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Abstract:
Exogenous measures of monetary policy shocks, directly derived from financial market information, are used in close (U.S.) and open (U.S.-Germany) economy VAR models to evaluate the robustness of the dynamic effect of monetary policy obtained from traditional identified VAR. The empirical analysis confirms the main features of the monetary policy transmission mechanism in U.S. and Germany, explicitly addressing the issue of simultaneity between the German policy interest rate and the U.S. dollar-DMark exchange rate.

Abstract:
This paper evaluates VAR models designed to analyze the monetary policy transmission mechanism in the United States by considering three issues: specification, identification, and the effect of the omission of the long-term interest rate. Specification analysis suggest that only VAR models estimated on a single monetary regime feature parameters stability and do not show signs of mis-specification. The identification analysis shows that VAR-based monetary policy shocks and policy disturbances identified from alternative sources are not highly correlated but yeld similar descriptions of the monetary transmission mechanism. Lastly, the inclusion of the long-term interest rate in a benchmark VAR delivers a more precise estimation of the structural parameters capturing behaviour in the market for reserves and shows that contemporaneous fluctuations in long-term interest rates are an important determinant of the monetary authority's reaction function.

Abstract:
What are the sources of macroeconomic comovement among G-7 countries? Two main candidate explanations may be singled out: common shocks and common transmission mechanisms. In the paper it is shown that they are complementary, rather than alternative, explanations. By means of a large-scale factor vector autoregressive (FVAR) model, allowing for full economic and statistical identification of all global and idiosyncratic shocks, it is found that both common disturbances and common transmission mechanisms of global and country-specific shocks account for business cycle comovement in the G-7 countries. Moreover, spillover effects of foreign idiosyncratic disturbances seem to be a less important factor than the common transmission of global or domestic shocks in the determination of international macroeconomic comovements.

business cycle comovement, factor vector autoregressive model, transmission mechanisms.

Abstract:
This paper employs data for a panel of firms from France, Italy and the UK to study the effect of the recession of the early '90s on inventory investment, controlling for cyclical fluctuations at the firm level. The results clearly show some common patterns across countries, pointing to the relevance of financial factors in propagating initial recessionary shocks. However, Italian firms, especially if "small and young", seem more likely to suffer from a reduction in the value of collateralizable assets possibly originated by restrictive policy actions.

inventory investment, financial accelerator, recessions, panel data

Abstract:
In this paper a small-scale macroeconomic system is estimated in the framework of a common trends model, in order to explore the dynamic interactions between real house prices, consumption expenditure and output in the US and major European economies. The results point to important differences across countries, with long-run house price effects on consumption only for France, Germany and the US. However, interactions between house prices and consumption are detected in all countries at shorter horizons, with important implications of the current unwinding of the sub-prime crisis for real activity. Evidence of international comovements in the common trend component of house price dynamics is also found.

house prices, business cycle, sub-prime crisis

Abstract:
In this paper a new approach to factor vector autoregressive estimation, based on Stock and Watson (2005), is introduced. In addition to sharing all the relevant features of the Stock and Watson (2005) approach, in its static formulation, the proposed method has the advantage of allowing for a more clear-cut interpretation of the global factors, as well as for the identification of all idiosyncratic shocks. An application to large-scale macroeconometric modelling is also provided.

factor vector autoregressive models, large scale macroeconometric models

Abstract:
In this paper international comovements among a set of key real and nominal macroeconomic variables for the G-7 countries have been investigated for the 1980-2005 period, using a Factor Vector Autoregressive approach. We present evidence that comovements in macroeconomic variables do not concern only real activity, but are an important feature also of stock market returns, inflation rates, interest rates and, to a smaller extent, monetary aggregates. Both common sources of shocks and similar transmission mechanisms explain international comovements, with the only exception of Japan, where the idiosyncratic features seem to dominate. Finally, concerning the origin of global shocks, evidence of both global supply-side and demand-side disturbances is found.

