Revealing the preferences of the US Federal Reserve

We use Bayesian methods to estimate changes in US post‐war monetary policy in the Smets and Wouters model. We perform the estimations by allowing for a break in monetary policy at the time of Volcker's appointment as chairman. This enables us to capture changes in the monetary policy regime introduced by Volcker during the Volcker–Greenspan period. We find support for the assumption that monetary policy in the Volcker–Greenspan period performed optimally under commitment. Our estimation strategy allows us to estimate the preferences of the US Federal Reserve in the Volcker–Greenspan period, where the main objective of policy appears to be inflation, followed by interest rate stabilization, output growth and interest rate smoothing. We find that the Great Moderation of output growth is explained by a combination of two factors: the decrease in the volatility of the structural shocks and the improved monetary policy conduct. Inflation Stabilization, however, is mainly due to the change in monetary policy that took place at the beginning of Volcker's mandate. Copyright © 2010 John Wiley & Sons, Ltd.     

Learning and fatigue during choice experiments: a comparison of online and mail survey modes

This study investigates the effect of survey mode on respondent learning and fatigue during repeated choice experiments. Stated preference data are obtained from an experiment concerning high‐speed Internet service conducted on samples of mail respondents and online respondents. We identify and estimate aspects of the error components for different subsets of the choice questions, for both mail and online respondents. Results show mail respondents answer questions consistently throughout a series of choice experiments, but the quality of the online respondents' answers declines. Therefore, while the online survey provides lower survey administration costs and reduced time between implementation and data analysis, such benefits come at the cost of less precise responses. Copyright © 2008 John Wiley & Sons, Ltd.     

Stochastic monotonicity in intergenerational mobility tables

The aim of this paper is to test for stochastic monotonicity in intergenerational socio‐economic mobility tables. In other words, we question whether having a parent from a high socio‐economic status is never worse than having one with a lower status. Using existing inferential procedures for testing unconditional stochastic monotonicity, we first test a set of 149 intergenerational mobility tables in 35 different countries and find that monotonicity cannot be rejected in hardly any table. In addition, we propose new testing procedures for testing conditional stochastic monotonicity and investigate whether monotonicity still holds after conditioning on a number of covariates such as education, cognitive and non‐cognitive skills. Based on the NCDS cohort data from the UK, our results provide evidence that monotonicity holds, even conditionally. Moreover, we do not find large differences in our results when comparing social class and wage class mobility. Copyright © 2010 John Wiley & Sons, Ltd.     

The Government Spending Multiplier at the Zero Lower Bound: Evidence from the United States

We estimate state‐dependent government spending multipliers for the United States. We use a factor‐augmented interacted vector autoregression (FAIVAR) model. This allows us to capture the time‐varying monetary policy characteristics including the recent zero interest rate lower bound (ZLB) state, to account for the state of the business cycle and to address the limited information problem typically inherent in VARs. We identify government spending shocks by sign restrictions and use a government spending growth forecast series to account for the effects of anticipated fiscal policy. In our baseline specification, we find that government spending multipliers in a recession range from 3.56 to 3.79 at the ZLB. Away from the ZLB, multipliers in recessions range from 2.31 to 3.05. Several robustness analyses confirm that multipliers are higher, when the interest rate is lower and that multipliers in recessions exceed multipliers in expansions. Our results are consistent with theories that predict larger multipliers at the ZLB.     

The role of liquid government bonds in the great transformation of American monetary policy

A fundamental shift in monetary policy occurred around 1980: the Fed went from a “passive” policy to an “active” policy. We study a model in which government bonds provide transactions services. We present two calibrations of our model, using pre- and post-1980 data. We show that estimates of pre- and post-1980 policy rules all lie within our determinacy regions. But, the pre-1980 policy was a very bad monetary policy, even if it avoided sunspot equilibria. Model simulations suggest that household welfare would have increased by 3.3 percent of permanent consumption in this period under an active policy.     

