Dissertations / Theses on the topic 'Monetary policy Australia Econometric models'

This thesis consists of three self-contained chapters. Chapter I. The first chapter develops a dynamic general equilibrium model which includes financial intermediation and endogenous financial crises. Consistent with the data, financial crises occur out of prolonged (credit) boom periods and are initiated by a moderate adverse shock. The mechanism which gives rise to boom-bust episodes around financial crises is based on an interaction between the maturity mismatch of the financial sector and an agency problem which results in procyclical lending. I show how to model these features in a tractable way, giving a realistic representation of the financial sector's balance sheet and its lending behavior. The chapter provides empirical evidence on the behavior of the U.S. financial sector's market leverage which is (i) acyclical, (ii) rose mildly prior to the Great Recession, and (iii) increased sharply during the crisis; the model is consistent with these empirical facts. It also predicts and replicates the Great Recession, when confronted with a historical series of structural shocks. Finally, the framework is extended to include price rigidities, nominal debt contracts, and monetary policy. Within this version, I analyze the impact of monetary policy on financial stability and show that a U-shaped pattern of the policy target rate is most likely to increase financial instability. Chapter II. The second chapter models the economy as a time varying vector autoregression, consisting of economic and financial variables. The interest lies in the time varying response of these variables to a monetary policy shock. Monetary policy shocks are identified as the surprise component in policy announcements extracted from price changes in Federal Funds futures around such announcements. These monetary policy surprises enter the model as an exogenous variable. The framework is used to obtain evidence on the time varying response of stock prices to the monetary policy surprises. Stock prices always persistently decrease following a monetary tightening and more strongly than fundamentals imply - with an increase in risk-premia accounting for the difference. However, the response of stock prices varies over time. They decrease less during a boom and a perceived bubble period than during a recession. The findings suggest that so-called "leaning against the wind policies" may be ineffective since stock prices are less responsive during periods when such policies would disinflate asset bubbles using contractionary monetary policy. Chapter III. The third chapter augments a monetary dynamic general equilibrium model with a bubble as considered in [Miao_Wang_2015]. A bubble may exist in firms' stock market values and firms borrow against their inflated stock market values. Within this framework, I analyze the relation between monetary policy and the bubble. I find that contractionary monetary policy decreases the bubble which tightens borrowing constraints and amplifies the reaction of investment and output. These results are in contrast to the ones in Gali (2014) who considers a bubble of the classic rational type and finds that contractionary monetary policy can increase bubbles.

This thesis examines determinacy and E-stability of economic policy in monetary union models. Monetary policy takes the form of either a contemporaneous or a forecast based interest rate rule, while fiscal policy follows a contemporaneous government spending rule. In the absence of asymmetries, the results from the closed economy literature on learning are retained. However, when introducing asymmetries into monetary union frameworks, the determinacy and E-stability conditions for economic policy differ from both the closed and open economy cases. We find that a monetary union with heterogeneous price rigidities is more likely to be determinate and E-stable. Specifically, the Taylor principle, a key stability condition for the closed economy, is now relaxed. Furthermore, an interest rate rule that stabilizes the terms of trade in addition to output and inflation, is more likely to induce determinacy and local stability under RLS learning. If monetary policy is sufficiently aggressive in stabilizing the terms of trade, then determinacy and E-stability of the union economy can be achieved without direct stabilization of output and inflation. A fiscal policy rule that supports demand for domestic goods following a shock to competitiveness, can destabilize the union economy regardless of the interest rate rule employed by the union central bank. In this case, determinacy and E-stability conditions have to be simultaneously and independently met by both fiscal and monetary policy for the union economy to be stable. When fiscal policy instead stabilizes domestic output gaps while monetary policy stabilizes union output and inflation, fiscal policy directly affects the stability of monetary policy. A contemporaneous monetary policy rule has to be more aggressive to satisfy the Taylor principle, the more aggressive fiscal policy is. On the other hand, when monetary policy is forward looking, an aggressive fiscal policy rule can help induce determinacy.

This thesis aims to provide new and useful insights into the effects that various tax, labour and product market reforms have on the overall economic performance. Additionally, it aims also to provide insights about the optimal monetary and fiscal policy behaviour within the economy characterized with various real labour market frictions. We analyze the benefits of tax reforms and their effectiveness relative to product or other labour market reforms. A general equilibrium model with imperfect competition, wage bargaining and different forms of tax distortions is applied in order to analyze these issues. We find that structural reforms imply short run costs but long run gains; that the long run gains outweigh the short run costs; and that the financing of such reforms will be the main stumbling block. We also find that the effectiveness of various reform instruments depends on the policy maker's ultimate objective. More precisely, tax reforms are more effective for welfare gains, but market liberalization is more valuable for generating employment. In order to advance our understanding of the tax and product market reform processes, we then develop a dynamic stochastic general equilibrium model which incorporates search-matching frictions, costly ring and endogenous job destruction decisions, as well as a distortionary progressive wage and a at payroll tax. We confirm the negative effects of marginal tax distortions on the overall economic performance. We also find a positive effect of an increase in the wage tax progressivity and product market liberalization on employment, output and consumption. Following a positive technology shock, the volatility of employment, output and consumption turns out to be lower in the reformed economy, whereas the impact effect on inflation is more pronounced. Following a positive government spending shock the volatility of employment, output and consumption is again lower in the reformed economy, but the inflation response is stronger over the whole adjustment path. We also find detrimental effects on employment and output of a tax reform which keeps the marginal tax wedge unchanged by partially offsetting a decrease in the payroll tax by an increase in the wage tax rate. If this reform is anticipated one period in advance the negative effects remain all over the transition path. We investigate the optimal monetary and fiscal policy implication of the New-Keynesian setup enriched with search-matching frictions. We show that the optimal policy features deviation from strict price stability, and that the Ramsey planner uses both inflation and taxes in order to fully exploit the benefits of the productivity increase following a positive productivity shock. We also find that the optimal tax rate and government liabilities inherit the time series properties of the underlying shocks. Moreover, we identify a certain degree of overshooting in inflation and tax rates following a positive productivity shock, and a certain degree of undershooting following a positive government spending shock as a consequence of the assumed commitment of policy maker.

This thesis addresses three relevant macroeconomic issues: (i) why

Central Banks behave so cautiously compared to optimal theoretical

benchmarks, (ii) do monetary variables add information about

future Euro Area inflation to a large amount of non monetary

variables and (iii) why national saving and investment are so

correlated in OECD countries in spite of the high degree of

integration of international financial markets.

The process of innovation in the elaboration of economic theory

and statistical analysis of the data witnessed in the last thirty

years has greatly enriched the toolbox available to

macroeconomists. Two aspects of such a process are particularly

noteworthy for addressing the issues in this thesis: the

development of macroeconomic dynamic stochastic general

equilibrium models (see Woodford, 1999b for an historical

perspective) and of techniques that enable to handle large data

sets in a parsimonious and flexible manner (see Reichlin, 2002 for

an historical perspective).

Dynamic stochastic general equilibrium models (DSGE) provide the

appropriate tools to evaluate the macroeconomic consequences of

policy changes. These models, by exploiting modern intertemporal

general equilibrium theory, aggregate the optimal responses of

individual as consumers and firms in order to identify the

aggregate shocks and their propagation mechanisms by the

restrictions imposed by optimizing individual behavior. Such a

modelling strategy, uncovering economic relationships invariant to

a change in policy regimes, provides a framework to analyze the

effects of economic policy that is robust to the Lucas'critique

(see Lucas, 1976). The early attempts of explaining business

cycles by starting from microeconomic behavior suggested that

economic policy should play no role since business cycles

reflected the efficient response of economic agents to exogenous

sources of fluctuations (see the seminal paper by Kydland and Prescott, 1982}

and, more recently, King and Rebelo, 1999). This view was challenged by

several empirical studies showing that the adjustment mechanisms

of variables at the heart of macroeconomic propagation mechanisms

like prices and wages are not well represented by efficient

responses of individual agents in frictionless economies (see, for

example, Kashyap, 1999; Cecchetti, 1986; Bils and Klenow, 2004 and Dhyne et al. 2004). Hence, macroeconomic models currently incorporate

some sources of nominal and real rigidities in the DSGE framework

and allow the study of the optimal policy reactions to inefficient

fluctuations stemming from frictions in macroeconomic propagation

mechanisms.

Against this background, the first chapter of this thesis sets up

a DSGE model in order to analyze optimal monetary policy in an

economy with sectorial heterogeneity in the frequency of price

adjustments. Price setters are divided in two groups: those

subject to Calvo type nominal rigidities and those able to change

their prices at each period. Sectorial heterogeneity in price

setting behavior is a relevant feature in real economies (see, for

example, Bils and Klenow, 2004 for the US and Dhyne, 2004 for the Euro

Area). Hence, neglecting it would lead to an understatement of the

heterogeneity in the transmission mechanisms of economy wide

shocks. In this framework, Aoki (2001) shows that a Central

Bank maximizing social welfare should stabilize only inflation in

the sector where prices are sticky (hereafter, core inflation).

Since complete stabilization is the only true objective of the

policymaker in Aoki (2001) and, hence, is not only desirable

but also implementable, the equilibrium real interest rate in the

economy is equal to the natural interest rate irrespective of the

degree of heterogeneity that is assumed. This would lead to

conclude that stabilizing core inflation rather than overall

inflation does not imply any observable difference in the

aggressiveness of the policy behavior. While maintaining the

assumption of sectorial heterogeneity in the frequency of price

adjustments, this chapter adds non negligible transaction

frictions to the model economy in Aoki (2001). As a

consequence, the social welfare maximizing monetary policymaker

faces a trade-off among the stabilization of core inflation,

economy wide output gap and the nominal interest rate. This

feature reflects the trade-offs between conflicting objectives

faced by actual policymakers. The chapter shows that the existence

of this trade-off makes the aggressiveness of the monetary policy

reaction dependent on the degree of sectorial heterogeneity in the

economy. In particular, in presence of sectorial heterogeneity in

price adjustments, Central Banks are much more likely to behave

less aggressively than in an economy where all firms face nominal

rigidities. Hence, the chapter concludes that the excessive

caution in the conduct of monetary policy shown by actual Central

Banks (see, for example, Rudebusch and Svennsson, 1999 and Sack, 2000) might not

represent a sub-optimal behavior but, on the contrary, might be

the optimal monetary policy response in presence of a relevant

sectorial dispersion in the frequency of price adjustments.

DSGE models are proving useful also in empirical applications and

recently efforts have been made to incorporate large amounts of

information in their framework (see Boivin and Giannoni, 2006). However, the

typical DSGE model still relies on a handful of variables. Partly,

this reflects the fact that, increasing the number of variables,

the specification of a plausible set of theoretical restrictions

identifying aggregate shocks and their propagation mechanisms

becomes cumbersome. On the other hand, several questions in

macroeconomics require the study of a large amount of variables.

