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Essays on Systematic and Unsystematic Monetary and Fiscal PoliciesCimadomo, Jacopo 24 September 2008 (has links)
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.
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Politique budgétaire procyclique, stabilisation conjoncturelle et croissance économique dans la zone Union Economique et Monétaire Ouest Africaine / Procyclical fiscal policy, economic stabilization and economic growth in the Economic and Monetary Union of West Africa areaDiop, Mamadou 20 December 2013 (has links)
Malgré les importants programmes économiques et financiers entrepris à la fin des années 80 et l’adoption du Pacte de convergence en 1999, les taux de croissance des Etats de l’UEMOA restent en deçà du niveau minimal de 7% requis pour la réalisation des Objectifs du Millénaire pour le Développement (OMD). Cette faiblesse du rythme de croissance conduit aujourd’hui à s’interroger sur l’efficacité des politiques économiques et en particulier, sur le rôle que devraient jouer les autorités publiques à travers la politique budgétaire. Nous analysons, à partir des données empiriques, le caractère procyclique de la politique budgétaire dans la zone UEMOA, en testant les éventuels retournements liés à l’adoption du Pacte de convergence. Ensuite, dans un deuxième temps, nous estimons à travers un modèle VAR structurel, l’impact dynamique des chocs budgétaires sur les fluctuations de l’activité économique des pays de l’UEMOA et leurs canaux de transmission. En dernier lieu, nous exposons d’abord les limites de l’approche utilisée par le FMI pour le calcul des contributions de la politique budgétaire à la croissance économique ; puis, nous proposons un modèle d’évaluation des effets de long terme de cette politique sur la croissance, tout en montrant les risques liés aux coupes budgétaires sur les investissements publics. Les résultats de cette thèse suggèrent l’adoption de règles budgétaires qui tiennent compte de la situation conjoncturelle de chaque pays, la rapidité dans l’action gouvernementale pour remédier à l’inertie des finances publiques et le renforcement des investissements publics productifs afin de mieux soutenir la croissance économique / Despite significant economic and financial programs undertaken in the late 80s and the adoption of the convergence Pact in 1999, the growth rate of Economic and Monetary Union of West Africa (EMUWA) countries remain below the minimum level of 7% required for the achievement of Millennium Development Goals (MDGs). This low growth rate now leads to questions about the effectiveness of economic policy and, in particular, on the role to be played by public authorities through fiscal policy. We analyze empirical data through, the procyclicality of fiscal policy in the EMUWA and we test the possible reversals related to the adoption of the convergence Pact. Then, in a second step, we estimate from a structural VAR model, the dynamic impact of fiscal shocks on fluctuations in the economic activity of the EMUWA countries and their transmission channels. Finally, we discuss the limitations of the approach used by the International Monetary Fund (IMF) to calculate the contributions of fiscal policy to economic growth; then, we propose an evaluation of the long-term effects of this policy model on growth, while showing the risks of cuts on public investment.The results of this thesis suggest the adoption of fiscal rules that take into account the economic situation of each country, the speed in government action to overcome the inertia of public finances and strengthening of productive public investments to better support economic growth
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Essays on systematic and unsystematic monetary and fiscal policiesCimadomo, Jacopo 24 September 2008 (has links)
The active use of macroeconomic policies to smooth economic fluctuations and, as a<p>consequence, the stance that policymakers should adopt over the business cycle, remain<p>controversial issues in the economic literature.<p>In the light of the dramatic experience of the early 1930s’ Great Depression, Keynes (1936)<p>argued that the market mechanism could not be relied upon to spontaneously recover from<p>a slump, and advocated counter-cyclical public spending and monetary policy to stimulate<p>demand. Albeit the Keynesian doctrine had largely influenced policymaking during<p>the two decades following World War II, it began to be seriously challenged in several<p>directions since the start of the 1970s. The introduction of rational expectations within<p>macroeconomic models implied that aggregate demand management could not stabilize<p>the economy’s responses to shocks (see in particular Sargent and Wallace (1975)). According<p>to this view, in fact, rational agents foresee the effects of the implemented policies, and<p>wage and price expectations are revised upwards accordingly. Therefore, real wages and<p>money balances remain constant and so does output. Within such a conceptual framework,<p>only unexpected policy interventions would have some short-run effects upon the economy.