Mind the Output Gap: The Disconnect of Growth and Inflation during Recessions and Convex Phillips Curves in the Euro Area

We develop a theoretical model that features a business cycle‐dependent relation between output, price inflation and inflation expectations, augmenting the model by Svensson (1997) with a nonlinear Phillips curve that reflects the rationale underlying the capacity constraint theory (Macklem, 1997). The theoretical model motivates our empirical assessment, based on a regime‐switching Phillips curve and a regime‐switching monetary structural VAR, employing different filter‐based, semi‐structural model‐based and Bayesian factor model‐implied output gaps. The analysis confirms the presence of a convex relationship between inflation and the output gap, meaning that the coefficient in the Phillips curve on the output gap recurringly increases during times of expansion and abates during recessions. Sign‐restricted monetary policy shocks based on a regime‐switching monetary SVAR reveal that expansionary monetary policy induces less pressure on inflation at times of weak as opposed to strong growth; thereby rationalizing relatively stronger expansionary policy, including unconventional volume‐based policy, during times of deep recession. A further augmented model shows that an effective euro exchange rate shock, too, implies business cycle state‐dependent responses, with more upward pressure on prices arising from unexpected currency depreciation at times of expansion than during recession phases.     

On the Low‐Frequency Relationship Between Public Deficits and Inflation

We estimate the low‐frequency relationship between fiscal deficits and inflation and pay special attention to its potential time variation by estimating a time‐varying vector autoregression model for US data from 1900 to 2011. We find the strongest relationship neither in times of crisis nor in times of high public deficits, but from the mid 1960s up to 1980. Employing a structural decomposition of the low‐frequency relationship and further narrative evidence, we interpret our results such that the low‐frequency relationship between fiscal deficits and inflation is strongly related to the conduct of monetary policy and its interaction with fiscal policy after World War II.Copyright © 2015 John Wiley & Sons, Ltd.     

The development of delinquency during adolescence: a comparison of missing data techniques

Conclusions on the development of delinquent behaviour during the life-course can only be made with longitudinal data, which is regularly gained by repeated interviews of the same respondents. Missing data are a problem for the analysis of delinquent behaviour during the life-course shown with data from an adolescents’ four-wave panel. In this article two alternative techniques to cope with missing data are used: full information maximum likelihood estimation and multiple imputation. Both methods allow one to consider all available data (including adolescents with missing information on some variables) in order to estimate the development of delinquency. We demonstrate that self-reported delinquency is systematically underestimated with listwise deletion (LD) of missing data. Further, LD results in false conclusions on gender and school specific differences of the age–crime relationship. In the final discussion some hints are given for further methods to deal with bias in panel data affected by the missing process.     

Health Effects of Air Pollution: A Statistical Review

We critically review and compare epidemiological designs and statistical approaches to estimate associations between air pollution and health. More specifically, we aim to address the following questions:

• 1 Which epidemiological designs and statistical methods are available to estimate associations between air pollution and health?
• 2 What are the recent methodological advances in the estimation of the health effects of air pollution in time series studies?
• 3 What are the the main methodological challenges and future research opportunities relevant to regulatory policy?

In question 1, we identify strengths and limitations of time series, cohort, case‐crossover and panel sampling designs. In question 2, we focus on time series studies and we review statistical methods for: 1) combining information across multiple locations to estimate overall air pollution effects; 2) estimating the health effects of air pollution taking into account of model uncertainties; 3) investigating the consequences of exposure measurement error in the estimation of the health effects of air pollution; and 4) estimating air pollution‐health exposure‐response curves. Here, we also discuss the extent to which these statistical contributions have addressed key substantive questions. In question 3, within a set of policy‐relevant‐questions, we identify research opportunities and point out current data limitations.     

The response of asset prices to monetary policy shocks: Stronger than thought

Standard macroeconomic theory predicts rapid responses of asset prices to monetary policy shocks. Small‐scale vector autoregressions (VARs), however, often find sluggish and insignificant impact effects. Using the same high‐frequency instrument to identify monetary policy shocks, we show that a large‐scale dynamic factor model finds overall stronger and quicker asset price reactions compared to a benchmark VAR, both on euro area and US data. Our results suggest that incorporating a sufficiently large information set is crucial to estimate monetary policy effects.     