Among others, two examples related to the second and third chapter

of this thesis can help to understand why. First, policymakers

analyze a large quantity of information to assess the current and

future stance of their economies and, because of model

uncertainty, do not rely on a single modelling framework.

Consequently, macroeconomic policy can be better understood if the

econometrician relies on large set of variables without imposing

too much a priori structure on the relationships governing their

evolution (see, for example, Giannone et al. 2004 and Bernanke et al. 2005).

Moreover, the process of integration of good and financial markets

implies that the source of aggregate shocks is increasingly global

requiring, in turn, the study of their propagation through cross

country links (see, among others, Forni and Reichlin, 2001 and Kose et al. 2003). A

priori, country specific behavior cannot be ruled out and many of

the homogeneity assumptions that are typically embodied in open

macroeconomic models for keeping them tractable are rejected by

the data. Summing up, in order to deal with such issues, we need

modelling frameworks able to treat a large amount of variables in

a flexible manner, i.e. without pre-committing on too many

a-priori restrictions more likely to be rejected by the data. The

large extent of comovement among wide cross sections of economic

variables suggests the existence of few common sources of

fluctuations (Forni et al. 2000 and Stock and Watson, 2002) around which

individual variables may display specific features: a shock to the

world price of oil, for example, hits oil exporters and importers

with different sign and intensity or global technological advances

can affect some countries before others (Giannone and Reichlin, 2004). Factor

models mainly rely on the identification assumption that the

dynamics of each variable can be decomposed into two orthogonal

components - common and idiosyncratic - and provide a parsimonious

tool allowing the analysis of the aggregate shocks and their

propagation mechanisms in a large cross section of variables. In

fact, while the idiosyncratic components are poorly

cross-sectionally correlated, driven by shocks specific of a

variable or a group of variables or measurement error, the common

components capture the bulk of cross-sectional correlation, and

are driven by few shocks that affect, through variable specific

factor loadings, all items in a panel of economic time series.

Focusing on the latter components allows useful insights on the

identity and propagation mechanisms of aggregate shocks underlying

a large amount of variables. The second and third chapter of this

thesis exploit this idea.

The second chapter deals with the issue whether monetary variables

help to forecast inflation in the Euro Area harmonized index of

consumer prices (HICP). Policymakers form their views on the

economic outlook by drawing on large amounts of potentially

relevant information. Indeed, the monetary policy strategy of the

European Central Bank acknowledges that many variables and models

can be informative about future Euro Area inflation. A peculiarity

of such strategy is that it assigns to monetary information the

role of providing insights for the medium - long term evolution of

prices while a wide range of alternative non monetary variables

and models are employed in order to form a view on the short term

and to cross-check the inference based on monetary information.

However, both the academic literature and the practice of the

leading Central Banks other than the ECB do not assign such a

special role to monetary variables (see Gali et al. 2004 and

references therein). Hence, the debate whether money really

provides relevant information for the inflation outlook in the

Euro Area is still open. Specifically, this chapter addresses the

issue whether money provides useful information about future

inflation beyond what contained in a large amount of non monetary

variables. It shows that a few aggregates of the data explain a

large amount of the fluctuations in a large cross section of Euro

Area variables. This allows to postulate a factor structure for

the large panel of variables at hand and to aggregate it in few

synthetic indexes that still retain the salient features of the

large cross section. The database is split in two big blocks of

variables: non monetary (baseline) and monetary variables. Results

show that baseline variables provide a satisfactory predictive

performance improving on the best univariate benchmarks in the

period 1997 - 2005 at all horizons between 6 and 36 months.

Remarkably, monetary variables provide a sensible improvement on

the performance of baseline variables at horizons above two years.

However, the analysis of the evolution of the forecast errors

reveals that most of the gains obtained relative to univariate

benchmarks of non forecastability with baseline and monetary

variables are realized in the first part of the prediction sample

up to the end of 2002, which casts doubts on the current

forecastability of inflation in the Euro Area.

The third chapter is based on a joint work with Domenico Giannone

and gives empirical foundation to the general equilibrium

explanation of the Feldstein - Horioka puzzle. Feldstein and Horioka (1980) found

that domestic saving and investment in OECD countries strongly

comove, contrary to the idea that high capital mobility should

allow countries to seek the highest returns in global financial

markets and, hence, imply a correlation among national saving and

investment closer to zero than one. Moreover, capital mobility has

strongly increased since the publication of Feldstein - Horioka's

seminal paper while the association between saving and investment

does not seem to comparably decrease. Through general equilibrium

mechanisms, the presence of global shocks might rationalize the

correlation between saving and investment. In fact, global shocks,

affecting all countries, tend to create imbalance on global

capital markets causing offsetting movements in the global

interest rate and can generate the observed correlation across

national saving and investment rates. However, previous empirical

studies (see Ventura, 2003) that have controlled for the effects

of global shocks in the context of saving-investment regressions

failed to give empirical foundation to this explanation. We show

that previous studies have neglected the fact that global shocks

may propagate heterogeneously across countries, failing to

properly isolate components of saving and investment that are

affected by non pervasive shocks. We propose a novel factor

augmented panel regression methodology that allows to isolate

idiosyncratic sources of fluctuations under the assumption of

heterogenous transmission mechanisms of global shocks. Remarkably,

by applying our methodology, the association between domestic

saving and investment decreases considerably over time,

consistently with the observed increase in international capital

mobility. In particular, in the last 25 years the correlation

between saving and investment disappears.

Doctorat en sciences économiques, Orientation économie
info:eu-repo/semantics/nonPublished

This thesis develops empirical econometric models of the private sector aggregate demand for real and financial assets in Kenya over the period 1973 to 1990. Single-equation error-correction models of the demand for money are estimated using systems cointegration methods developed by Johansen (1988). The models are found to be statistically stable functions throughout the period, and are capable of encompassing existing studies. Across a range of monetary aggregates, including a Divisia index aggregate for broad money, the models describe demand for money functions in which inflation and illegal foreign currency substitution are significant determinants of money holdings, and where the private sector adjusts rapidly to deviations from its stable longrun equilibrium real money demand. The demand for money is then integrated within a neo-classical model of asset demands, which examines the behaviour of the aggregate private sector asset portfolio in response to changes in relative prices between assets and to external shocks to the economy, principally the 1976-77 coffee boom. A variant of the Almost Ideal Demand System model developed by Deaton and Muellbauer (1980) is estimated for a class of six assets: base money, banking system deposits, government securities, tradable capital, nontradable capital and inventories. The asset substitution model, which also takes an errorcorrection form, and which allows for credit rationing, generates results which are consistent with the earlier demand for money models, where private agents are also denied access to foreign-denominated assets. Using this model, the maintenance of policies of financial repression are shown to cause the private sector to offset inflationary shocks through the accumulation of real assets, principally in the form of non-tradable capital in the construction and property sectors. The evidence from the two models is used to analyze the fiscal effects of the inflation tax and financial repression measures. Policies of financial liberalization are shown to reduce the revenue maximizing rate of inflation (estimated to be 14% per annum) and the implicit tax on domestic holders of government liabilities. This dampens asset substitution in response to inflationary shocks and offsets the adverse effects of "construction-boom" investment on non-tradable capital prices.

The active use of macroeconomic policies to smooth economic fluctuations and, as a

consequence, the stance that policymakers should adopt over the business cycle, remain

controversial issues in the economic literature.

In the light of the dramatic experience of the early 1930s’ Great Depression, Keynes (1936)

argued that the market mechanism could not be relied upon to spontaneously recover from

a slump, and advocated counter-cyclical public spending and monetary policy to stimulate

demand. Albeit the Keynesian doctrine had largely influenced policymaking during

the two decades following World War II, it began to be seriously challenged in several

directions since the start of the 1970s. The introduction of rational expectations within

macroeconomic models implied that aggregate demand management could not stabilize

the economy’s responses to shocks (see in particular Sargent and Wallace (1975)). According

to this view, in fact, rational agents foresee the effects of the implemented policies, and

wage and price expectations are revised upwards accordingly. Therefore, real wages and

money balances remain constant and so does output. Within such a conceptual framework,

only unexpected policy interventions would have some short-run effects upon the economy.

The "real business cycle (RBC) theory", pioneered by Kydland and Prescott (1982), offered

an alternative explanation on the nature of fluctuations in economic activity, viewed

as reflecting the efficient responses of optimizing agents to exogenous sources of fluctuations, outside the direct control of policymakers. The normative implication was that

there should be no role for economic policy activism: fiscal and monetary policy should be

acyclical. The latest generation of New Keynesian dynamic stochastic general equilibrium

(DSGE) models builds on rigorous foundations in intertemporal optimizing behavior by

consumers and firms inherited from the RBC literature, but incorporates some frictions

in the adjustment of nominal and real quantities in response to macroeconomic shocks

(see Woodford (2003)). In such a framework, not only policy "surprises" may have an

impact on the economic activity, but also the way policymakers "systematically" respond

to exogenous sources of fluctuation plays a fundamental role in affecting the economic

activity, thereby rekindling interest in the use of counter-cyclical stabilization policies to

fine tune the business cycle.

Yet, despite impressive advances in the economic theory and econometric techniques, there are no definitive answers on the systematic stance policymakers should follow, and on the

effects of macroeconomic policies upon the economy. Against this background, the present thesis attempts to inspect the interrelations between macroeconomic policies and the economic activity from novel angles. Three contributions

are proposed.

In the first Chapter, I show that relying on the information actually available to policymakers when budgetary decisions are taken is of fundamental importance for the assessment of the cyclical stance of governments. In the second, I explore whether the effectiveness of fiscal shocks in spurring the economic activity has declined since the beginning of the 1970s. In the third, the impact of systematic monetary policies over U.S. industrial sectors is investigated. In the existing literature, empirical assessments of the historical stance of policymakers over the economic cycle have been mainly drawn from the estimation of "reduced-form" policy reaction functions (see in particular Taylor (1993) and Galì and Perotti (2003)). Such rules typically relate a policy instrument (a reference short-term interest rate or an indicator of discretionary fiscal policy) to a set of explanatory variables (notably inflation, the output gap and the debt-GDP ratio, as long as fiscal policy is concerned). Although these policy rules can be seen as simple approximations of what derived from an explicit optimization problem solved by social planners (see Kollmann (2007)), they received considerable attention since they proved to track the behavior of central banks and fiscal

policymakers relatively well. Typically, revised data, i.e. observations available to the

econometrician when the study is carried out, are used in the estimation of such policy

reaction functions. However, data available in "real-time" to policymakers may end up

to be remarkably different from what it is observed ex-post. Orphanides (2001), in an

innovative and thought-provoking paper on the U.S. monetary policy, challenged the way

policy evaluation was conducted that far by showing that unrealistic assumptions about

the timeliness of data availability may yield misleading descriptions of historical policy.

