We investigate the sources of the important shifts in the volatility of US mac - roeconomic variables in the postwar period. To this end, we propose the esti - mation of DSGE models allowing for time variation in the volatility of the structural innovations. We apply our estimation strategy to a large-scale model of the business cycle and find that shocks specific to the equilibrium condition of investment account for most of the sharp decline in volatility of the last two decades. (JEL C51, E32)

/pdf/the-time-varying-volatility-of-macroeconomic-fluctuations-3tttxxmgab.pdf

The Time-Varying Volatility of Macroeconomic Fluctuations

http://core.ac.uk/download/pdf/6731861.pdf

Do central banks respond to exchange rate movements? A structural investigation

This paper explores optimal policy design in an estimated model of three small open economies: Australia, Canada and New Zealand. Within a class of generalized Taylor rules, we show that to stabilize a weighted objective of output, consumer price in‡ation and nominal interest variation optimal policy does not respond to the nominal exchange. This is despite the presence of local currency pricing and due, in large part, to observed exchange rate disconnect in these economies. Optimal policies that account for the uncertainty of model estimates, as captured by the parameters’posterior distrbution, similarly exhibit a lack of exchange rate response. In contrast to Brainard (1967), the presence of parameter uncertainty can lead to more or less aggressive policy responses, depending on the model at hand.

/pdf/monetary-policy-and-uncertainty-in-an-empirical-small-open-2uxcf2xvo0.pdf

Monetary policy and uncertainty in an empirical small open-economy model

This text aims to provide a survey of the state of knowledge in the broad area that includes the theories and facts of economic growth and economic fluctuations, as well as the consequences of monetary and fiscal policies for general economic conditions.

Handbook of macroeconomics

https://www.nber.org/system/files/working_papers/w14547/w14547.pdf

Can structural small open-economy models account for the influence of foreign disturbances?

Should the optimal portfolio be region-specific? A multi-region model with monetary policy and asset price co-movements

Existing results on the contribution of terms of trade and world interest rate shocks to output fluctuations in small open economies range from less than 10% to almost 90%. We argue that an identification problems lies at the heart of these vastly di¤erent results. In this paper, we overcome this by estimating a DSGE model using a structural Bayesian estimation approach. We apply our methodology to five developed and developing economies.. Our approach allows us to e?ciently exploit cross-equation restrictions implied by the structural model. We find that world interest rate shocks are the main driving forces of business cycles in small open economies while terms of trade shocks are not.

https://www.econstor.eu/bitstream/10419/71987/1/492768048.pdf

Do World Shocks Drive Domestic Business Cycles? Some Evidence from Structural Estimation

. I develop a small open economy dynamic stochastic general equilibrium model to study monetary policy and the business cycle in Taiwan. Several versions of the model with different representations of Taiwanese monetary policy are estimated using Bayesian techniques. The major findings are that: (i) monetary policy in Taiwan is best described by a money supply growth rate rule; (ii) the Taiwanese economy is more flexible than the Euro area economy; and (iii) export price mark-up and investment-specific technology shocks are the main driving forces of output growth fluctuations in Taiwan.

Estimated dynamic stochastic general equilibrium model of the taiwanese economy

A multi-region, dynamic stochastic general equilibrium (MRDSGE) model is built to show that differences in the price elasticity of housing supply can be related to stylized facts on regional differences in (1) house price level, (2) house price volatility, (3) monetary policy propagation mechanism and (4) household asset portfolio. In addition, regional house prices are found to move more closely with regional fundamentals than with the national GDP. The correlation between the national stock price and the regional housing price also vary significantly across regions, which suggests that optimal portfolio should be region specific.

We introduce inventories into a standard New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model to study the effect on the design of optimal monetary policy. The possibility of inventory investment changes the transmission mechanism in the model by decoupling production from final consumption. This allows for a higher degree of consumption smoothing since firms can add excess production to their inventory holdings. We consider both Ramsey optimal monetary policy and a monetary policy that maximizes consumer welfare over a set of simple interest rate feedback rules. We find that in contrast to a model without inventories, Ramsey-optimal monetary policy in a model with inventories deviates from complete inflation stabilization. In the standard model, nominal price rigidity is a deadweight loss on the economy, which an optimizing policymaker attempts to remove. With inventories, a planner can reduce consumption volatility and raise welfare by accumulating inventories and letting prices change as an equilibrating mechanism. We find also find that the application of simple rules comes very close to replicating Ramsey optimal outcomes.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1668128_code1532085.pdf?abstractid=1668128&mirid=4

Wing Leong Teo

Papers

Should the optimal portfolio be region-specific? A multi-region model with monetary policy and asset price co-movements

Do World Shocks Drive Domestic Business Cycles? Some Evidence from Structural Estimation

Estimated dynamic stochastic general equilibrium model of the taiwanese economy

Should the optimal portfolio be region-specific? A multi-region model with monetary policy and asset price co-movements

Inventories and Optimal Monetary Policy