Testing the Structural Interpretation of the Price Puzzle with a Cost‐Channel Model*

We estimate a variety of small‐scale new‐Keynesian DSGE models with the cost channel to assess their ability to replicate the ‘price puzzle’, i.e. the inflationary impact of a monetary policy shock typically arising in vector autoregression (VAR) analysis. To correctly identify the monetary policy shock, we distinguish between a standard policy rate shifter and a shock to ‘trend inflation’, i.e. the time‐varying inflation target set by the Fed. Our estimated models predict a negative inflation reaction to a monetary policy tightening. We offer a discussion of the possible sources of mismatch between the VAR evidence and our own.     

Policy modes,firms and the natural environment

This paper examines how different environmental policy types differentially impact firms and why firms vary in their responses to such policies. Based on the mechanisms embedded in policy instruments to create incentives for firms to comply, the characteristics of benefits/costs that policies impose on firms and the institutional context in which policy instruments were created and are sustained, the paper identifies five policy categories. These are category I (command and control), category II (market based), category III (mandatory information disclosures), category IV (business–government partnerships) and category V (private voluntary codes). Different policy types often bestow asymmetrical benefits/costs on firms. Some benefits/costs may constitute ‘private/club goods’ while others may constitute ‘public goods’. Drawing insights from public policy literature, the paper argues that firms can be expected to favor policies whose benefits have the characteristics of private/club goods but the costs of public goods. Thus, understanding the nature of benefits/costs (private/club versus public) and the magnitude of their excludability is critical in explaining the variations in firms' responses. To understand how managers perceive the nature of benefits/costs (monetary as well as non‐monetary), the paper draws on theories and perspectives in the business and public policy field. In doing so, the paper examines the ‘demand’ and the ‘supply’ sides as well as the market and non‐market environments of a given policy. Thus, the paper makes a case for a multi‐theoretic approach to understand variations in managerial assessments of benefits/costs, and consequently variations in their responses to various policy types. Copyright © 2004 John Wiley & Sons, Ltd and ERP Environment.     

National natural rates of interest and the single monetary policy in the euro area

We estimate time‐varying national natural real rates of interest (r^?) for the four largest economies of the euro area over 1999–2016. We further derive the associated national real interest rate gaps, which gauge the perceived monetary policy stance in each country. We find that the average r^? have been lower after 2008. Furthermore, national r^? were significantly negative in southern countries during the sovereign crisis. As their effective real rates soared, national rate gaps across the euro area diverged. However, a common policy stance has been restored since 2014 as the European Central Bank's unconventional programs gathered pace.     

Does China's carbon emissions trading policy improve the technology innovation of relevant enterprises?

China's carbon emissions trading (CET) policy aims to force relevant enterprises to implement low‐carbon technology innovation and address environmental challenges through marketization means. However, how China's CET policy may affect enterprise technology innovation and whether this effect may differ in industries remain to be further investigated. Therefore, based on the panel data of listed enterprises covered by the CET policy in China during 2009–2017, this paper employs the difference‐in‐difference (DID) and DID‐based propensity score matching models to evaluate the effect of CET on technology innovation. The empirical results indicate that the effect of China's CET on the technology innovation of related enterprises is generally not significant during the sample period, but this effect presents evident industrial heterogeneity. Specifically, among the eight CET‐covered industries, the CET policy helps to improve technology innovation for power and aviation enterprises but not in the other six industries (i.e., steel, chemical, building material, petrochemical, nonferrous metals, and paper), which implies that China's CET policy still has great potential for promoting the technology innovation of related enterprises. In addition, the central findings remain robust when the system generalized method of moment and DID‐based coarsened exact matching models are applied to consider the influence of omitted variables, unobservable confounders, and different matching methods.     

A critical test of the choice questionnaire for collecting informed public opinions

In the Choice Questionnaire (Neijens et al. 1992) respondents have to choose between several policy options. Within this questionnaire they are provided with information about the consequences of each option. Until now, only indirect evidence as to whether or not respondents base their preferences on the information provided was available and plausible alternative explanations for the Choice Questionnaire's effect could not be ruled out. In the present study, we demonstrate that Choice Questionnaire respondents do base their preferences on the information provided: different information resulted in significantly different choices.     