In the spirit of Orphanides (2001), in the first Chapter of this thesis I reconsider how

the intentional cyclical stance of fiscal authorities should be assessed. Importantly, in

the framework of fiscal policy rules, not only variables such as potential output and the

output gap are subject to measurement errors, but also the main discretionary "operating

instrument" in the hands of governments: the structural budget balance, i.e. the headline

government balance net of the effects due to automatic stabilizers. In fact, the actual

realization of planned fiscal measures may depend on several factors (such as the growth

rate of GDP, the implementation lags that often follow the adoption of many policy

measures, and others more) outside the direct and full control of fiscal authorities. Hence,

there might be sizeable differences between discretionary fiscal measures as planned in the

past and what it is observed ex-post. To be noted, this does not apply to monetary policy

since central bankers can control their operating interest rates with great accuracy.

When the historical behavior of fiscal authorities is analyzed from a real-time perspective, it emerges that the intentional stance has been counter-cyclical, especially during expansions, in the main OECD countries throughout the last thirteen years. This is at

odds with findings based on revised data, generally pointing to pro-cyclicality (see for example Gavin and Perotti (1997)). It is shown that empirical correlations among revision

errors and other second-order moments allow to predict the size and the sign of the bias

incurred in estimating the intentional stance of the policy when revised data are (mistakenly)

used. It addition, formal tests, based on a refinement of Hansen (1999), do not reject

the hypothesis that the intentional reaction of fiscal policy to the cycle is characterized by

two regimes: one counter-cyclical, when output is above its potential level, and the other

acyclical, in the opposite case. On the contrary, the use of revised data does not allow to identify any threshold effect.

The second and third Chapters of this thesis are devoted to the exploration of the impact

of fiscal and monetary policies upon the economy.

Over the last years, two approaches have been mainly followed by practitioners for the

estimation of the effects of macroeconomic policies on the real activity. On the one hand,

calibrated and estimated DSGE models allow to trace out the economy’s responses to

policy disturbances within an analytical framework derived from solid microeconomic

foundations. On the other, vector autoregressive (VAR) models continue to be largely

used since they have proved to fit macro data particularly well, albeit they cannot fully

serve to inspect structural interrelations among economic variables.

Yet, the typical DSGE and VAR models are designed to handle a limited number of variables

and are not suitable to address economic questions potentially involving a large

amount of information. In a DSGE framework, in fact, identifying aggregate shocks and

their propagation mechanism under a plausible set of theoretical restrictions becomes a

thorny issue when many variables are considered. As for VARs, estimation problems may

arise when models are specified in a large number of indicators (although latest contributions suggest that large-scale Bayesian VARs perform surprisingly well in forecasting.

See in particular Banbura, Giannone and Reichlin (2007)). As a consequence, the growing

popularity of factor models as effective econometric tools allowing to summarize in

a parsimonious and flexible manner large amounts of information may be explained not

only by their usefulness in deriving business cycle indicators and forecasting (see for example

Reichlin (2002) and D’Agostino and Giannone (2006)), but also, due to recent

developments, by their ability in evaluating the response of economic systems to identified

structural shocks (see Giannone, Reichlin and Sala (2002) and Forni, Giannone, Lippi

and Reichlin (2007)). Parallelly, some attempts have been made to combine the rigor of

DSGE models and the tractability of VAR ones, with the advantages of factor analysis

(see Boivin and Giannoni (2006) and Bernanke, Boivin and Eliasz (2005)).

The second Chapter of this thesis, based on a joint work with Agnès Bénassy-Quéré, presents an original study combining factor and VAR analysis in an encompassing framework,

to investigate how "unexpected" and "unsystematic" variations in taxes and government

spending feed through the economy in the home country and abroad. The domestic

impact of fiscal shocks in Germany, the U.K. and the U.S. and cross-border fiscal spillovers

from Germany to seven European economies is analyzed. In addition, the time evolution of domestic and cross-border tax and spending multipliers is explored. In fact, the way fiscal policy impacts on domestic and foreign economies

depends on several factors, possibly changing over time. In particular, the presence of excess

capacity, accommodating monetary policy, distortionary taxation and liquidity constrained

consumers, plays a prominent role in affecting how fiscal policies stimulate the

economic activity in the home country. The impact on foreign output crucially depends

on the importance of trade links, on real exchange rates and, in a monetary union, on

the sensitiveness of foreign economies to the common interest rate. It is well documented

that the last thirty years have witnessed frequent changes in the economic environment.

For instance, in most OECD countries, the monetary policy stance became less accommodating

in the 1980s compared to the 1970s, and more accommodating again in the

late 1990s and early 2000s. Moreover, financial markets have been heavily deregulated.

Hence, fiscal policy might have lost (or gained) power as a stimulating tool in the hands

of policymakers. Importantly, the issue of cross-border transmission of fiscal policy decisions is of the utmost relevance in the framework of the European Monetary Union and this explains why the debate on fiscal policy coordination has received so much attention since the adoption

of the single currency (see Ahearne, Sapir and Véron (2006) and European Commission

(2006)). It is found that over the period 1971 to 2004 tax shocks have generally been more effective in spurring domestic output than government spending shocks. Interestingly, the inclusion of common factors representing global economic phenomena yields to smaller multipliers

reconciling, at least for the U.K. the evidence from large-scale macroeconomic models,

generally finding feeble multipliers (see e.g. European Commission’s QUEST model), with

the one from a prototypical structural VAR pointing to stronger effects of fiscal policy.

When the estimation is performed recursively over samples of seventeen years of data, it

emerges that GDP multipliers have dropped drastically from early 1990s on, especially

in Germany (tax shocks) and in the U.S. (both tax and government spending shocks).

Moreover, the conduct of fiscal policy seems to have become less erratic, as documented

by a lower variance of fiscal shocks over time, and this might contribute to explain why

business cycles have shown less volatility in the countries under examination.

Expansionary fiscal policies in Germany do not generally have beggar-thy-neighbor effects

on other European countries. In particular, our results suggest that tax multipliers have

been positive but vanishing for neighboring countries (France, Italy, the Netherlands, Belgium and Austria), weak and mostly not significant for more remote ones (the U.K.

and Spain). Cross-border government spending multipliers are found to be monotonically

weak for all the subsamples considered.

Overall these findings suggest that fiscal "surprises", in the form of unexpected reductions in taxation and expansions in government consumption and investment, have become progressively less successful in stimulating the economic activity at the domestic level, indicating that, in the framework of the European Monetary Union, policymakers can only marginally rely on this discretionary instrument as a substitute for national monetary policies.

The objective of the third chapter is to inspect the role of monetary policy in the U.S. business cycle. In particular, the effects of "systematic" monetary policies upon several industrial sectors is investigated. The focus is on the systematic, or endogenous, component of monetary policy (i.e. the one which is related to the economic activity in a stable and predictable way), for three main reasons. First, endogenous monetary policies are likely to have sizeable real effects, if agents’ expectations are not perfectly rational and if there are some nominal and real frictions in a market. Second, as widely documented, the variability of the monetary instrument and of the main macro variables is only marginally explained by monetary "shocks", defined as unexpected and exogenous variations in monetary conditions. Third, monetary shocks can be simply interpreted as measurement errors (see Christiano, Eichenbaum

and Evans (1998)). Hence, the systematic component of monetary policy is likely to have played a fundamental role in affecting business cycle fluctuations. The strategy to isolate the impact of systematic policies relies on a counterfactual experiment, within a (calibrated or estimated) macroeconomic model. As a first step, a macroeconomic shock to which monetary policy is likely to respond should be selected,

and its effects upon the economy simulated. Then, the impact of such shock should be

evaluated under a “policy-inactive” scenario, assuming that the central bank does not respond

to it. Finally, by comparing the responses of the variables of interest under these

two scenarios, some evidence on the sensitivity of the economic system to the endogenous

component of the policy can be drawn (see Bernanke, Gertler and Watson (1997)).

Such kind of exercise is first proposed within a stylized DSGE model, where the analytical

solution of the model can be derived. However, as argued, large-scale multi-sector DSGE

models can be solved only numerically, thus implying that the proposed experiment cannot

be carried out. Moreover, the estimation of DSGE models becomes a thorny issue when many variables are incorporated (see Canova and Sala (2007)). For these arguments, a less “structural”, but more tractable, approach is followed, where a minimal amount of

identifying restrictions is imposed. In particular, a factor model econometric approach

is adopted (see in particular Giannone, Reichlin and Sala (2002) and Forni, Giannone,

Lippi and Reichlin (2007)). In this framework, I develop a technique to perform the counterfactual experiment needed to assess the impact of systematic monetary policies.

It is found that 2 and 3-digit SIC U.S. industries are characterized by very heterogeneous degrees of sensitivity to the endogenous component of the policy. Notably, the industries showing the strongest sensitivities are the ones producing durable goods and metallic

materials. Non-durable good producers, food, textile and lumber producing industries are

the least affected. In addition, it is highlighted that industrial sectors adjusting prices relatively infrequently are the most "vulnerable" ones. In fact, firms in this group are likely to increase quantities, rather than prices, following a shock positively hitting the economy. Finally, it emerges that sectors characterized by a higher recourse to external sources to finance investments, and sectors investing relatively more in new plants and machineries, are the most affected by endogenous monetary actions.
Doctorat en sciences économiques, Orientation économie
info:eu-repo/semantics/nonPublished

This research attempts to empirically examine the bank-lending channel in monetary policy transmission in Rwanda, using quarterly data for the period 1996Q1 to 2011Q4. The responses of the loans supply, real output, prices, and deposits to monetary policy innovations were investigated in this research, using impulse response functions and variance decompositions obtained from a Vector Autoregressive model (VAR). Estimation results revealed that the bank lending channel in Rwanda is less effective. The findings suggest that although monetary policies working through interest rates have a significant effect on bank loans, loans appear to not influence the real output level. As in other developing economies, the financial sector in Rwanda is still weak. As a result of the absence of long- term investment, bank customers bear the risk associated with the poor quality of loans in addition to the risk associated with high and variable inflation. These are likely to hamper the monetary policy transmission mechanism.

