing. It is useful to complement current macro stress testing methods by making use of modern macroeconomic equilibrium (DSGE) models. For a central bank using a DSGE model in its economic analysis and forecasting, it is natural to utilise it also in financial stability analysis, thereby bringing the two key central bank functions (monetary policy and banking supervision) closer together.




Record ID

65     [ Page 62 of 68, No. 2 ]

Date

2005-04

Author

Marco Del Negro and Frank Schorfheide

Affiliation

Federal Reserve Bank of New York University of Pennsylvania - Department of Economics; Centre for Economic Policy Research (CEPR)

Title

Monetary Policy Analysis with Potentially Misspecified Models

Summary /
Abstract

This paper proposes a novel method for conducting policy analysis with potentially misspecified dynamic stochastic general equilibrium (DSGE) models and applies it to a New Keynesian DSGE model along the lines of Christiano, Eichenbaum, and Evans (JPE 2005) and Smets and Wouters (JEEA 2003). Specifically, we are studying the effects of coefficient changes in interest-rate feedback rules on the volatility of output growth, inflation, and nominal rates. The paper illustrates the sensitivity of the results to assumptions on the policy invariance of model misspecifications.

Keywords

Bayesian Analysis, DSGE Models, Model Misspecification

URL

http://www.ecb.int/pub/pdf/scpwps/ecbwp475.pdf

Remarks

A fairly robust policy recommendation emerges from the analysis of this very important empirical paper: the central bank should avoid strong responses to output growth movements and not react weakly to inflation fluctuations.



Record ID

64     [ Page 62 of 68, No. 3 ]

Date

2010-05

Author

Ankita Mishra and Vinod Mishra Vinod Mishra

Affiliation

Monash University

Title

A VAR Model of Monetary Policy and Hypothetical Case of Inflation Targeting in India

Summary /
Abstract

The empirical VAR literature on identification and measurement of the impact of monetary policy shocks on the real side of the economy is fairly comprehensive for developed economies but very limited for emerging and transition economies. In this study, we propose an identification scheme, for a developing economy taking India as a case study, which is able to capture the monetary transmission mechanism without giving rise to any empirical anomalies. We use a VAR approach with recursive contemporaneous restrictions and identify monetary policy shocks by modelling the reaction function of the central bank and structure of the economy. The effect of monetary policy shocks on the exchange rate and other macroeconomic variables is consistent with the predictions of a broad set of theoretical models. This set-up is used to build a hypothetical case of inflation targeting where the monetary policy instrument is set after looking at the current values of inflation only. This is in contrast with the „multiple indicator approach‟ currently followed by Reserve Bank of India. This hypothetical scenario of inflation targeting suggests a sharper response of the interest rate (monetary policy instrument) to shocks and strengthening of the exchange rate channel in transmission of interest rate impulses. This study also provides some useful implications on the type of theoretical framework which can be used to model the evolution of monetary policy for a developing economy like India.

Keywords

India, Inflation Targeting, Monetary policy, VAR

URL

http://d.repec.org/n?u=RePEc:mos:moswps:2010-15&r=mac

Remarks

It would be interesting to see results from applying this very simple methodology to the Philippine time series from 2002.



Record ID

63     [ Page 62 of 68, No. 4 ]

Date

2005-07

Author

A Levin, A Onatski, J. C. Williams, N. Williams

Affiliation

Fed Res Board, Columbia U, Fed Res Bank of SF, Princeton U & NBER

Title

Monetary Policy Under Uncertainty in Micro-Founded Macroeconometric Models

Summary /
Abstract

We use a micro-founded macroeconometric modeling framework to investigate the design of monetary policy when the central bank faces uncertainty about the true structure of the economy. We apply Bayesian methods to estimate the parameters of the baseline specification using postwar U.S. data and then determine the policy under commitment that maximizes household welfare. We find that the performance of the optimal policy is closely matched by a simple operational rule that focuses solely on stabilizing nominal wage inflation. Furthermore, this simple wage stabilization rule is remarkably robust to uncertainty about the model parameters and to various assumptions regarding the nature and incidence of the innovations. However, the characteristics of optimal policy are very sensitive to the specification of the wage contracting mechanism, thereby highlighting the importance of additional research regarding the structure of labor markets and wage determination

Keywords

Ramsey policy, simple rules, model uncertainty

URL

http://www.frbsf.org/publications/economics/papers/2005/wp05-15bk.pdf

Remarks

The welfare performance of the authors' near optimal simple policy rule of adjusting the policy rate to its lagged value and to nominal wage inflation (note the absence of the output gap, which is a major advantage owing to the difficulties of measuring (unobserved) potential output), is very sensitive to the specification of wage and price determination, suggesting that a hybrid rule involving both wage and price inflation might be more robust across a broader class of models. Adding price inflation to wage inflation renders their approach still advantageous from a practical standpoint (with no output gap). Also, in the case of the Philippines, the labor market is dualistic and wage determination is different across the agricultural (farming) and industrial sectors (labor contracting differs owing to the strength of labor unions in the productive sectors and varying degree of government record in establishing a level playing field between workers and owners of land and capital assets.