Combining Matching and Nonparametric Instrumental Variable Estimation: Theory and An Application to the Evaluation of Active Labour Market Policies

We show how instrumental variable and matching estimators can be combined in order to identify a broader array of treatment effects. Instrumental variable (IV) estimators are known to estimate effects only for the compliers, representing a subset of the entire population. By combining IV with matching, we can estimate the treatment effects for the always‐ and never‐takers as well. Since in many cases these groups are the (endogenous) outcome of some assignment process, such estimates also help in judging the implications of such a selection process. In our application to the effects of participation in active labour market programmes in Switzerland, we find large and lasting positive employment effects for the compliers, whereas the effects for the always‐ and never‐participants are small. In addition, the compliers have worse employment outcomes without treatment than those who participate in the programme with or without the intervention under investigation. This suggests that the earlier assignment policy of the caseworkers was inefficient in that the always‐participants were neither those unemployed who would experience the highest expected treatment effects nor those unemployed who had the largest need for assistance. Copyright © 2014 John Wiley & Sons, Ltd.     

The framing of risks and the communication of subjective probabilities for victimizations

What does ??likely?? mean, when respondents estimate the risk to become a victim of crime? Victimization risks can either be interpreted as gains (??being spared of offences??) or as losses (??becoming a victim of crime??). Because losses are perceived as more severe, respondents will state lower subjective victimization probabilities in the loss-frame, compared to the gain-frame. We demonstrate such a framing-effect with data from an experimental survey. Furthermore, we show that the meaning of vague quantifiers varies with the frequency and the severity of the event. Respondents assign to the same vague quantifiers (e.g. ??unlikely??) higher likelihoods in terms of percentages for frequent and for less severe events than for infrequent and for severe events. In conclusion, respondents do not use vague quantifiers consistently so that it is problematic to compare subjective risks for different victimizations.     

Commodity prices and fiscal policy design: Procyclical despite a rule

Recent studies offer evidence of reduced fiscal procyclicality to commodity price changes in resource‐rich countries—a feature commonly attributed to the adoption of fiscal policy rules. We revisit this issue and find that, by controlling for global activity shocks while allowing for time‐varying changes in both fiscal policy and the volatility of shocks, this finding does not hold. To show this we develop a time‐varying dynamic factor model, allowing for a multiple of shocks, stochastic volatility and time‐varying parameters, and estimate it on data for Norway, whose handling of resource wealth is often cited as exemplary.     

The health issues of the homeless and the homeless issues of the ill-health

In public policy planning and budgeting, the health issues and homeless issues tend to be interrelated and reinforced by each other, but this mutual causality is usually ignored in the existing literature. This paper provides an unbiased estimate of a structural equation model taking endogeneity into account. A questionnaire is designed based on the health-related quality of life (EQ-5D) framework and is given to 322 homeless individuals. Evidence shows that, without timely support, the homeless state and health state will fast deteriorate and reinforce each other. It is therefore arguable to broaden the definition of statutory homelessness, and the “preventative approach” can save, rather than increase, the public resources spent on the homeless.     

Bayesian Graphical Models for STructural Vector Autoregressive Processes

This paper proposes a Bayesian, graph‐based approach to identification in vector autoregressive (VAR) models. In our Bayesian graphical VAR (BGVAR) model, the contemporaneous and temporal causal structures of the structural VAR model are represented by two different graphs. We also provide an efficient Markov chain Monte Carlo algorithm to estimate jointly the two causal structures and the parameters of the reduced‐form VAR model. The BGVAR approach is shown to be quite effective in dealing with model identification and selection in multivariate time series of moderate dimension, as those considered in the economic literature. In the macroeconomic application the BGVAR identifies the relevant structural relationships among 20 US economic variables, thus providing a useful tool for policy analysis. The financial application contributes to the recent econometric literature on financial interconnectedness. The BGVAR approach provides evidence of a strong unidirectional linkage from financial to non‐financial super‐sectors during the 2007–2009 financial crisis and a strong bidirectional linkage between the two sectors during the 2010–2013 European sovereign debt crisis. Copyright © 2015 John Wiley & Sons, Ltd.