Dissertation (PhD) -- University of Stellenbosch, 2000.
ENGLISH ABSTRACT: The Lucas critique states that if expectations are not explicitly dealt with, conventional econometric models are inappropriate for policy analyses, as their coefficients are not policy invariant. The inclusion of rational expectations in ·conventional model building has been the most common response to this critique. The concept of rational expectations has received several interpretations. In numerous studies, these expectations are associated with model consistent expectations in the sense that expectations and model solutions are identical. To derive a solution, these models require unique algorithms and assumptions regarding their terminal state, in particular when forward-looking expectations are present. An alternative that avoids these issues is the concept of weak rational expectations, which emphasises that expectation errors should not be systematic. Expectations are therefore formed on the basis of an underlying structure, but full knowledge of the model is not essential. The accommodation of this type of rational expectations is accomplished by means of an explicit specification of an expectations equation consistent with the macro econometric model's broad structure. The estimation of coefficients relating to expectations is achieved through an Instrumental Variable approach. In South Africa, monetary policy has been consistent and transparent in line with the recommendations of the De Kock Commission. This allows the modelling of the policy instrument of the South African Reserve Bank, i.e. the Bank rate, by means of a policy reaction function. Given this transparency in monetary policy, the accommodation of expectations of the Bank rate is essential in modelling the full impact of monetary policy and in avoiding the Lucas critique. This is accomplished through weak rational expectations, based on the reaction function of the Reserve Bank. The accommodation of expectations of a policy instrument also allows the modelling of anticipated and unanticipated policies as alternative assumptions regarding the expectations process can be made during simulations. Conventional econometric models emphasise the demand side of the economy, with equations focusing on private consumption, investment, exports and imports and possibly changes in inventories. In this study, particular emphasis in the model specification is also placed on the impact of monetary policy on government debt and debt servicing costs. Other dimensions of the model include the modelling of the money supply and balance of payments, short- and long-term interest rates, domestic prices, the exchange rate, the wage rate and employment as well as weakly rational expectations of inflation and the Bank rate. The model has been specified and estimated by usmg concepts such as cointegration and Error Correction modelling. Numerous tests, including the assessment of the Root Mean Square Percentage Error, have been employed to test the adequacy of the model. Similarly, tests are carried out to ensure weak rational expectations. Numerous simulations are carried out with the model and the results are compared to relevant alternative studies. The simulation results show that the reduction of inflation by means of only monetary policy could impose severe costs on the economy in terms of real sector volatility.
AFRIKAANSE OPSOMMING: Die Lucas-kritiek beweer dat konvensionele ekonometriese modelle nie gebruik kan word vir beleidsontleding nie, aangesien dit nie voorsiening maak vir die verandering in verwagtings wanneer beleidsaanpassings gemaak word nie. Die insluiting van rasionele verwagtinge in konvensionele ekonometriese modelle is die mees algemene reaksie op die Lukas-kritiek. Ten einde die praktiese insluiting van rasionele verwagtings III ekonometriese modelbou te vergemaklik, word in hierdie studie gebruik gemaak van sogenaamde "swak rasionele verwagtings", wat slegs vereis dat verwagtingsfoute me sistematies moet wees nie. Die beraming van die koëffisiënte van die verwagtingsveranderlikes word gedoen met behulp van die Instrumentele Veranderlikes-benadering. Monetêre beleid in Suid-Afrika was histories konsekwent en deursigtig in ooreenstemming met die aanbevelings van die De Kock Kommissie. Die beleidsinstrument van die Suid-Afrikaanse Reserwebank, naamlik die Bankkoers, kan gevolglik gemodelleer word met behulp van 'n beleidsreaksie-funksie. Ten einde die Lukas-kritiek te akkommodeer, moet verwagtings oor die Bankkoers egter ingesluit word wanneer die volle impak van monetêre beleid gemodelleer word. Dit word vermag met die insluiting van swak rasionele verwagtings, gebaseer op die reaksie-funksie van die Reserwebank. Sodoende kan die impak van verwagte en onverwagte beleidsaanpassings gesimuleer word. Konvensionele ekonometriese modelle beklemtoon die vraagkant van die ekonomie, met vergelykings vir verbruik, investering, invoere, uitvoere en moontlik die verandering in voorrade. In hierdie studie word daar ook klem geplaas op die impak van monetêre beleid op staatskuld en die koste van staatsskuld. Ander aspekte wat gemodelleer word, is die geldvoorraad en betalingsbalans, korttermyn- en langtermynrentekoerse, binnelandse pryse, die wisselkoers, loonkoerse en indiensneming, asook swak rasionele verwagtings van inflasie en die Bankkkoers. Die model is gespesifiseer en beraam met behulp van ko-integrasie en die gebruik van lang-en korttermynvergelykings. Die gebruiklike toetse is uitgevoer om die toereikendheid van die model te toets. Verskeie simulasies is uitgevoer met die model en die resultate is vergelyk met ander relevante studies. Die gevolgtrekking word gemaak dat die verlaging van inflasie deur alleenlik gebruik te maak van monetêre beleid 'n swaar las op die ekonomie kan lê in terme van volatiliteit in die reële sektor.

The thesis includes two essays on asset pricing. In the first essay, "Asset Pricing in a Monetary Economy with Heterogeneous Beliefs", we shed new light on the role of monetary policy in asset pricing by focusing on the case where investors have heterogeneous expectations about future monetary policy. Under heterogeneity in beliefs, investors place bets against each other on the evolution of money supply, and as a result, the sharing of wealth in the economy evolves stochastically over time, making money non-neutral. Employing a continuous-time, general equilibrium model, we establish these fluctuations to be rich in implications, in that they majorly affect the equilibrium prices of all assets, as well as inflation. In particular, we find that the stock market volatility may be significantly increased by the heterogeneity in beliefs, a conclusion supported by our empirical analysis. The second essay is titled with " Asset Pricing and Welfare Analysis with Bounded Rational Investors". Motivated by the fact that investors have limited ability and insufficient knowledge to process information, I model investors' bounded-rational behavior in processing information and study its implications on asset pricing. Bounded rational investors perceive "correlated" information (which consists of news that is correlated with fundamentals, but provides no information on them) as "fundamental" information. This generates "bounded rational risk". Asset prices and volatilities of asset returns are derived. Specially, the equity premium and the stock volatility are raised under some conditions. I also analyze the welfare impact of bounded rationality.

The general objective of the doctoral thesis is to evaluate the effects of macroeconomic policies on the economy and the environment. Chapter 2 examines the composition of fiscal policy and its transmission mechanisms on various macroeconomic aggregates in open economies. Chapter 3 examines the transmission mechanisms of conventional and unconventional monetary policies on the macroeconomic aggregates in open economies. Chapter 4 explores the interactions among macroeconomic policies, the energy market and environmental quality. The analysis of the effects of fiscal and monetary policies on the economy and the environment is conducted using the structural vector autoregressive (VAR) methodology. This procedure is suitable when the variables of interest are endogenous, which is typically the case with macroeconomic and environmental variables. Structural VAR models allow to examine the dynamic interactions among the variables and feedback effects, through the impulse response functions and the variance decomposition. Chapter 2 provides a detailed examination on the composition of fiscal policy and its transmission mechanisms on various macroeconomic aggregates for two Anglo-Saxon countries, the United States and the United Kingdom, over the period 1964-2017. While research on fiscal policy has been substantial, the study of the transmission mechanisms and effects of tax revenue and government spending components in an open economy framework has received less attention. This chapter contributes to the literature on the disaggregated analysis of fiscal policy in open economies. We examine the composition of fiscal policy by asking whether government spending disaggregation matters for the transmission of fiscal policy on the macroeconomic aggregates. In addition, the chapter explores the role of the exchange rate and the trade balance in the transmission of shocks to tax revenue and government spending components. We estimate the effects of disaggregated fiscal policy shocks on the macroeconomic aggregates. Using the recursive approach, we identify a tax revenue and a government spending component shock that rotates between (i) government non-wage consumption (ii) government wage consumption (iii) public investment. The conducted analysis reveals that the disaggregation of fiscal policy matters since each fiscal instrument implies different transmission channels and effects on the real economy. It therefore seems essential to disaggregate government spending into its main components to uncover significant and different patterns that an aggregated analysis cannot reveal. However, as expected, the effects of government spending components on certain economic variables are weak and insignificant. In addition, our findings suggest that fiscal policy can be operative, besides the interest rate channel, via an exchange rate and trade balance channels. Considering an open economy framework is therefore essential since a part of the fiscal stimulus propagates abroad through external channels. The results occurring from this chapter have several policy implications. First, government non-wage consumption increases could have contractionary effects on the real economy as observed in the countries and the period considered in our analysis. Our findings also indicate that, as expected, public wage policies have a greater impact on the labor market than changes in the other components of government spending, while they have a relatively small effect on the output. Moreover, government efforts to stimulate the real economy through the increase in public investment should be accompanied by other types of macroeconomic policy instruments in order to offset the crowding out effect on private activity. Besides, the examination of tax revenue reveals different implications. In the United States, tax revenue cuts can stimulate economic activity and increase prices in the short run. In contrast, tax revenue cuts do not seem to be effective in stimulating the United Kingdom economy. Chapter 3 examines the transmission mechanisms of conventional and unconventional monetary policies on the macroeconomic aggregates in open economies. While research on monetary policy has been substantial, less attention was given to the study of the role of stock prices and consumer expectations in the transmission of monetary policy. In addition, very few studies have analysed the effects of monetary policy in open economies outside the euro area. Taking this into account, the analysis is carried out for two non-EMU countries, Switzerland and the United Kingdom, over the period 1990-2017. First, we examine whether conventional monetary policy is operative, besides other well-known channels, via a stock price and consumer confidence channels. We then explore the role of long-term interest rates, exchange rates and stock prices in the transmission of unconventional monetary policy. The chapter proposes two distinct structural VAR models based on a novel specification. The baseline model for the case of conventional monetary policy covers the pre-2009 period and is estimated using quarterly data, while the baseline model for the case of unconventional monetary policy covers the post-2009 period and is estimated using monthly data. The official bank policy rate and central bank’s reserve assets are used as instruments for conventional and unconventional monetary policy. Considering stock prices is of key importance since monetary policy decisions have an impact on financing conditions and market expectations, thus leading to adjustments of asset prices. If central banks are forward looking, the monetary policy instrument cannot be properly identified unless expectations are taken into account. Our modelling approach consists in augmenting the structural VAR model with a forward-looking informational variable of near-term development in economic activity and several foreign exogenous variables to control for international spillovers. For the case of conventional monetary policy, the consumer confidence indicator is used since it contains important information used by central banks about consumer expectations as regards future economic conditions. For the case of unconventional monetary policy, the long-term government bond yields are used to capture consumer expectations about future short-term interest rates. The conducted analysis reveals that the inclusion of a forward-looking informational variable of near-term development in economic activity and a financial variable such as the stock prices are of key importance for the monetary policy assessment. We provide evidence for the existence of a consumer confidence channel in the transmission mechanism of conventional monetary policy. An expansionary policy enhances households’ perception with regards future economic conditions, which may result in a tendency to consumer more and save less. Thus, changes in consumer confidence can potentially amplify the effects of monetary policy on the real economy. Moreover, the results indicate that the long-term government bond yields have an important role in the transmission mechanism of unconventional monetary policy. Although these results have limited policy implications, they reveal the importance of considering these specific transmission channels and controlling for global supply and demand shocks in order to provide a comprehensive analysis of the effects of monetary policy. Overall, our findings indicate that conventional and unconventional monetary policies were effective in providing temporary stimulus to the economies of Switzerland and the United Kingdom during the considered periods. Chapter 4 examines the interactions among macroeconomic policies, the energy market and environmental quality. These interactions and channels among them are studied through structural VAR models based on a macroeconomic framework including the energy market. This chapter builds on the growing literature analysing the links between macroeconomic policies and environmental variables. It examines for the first time how the implementation of macroeconomic policies, that aim to stimulate the economy, may also affect the quality of the environment along the business cycle and the specific role of energy markets as transmission channels. On the one hand, the chapter evaluates the implications of macroeconomic policies on the price of non-renewable energy and the use of both renewable and non-renewable energy. On the other hand, it assesses the influence of fiscal policy components, conventional and unconventional monetary policies on greenhouse gas emissions generated by the energy sector. The empirical analysis is conducted for Switzerland and the United Kingdom over the period 1990-2016. The geographical and physical characteristics of these two countries make them particularly vulnerable to global warming. For the case of monetary policy, the analysis is explicitly made on sub-periods since the implementation of quantitative easing can be viewed as a new monetary policy regime. The results occurring from Chapter 4 reveals several policy implications. Fiscal policy, besides its primary role in stabilizing economic activity, can contribute to the achievement of environmental sustainability. Our findings indicate that public investment is more efficient than government consumption in reducing non-renewable energy consumption and greenhouse gas emissions. The analysis of the composition of government spending seems crucial to establish how the different spending categories can complement the efforts to conserve natural resources, promote the use of clean energy and enhance environmental quality. On the other hand, the examination of monetary policy reveals that central banks should investigate the impact of their interventions on environmental quality through the renewable and non-renewable energy markets. In the United Kingdom, conventional monetary policy proves to be effective in promoting the deployment of renewable energies and reducing emissions. In Switzerland, central bank’s efforts to stimulate the real economy through the decrease in interest rates should be accompanied by more strict environmental regulations in order to offset the rise in emissions. Moreover, the conducted analysis reveals that unconventional monetary policy can lead to enhancements of environmental quality. However, as expected, quantitative easing is not by itself capable of substantially reducing emissions and other types of environmental policies need to be implemented jointly. Although monetary policy cannot yet be considered as a policy instrument for climate change and energy, central banks should incorporate environmental issues in their welfare maximization problem.

