U.S. Monetary-Fiscal Regime Changes in the Presence of Endogenous Feedback in Policy Rules
We investigate U.S. monetary and fiscal policy regime interactions in a model, where regimes are determined by latent autoregressive policy factors with endogenous feedback. Policy regimes interact strongly: Shocks that switch one policy from active to passive tend to induce the other policy to switch from passive to active, consistently with existence of a unique equilibrium, though both policies are active and government debt grows rapidly in some periods. We observe relatively strong interactions between monetary and fiscal policy regimes after the recent financial crisis. Finally, latent policy regime factors exhibit patterns of correlation with macroeconomic time series, suggesting that policy regime change is endogenous.
Time-varying Volatility, Financial Intermediation and Monetary Policy
We document that expansionary monetary policy shocks are less effective at stimulating output and investment in periods of high volatility compared to periods of low volatility, using a regime-switching vector autoregression. Exogenous policy changes are identified by adapting an external instruments approach to the non-linear model. The lower effectiveness of monetary policy can be linked to weaker responses of credit costs, suggesting a financial accelerator mechanism that is weaker in high volatility periods.
Switching to Exchange Rate Flexibility? The Case of Central and Eastern European Inflation Targeters
FIW Working Paper, Nr. 139,
This paper analyzes changes in the monetary policy in the Czech Republic, Hungary, and Poland following the policy shift from exchange rate targeting to inflation targeting around the turn of the millennium. Applying a Markovswitching dynamic stochastic general equilibrium model, switches in the policy parameters and the volatilities of shocks hitting the economies are estimated and quantified. Results indicate the presence of regimes of weak and strong responses of the central banks to exchange rate movements as well as periods of high and low volatility. Whereas all three economies switched to a less volatile regime over time, findings on changes in the policy parameters reveal a lower reaction to exchange rate movements in the Czech Republic and Poland, but an increased attention to it in Hungary. Simulations for the Czech Republic and Poland also suggest their respective central banks, rather than a sound macroeconomic environment, being accountable for reducing volatility in variables like inflation and output. In Hungary, their favorable developments can be attributed to a larger extent to the reduction in the size of external disturbances.
Financial Crisis Risk, ECB “Non-standard“ Measures, and the External Value of the Euro
The Quarterly Review of Economics and Finance,
I study the impact of banking and sovereign debt crisis risk of EMU member states on the external value of the euro. Using a regime switching model, I find that the external value of the euro has significantly responded to financial crisis risk during the period of November 2008–November 2011, while no significant effect is found for the period from February 2006 to October 2008. This suggests that the monetary expansion and interest rate cuts associated with the ECB's “non-standard” measures may have reduced the external value of the euro.
Seniorität, spezifisches Kapital und Beschäftigungsmobilität - Warum Ältere seltener wechseln
T. Salzmann, V. Skirbekk, M. Weiberg (Hrsg.), Wirtschaftspolitische Herausforderungen des demografischen Wandels,
Der Beitrag untersucht den Zusammenhang von Alterung und Arbeitsmarktmobilität und beantwortet die Frage, ob Mobilität erstens einkommensorientiert erfolgt, ob ältere Beschäftigte zweitens qua Wechsel Lohnzuwächse realisieren können und ob drittens fehlende Lohnanreize den beobachtbaren Mobilitätsrückstand Älterer vollständig erklären können. Die Analyse beschränkt sich auf die betriebliche und berufliche Mobilität von Beschäftigten. Um die Fragen in einem einheitlichen Rahmen beantworten zu können, wird ein Mehrgleichungsmodell geschätzt, das in der empirischen Literatur als switching regression model with endogenous switching bekannt ist. Als Datenbasis fungiert der Regionaldatensatz der IAB-Beschäftigtenstichprobe. Im Ergebnis zeigt sich erstens, dass erwartete Lohnzuwächse die betriebliche und berufliche Mobilität über alle Altersklassen hinweg positiv beeinflussen. Zweitens wird deutlich, dass ältere Beschäftigte sehr viel seltener wechselbedingte Lohnzuwächse realisieren können als jüngere, was einen zentralen Grund für die geringere Wechselneigung Älterer darstellt. Drittens belegt die Analyse jedoch ebenfalls, dass die fehlenden Lohnanreize den Mobilitätsrückstand Älterer nicht vollständig erklären können.
Do All Countries Grow Alike?
Journal of Development Economics,
This paper investigates the driving forces of output change in 77 countries during the period 1970–2000. A flexible modeling strategy is adopted that accounts for (i) the inefficient use of resources, and (ii) different production technologies across countries. The proposed model can identify technical, efficiency, and input change for each of three endogenously determined regimes. Membership in these regimes is estimated, rather than determined ex ante. This framework enables explorations into the determinants of output growth and convergence issues in each regime.
Forecasting Currency Crises: Which Methods signaled the South African Crisis of June 2006?
South African Journal of Economics,
In this paper we test the ability of three of the most popular methods to forecast South African currency crises with a special emphasis on their out-of-sample performance. We choose the latest crisis of June 2006 to conduct an out-of-sample experiment. The results show that the signals approach was not able to forecast the out-of-sample crisis correctly; the probit approach was able
to predict the crisis but only with models, that were based on raw data. The Markov-regime- switching approach predicts the out-of-sample crisis well. However, the results are not straightforward. In-sample, the probit models performed remarkably well and were also able to detect, at least to some extent, out-of-sample currency crises before their occurrence. The recommendation is to not restrict the forecasting to only one approach.
Three methods of forecasting currency crises: Which made the run in signaling the South African currency crisis of June 2006?
IWH Discussion Papers,
In this paper we test the ability of three of the most popular methods to forecast the South African currency crisis of June 2006. In particular we are interested in the out-ofsample performance of these methods. Thus, we choose the latest crisis to conduct an out-of-sample experiment. In sum, the signals approach was not able to forecast the outof- sample crisis of correctly; the probit approach was able to predict the crisis but just with models, that were based on raw data. Employing a Markov-regime-switching approach also allows to predict the out-of-sample crisis. The answer to the question of which method made the run in forecasting the June 2006 currency crisis is: the Markovswitching approach, since it called most of the pre-crisis periods correctly. However, the “victory” is not straightforward. In-sample, the probit models perform remarkably well and it is also able to detect, at least to some extent, out-of-sample currency crises before their occurrence. It can, therefore, not be recommended to focus on one approach only when evaluating the risk for currency crises.