<p>The "real business cycle (RBC) theory", pioneered by Kydland and Prescott (1982), offered<p>an alternative explanation on the nature of fluctuations in economic activity, viewed<p>as reflecting the efficient responses of optimizing agents to exogenous sources of fluctuations, outside the direct control of policymakers. The normative implication was that<p>there should be no role for economic policy activism: fiscal and monetary policy should be<p>acyclical. The latest generation of New Keynesian dynamic stochastic general equilibrium<p>(DSGE) models builds on rigorous foundations in intertemporal optimizing behavior by<p>consumers and firms inherited from the RBC literature, but incorporates some frictions<p>in the adjustment of nominal and real quantities in response to macroeconomic shocks<p>(see Woodford (2003)). In such a framework, not only policy "surprises" may have an<p>impact on the economic activity, but also the way policymakers "systematically" respond<p>to exogenous sources of fluctuation plays a fundamental role in affecting the economic<p>activity, thereby rekindling interest in the use of counter-cyclical stabilization policies to<p>fine tune the business cycle.<p>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<p>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<p>are proposed. <p><p>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<p>policymakers relatively well. Typically, revised data, i.e. observations available to the<p>econometrician when the study is carried out, are used in the estimation of such policy<p>reaction functions. However, data available in "real-time" to policymakers may end up<p>to be remarkably different from what it is observed ex-post. Orphanides (2001), in an<p>innovative and thought-provoking paper on the U.S. monetary policy, challenged the way<p>policy evaluation was conducted that far by showing that unrealistic assumptions about<p>the timeliness of data availability may yield misleading descriptions of historical policy.<p>In the spirit of Orphanides (2001), in the first Chapter of this thesis I reconsider how<p>the intentional cyclical stance of fiscal authorities should be assessed. Importantly, in<p>the framework of fiscal policy rules, not only variables such as potential output and the<p>output gap are subject to measurement errors, but also the main discretionary "operating<p>instrument" in the hands of governments: the structural budget balance, i.e. the headline<p>government balance net of the effects due to automatic stabilizers. In fact, the actual<p>realization of planned fiscal measures may depend on several factors (such as the growth<p>rate of GDP, the implementation lags that often follow the adoption of many policy<p>measures, and others more) outside the direct and full control of fiscal authorities. Hence,<p>there might be sizeable differences between discretionary fiscal measures as planned in the<p>past and what it is observed ex-post. To be noted, this does not apply to monetary policy<p>since central bankers can control their operating interest rates with great accuracy.<p>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<p>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<p>errors and other second-order moments allow to predict the size and the sign of the bias<p>incurred in estimating the intentional stance of the policy when revised data are (mistakenly)<p>used. It addition, formal tests, based on a refinement of Hansen (1999), do not reject<p>the hypothesis that the intentional reaction of fiscal policy to the cycle is characterized by<p>two regimes: one counter-cyclical, when output is above its potential level, and the other<p>acyclical, in the opposite case. On the contrary, the use of revised data does not allow to identify any threshold effect.<p><p>The second and third Chapters of this thesis are devoted to the exploration of the impact<p>of fiscal and monetary policies upon the economy.<p>Over the last years, two approaches have been mainly followed by practitioners for the<p>estimation of the effects of macroeconomic policies on the real activity. On the one hand,<p>calibrated and estimated DSGE models allow to trace out the economy’s responses to<p>policy disturbances within an analytical framework derived from solid microeconomic<p>foundations. On the other, vector autoregressive (VAR) models continue to be largely<p>used since they have proved to fit macro data particularly well, albeit they cannot fully<p>serve to inspect structural interrelations among economic variables.<p>Yet, the typical DSGE and VAR models are designed to handle a limited number of variables<p>and are not suitable to address economic questions potentially involving a large<p>amount of information. In a DSGE framework, in fact, identifying aggregate shocks and<p>their propagation mechanism under a plausible set of theoretical restrictions becomes a<p>thorny issue when many variables are considered. As for VARs, estimation problems may<p>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.