Fiscal stimulus and labor market dynamics in Japan

The paper studies the effects of fiscal expansion on the Japanese labor market. First, using a structural VAR model, we find that the unemployment rate falls and employment rises following an increase in government spending. We also find that fiscal expansion affects flows in and out of unemployment. While an increase in government spending increases the job-finding rate, it reduces the separation rate. We then incorporate search and matching frictions into a standard dynamic general equilibrium model, and study whether the model can explain what we observed in data. While the model fails to predict the exact size of the impact of government spending shocks on the Japanese labor market variables, it can consistently capture the empirical pattern of responses of labor market variables to shocks.     

Delayed Output Response to Productivity Shocks in a Monetary Search Model

Empirical evidence suggests that positive productivity shocks diffuse slowly in the economy. In particular, aggregate output reaches its peak nearly eight quarters after a shock. I construct a micro-founded monetary search model to explain the aforementioned empirical fact by focusing on a household’s endogenous decision in forming long-term trading relationships in addition to engaging in random matching in a frictional goods market. I show that a positive productivity shock induces households to immediately break marginal trading relationships, but that goods market frictions prolong the transition of the economy to the new steady state. Calibrating with U.S. data, the model matches the empirical evidence well and predicts that there is a slight decrease in aggregate output shortly after a positive productivity shock in some parameter region after which, it converges towards the new steady state with a higher level of aggregate output.     

Price‐Match Announcements in a Consumer Search Duopoly

Using a model of sequential search, we show that announcements to price‐match raise prices by altering consumer search behavior. First, price‐matching diminishes firms’ incentives to lower prices to attract consumers who have no search costs. Second, for consumers with positive search costs, price‐matching lowers the marginal benefit of search, inducing them to accept higher prices. Finally, price‐matching can lead to asymmetric equilibria where one firm runs fewer sales and both firms tend to offer smaller discounts than in a symmetric equilibrium. Price increases grow in the proportion of consumers who invoke price‐matching guarantees and in the level of equilibrium asymmetry.     

Urbanization,inequality and property prices: Equilibrium pricing and transaction in the Chinese housing market

The particularly overheated Chinese housing market, with its soaring property prices, has attracted a large amount of research. We point out three of its striking empirical features, which current literature leaves unexplored: co-existence of steady growth of real transaction price and excess supply, accelerations in price-to-income ratio, and significantly strong positive correlation between real transaction prices and income inequality. A search-equilibrium model is built to explain these facts. Heterogeneous buyers and homogeneous sellers randomly search for partners to trade in a frictional property market. The search equilibrium of the property market is either a high-price-and-low-transaction elitist matching equilibrium, or a low-price-and-high-transaction pooled matching equilibrium. The terms of trade determine which equilibrium arises. Empirical observations argue for the development of China's property market through evolution from a pooled matching equilibrium to an elitist matching equilibrium. We set out to show that the market equilibrium is always inefficient, due to crowding out externalities and market incompleteness. Policy experiments support redistributive tax, as a means to improve social welfare.     

Energy price shocks,monetary policy and China's economic fluctuations

This paper develops a New Keynesian dynamic stochastic general equilibrium model with energy factors to study various channels through which China's economic fluctuations are linked to energy price shocks and to search for the optimal monetary policy to cope with energy price shocks. We conclude that there are channels through which changes in energy prices will have the following cause–effect relationships. First, a rise in energy price as a negative technology shock will raise the costs of providing capital services per unit of capital, thereby reducing output. Second, a rising energy price distorts the intertemporal choices of households and firms, creating downward pressure on the expected future return on capital. Third, an energy price shock places upward pressure on the marginal costs associated with an increase in inflation. Numerical simulation results show that a positive energy price shock has a positive effect on energy technology improvements. In addition, the effects of energy price shocks can be mitigated by nominal rigidities, and interest rate rules will determine the magnitude of those effects. Using the efficient frontier method, we also show that optimal monetary policy in China should help control energy price volatility.     

Aggregate price shocks and financial stability: the United Kingdom 1796-1999

This paper investigates aggregate price shocks on financial stability in the United Kingdom. We construct an annual index of UK financial conditions for 1790-1999 and use a dynamic probit model to estimate the effect of shocks on the index. We find evidence that price level shocks contributed significantly to financial instability during 1820-1931 and that inflation rate shocks contributed to instability during 1931-1999. While affecting the stability of the financial system, both the nature of aggregate price shocks and their impact depend on the existing monetary and financial regime.     