This thesis is a technical inquiry into remedies for high inflation. In its center there is the usual tradeoff between inflation aversion on the one hand and some benefit from inflation via Phillips curve effects on the other hand. Most remarkable and pioneering work for us is the famous Barro-Gordon model - see (Barro & Gordon 1983a) respectively (Barro & Gordon 1983b). Parts of this model form the basis of our work here. Though being well known the discretionary equilibrium is suboptimal the question arises how to overcome this. We will introduce four different models, each of them giving a different perspective and way of thinking. Each model shows a (sometimes slightly) different way a central banker might deliver lower inflation than the one shot Barro-Gordon game at a first glance would suggest. To cut a long story short we provide a number of reasons for believing that the purely discretionary equilibrium may be rarely observed in real life. Further the thesis provides new insights for derivative pricing theories. In particular, the potential role of financial markets and instruments will be a major focus. We investigate how such instruments can be used for monetary policy. On the contrary these financial securities have strong influence on the behavior of the central bank. Taking this into account in chapters 3 and 4 we come up with a new method of pricing inflation linked derivatives. The latter to the best of our knowledge has never been done before - (Persson, Persson & Svenson 2006), as one of very view economic works taking into account financial markets, is purely focused on the social planer's problem. A purely game theoretic approach is done in chapter 2 to change the original Barro-Gordon. Here we deviate from a purely rational and purely one period wise thinking. Finally in chapter 5 we model an asymmetric information situation where the central banker faces a trade off between his current objective on the one hand and benefit arising from not perfectly informed agents on the other hand. In that sense the central bank is also concerned about its reputation.

The purpose of this paper is to examine the interest rate transmission mechanism for South Africa as an emerging economy in a pre-repo and repo system. It explains how the money market rate is transmitted to the retail interest rates both in the long-run and short-run and tests the symmetric and asymmetric interest rate pass-through using the Scholnick (1996) ECM and the Wang and Lee (2009) ECM-EGARCH (1, 1)-M methodology. This permitted the examination of the impact of interest rate volatility, along with the leverage effect. An incomplete pass-through is found in the short-run. From the entire sample period, a symmetric adjustment is found in the deposit rate, which had upward rigidity adjustment, while an asymmetric adjustment is found in the lending rate, with a downward rigidity adjustment. All the adjustments supported the collusive pricing arrangements. According to the conditional variance estimation of the ECM-EGARCH (1, 1), negative volatility impact and leverage effect are present and influential only in the deposit interest rate adjustment process in South Africa.

One of the most important aspects of monetary policy is an understanding of the transmission process: the mechanism through which the monetary policy actions of the Central Bank impact on aggregate demand and prices by influencing the investment and consumption decisions of households and firms. Thus, commercial banks are regarded as conveyers of monetary policy shocks and are expected to adjust retail interest rates in response to policy shocks one-to-one. In practice, commercial banks adjust their retail rates in response to changes in monetary policy with a lag of several months and this delay is often viewed as an impediment on the ability of the Central Bank to steer the economy. Several reasons, such as credit rationing and adverse selection, switching costs, risk sharing, consumer irrationality, structure of the financial system, menu costs and asymmetric information are some of the causes advanced for commercial banks retail rates being sticky. In spite of the important role of pass-through analysis in the monetary policy transmission process, it has received very little attention in Sub-Saharan Africa, especially in Cameroon and Nigeria, which have implemented a series of reforms. To this end, this study gives a comparative analysis of interest rate pass-through in Nigeria and Cameroon using retail rates (lending and deposit) and a discount rate (policy rate) from January 1990 to December 2010 for Nigeria and from January 1990 to June 2008 for Cameroon. The study examines the magnitude and speed of retail rate adjustments to changes in the Central Bank policy rate as well as examining the possibility of symmetric and asymmetric pass-through in both countries. In addition, the study also investigates whether there is pass-through of monetary policy from one country to the other. The empirical analysis employs four different types of co-integration techniques to test the presence of a long run co-integrating relationship between retail and the policy rates in order to ensure that the relationship detected is robust. Three sets of analyses are carried out in the study. Following Cottarelli and Kourelis (1994), the study employed a co-integration technique, firstly, to analyse pass-through for the entire sample, secondly, to analyse symmetric and asymmetric pass-through using a ten year rolling window analysis in an error correction framework. Finally, the policy rates were swapped around to investigate if there are transmissions of impulses from one country to the other. Overall, evidence from the entire sample and rolling window analysis suggests that monetary policy in Cameroon is less effective. This is perhaps one of the reasons why the Banque Des Etats De L’Afrique Centrale (BEAC) is unable to sterilise the excess liquidity of the banking sector in Cameroon. The long run pass-through of 0.72 and 0.71 for the entire sample, and the average long run pass-through for the rolling window of 0.78 and 0.76 for the lending and deposit rates, suggest that monetary policy is highly effective in Nigeria compared to Cameroon. The empirical evidence confirmed asymmetric adjustment in six rolling windows in the lending rate in Nigeria. Three rolling windows indicated that the direction of rigidity is downward, supporting Scholnick’s (1996) collusive pricing arrangement between banks, and the other three suggested that the lending rate is rigid in the upward direction, corroborating Scholnick’s (1996) customer reaction hypothesis. The deposit rate in Cameroon was also found to adjust asymmetrically and the direction of rigidity is downward, supporting Hannan and Berger’s (1991) customer reaction hypothesis. The investigation of impulse transmission between the two countries revealed that only the policy rate in Nigeria exerts some influence on the deposit rate in Cameroon. Policy recommendations are also discussed.

This thesis examines the measurement, applications and properties of consumer inflation expectations in the context of eight European Union countries: France, Germany, the UK, Spain, Italy, Belgium, the Netherlands and Sweden. The data proceed mainly from the European Commission's Consumer Survey and are qualitative in nature, therefore requiring quantification prior to use. This study first seeks to determine the optimal quantification methodology among a set of approaches spanning three traditions, associated with Carlson-Parkin (1975), Pesaran (1984) and Seitz (1988). The success of a quantification methodology is assessed on the basis of its ability to match quantitative expectations data and on its behaviour in an important economic application, namely the modelling of wages for our sample countries. The wage equation developed here draws on the theoretical background of the staggered contracts and the wage bargaining literature, and controls carefully for inflation expectations and institutional variables. The Carlson-Parkin variation proposed in Curto Millet (2004) was found to be the most satisfactory. This being established, the wage equations are used to test the hypothesis that the advent of EMU generated an increase in labour market flexibility, which would be reflected in structural breaks. The hypothesis is essentially rejected. Finally, the properties of inflation expectations and perceptions themselves are examined, especially in the context of EMU. Both the rational expectations and rational perceptions hypotheses are rejected. Popular expectations mechanisms, such as the "rule-of-thumb" model or Akerlof et al.'s (2000) "near-rationality hypothesis" are similarly unsupported. On the other hand, evidence is found for the transmission of expert forecasts to consumer expectations in the case of the UK, as in Carroll's (2003) model. The distribution of consumer expectations and perceptions is also considered, showing a tendency for gradual (as in Mankiw and Reis, 2002) but non-rational adjustment. Expectations formation is further shown to have important qualitative features.

Wang Chongying.
Thesis (M.Phil.)--Chinese University of Hong Kong, 2004.
Includes bibliographical references (leaves 66-69).
Abstracts in English and Chinese.
Chapter I. --- Endogenous Time Preference and Non-neutrality of Money --- p.1
Chapter 1 --- Introduction --- p.2
Chapter 2 --- The Model --- p.5
Chapter 3 --- Non-neutrality of Money --- p.9
Chapter 4 --- Equilibrium Dynamics --- p.13
Chapter 5 --- Conclusion --- p.16
Chapter II. --- Endogenous Time Preference and Interest Rate Feedback Rules --- p.18
Chapter 1 --- Introduction --- p.19
Chapter 2 --- Endowment Economy --- p.21
Chapter 2.1 --- The Model --- p.21
Chapter 2.2 --- Equilibrium Dynamics --- p.25
Chapter 3 --- Extended Model with Capital --- p.28
Chapter 3.1 --- The Model --- p.28
Chapter 3.2 --- Equilibrium Dynamics --- p.32
Chapter 4 --- Conclusion --- p.34
Chapter III. --- Interest Rate Rules and Indeterminacy in a Discrete-Time Monetary Model --- p.37
Chapter 1 --- Introduction --- p.38
Chapter 2 --- The Model --- p.39
Chapter 3 --- Equilibrium Dynamics --- p.42
Chapter 4 --- Conclusion --- p.45
Chapter IV. --- Backward-Looking Interest Rate Feedback Rules --- p.48
Chapter 1 --- Introduction --- p.49
Chapter 2 --- The Model --- p.51
Chapter 3 --- Equilibrium Dynamics --- p.57
Chapter 4 --- Conclusion --- p.61
Chapter V. --- Appendix --- p.63
Chapter VI. --- References --- p.66