Record ID

62     [ Page 62 of 68, No. 5 ]

Date

2003-09

Author

Matt Klaeffling

Affiliation

European Central Bank

Title

Macroeconomic Modelling of Monetary Policy

Summary /
Abstract

This paper proposes a new paradigm for the analysis of monetary policy. From an econometric point of view this new approach is just as easy to implement as reduced form analysis, but is robust to the Lucas critique. It requires no explicit prior theory and yet it encompasses all standard DSGE models.

After introducing this new paradigm I study US monetary policy and look at the nature and the effect of monetary policy, discuss the transmission mechanism and the policy rule implied by the data, and perform counterfactual policy analysis.

Source: ECB Working Paper Series No. 257

Keywords

DSGE Models, VAR Models, Monetary Policy, Rational Expectations,Lucas Critique, Empirical Time Series Modelling, Applied Macroeconomics

URL

http://www.ecb.int/pub/pdf/scpwps/ecbwp257.pdf

Remarks

This is an intriguing paper by an ECB staff member. He begins his paper by criticizing both DSGE and VAR modelling frameworks. He says that while VAR models are subject to the Lucas critique, DSGE models employ heroic assumptions about the structure of the economy ("Absent general agreement as to how relevant the first principles of neoclassical microeconomics are for a world characterized by incomplete markets, asymmetric information and heterogeneous agents, one may ask what informative value micro-structural models have for empirical macroeconomics."). He then proposes and tests (on U.S. data) a new semi-structural paradigm that nests DSGE and VAR models as restricted sub-cases. His proposal allows full empirical and counter-factual analysis in a simple estimated macro model, with simple instrumental variables (IV) estimation (GMM can also be used).



Record ID

61     [ Page 62 of 68, No. 6 ]

Date

2005-03-15

Author

Rachel Lomax

Affiliation

Bank of England

Title

Inflation targeting in practice: models, forecasts and hunches

Summary /
Abstract

In this speech, Rachel Lomax, Deputy Governor responsible for monetary policy, reviews the role that model-based forecasts play in the monetary policy process, with particular reference to the Bank’s new quarterly model and continuing research into other statistical approaches. The Bank’s models provide a consistent framework for considering alternative scenarios and risks but judgement always plays a large role in constructing forecasts. It is hard to say precisely how important forecasts are in driving policy decisions, but there is some evidence that the rethink of key issues during the forecast round has been a source of policy ‘surprises’. Forecasts also play a central part in communicating the MPC’s thinking to the outside world. But forecasts are highly fallible. So the MPC’s forecast-centred approach to inflation targeting has gone hand in hand with a determined effort to illustrate the wide range of uncertainties around its central projections.

URL

http://www.bankofengland.co.uk/publications/speeches/2005/speech242.pdf

Remarks

Given to the 59th International Atlantic Economic Conference in London on 12 March 2005. This speech can be found on the website of Bank of England.



Record ID

60     [ Page 62 of 68, No. 7 ]

Date

2007-04

Author

Malin Adolfson, Michael K. Andersson, Jesper Lindé, Mattias Villani, and Anders Vredin

Affiliation

Sveriges Riksbank

Title

Modern Forecasting Models in Action: Improving Macroeconomic Analyses at Central Banks

Summary /
Abstract

There are many indications that formal methods are not used to their full potential by central banks today. In this paper we demonstrate how BVAR and DSGE models can be used to shed light on questions that policy makers deal with in practice using data from Sweden. We compare the forecast performance of BVAR and DSGE models with the Riksbank's official, more subjective forecasts, both in terms of the actual forecasts and root mean square errors. We also discuss how to combine model- and judgment-based forecasts, and show that the combined forecast performs well out-of-sample. In addition, we show the advantages of structural analysis and use the models for interpreting the recent development of the inflation rate using historical decompositions. Lastly, we discuss the monetary transmission mechanism in the formal models, using impulse response functions and conditional forecasts.