G7, international business cycle, factor vector autoregressive models, common factors

Abstract:
n this paper the long-run trend in CPI inflation (core inflation) for Italy is estimated over the 1962-1997 period. The estimates obtained with the Quah and Vahey (1995) bivariate structural VAR methodology and with a multivariate common trends model are compared. The results show the potential advantages for monetary policy of using a more informative common trends model to estimate the core inflation process.

core inflation, common trends model, monetary policy, Italy

Abstract:
In this paper we investigate the long-run link between inflation and money growth in the US since 1960. A measure of the long-run inflation trend is constructed, which bears the interpretation of monetary inflation rate and is directly related to the excess nominal money growth process (money growth less output growth) as postulated by the quantity theory. Consistently with the memory characteristics of the series, their fractional integration and cointegration properties are taken into account in empirical modelling. The proposed measure is then compared with several existing measures of core inflation, aimed at capturing long-run inflation dynamics but unrelated to money growth. The monetary long-run inflation rate performs well in out-of-sample forecasting exercises especially over a two- to three-year horizon, yielding valuable information to monetary policymakers.

Inflation, money growth, quantity theory, long memory, fractional cointegration

Abstract:
This paper employs data for a panel of firms from France, Italy and the UK to study the effect of the recession of the early '90s on inventory investment, controlling for cyclical fluctuations at the firm level. The results clearly show some common patterns across countries, pointing to the relevance of financial factors (namely, the level of leverage) in propagating initial recessionary shocks. Moreover, Italian firms, especially if small and young, seem more likely to suffer from a reduction in the value of collateralizable assets possibly originated by restrictive policy actions.

Inventory investment, financial accelerator, recessions, panel data

Abstract:
In this paper the long-run trend in CPI inflation (core inflation) for the US over the 1960-2000 period is estimated using a common trends model. In this framework, core inflation is interpreted and constructed as the long-run forecast of inflation conditional on the information contained in nominal money growth, output fluctuations and movements in the oil price. Unlike other commonly used measures of core inflation, the common-trends core inflation rate exploits the long-run link between inflation and monetary growth, a strong feature of the data.

Core inflation, common trends, US

Abstract:
The aim of this paper is to provide econometric tools to analyse and forecast inflation dynamics in the Euro area, starting from a small-scale cointegrated VAR system. In order to supply
information on the long-run inflation trend, a forward-looking
"core" inflation measure is constructed. This measure is based
on long-run relations among major macroeconomic variables,
bearing the interpretation of a long-run inflation forecast.
The proposed measure may be particularly suitable for the
"two-pillar" monetary policy strategy of the ECB which focuses
on medium-term inflation prospects.

Abstract:
In this paper the long-run trend in RPI inflation (core inflation) for the UK over the 1961-1997 period is estimated within the framework of a multivariate common trends model which extends the bivariate VAR approach of Quah and Vahey (1995). In this context core inflation is directly linked to money and wage growth and interpreted as the long-run forecast of inflation from a small-scale, cointegrated macroeconomic system.

Core inflation, common trends, monetary policy

Abstract:
Using a common trends model, we estimate a forward-looking core inflation measure for the Euro area based on long-run relations among major macroeconomic variables, bearing the interpretation of long-run inflation forecast. The proposed measure may be particularly suitable for the two-pillar monetary policy strategy of the ECB which focuses on medium-term inflation prospects.

Core inflation, common trend, European Central Bank, monetary policy

Abstract:
This paper analyses the co-existence of two markets for the same shares, a quote-driven market and an order-driven market, as observed for example for the trading of continental shares on the London SEAQ International. The focus is on the trade-off between the uncertain execution price faced by investors on an auction market and the implicit transaction cost represented by the spread in a dealer market. We obtain that those investors who desire to make large trades will prefer to trade with the dealer, while trades of smaller size will be carried out on the auction market. Moreover, we explicitly investigate the interrelations between the two markets showing that the pricing policy followed by a dealer depends on the conditions prevailing on the auction market.

Abstract:
The empirical VAR literature on the monetary transmission mechanism in closed economies has been successful in providing evidence with which theoretical models of the monetary transmission mechanism are now confronted. The empirical VAR literature on the monetary transmission mechanism in open economies has not enjoyed the same success and it is still marred with a number of empirical puzzles. In this paper we firstly assess the relevance of the progress made estimating VAR in closed economies for the specification of VAR in open economies. Second, we propose to solve the simultaneity between exchange rate and policy interest rates by using information extracted from financial markets independently from the VAR. Lastly, we evaluate the relative importance of macroecomnomic and monetary policy variables in explaining short-term fluctuations in the nominal exchange rates. Our main results are that a commodity price index is an important variable in any VAR analysis of the monetary transmission mechanism, that the simultaneity between German policy rates and the US dollar/D mark exchange rate is not an empirically relevant problem, and that monetary factors are dominated by macroeconomic factors for the explanation of exchange rate fluctuations.