This thesis focuses on the three central themes that have dominated the world economy in recent decades. First, in each of the localized financial crises that have taken place in the world economy, policymakers around the world have reduced policy interest rates to help stimulate the economy. The recent subprime mortgage crisis and the subsequent Great Recession resulted in the reduction of policy interest rates in many advanced economies to historically low levels. Second, governments around the world have implemented huge fiscal stimulus packages. Third, emerging market economies and countries such as Australia, with close trade linkages to China, have remained resilient. The severity of the crisis of 2007-2011 and the resilience displayed by some economies have resulted in renewed interest among policymakers in investigating the transmission mechanism channels of economic shocks, fiscal and monetary policies. There are three main objectives in this thesis. The first objective is to examine the impact of fiscal and monetary policies on the US economy. Chapter 2 uses the Factor Augmented Vector Autoregression (FAVAR) methodology to estimate the impact of fiscal and monetary policy shocks on the US economy. The second objective of the thesis is to investigate the asymmetry in the effects of conventional monetary policy on the economy dependent on financial stress conditions. A Threshold Vector Autoregression (TVAR) model is used to analyze the effects of monetary policy on the US economy during periods of low and high financial stress, specifying a financial stress index as the threshold variable. The third objective of the thesis is to study the transmission of economic shocks from the US and Chinese economies to the Australian economy. Chapter 4 in this thesis uses a FAVAR approach and a large dataset of 414 macroeconomic variables to analyze the international transmission mechanisms between the Australian economy and the US and Chinese economies. Overall, this thesis finds evidence suggesting that fiscal and monetary policies can be effective and potent in helping the US economy recover from a financial crisis. This thesis finds that government spending plays an important role compared to other policy levers. The effects of a government spending shock last for a longer period of time and explain more variability in the macroeconomic variables in the US economy, with some crowding-out effects in the medium term. Analyzing the impact of monetary policy on the US economy in during financial regimes provides further insights. The impact of monetary policy on the US economy is found to be greater during periods of high financial stress when the size of the shock is larger. There is also evidence of a cost channel effect during periods of high financial stress which suggests that there is a short run inflation-output trade off during financial crises. The FAVAR model developed to analyze the international transmission of economic shocks from the US and China to Australia suggests that the US economy continues to play an important role in the Australian economy, despite the increase in trade linkages between Australia and China.

This thesis addresses interactions between monetary and fiscal policies in a theoretical dynamic stochastic general equilibrium (DSGE) model of a small open economy and in an empirical model under a structural vector error correction model (SVECM). The thesis consists of three essays. The contribution is both theoretical and empirical that enables a better understanding of the complexity of interactions between monetary and fiscal policies in small open economies. The first essay examines the equilibrium determinacy under monetary and fiscal rules. The goal is to investigate how monetary and fiscal policy interactions ensure a unique and non-explosive (determinate) equilibrium for a small open economy. The study focuses when policy makers implement a set of policy mixes to address domestic output price inflation control for monetary policy, debt stabilization for fiscal policy, and joint output stabilization tasks. The result indicates that two policy schemes facilitate a determinate equilibrium. First, monetary policy actively controls inflation when fiscal policy sets a sufficient feedback on debt. Second, monetary policy becomes passive against inflation when fiscal policy is insolvent. Adding output stabilization to each rule simply causes variants of this fundamental. An interest rate rule with output stabilization can be more passive against inflation while providing a stronger response to the output gap. Fiscal policy is required to set higher feedback on debt along with its stronger counter-cyclical policy. The second essay links between the equilibrium determinacy and policy optimization. This essay provides insights into the design of policy mixes and compares determinacy outcomes between two theoretical models of a small open economy: with and without an explicit exchange rate role. This study shows that policy interactions in a small open economy with an endogenous exchange rate is quite sophisticated, especially when a monetary rule is added with an output stabilization task and/or targeted to Consumer Price Index (CPI) inflation. Additional concern for monetary policy in an open economy causes a partial offset to its reaction on domestic output price inflation that weakens its effect on the real debt burden. To minimize economic fluctuations, policy makers should mute the role of output stabilization for monetary policy, and set minimum feedback on debt that is compatible with the degree of counter-cyclical fiscal policy. Substantially active response to inflation is satisfactory for monetary policy with CPI inflation targeting. The third essay empirically presents monetary and fiscal policy interactions in Thailand's SVECM suggested by a theoretical DSGE model developed from the previous essays. This essay shows that the DSGE-SVECM model can be supported by Thai data. A shock to monetary policy is effective with a lag. Government spending policy is also effective with a lag and some crowding-out effects on output. An adverse shock in tax policy unexpectedly stimulates the economy, indicating room for enhancing economic growth by relaxing revenue constraint. Monetary policy is mainly implemented to correct a consequence of a fiscal shock on inflation (and also the domestic and foreign shocks), while fiscal policy appears to counter a consequence of the monetary policy shock on output.

Ye, Guofeng.
"September 2010."
Thesis (M.Phil.)--Chinese University of Hong Kong, 2010.
Includes bibliographical references (leaves 33-34).
Abstracts in English and Chinese.
ABSTRACT --- p.1
摘要 --- p.2
Chapter 1 --- INTRODUCTION --- p.5
Chapter 2 --- LITERATURE REVIEW ON MONETARY TRANSMISSION MECHANISM …… --- p.8
Chapter 3 --- THE EFFECT OF SHORT-TERM INTEREST RATE ON THE ECONOMY …… --- p.13
Chapter 4 --- METHODOLOGY --- p.16
Chapter 4.1 --- The Structural Vector Autoregressive Model --- p.16
Chapter 4.2 --- The Error Correction Model --- p.18
Chapter 4.3 --- The Alternative Model --- p.19
Chapter 5 --- DATA --- p.20
Chapter 5.1 --- Data Description --- p.20
Chapter 5.2 --- Data Source --- p.20
Chapter 6 --- EMPIRICAL RESULTS --- p.21
Chapter 6.1 --- The Structural Vector Autoregressive Model --- p.21
Chapter 6.2 --- The Error Correction Model --- p.28
Chapter 6.3 --- The Alternative Model --- p.30
REFERENCES --- p.33
APPENDIX --- p.35
Table 1 --- p.35
Table 2 (SVAR: 1-3 years) --- p.36
Table 3 (SVAR: 3-5 years) --- p.37
Table 4 (SVAR: 5-7 years) --- p.38
Table 5 --- p.39
Table 6 (Error Correction Model: 1-3 years) --- p.40
Table 7 (Error Correction Model: 3-5 years) --- p.41
Table 8 (Error Correction Model: 5-7 years) --- p.42
Table 9 --- p.43
Table 10 (Money Supply: M0) --- p.44
Table 11 (Money Supply: M 1) --- p.46
Table 12 (Money Supply: M2) --- p.48

Chan Yeung.
Thesis (M.Phil.)--Chinese University of Hong Kong, 2003.
Includes bibliographical references (leaves 56-57).
Abstracts in English and Chinese.
Chapter 1 --- Introduction --- p.1
Chapter 2 --- "Literature reviews, contributions of this thesis and the comparison"
Chapter 2.1 --- Literature reviews
Chapter 2.11 --- Endogenous labor supply models --- p.3
Chapter 2.12 --- The CIA models --- p.12
Chapter 2.2 --- Contributions of this thesis and the comparison --- p.17
Chapter 3 --- The Model --- p.20
Chapter 4 --- "Trade restrictions, welfare and employment"
Chapter 4.1 --- Tariff and welfare --- p.26
Chapter 4.2 --- Tariff and employment --- p.30
Chapter 4.3 --- Comparing welfare and employment effects --- p.31
Chapter 4.4 --- "Quotas, welfare, employment and price level" --- p.32
Chapter 5 --- Optimal tariffs --- p.33
Chapter 6 --- Indirect taxation and welfare --- p.40
Chapter 7 --- Conclusion --- p.43
Appendix
Appendix A: Determine the sign of Δ --- p.45
Appendix B: Derivation of equation (4.2) --- p.45
Appendix C: Derivation of equation (4.3) --- p.47
"Appendix D: Quotas, welfare,employment and price level" --- p.48
Appendix E: The derivation of optimal tariff --- p.50
Appendix F: Optimal consumption tax and wage subsidy --- p.53

Tam Chak Yue, Ben.
Thesis (M.Phil.)--Chinese University of Hong Kong, 1997.
Includes bibliographical references (leaves 49-51).
Chapter 1. --- Introduction --- p.3
Chapter 2. --- Money and Growth in the neoclassical production function --- p.7
Chapter 2.1 --- The Real Competitive Equilibrium --- p.8
Chapter 2.2 --- The Monetary Competitive Equilibrium with the Cash-in-Advance approach --- p.11
Chapter 2.3 --- Alternative Approach: Money-in-Utility-Function --- p.16
Chapter 2.4 --- Alternative Approach: Transaction Cost --- p.20
Chapter 3. --- Three Approaches with Endogenous Leisure --- p.25
Chapter 3.1 --- The Real Competitive Equilibrium --- p.26
Chapter 3.2 --- The Alternative Approaches to Interest Rate Smoothing --- p.28
Chapter 3.2.1 --- The Cash-in-Advance Approach --- p.28
Chapter 3.2.2 --- The Money-in-Utility-Function Approach --- p.29
Chapter 3.2.3 --- The Transaction Cost Approach --- p.30
Chapter 4. --- Money and Growth in an Economy with Endogenous Growth --- p.35
Chapter 4.1 --- The Real Competitive Equilibrium of Ak Model --- p.36
Chapter 4.2 --- The Alternative Approaches --- p.37
Chapter 4.2.1 --- The Cash-in-Advance Approach --- p.37
Chapter 4.2.2 --- The Money-in-Utility-Function Approach --- p.39
Chapter 4.2.3 --- The Transaction Cost Approach --- p.40
Chapter 5. --- Concluding Remark --- p.44
Appendix --- p.46
Chapter A1. --- The First Order Condition of The MIUF Approach with Endogenous Leisure --- p.46
Chapter A2. --- The First Order Condition of The TC Approach with Endogenous Leisure --- p.46
Chapter A3. --- The Transitional Dynamics of Ak Model with The money-in-utility-function Approach --- p.47
Literature Cited --- p.50

M.Com. (Econometrics)
The main objective of this study was to formulate and evaluate a set of equations that adequately represents the South African monetary system. The analytical framework of the study is based on a theoretical examination of the process of formulating monetary policy. The main objectives of monetary policy was identified as price stability, a high rate of economic growth, exchange rate stability and an acceptable balance of payments situation. The achievement of these goals is dependent on the central bank's choice of target variables and policy instruments. The monetary system of South Africa was analysed by examining the various goals, target variables and policy instruments that constitute the South African Reserve Bank's monetary policy. The nature and impact of the new banking legislation which was introduced in South Africa on 1 February 1991 when the Deposit-taking Institutions Act of 1990 came into effect, was also discussed in the study. As a result of the high level of abstraction of the monetary phenomenon and the dynamic and interdependent nature of monetary policy, econometric and statistical techniques and criteria were used to evaluate certain aspects of the South African monetary system.

