Table of Contents

The Transmission Mechanism in Good and Bad Times

Haroon Mumtaz, University of London - Faculty of Social Sciences
Paolo Surico, London Business School - Department of Economics, Centre for Economic Policy Research (CEPR)

A Model of the Confidence Channel of Fiscal Policy

Bernardo V. Guimaraes, Sao Paulo School of Economics-FGV
Caio Henrique Machado, Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics
Marcel Ribeiro, Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics

Loss Aversion and the Asymmetric Transmission of Monetary Policy

Edoardo Gaffeo, University of Trento - Department of Economics and Management
Ivan Petrella, University of London - School of Business, Economics and Informatics
Damjan Pfajfar, Board of Governors of the Federal Reserve System (FRB)
Emiliano Santoro, Catholic University of the Sacred Heart of Milan - Department of Economics

The Bond Market: An Inflation-Targeter's Best Friend

Andrew K. Rose, University of California - Haas School of Business, National Bureau of Economic Research (NBER), Centre for Economic Policy Research (CEPR)

Structural Problems of the Greek Economy and Policy Recommendations

Panagiotis Kotsios, University of Macedonia


MACROECONOMICS: MONETARY & FISCAL POLICIES eJOURNAL

"The Transmission Mechanism in Good and Bad Times" Fee Download
CEPR Discussion Paper No. DP10083

HAROON MUMTAZ, University of London - Faculty of Social Sciences
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PAOLO SURICO, London Business School - Department of Economics, Centre for Economic Policy Research (CEPR)
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Does the transmission of economic policies and structural shocks vary with the state of the economy? We answer this question using a strategy based on quantile regressions, which account for both endogeneous regressors and state-dependent parameters. An application to U.S. real activity and interest rate reveals pervasive asymmetries in the propagation mechanism of economic disturbances across good and bad times. During periods in which real activity is above its conditional average, the estimates of the degree of forward-lookingness and interest rate semi-elasticity are significantly larger (in absolute value) than the estimates associated with below-average periods. Results are robust to alternative estimation strategies to model state-dependent parameters.

"A Model of the Confidence Channel of Fiscal Policy" Fee Download
CEPR Discussion Paper No. DP10087

BERNARDO V. GUIMARAES, Sao Paulo School of Economics-FGV
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CAIO HENRIQUE MACHADO, Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics
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MARCEL RIBEIRO, Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics
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This paper presents a simple macroeconomic model where government spending affects aggregate demand directly and indirectly, through an expectational channel. Prices are fully flexible and the model is static, so intertemporal issues play no role. There are three important elements in the model: (i) fixed adjustment costs for investment; (ii) noisy idiosyncratic information about the economy; and (iii) imperfect substitution among private goods and goods provided by the government. An increase in government spending raises the demand for private goods and raises firms' expectations about what others will be producing and demanding. The optimal level of government expenditure is larger when the desired level of investment is small, which we interpret as times of low economic activity

"Loss Aversion and the Asymmetric Transmission of Monetary Policy" Fee Download
CEPR Discussion Paper No. DP10105

EDOARDO GAFFEO, University of Trento - Department of Economics and Management
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IVAN PETRELLA, University of London - School of Business, Economics and Informatics
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DAMJAN PFAJFAR, Board of Governors of the Federal Reserve System (FRB)
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EMILIANO SANTORO, Catholic University of the Sacred Heart of Milan - Department of Economics
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There is widespread evidence that monetary policy exerts asymmetric effects on output over contractions and expansions in economic activity, while price responses display no sizeable asymmetry. To rationalize these facts we develop a dynamic general equilibrium model where households’ utility depends on consumption deviations from a reference level below which loss aversion is displayed. State-dependent degrees of real rigidity and elasticity of intertemporal substitution in consumption generate competing effects on output and inflation. Contractions face the Central Bank with higher responsiveness of output to interest rate changes, as well as a flatter aggregate supply schedule.