Keywords

Bayesian inference, Combined forecasts, DSGE models, Forecasting, Monetary policy, Subjective forecasting, Vector autoregressions

URL

http://www.riksbank.com/upload/WorkingPapers/WP_188Revised.pdf



Record ID

59     [ Page 62 of 68, No. 8 ]

Date

2007

Author

Jordi Gali and Mark Gertler

Affiliation

Centre de Recerca en Economia Internacional (CREI) and New York University

Title

Macroeconomic Modeling for Monetary Policy Evaluation

Summary /
Abstract

Source: Journal of Economic Perspectives—Volume 21, Number 4—Fall 2007—Pages 25–45



Record ID

58     [ Page 62 of 68, No. 9 ]

Date

2010-09

Author

Strategy, Policy, and Review and Legal Departments

Affiliation

International Monetary Fund

Title

IMF Policy Paper: Review of the Fund's Mandate - Follow-Up on Modernizing Surveillance

Summary /
Abstract

The IMF Executive Board has been considering reforms to strengthen the Fund's mandate to better equip the institution to safeguard global stability. Executive Directors have supported a range of reforms to modernize the Fund's surveillance mandate and modalities. This paper focuses on selected aspects of these reforms where further work was called for, including on a possible multilateral surveillance decision and proposals to enhance the traction and flexibility of bilateral surveillance

Keywords

Fund role; Multilateral Surveillance; World Economic Outlook; Global Financial Stability report

URL

http://www.imf.org/external/pp/longres.aspx?id=4476

Remarks

The IMF Executive Board has been considering reforms to strengthen the Fund’s mandate to better equip the institution to safeguard global stability. Executive Directors have supported a range of reforms to modernize the Fund’s surveillance mandate and modalities. This paper focuses on selected aspects of these reforms where further work was called for, including on a possible multilateral surveillance decision and proposals to enhance the traction and flexibility of bilateral surveillance. Plans for specific papers on other aspects of the Fund’s surveillance mandate are summarized.

To buttress multilateral surveillance, this paper discusses:
- experimentation with “spillover reports” over the next year or so;
- options to enhance the effectiveness of the WEO and GFSR and the synergy between them and other multilateral surveillance activities; and
- what a Multilateral Surveillance Decision might entail (in light of concerns that it may be an unduly drawn out and complicated endeavor).

To enhance bilateral surveillance, this paper discusses:
- increasing the traction of surveillance, with more engagement with policymakers; and
- enhancing the flexibility of the process through greater use of lapse-of-time procedures and modernized rules for consultation cycles.



Record ID

57     [ Page 62 of 68, No. 10 ]

Date

2010-08

Author

Cristina Checherita Philipp Rother

Affiliation

European Central Bank

Title

The impact of high and growing government debt on economic growth: an empirical investigation for the euro area

Summary /
Abstract

This paper investigates the average impact of government debt on per-capita GDP growth in twelve euro area countries over a period of about 40 years starting in 1970. It finds a non-linear impact of debt on growth with a turning point—beyond which the government debt-to-GDP ratio has a deleterious impact on long-term growth—at about 90-100% of GDP. Confidence intervals for the debt turning point suggest that the negative growth effect of high debt may start already from levels of around 70-80% of GDP, which calls for even more prudent indebtedness policies. At the same time, there is evidence that the annual change of the public debt ratio and the budget deficit-to-GDP ratio are negatively and linearly associated with per-capita GDP growth. The channels through which government debt (level or change) is found to have an impact on the economic growth rate are: (i) private saving; (ii) public investment; (iii) total factor productivity (TFP) and (iv) sovereign long-term nominal and real interest rates. From a policy perspective, the results provide additional arguments for debt reduction to support longer-term economic growth prospects.

Keywords

Public debt, economic growth, fiscal policy, sovereign long-term interest rates

URL

http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101237&r=fdg

Remarks

For the euro area, the ECB authors find that the negative growth effects of total (domestic and external) government debt begin from about 70-80 percent of GDP. Given that the domestic debt component accounts for around 30 percent of GDP on average, the threshold for the external debt component is in the range of 40-50 percent of GDP. In the case of the emerging market economies, I estimated the optimal (Ramsey) gross foreign debt (government plus private) in the range of 37-52 percent of GDP (Ch. 3, Macroeconomic Policies for Stable Growth (World Scientific, 2008)). The Philippine external debt ratio has been falling from 62.7 percent in 2004 to 38.8 percent of GDP in 2008. At the end of 2008, the public external debt ratio stood at 35.4 percent of GDP. The IMF projects this ratio to decline to 32.3 percent of GDP in 2011 and further to 29.3 percent of GDP by 2014. Adding the private foreign debt component to these projections would place the total Philippine foreign debt ratio in the lower limit of the optimal range.



Total records: 676 | Select no. of records per page: 10 | 20 | 30 | 50 | 100 | Show all | Search
Select a Page:   << Previous  1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 Next >>



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