Sun, Wu.
Thesis (M.Phil.)--Chinese University of Hong Kong, 2008.
Includes bibliographical references (leaves 43-45).
Abstracts in English and Chinese.
Abstract --- p.I
摘要 --- p.II
Acknowledgments --- p.III
Chapter Essay 1. --- The Effect of Impatience on Determinacy --- p.1
Chapter 1.1 --- Introduction --- p.1
Chapter 1.2 --- The model --- p.2
Chapter 1.3 --- Conclusion --- p.8
Chapter Essay 2. --- Determinacy under Non-separable Utility --- p.9
Chapter 2.1 --- Introduction --- p.9
Chapter 2.2 --- The basic model --- p.10
Chapter 2.3 --- Conclusion --- p.21
Chapter Essay 3. --- Determinacy under Calvo-Style Sticky Price Model --- p.23
Chapter 3.1 --- Introduction --- p.23
Chapter 3.2 --- The model --- p.24
Chapter 3.2.1 --- With staggered price only --- p.24
Chapter 3.2.2 --- Incorporating firm-specific capital --- p.30
Chapter 3.2.3 --- Incorporating staggered wages --- p.35
Chapter 3.3 --- Conclusion --- p.41
Reference --- p.43
Appendix --- p.46
Table 1: Baseline Calibration --- p.46
Table 2: Baseline Calibration --- p.46

My dissertation focuses upon low inflation. Many developed countries, especially Japan and the Eurozone, have recently experienced prolonged periods of below-target inflation. This has been blamed for many economic ills including worsening the Great Recession and generating a slow recovery, making monetary policy ineffective and leading to lower labor market flexibility. I study what has caused low inflation, its potential effects and how it could be prevented. In Chapter 1, I look at how effective raising the inflation target would be in mitigating the problems of low inflation. Many economists have proposed raising the inflation target to reduce the probability of hitting the zero lower bound (ZLB). It is both widely assumed and a feature of standard models that raising the inflation target does not impact the equilibrium real rate. I demonstrate that once heterogeneity is introduced, raising the inflation target causes the equilibrium real rate to fall in the New Keynesian model. This implies that raising the inflation target will increase the nominal interest rate by less than expected and thus will be less effective in reducing the probability of hitting the ZLB. The channel is that a rise in the inflation target lowers the average markup by price rigidities and a fall in the average markup lowers the equilibrium real rate by household heterogeneity which could come from overlapping generations or idiosyncratic labor shocks. Raising the inflation target from 2% to 4% lowers the equilibrium real rate by 0.38 percentage points in my baseline calibration. I also analyse the optimal inflation level and provide empirical evidence in support of the model mechanism. In Chapter 2, I study to what degree the recent fall in inflation can explain the rise in firm profitability which has been blamed for a rise in inequality. A theoretical relationship between inflation and profitability is known to exist. I investigate the degree to which the recent fall in inflation can explain the rise in firm profitability. My three primary findings are: 1. The negative relationship between inflation and profitability does not hinge upon the Calvo assumption. Raising inflation significantly lowers profitability under all common price rigidities. The relationship can actually be significantly stronger under menu costs. 2. A rise in the degree to which firms discount the future magnifies the effect; a rise in elasticity of substitution can increase or decrease the effect depending upon the price rigidity. 3. The profit share has risen by around 3.5p.p. since the 1990s. In a richer model with firm heterogeneity, the recent fall in inflation is estimated to explain 14% of the rise. This can increase to 29% if firms are allowed to discount the future by more in line with estimates from the finance literature. I also provide empirical evidence for the negative relationship between inflation and firm profits. In Chapter 3, I examine whether behavioral features can help to explain why some countries have persistently experienced low inflation at the zero lower bound. Economists are keen to introduce behavioral assumptions into modern macroeconomic models. A popular framework for doing so is sparse dynamic programming, which assumes that agents partly base their expectations upon a default model which is typically the steady state. This means agents' expectations will be wrong if there are long-run deviations from the default model and assumes agents can compute the default. I introduce an alternative form of sparse dynamic programming which tackles these problems by allowing for long-run updating to the behavioral part of agents' expectations. I apply this to derive a long-run behavioral New Keynesian model. Within this model, fixed interest rates yield indeterminacy and the costs of remaining at the zero lower bound are unbounded. These results are very different to a behavioral New Keynesian model based upon standard sparse dynamic programming, which can yield determinacy under fixed interest rates and bounded costs of the zero lower bound.

Pang Po Hing.
Thesis (M.Phil.)--Chinese University of Hong Kong, 1996.
Includes bibliographical references (leaves 67-71).
ABSTRACT --- p.i
ACKNOWLEDGMENT --- p.ii
LIST OF TABLES --- p.v
LIST OF FIGURES --- p.vi
Chapter CHAPTER 1: --- INTRODUCTION --- p.1
Chapter CHAPTER 2: --- LITERATURE REVIEW --- p.4
Chapter 2.1 --- Theoretical Review --- p.4
Chapter 2.1.1 --- Properties of a Target Variable --- p.4
Chapter 2.1.2 --- Money View --- p.4
Chapter 2.1.3 --- Credit View --- p.5
Chapter 2.2 --- Empirical Review --- p.8
Chapter 2.2.1 --- Money View --- p.8
Chapter 2.2.2 --- Credit View --- p.10
Chapter CHAPTER 3: --- METHODOLOGY --- p.14
Chapter 3.1 --- Vector Autoregression (VAR) --- p.14
Chapter 3.1.1 --- Estimation of the Reduced Form VAR Model --- p.14
Chapter 3.1.2 --- The Parameters Restrictions --- p.17
Chapter 3.1.3 --- The Wald Statistics --- p.23
Chapter 3.1.4 --- Impulse Response Functions --- p.24
Chapter 3.1.5 --- Variance Decompositions --- p.25
Chapter 3.1.6 --- Structural Decomposition --- p.26
Chapter 3.2 --- Data Diagnoses --- p.27
Chapter 3.2.1 --- Stationarity of the Time Series --- p.27
Chapter 3.2.1.1 --- Definition of Stationarity --- p.27
Chapter 3.2.1.2 --- The Unit Root Tests --- p.27
Chapter 3.2.1.2a --- The Augmented Dickey and Fuller Tests --- p.27
Chapter 3.2.1.2b --- The Phillips and Perron Tests --- p.29
Chapter 3.2.1.2c --- Lag Lengths for the Unit Root Tests --- p.30
Chapter 3.2.2 --- Selecting the Order of the VAR Model --- p.31
Chapter 3.2.1 --- Tests for the Model Stability --- p.31
Chapter 3.3 --- Estimation Procedures --- p.34
Chapter CHAPTER 4: --- EMPIRICAL RESULTS --- p.36
Chapter 4.1 --- Results of the Data Diagnoses --- p.36
Chapter 4.1.1 --- Results of the Unit Root Tests --- p.36
Chapter 4.1.2 --- Lag Length of the VAR Model --- p.38
Chapter 4.1.3 --- Results of the Likelihood Ratio Tests --- p.38
Chapter 4.2 --- Estimation of the Reduced Form VAR Model --- p.39
Chapter 4.2.1 --- Results of the Parameters Estimates --- p.39
Chapter 4.2.2 --- The Wald Statistics --- p.43
Chapter 4.2.3 --- Variance Decompositions --- p.47
Chapter 4.2.4 --- Impulse Response Functions --- p.54
Chapter CHAPTER 5: --- IMPLICATIONS AND CONCLUSIONS --- p.62
REFERENCES --- p.67
APPENDICES --- p.72

Ph.D. (Economics)
The purpose of this study is to analyse the impact of monetary impulses on the South African economy. In analogy with the exact sciences, which use a laboratory to test hypotheses, this work will rely on a economic laboratory in the form of an econometric model. With the aid of this model, we will attempt to explore the dynamics of the various monetary impulses. In other words, this study will attempt to trace the flow over time of these monetary impulses through various channels toward the real economy. We will try to identify the main channels through which the monetary impulses flow and which convey their impact on the real economy. The system transmitting these impulses to the economy will be called the monetary transmission mechanism. This has always been viewed as a mysterious phenomenon as it is not yet clear how the money stock affects the economy, whether it affects the economic system directly or does so indirectly, via other channels. Nor is it clear whether money should be seen as a unique asset which affects the economic system, or whether it should be treated like any other asset. The importance attached to the money stock by the monetarists, for example, is defended by them on the grounds that the supply of money, which is controlled by the central authorities, affects the economy, because the authorities abuse their monopoly over the money supply. In our research we will evaluate this hypothesis concerning the exogeneity of the money stock. We will show that money should be classified like any other asset, as it is endogenous in nature. This endogeneity of the money stock is determined through the interaction of the money multiplier and the liquidity base, both of which contain endogenous elements.