Demand Shocks and Trade Balance Dynamics

This paper studies the trade balance dynamics in the G-7 countries plus Spain. We estimate a SVAR model to identify three different shocks: real supply shocks, real demand disturbances and nominal shocks. A microfounded stochastic open-economy model is built to derive the long-term identification restrictions. Estimates show that real demand shocks explain most of the variability of trade imbalances, whereas, contrary to previous findings, nominal shocks play a very limited role. These results are consistent with the predictions of a widely set of open-economy models and illustrate that demand policies are the main responsible of trade imbalances.     

Oil Price Shocks and the Credit Default Swap Market

We investigate the impact of supply and demand shocks in the global crude oil market on the CDX spread, in the context of a structural VAR model based on monthly data, over the period from November 2003 to October 2015. We find that the reaction of the CDX spread to changes in the real price of crude oil differs considerably depending on the sources of shocks. In the long run, crude oil supply shocks, aggregate demand shocks, and oil-specific demand shocks together account for nearly 90% of the variation of the CDX spread.     

What Causes Banking Crises? An Empirical Investigation for the World Economy

We add the Bernanke-Gertler-Gilchrist model to a world model consisting of the US, the Euro-zone and the Rest of the World in order to explore the causes of the banking crisis. We test the model against linear-detrended data and reestimate it by indirect inference; the resulting model passes the Wald test only on outputs in the two countries. We then extract the model’s implied residuals on unfiltered data to replicate how the model predicts the crisis. Banking shocks worsen the crisis but ‘traditional’ shocks explain the bulk of the crisis; the non-stationarity of the productivity shocks plays a key role. Crises occur when there is a ‘run’ of bad shocks; based on this sample Great Recessions occur on average once every quarter century. Financial shocks on their own, even when extreme, do not cause crises—provided the government acts swiftly to counteract such a shock as happened in this sample.     

Analysis of real GDP growth rates of greater China: An asymmetric conditional volatility approach

Most empirical studies of real gross domestic product (GDP) growth rates exclude the dimension of conditional volatility shocks. In this paper, we search for evidence of conditional volatility in the quarterly real GDP of greater China, which comprises the economies of Mainland China, the Hong Kong Special Administrative Region (SAR), and Taiwan. The widely accepted exponential GARCH model of Nelson [Econometrica 59 (1991) 347–370] is employed to capture the possible existence of asymmetric conditional volatility in real GDP. It is found that negative real GDP shocks may induce a greater impact on future volatilities compared with positive shocks of the same magnitude. Policy implications from our findings are discussed.     

Tax policy in a matching model with training

This paper develops a model of search on the labour market withtraining. We explore how the combination of an average job taxand a marginal wage tax can be used to alleviate inefficienciesin job matching and, at the same time, raise a positive revenuewith minimal distortions in search and training. We find that(i) a wage tax is less distortionary to raise revenue than isa job tax if training is not distorted initially; (ii) thisconclusion may reverse in the presence of training distortions;(iii) marginal wage taxes are less distortionary in economieswhere bargaining parties can commit to the wage profile.     

External shocks and Japanese business cycles: Evidence from a sign-restricted VAR model

This study investigates the sources of Japanese business fluctuations since the 1990s, taking into account both external shocks (e.g., risk premium and foreign demand shocks) and domestic supply and demand shocks. We use the sign-restricted VAR model based on the theoretical model to identify these shocks. The presented results show that approximately 30–50% of the forecast error variances in output can be explained by external shocks. Further, we demonstrate that supply shock is the main influencing factor in Japanese business fluctuations throughout the sample period and that the role of external shocks has been growing in the post-Lehman period, including the effect of the Great East Japan Earthquake.     

我国通货膨胀成因解析--基于开放经济体DSGE模型的研究

为定量探讨国内外各种经济冲击如何影响我国通货膨胀及其解释力大小,本文构建出一个符合中国经济特性的开放经济体系动态随机一般均衡（ DSGE）模型,并基于1997-2013年季度数据进行贝斯估计。研究结果表明本文模型可以很好地匹配主要宏观变量的数据特性。通过模型对通货膨胀的方差分解发现,我国通货膨胀波动最主要解释因素依次为生产技术冲击、货币政策冲击、及国外价格冲击。藉由模型对通货膨胀的历史拆解发现,样本期间内2002Q2-2004Q3、2006Q3-2008Q1、及2009Q2-2011Q3三轮通胀上升周期中最主要推动因素分别为投资效率冲击、国外价格冲击、及货币政策冲击。     

Global food prices and monetary policy in an emerging market economy: The case of India

This paper investigates a perception in the political debates as to what extent poor countries are affected by price movements in the global commodity markets. To test this perception, we use the case of India to establish in a standard SVAR model that global food prices influence aggregate prices and food prices in India. To further analyze these empirical results, we specify a small open economy New-Keynesian model including oil and food prices and estimate it using observed data over the period 1996Q2 to 2013Q2 by applying Bayesian estimation techniques. The results suggest that a big part of the variation in inflation in India is due to cost-push shocks and, mainly during the years 2008 and 2010, also to global food price shocks, after having controlled for exogenous rainfall shocks. We conclude that the inflationary supply shocks (cost-push, oil price, domestic food price and global food price shocks) are important contributors to inflation in India. Since the monetary authority responds to these supply shocks with a higher interest rate which tends to slow growth, this raises concerns about how such output losses can be prevented by reducing exposure to commodity price shocks.     

