Habit formation and the persistence of monetary shocks

The dynamic effects and relative importance of monetary shocks in the US business cycle are studied using a sticky-price dynamic stochastic general equilibrium model with habit formation and capital adjustment costs. The model is estimated via maximum likelihood using data on output, real money balances, and the nominal interest rate. Econometric results indicate that the model has a strong internal propagation mechanism that can explain the persistent and hump-shaped response of US output and consumption to monetary shocks.     

Operational Risk Measurement in Banking Institutions and Investment Firms: New European Evidences

The banking/investment sector must deal with a new variable, Operational Risk, for explaining various recent crises and bankruptcies. Operational Risk, which can be defined briefly as the risk generated by possible failures of a entity's Information Systems (IS), must be measured, covered, mitigated and managed by applying a series of methodologies, each of which assumes that the IS of the bank operates at a certain Stage of Sophistication. The present study proposes a scheme of evolution that details the stages of enhancement in the sophistication of their IS that banking entities may implement, so as to be capable of capturing, mitigating and managing Operational Risk. Using econometric methods, we create a proxy variable to capture the IS Sophistication of each entity. Then, the factor of entity size has been analyzed, and the country effect is explored. Additionally, the importance of intangible assets is weighted, among others entity aspects. The entity size has been revealed as the variable with most influence on the plans formulated in this respect by European entities, against other variables also considered in the present study, such as the country effect or the importance of intangible assets. The work shows how IS decisions referring to Operational Risk management are very influenced by size. It could introduce competition differences in the European banking system.     

Economic Growth and CO2 Emissions in the European Union

This paper examines the relationship between economic growth and CO₂ emissions in the European Union. A panel data analysis for the period 1981 to 1995 is applied in order to estimate the relationship between Gross Domestic Product (GDP) growth and CO₂ emissions in ten selected European countries. The analysis shows important disparities between the most industrialised countries and the rest. The results do not seem to support a uniform policy to control emissions; they rather indicate that a reduction in emissions should be achieved by taking into account the specific economic situation and the industrial structure of each EU member state.     

Predictive Strength of Lending Technologies in Funding SMEs

Using a proprietary database of lending decisions (N = 9,898) for small and medium‐sized enterprises (SMEs), the paper investigates how banks cope with the adverse selection dilemma. Based on an intertemporal framework, we qualify incorrect and correct lending decisions of banks and investigate the power of lending technologies to predict errors and correct choices. Findings suggest that adverse selection can be better controlled by a durable bank–firm relationship, as well as by an atomistic loan decision process, at the local level. By contrast, a loan decision‐making process based exclusively on hard financial information about SMEs may lead to adverse selection errors.     

DECENTRALIZING EQUALITY OF OPPORTUNITY*

In a global justice problem, equality of opportunity is satisfied if individual well‐being is independent of exogenous irrelevant characteristics. Policymakers, however, address questions involving local justice problems. We interpret a collection of local justice problems as the decentralized global justice problem. We show that controlling for effort locally, which is not required by the global justice objective, is sufficient for decentralizing equality of opportunity. Moreover, under some conditions, equalizing rewards to effort is not only sufficient but necessary. This implies in particular that most affirmative action policies may not contribute to providing equality of opportunity.     

THE TRANSMISSION OF MONETARY POLICY IN A MULTISECTOR ECONOMY*

This article constructs and estimates a sticky‐price, Dynamic Stochastic General Equilibrium model with heterogeneous production sectors. Firms in different sectors vary in their price rigidity, production technology, and the combination of material and investment inputs. In particular, firms buy inputs from all sectors using the actual Input–Output Matrix and Capital Flow Table of the U.S. economy. By relaxing the standard assumption of symmetry, this model allows idiosyncratic sectoral dynamics in response to monetary policy shocks. The model is estimated by the Generalized Method of Moments using sectoral and aggregate U.S. time series.     

Implicit exchange regimes in Central and Eastern Europe: a first exploration

This paper attempts to identify implicit exchange rate regimes for currencies of the Central and Eastern European Countries vis-à-vis the euro. To that end, we apply a sequential procedure that considers the dynamics of exchange rates to data covering the period from 1977:01 to 2006:02. Our results would suggest that implicit bands have existed in many subperiods for almost all currencies under study. Once we detect de facto discrepancies between de facto and de iure exchange rate regimes, we propose a model in order to explain these decisions. Our results suggest a positive association between the previous inflation rate and the probability of a peg with the euro, and a negative association with past unemployment rate.

Price‐level versus inflation targeting with financial market imperfections

Abstract Price‐level targeting (PT) is compared with inflation targeting (IT) in a DSGE model augmented with imperfections in both debt and equity markets. The PT regime outperforms the IT regime, and the gain depends on the degree of financial market frictions. This is because inflation is better anchored under PT, owing to the expectation channel, and therefore the monetary authority has more leverage to deal with the financial market distortions. We also find that the gain is higher if the optimal rule reacts to asset prices instead of the output gap, and the rule requires a positive response to asset prices.     

Determining the number of factors after stationary univariate transformations

A very common practice when extracting factors from non-stationary multivariate time series is to differentiate each variable in the system. As a consequence, the ratio between variances and the dynamic dependence of the common and idiosyncratic differentiated components may change with respect to the original components. In this paper, we analyze the effects of these changes on the finite sample properties of several procedures to determine the number of factors. In particular, we consider the information criteria of Bai and Ng (Econometrica 70(1):191–221, 2002), the edge distribution of Onatski (Rev Econ Stat 92(4):1004–1016, 2010) and the ratios of eigenvalues proposed by Ahn and Horenstein (Econometrica 81(3):1203–1227, 2013). The performance of these procedures when implemented to differentiated variables depends on both the ratios between variances and dependencies of the differentiated factor and idiosyncratic noises. Furthermore, we also analyze the role of the number of factors in the original non-stationary system as well as of its temporal and cross-sectional dimensions. Finally, we implement the different procedures to determine the number of common factors in a system of inflation rates in 15 euro area countries.     

Dynamic provision of public goods

Summary. This paper deals with implementing the efficient level of public good provision in a dynamic setting. First, we prove that when the good is provided in several stages, no sequence of Groves' mechanisms guarantees that agents will reveal their true valuations as a dominant strategy. The contribution of this paper is the characterization of those mechanisms which guarantee truthful revelation in this environment.Received: 30 December 2001, Revised: 27 March 2003, JEL Classification Numbers: D61, D78, D82, H41.This paper has greatly benefited from the ideas and comments of Sandro Brusco, Luis Corchón and Roberto Burguet. I would also like to thank José Alcalde, Luis J. Alías, Javier López-Cuñat, Juan Vicente Llinares, Ashley Piggins, Juan Perote and Antonio Quesada for very helpful suggestions. I am also grateful to an anonymous referee whose suggestions aided the quality of exposition in the paper and led me to Proposition 4.