A thesis submitted to the Faculty of Commerce, Law and Management, University of the Witwatersrand, Johannesburg, in fullment of the requirements for the Doctor of Philosophy in Economics Degree, June 2017
This thesis contains three main chapters. The rst chapter employs wageprice spirals to generate ination forecasts for Australia, Canada, France, South Korea, South Africa, United Kingdom and the United States. We use three competing specications of the wage-price spirals, and test which specication provides the best forecasts of price ination. For each specication we provide one quarter, four quarter and eight quarter ahead dynamic forecasts of price ination. The rst two wage-price spirals in the rst chapter are from the Keynesian tradition from te standpoint of expectations formation. The chapter also considers the New Keynesian wage-price spiral. We use the Root Means Square Error and the Clark and West statistic to compare the performance of ination forecasts from the three competing wage-price spirals that we consider in the rst chapter of the thesis. We nd that the New Keynesian wage and price specication su⁄ers from the wrong sign problem, and its forecasts of price ination generally outperform those from the old Keynesian wage price spiral for the eight quarter ahead time horizon. The usefulness of this nding to the conduct of monetary policy is limited due to the wrong sign problem of the forcing variable in the New Keynesian wageprice spiral. We also nd that the Flaschel type specication of price and wage ination produce four and eight quarter head ination forecasts that are better than those from the Fair type specication. We further nd that the Fair type specication price and wage equation produce the best forecasts of ination for the one quarter ahead time horizon. In the second chapter, we estimate natural variables and test their ability to explain the ination process for the eight countries that we consider. We use the traditional Keynesian wage-price spiral and the triangle system approaches to estimate the NAIRU and potential output. In the case of the traditional Keynesian wage-price spiral, the price Phillips curve, which can be specied as a triangle Phillips curve, features backward looking ination expectations and nominal wage ination, the output gap and supply shocks. The nominal wage Phillips curve features ination expectations and price ination and the unemployment gap. The presence of price ination in the nominal wage Phillips curve and the presence of nominal wage ination in the price Phillips curve leads to the interaction between the two Phillips curves. The separate demand pressure terms allows for their identication since, as someauthorsintheliteraturearguethatthegoodsandlabourmarketsdonot move in line with each other. To compute the NAIRU and potential output using the Keynesian approach, we rstly exploit the information contained in vector of unobservable by estimating the wage-price spiral in di⁄erence form using the Seemingly Unrelated Regression method. We use this regression method in order to control for any correlation that may exist between errors in the price and wage Phillips curves. This allows us to solve for the vector of potential output and the NAIRU. We then the moving average technique in order to avoid problems associated with the HP lter for smoothing. Due to data availability, use the MA (20) approximation of the low pass lter after padding the endpoints with forecasts from an AR(4) process. We follow a similar procedure in the estimation of the estimation of the NAIRU and potential output for the triangle system approach. To test which method produces the best natural variables, we t the gaps that are computed from the NAIRU and potential output in a simple single equation price Phillips curve. To test which specication produces the best natural varibles we use a simple single equation triangle price Phillips curve. We nd that the output gaps computed from the two competing approaches are signicantly correlated, the same applies to the unemployment gaps computed from the two approaches. We nd that the quality of unemployment rate gaps computed from the Keynesian and triangle system approach to produce similar quality of results when tted to a single equation triangle price Phillips curve. The Keynesian approach slightly outperforms the triangle systems approach in the when considering the output gap as a proxy for the demand pressure. These results indicate that the wage-price spiral still remains an important tool in the determination of the dynamics ination. In the third chapter, we analyze the relationship between monetary policy and natural variables for Australia, Canada, France, South Korea, South Africa, United Kingdom and the United States. We do this by specifying a relationship between natural rates and the real interest rate. The theoretical relationship between the two variables is positive in the case of the NAIRU and negative through Okuns law in the case of potential output. We regress the natural variable against a constant and the MA(8) of the real interest rate. We nd that the parameter of the real interest rate generally has a correct sign when considering the Keynesian approach computed NAIRUs, with only four being signicant. In the case of the triangle system approach NAIRU, we nd that the real interest rate parameter has a correct sign and signicant four countries. We nd that NAIRUs computed using di⁄erent methodologies can produce a di⁄erent reference point for policy makers. We then introduce hysteresis in the relationship between monetary policy and the NAIRU. We then nd that the interest rate parameter generally has a incorrect sign across the three approaches. The HP ltering approach which we include in our study for comparison purposes produces incorrect correlation for all the countries, while the Keynesian approach negative correlation for seven countries, and the triangle system approach in six countries. In the case of the relationship between monetary policy and potential output, we nd that the real interest rate parameter has an incorrect sign. When introducing hysteresis in the relationship between monetary policy and potential we nd that, unlike in the case of the NAIRU this plays signicant role in the relationship.
XL2018

The contribution of this thesis is to build a small macro-econometric model of the Namibian economy, which demonstrates that there is significant statistical support for the hypothesis that there is a contemporaneous relationship between real wage, productivity, unemployment and interest rates in Namibia. This phenomenon has not yet been exploited using macro-econometric modelling, and thus, represents a significant contribution to modelling literature in Namibia. The determination of the sources of unemployment also receives special attention given that high unemployment is a chronic problem in Namibia. All models specified and estimated in the study use the SVAR methodology for the period 1980 to 2013. The study develops a small macro-econometric model using three modular experiments, which include, a basic model, models that separately append demand and exchange rate channels variables to the basic model, and the specification of a small macro-econometric model. The ultimate aim is to find out if monetary policy plays a role in influencing labour market and nominal variables. The hypothesis that the basic real wage, productivity, unemployment rate and interest rate system can be estimated simultaneously is validated. Further, demand and exchange rate channels variables are found to have important additional information, which explains the monetary transmission process, and that shocks to labour market variables affect monetary policy in Namibia. The results also show that the demand channel (import prices and bank credit to the private sector) and the exchange rate channel (nominal exchange rate) variables have important additional information, which affects monetary transmission process in Namibia, which justifies their inclusion in the small macro-econometric model. In addition, shocks to the import price and exchange rate in the macro-econometric model significantly affect labour market variables. However, shocks to bank credit only partially perform as expected, implying that its results need to be considered cautiously. The study further finds that tight monetary policy shocks significantly affect real and nominal variables in Namibia. The results also show that shocks to all variables in the unemployment model significantly affect unemployment, suggesting that the hysteresis assumption is corroborated. This implies that long run aggregate demand is non-neutral in Namibia.
Economics
D. Litt. et Phil. (Economics)

The G20 leaders’ forum was created at a time when the global financial system was on a precipice. Credit markets were freezing. Stock markets were collapsing. Rolling failures across financial institutions were shattering economic confidence. In their first communique, leaders concluded that a root cause of the crisis was insufficient macroeconomic cooperation. It was only through improved cooperation, they warned, that a global depression could be averted. The thesis explores the impact of macroeconomic policy cooperation within the G20 since 2008 and what it means for the challenges facing the world today. It poses four central questions. Does the G20 influence the domestic macroeconomic policies of its members? What are the economic benefits of macroeconomic cooperation and under what circumstances do they arise? Does the G20 produce political benefits that encourage cooperation? Has the G20 been successful in its attempts at macroeconomic cooperation in the past? The thesis attempts to answer these questions using data analysis, a new G20-version of a general equilibrium model and the results from in-depth interviews with 63 leaders, central banks governors, finance ministers and officials from across all G20 countries, including Kevin Rudd, Janet Yellen, Haruhiko Kuroda, Ben Bernanke, Jack Lew, Mark Carney, Phil Lowe and 56 others. The thesis looks at the six areas that make up the G20’s history on macroeconomic cooperation since 2008 – a chronology of the G20’s first 10 years as a forum for leaders -and their relevance to the challenges facing the world in 2018: the economic and political benefits of coordinating fiscal stimulus (Chapter 3), fixing the inadequacies in the world’s crisis-fighting mechanisms (Chapter 4), helping countries to reduce debt and deficits (Chapter 5), strengthening monetary policy cooperation (Chapter 6), reducing global current account imbalances (Chapter 7) and promoting coordinated structural reform (Chapter 8). Chapter 9 summarises the findings of the thesis. Fundamentally, the thesis demonstrates the benefits and influence of global macroeconomic policy cooperation and the cost of abandoning it. The thesis shows that the G20 does influence domestic macroeconomic policies, that the benefits from cooperation can be substantial, that the G20 can help politicians undertake difficult reforms and that the G20 has a strong record of success and remains a critical part of global economic governance. Using the interview results, the thesis builds a new framework on the influence of global forums on domestic policies. It explores how this influence varies depending on the form of cooperation (such as information sharing), the transmission mechanism of influence (such as generating peer pressure) and the variables that determine the strength of that influence (such as a crisis). Using the general equilibrium modelling results, it explores when there is a case for cooperation and the benefits that can flow from it. The gains to GDP, for example, can be 120 per cent larger if fiscal stimulus is coordinated than if it is not. It shows that coordination can help reduce global current account imbalances, can help countries to reduce debt and deficits, can help prevent currency wars and protectionism and, by coordinating macroeconomic resources through international crisis-response institutions, can prevent crises occurring and respond faster when they do. Finally, the thesis uses the results from each chapter to review the overall success of the G20 on macroeconomic cooperation, including where it has succeeded, where it has fallen short and what factors influence its success. It shows that the G20 has had a good track record in achieving its goals and that criticisms of the G20 often overlook its shift from crisis response to focusing on more difficult structural and institutional issues. The thesis concludes by presenting a forward-looking agenda for the G20 to improve macroeconomic cooperation in the future, particularly in countering the current backlash against globalisation and multilateral cooperation while addressing some of its root causes.

Instituto Superior de Economia e Gestão
Portugal, em 1999, participou no grupo fundador da União Económica e Monetária Europeia (zona euro), perdendo o instrumento taxa de câmbio. Ao longo de todo o processo de convergência foi visível uma clara tendência de apreciação da taxa de câmbio real. Esta é definida como o preço relativo dos bens transaccionáveis face aos não-transaccionáveis. Procurou-se analisar em que medida essa tendência foi um fenómeno de equilíbrio, ou se, pelo contrário, reflectiu uma situação de perda de competitividade externa. Por outro lado, pretendeu-se identificar quais os principais factores a explicarem essa tendência de apreciação. Os resultados empíricos permitiram concluir que; i) a apreciação foi um fenómeno de equilíbrio, desta forma não gerando uma perda excessiva de competitividade, mas antes reflectindo o processo de convergência real da economia portuguesa. Em 1999, quando da adopção do euro, a taxa de câmbio real do escudo não se encontrava muito afastada do seu nível de equilíbrio; ii) as principais determinantes desta tendência de longo prazo foram os fundos comunitários e a despesa pública, além dos termos de troca, do progresso técnico e das remessas de emigrantes. A análise permitiu ainda identificar factores de risco para o futuro. Por um lado, a esperada redução dos fundos comunitários implicará um abrandamento do processo de apreciação da taxa de câmbio real de equilíbrio, o que coloca pressões ao nível da apreciação da taxa de câmbio real, que terá de ser igualmente mais limitada. Por outro lado, a despesa pública, na análise da dinâmica de curto prazo, contribui para a apreciação da taxa de câmbio real, por via do mercado de não transaccionáveis, e a recente aceleração da despesa pública, apesar da redução do défice público aumenta os factores de desestabilização macroeconómica. Sai, assim, reforçada a necessidade de aprofundar as reformas estruturais da economia portuguesa, flexibilizando os mercados de bens e de trabalho, além da consolidação das contas públicas, sobretudo através do controlo da despesa pública, visando o rápido cumprimento do Pacto de Estabilidade e Crescimento.
Portugal, in January 1999, was one of the founding members of the Europcan Economic and Monetary Union (the euro area), loosing the exchange rate as an economic policy instrument. During the whole convergence process, the escudo revealed a clear appreciation trend of the exchange rate in real terms. We have defined the real exchange rate as the relative price of tradables relative to non-tradables. Our aim was to evaluate in what extent was such appreciation an equilibrium movement or, on the contrary, was it a situation of loss of externai competitiveness. On the other hand, we also wanted to identify which factors contributed to such appreciation movement. The empirical result we found led to the following conclusions: i) the real appreciation was an equilibrium movement, not reflecting losses in competitiveness, but rather the real convergence of the Portuguese economy. In 1999, when the euro was finally launched, the real exchange rate of the escudo was not too deviated from its equilibrium levei; ii) behind this appreciation trend were public transfers from the European Union and public expenditure, as well as terms of trade, technical progress and emigranfs remittances. The analysis also pointed to some potential risks. On the one hand, the expected reduction in transfers from the European Union will be reflected into slower appreciation of the real equilibrium exchange rate, calling therefore for a more limited real appreciation. On the other hand, public expenditure has an important role in the short-term dynamics of the real exchange rate, leading to an appreciation through the market of non-tradable goods, and the recent increase in public expenditure, despite a smaller public deficit, increases the factors of macroeconomic destabilization. Therefore, there is an increased need to implement the required structural reforms of the Portuguese economy, making goods and labour markets more flexible, in line with the consolidation of the fiscal accounts, in particular in terms of more controlled public expenditure, aiming at the compliance with the targets set in the Growth and Stability Pact.
N/A