Spatial propagation of macroeconomic shocks in Europe

This paper implements a spatial vector autoregressive model that takes into account both the time and the spatial dimensions of economic shocks. We apply this framework to analyze the propagation through space and time of macroeconomic (inflation, output gap and interest rate) shocks in Europe. The empirical analysis identifies an economically and statistically significant spatial component in the transmission of macroeconomic shocks in Europe.     

A history of aggregate demand and supply shocks for the United Kingdom, 1900 to 2016

This paper presents a history of aggregate demand and supply shocks spanning 1900 – 2016 for the United Kingdom. Sign restrictions derived from a workhorse Keynesian model are used to identify the signs of those shocks. We compare the 30 largest shocks implied by a vector autoregressive model in unemployment and inflation with the narrative historical record. Our approach provides a new perspective on well-known events in economic history. We highlight two episodes of particular interest: an aggregate supply shock in the late 1920s, which we attribute to changes in the bargaining power of labor, and positive aggregate demand shocks in the mid-1970s, which we attribute to fiscal policy.     

Estimating a matching function and regional matching efficiencies: Japanese panel data for 1973–1999

In estimating matching functions by using aggregate time series data, an implicit assumption is imposed that search efficiencies are common to all regions in a country. This paper estimates the matching function using annual panel data covering 47 Japanese prefectures from 1972 to 1999, which allows variation of matching efficiencies over regions. We find that the matching function exhibits mildly but statistically significantly decreasing returns to scale regardless of whether unobservable regional heterogeneity be controlled or not. Further, we find a statistical evidence that estimated matching efficiency is negatively correlated with population density and per capita income. This contradicts previous finding that, ceteris paribus, matching is better for higher population density area. We give a verbal interpretation of this finding.     

Transmission of China's Shocks to the BRIS Countries

This paper investigates the effects of China on the BRIS countries, namely Brazil, Russia, India and South Africa. We identify Chinese supply and demand shocks and assess their transmission to BRIS in a structural dynamic factor model framework estimated over the period 1995Q2‐2009Q4. The findings show that Chinese supply shocks are more important than its demand shocks. Supply shocks produce positive and significant output responses in all BRIS countries. And while these supply shocks have a permanent impact on the BRIS countries, the effects of demand shocks are short‐lived. Both supply and demand shocks are transmitted through trade rather than financial linkages. However, the responses of the BRIS countries are heterogeneous and therefore require country‐specific policy responses.     

The saving–investment correlation and origins of productivity shocks

This paper shows how savings and investment can be positively correlated despite capital being perfectly mobile across countries. The saving-investment (SI) correlation depends on the origin and the volatility of macroeconomic (productivity) shocks, the persistence of these shocks and country-size. Simulating a two-country Real Business Cycle (RBC) model we show that as the variance of common shocks increases (relative to country-specific shocks), as the persistence of these shocks decreases and as country-size increases, the SI correlation increases. Using annual data from 1960 to 2002, productivity changes in 11 OECD countries are decomposed into common and country-specific shocks (from which foreign shocks are also constructed). The empirical findings show that the 11 countries share a statistically significant common component in productivity changes and common shocks generally account for at least half of the variations in the countries’ productivity changes. We then use the estimated variances of the shocks, in addition to each country's size, in the RBC model to compute the predicted SI correlation for each country, under the assumption that capital is perfectly mobile. The predicted SI correlation is then compared to the actual correlation to assess the relative degree of capital mobility in the 11 countries. The findings indicate that Norway, the Netherlands and the US have the highest degree of capital mobility whereas in Canada, Sweden, Belgium and Japan capital mobility has been the lowest.     

THE ROLE OF THE EXCHANGE RATE IN A NEW KEYNESIAN DSGE MODEL FOR THE SOUTH AFRICAN ECONOMY

We build a small open economy New Keynesian dynamic stochastic general equilibrium model for South Africa similar to Steinbach et al. We abandon their assumption of complete risk sharing with the foreign economy, and introduce country risk shocks to allow deviations from uncovered interest rate parity. These changes allow us to include the exchange rate as an observable variable in the estimation of the model. Using forecast error variance decompositions and historical decompositions, we show that country risk shocks have sizable effects on the South African business cycle. We also explore the optimal monetary policy implications of our model within the context of Taylor rules.