In this book, Andrew Harvey sets out to provide a unified and comprehensive theory of structural time series models. Unlike the traditional ARIMA models, structural time series models consist explicitly of unobserved components, such as trends and seasonals, which have a direct interpretation. As a result the model selection methodology associated with structural models is much closer to econometric methodology. The link with econometrics is made even closer by the natural way in which the models can be extended to include explanatory variables and to cope with multivariate time series. From the technical point of view, state space models and the Kalman filter play a key role in the statistical treatment of structural time series models. The book includes a detailed treatment of the Kalman filter. This technique was originally developed in control engineering, but is becoming increasingly important in fields such as economics and operations research. This book is concerned primarily with modelling economic and social time series, and with addressing the special problems which the treatment of such series poses. The properties of the models and the methodological techniques used to select them are illustrated with various applications. These range from the modellling of trends and cycles in US macroeconomic time series to to an evaluation of the effects of seat belt legislation in the UK.

Forecasting, Structural Time Series Models and the Kalman Filter

We investigate whether income inequality affects subsequent growth in a cross-country sample for 1965-90, using the models of Barro (1997), Bleaney and Nishiyama (2002) and Sachs and Warner (1997), with negative results. We then investigate the evolution of income inequality over the same period and its correlation with growth. The dominating feature is inequality convergence across countries. This convergence has been significantly faster amongst developed countries. Growth does not appear to influence the evolution of inequality over time. Outline

https://www.econstor.eu/bitstream/10419/81822/1/02-28.pdf

Economic growth and income inequality

This paper investigates the impact of tax changes on economic activity. We use the narrative record, such as presidential speeches and Congressional reports, to identify the size, timing, and principal motivation for all major post war tax policy actions. This analysis allows us to separate legislated changes into those taken for reasons related to prospective economic conditions and those taken for more exogenous reasons. The behavior of output following these more exogenous changes indicates that tax increases are highly contractionary. The effects are strongly significant, highly robust, and much larger than those obtained using broader measures of tax changes. (JEL E32, E62, H20, N12) Tax changes have been a major public policy issue in recent years. The tax cuts of 2001 and 2003 were passed amid firestorms of debate about their likely effects. Some policymakers claimed that the cuts would both stimulate the economy in the short run and increase normal output in the long run. Others argued that they would raise interest rates and lower confidence and thereby reduce output in both the short run and the long run. That views of the effects of tax changes vary so radically largely reflects the fact that measuring these effects is very difficult. Tax changes occur for many reasons. Some legislated tax changes are passed for philosophical reasons or to reduce an inherited budget deficit. Others are passed because the economy is weak and predicted to fall further, or because a war is in progress and government spending is rising. And many tax changes are not legislated at all, but occur automatically because the tax base varies with the overall level of income, or because of changes in stock prices, inflation, and other nonpolicy forces. Because the factors that give rise to tax changes are often correlated with other developments in the economy, disentangling the effects of the tax changes from the effects of these underlying factors is inherently difficult. There is pervasive omitted variable bias in any regression of output on an aggregate measure of tax changes. This paper suggests one way of dealing with this omitted variable bias. There exists a vast narrative record describing the history and motivation of tax policy changes. We first use this narrative history to separate legislated tax changes from those arising from nonpolicy develop ments. We then use the information on motivation to separate the legislated tax changes into those that are likely to be contaminated by other developments affecting output, and those that can legitimately be used to measure the macroeconomic effects of tax changes. Finally, we use the legitimate observations to derive estimates of the effects of tax changes on output that are likely to be less biased than previous estimates. Section I of the paper elaborates on the conceptual framework for this study. It emphasizes that what we seek to identify from the narrative record are tax changes that are not systematically

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The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks

Econometric policy evaluation: A critique

relationship. All subsequent studies confirmed it (see for example King and Levine, 1993, and the review in: Pagano, 1993). Goldsmith used a sample of 35 countries for the period between 1860 and 1963 to show the relationship between income and financial depth measured by the ratio between bank's assets and GDP. He also showed that in periods of rapid growth, financial depth grows faster than income. More details about measuring financial depth can be found in this paper. FINANCIAL DEVELOPMENT AND ECONOMIC GROWTH Velimir Šonje

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Financial development and economic growth

https://hal-sciencespo.archives-ouvertes.fr/hal-01064263/document

Financial Stability and Economic Performance

La crise economique et financiere a remis au gout du jour les politiques budgetaires keynesiennes. Si celles-ci n’ont pas permis d’eviter une recession severe en 2009, elles ont pu neanmoins stopper l’hemorragie de la depression. Meme si l’incertitude concernant la reprise est grande, l’heure est desormais dans la plupart des pays a la consolidation budgetaire.Plusieurs questions se posent alors. La premiere est celle de l’efficacite des politiques budgetaires que l’on evalue a partir de la mesure des multiplicateurs. Dans la premiere partie, nous passons en revue les differentes evaluations des multiplicateurs budgetaires. L’impact sur l’activite des politiques budgetaires different, d’une part, en fonction des instruments utilises (depenses publiques, baisse d’impots...), des horizons de prevision, de la taille des pays et de leur structure productive et fiscale. Au-dela de la mesure des multiplicateurs keynesiens a court, moyen et long terme en fonction des differents instruments budgetaires, l’apport principal de cet article est d’introduire l’effet du cycle economique dans les chocs budgetaires. En integrant dans notre modele macroeconomique (emod.fr) une relation entre le taux chomage structurel et le taux de chomage effectif differente selon le cycle economique, l’impact de toute politique economique variera selon la position de l’economie dans le cycle. La derniere question qui decoule des precedentes est donc : les politiques de consolidation budgetaire sont-elles adaptees a la situation conjoncturelle actuelle ? La reponse est non car les economies avancees se situent actuellement toutes en bas ce cycle. Dans ce contexte, les multiplicateurs budgetaires sont eleves et les effets recessifs des politiques d’austerite seront forts.

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Petit précis de politique budgétaire par tous les temps Les multiplicateurs budgétaires au cours du cycle

This paper aims at investigating first the (possibly time-varying) empirical relationship between the level and conditional variances of price and financial stability, and second, the effects of macro and policy variables on this relationship in the United States and the Eurozone. Three empirical methods are used to examine the relevance of A.J. Schwartz's "conventional wisdom" that price stability would yield financial stability. Using simple correlations, VAR and Dynamic Conditional Correlations, we reject the hypothesis that price stability is positively correlated to financial stability. We then discuss the empirical appropriateness of the "leaning against the wind" monetary policy approach.

Assessing the Link between Price and Financial Stability

The purpose of this note is to compare the characteristics of the actual Stability and Growth Pact with that of a European "modified golden rule". The latter would consist in achieving in each EU country a cyclically-adjusted net-of-public-investment balance. The benchmark for comparison is the classification adopted by Kopits and Symansky (1998) on "ideal fiscal rules". This classification has been used by Buti et al. (2003) in order to demonstrate the "ideal character" of the actual Stability and Growth Pact and thus legitimate only slight modifications to the Pact. I intend to show rather, that the "modified golden rule" is a better fiscal rule than the actual Pact.

/pdf/ranking-fiscal-policy-rules-the-golden-rule-of-public-ic4fb39cdc.pdf

Ranking Fiscal Policy Rules: the Golden Rule of Public Finance vs. the Stability and Growth Pact

https://www.ofce.sciences-po.fr/pdf-articles/actu/PriceFinancialStability-vFinale.pdf

Jérôme Creel

Papers

Financial Stability and Economic Performance

Petit précis de politique budgétaire par tous les temps Les multiplicateurs budgétaires au cours du cycle

Assessing the Link between Price and Financial Stability

Ranking Fiscal Policy Rules: the Golden Rule of Public Finance vs. the Stability and Growth Pact

Assessing the link between price and financial stability