"The Bond Market: An Inflation-Targeter's Best Friend" Fee Download
CEPR Discussion Paper No. DP10124

ANDREW K. ROSE, University of California - Haas School of Business, National Bureau of Economic Research (NBER), Centre for Economic Policy Research (CEPR)
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This paper explores the relationship between inflation and the existence of a publicly-traded, long-maturity, nominal, domestic-currency bond market. Bond holders suffer from inflation and could be a potent anti-inflationary force; I ask whether their presence is apparent empirically. I use a panel data approach, examining the difference in inflation before and after the introduction of a bond market. My primary focus is on countries with inflation targeting regimes, though I also examine countries with hard fixed exchange rates and other monetary regimes. Inflation-targeting countries with a bond market experience inflation approximately three to four percentage points lower than those without a bond market. This effect is economically and statistically significant; it is also insensitive to a variety of estimation strategies, including using political and fiscal instrumental variables. The existence of a bond market has little effect on inflation in other monetary regimes, as do indexed or foreign-denominated bonds.

"Structural Problems of the Greek Economy and Policy Recommendations" Free Download
Kotsios, P. (2014) "Structural Problems of the Greek Economy and Policy Recommendations", Modern Economics: Problems, Trends, Prospects, Vol. 10, No 1, pp 4-23

PANAGIOTIS KOTSIOS, University of Macedonia
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The goal of the current article is to explore structural problems of the Greek economy and make policy recommendations. Greece is currently faced with large macroeconomic problems as a shrinking GDP, budget deficits, large accumulated national debt, high employment, poverty and a business sector faced with closures and job losses. Many foreign and domestic economists and politicians claim that these problems were created mainly due to low government revenues and high government expenses. Based on this belief, they propose and apply a set of policies that aim specifically at these two factors: decreasing government expenses e.g. through reducing civil servants and minimising health costs, and increasing government revenues e.g. by creating new taxes. This research assesses the effect of the previous factors on the economy, based on statistical comparisons with other European countries. Moreover, it uses comparisons in order to assess the effect that other factors may have on the economy, particularly the trade balance, industrial production and entrepreneurship.

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Macroeconomics: Monetary & Fiscal Policies eJournal

OLIVIER J. BLANCHARD
International Monetary Fund (IMF), National Bureau of Economic Research (NBER)

JOHN Y. CAMPBELL
Morton L. and Carole S. Olshan Professor of Economics, Harvard University - Department of Economics, National Bureau of Economic Research (NBER)

STEPHEN G. CECCHETTI
Professor of International Economics, Brandeis International Business School, National Bureau of Economic Research (NBER), Centre for Economic Policy Research (CEPR)

BENJAMIN M. FRIEDMAN
William Joseph Maier Professor of Economics, Harvard University - Department of Economics, National Bureau of Economic Research (NBER)

ROBERT E. HALL
Stanford University - The Hoover Institution on War, Revolution and Peace, National Bureau of Economic Research (NBER)

ROBERT E. LUCAS
John Dewey Distinguished Service Professor, University of Chicago - Department of Economics, National Bureau of Economic Research (NBER)

BENNETT T. MCCALLUM
Professor, Carnegie Mellon University - David A. Tepper School of Business, National Bureau of Economic Research (NBER)

ALLAN H. MELTZER
University Professor of Political Economics, Carnegie Mellon University - David A. Tepper School of Business

FREDERIC S. MISHKIN
Alfred Lerner Professor of Banking and Financial Institutions, Columbia Business School - Finance and Economics, National Bureau of Economic Research (NBER)

PAUL M. ROMER
National Bureau of Economic Research (NBER)

JULIO J. ROTEMBERG
Harvard University - Business, Government and the International Economy Unit, National Bureau of Economic Research (NBER)

MATTHEW D. SHAPIRO
Professor, University of Michigan at Ann Arbor - Department of Economics, Professor, National Bureau of Economic Research (NBER)

ROBERT J. SHILLER
Yale University - Cowles Foundation, National Bureau of Economic Research (NBER), Yale University - International Center for Finance

CHRISTOPHER A. SIMS
Princeton University - Department of Economics, National Bureau of Economic Research (NBER)

JOHN B. TAYLOR
Stanford University