<p>See in particular Banbura, Giannone and Reichlin (2007)). As a consequence, the growing<p>popularity of factor models as effective econometric tools allowing to summarize in<p>a parsimonious and flexible manner large amounts of information may be explained not<p>only by their usefulness in deriving business cycle indicators and forecasting (see for example<p>Reichlin (2002) and D’Agostino and Giannone (2006)), but also, due to recent<p>developments, by their ability in evaluating the response of economic systems to identified<p>structural shocks (see Giannone, Reichlin and Sala (2002) and Forni, Giannone, Lippi<p>and Reichlin (2007)). Parallelly, some attempts have been made to combine the rigor of<p>DSGE models and the tractability of VAR ones, with the advantages of factor analysis<p>(see Boivin and Giannoni (2006) and Bernanke, Boivin and Eliasz (2005)).<p><p>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,<p>to investigate how "unexpected" and "unsystematic" variations in taxes and government<p>spending feed through the economy in the home country and abroad. The domestic<p>impact of fiscal shocks in Germany, the U.K. and the U.S. and cross-border fiscal spillovers<p>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<p>depends on several factors, possibly changing over time. In particular, the presence of excess<p>capacity, accommodating monetary policy, distortionary taxation and liquidity constrained<p>consumers, plays a prominent role in affecting how fiscal policies stimulate the<p>economic activity in the home country. The impact on foreign output crucially depends<p>on the importance of trade links, on real exchange rates and, in a monetary union, on<p>the sensitiveness of foreign economies to the common interest rate. It is well documented<p>that the last thirty years have witnessed frequent changes in the economic environment.<p>For instance, in most OECD countries, the monetary policy stance became less accommodating<p>in the 1980s compared to the 1970s, and more accommodating again in the<p>late 1990s and early 2000s. Moreover, financial markets have been heavily deregulated.<p>Hence, fiscal policy might have lost (or gained) power as a stimulating tool in the hands<p>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<p>of the single currency (see Ahearne, Sapir and Véron (2006) and European Commission<p>(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<p>reconciling, at least for the U.K. the evidence from large-scale macroeconomic models,<p>generally finding feeble multipliers (see e.g. European Commission’s QUEST model), with<p>the one from a prototypical structural VAR pointing to stronger effects of fiscal policy.<p>When the estimation is performed recursively over samples of seventeen years of data, it<p>emerges that GDP multipliers have dropped drastically from early 1990s on, especially<p>in Germany (tax shocks) and in the U.S. (both tax and government spending shocks).<p>Moreover, the conduct of fiscal policy seems to have become less erratic, as documented<p>by a lower variance of fiscal shocks over time, and this might contribute to explain why<p>business cycles have shown less volatility in the countries under examination.<p>Expansionary fiscal policies in Germany do not generally have beggar-thy-neighbor effects<p>on other European countries. In particular, our results suggest that tax multipliers have<p>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.<p>and Spain). Cross-border government spending multipliers are found to be monotonically<p>weak for all the subsamples considered.<p>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. <p><p>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<p>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,<p>and its effects upon the economy simulated. Then, the impact of such shock should be<p>evaluated under a “policy-inactive” scenario, assuming that the central bank does not respond<p>to it. Finally, by comparing the responses of the variables of interest under these<p>two scenarios, some evidence on the sensitivity of the economic system to the endogenous<p>component of the policy can be drawn (see Bernanke, Gertler and Watson (1997)).<p>Such kind of exercise is first proposed within a stylized DSGE model, where the analytical<p>solution of the model can be derived. However, as argued, large-scale multi-sector DSGE<p>models can be solved only numerically, thus implying that the proposed experiment cannot<p>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<p>identifying restrictions is imposed. In particular, a factor model econometric approach<p>is adopted (see in particular Giannone, Reichlin and Sala (2002) and Forni, Giannone,<p>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.<p>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<p>materials. Non-durable good producers, food, textile and lumber producing industries are<p>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
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