Copyright (c) 2008 All rights reserved. http://works.bepress.com/jesus_vazquez Recent documents in Jesús Vázquez en-us Wed, 09 Jul 2008 04:15:43 PDT 3600 http://works.bepress.com/jesus_vazquez/22 http://works.bepress.com/jesus_vazquez/22 Tue, 08 Jul 2008 03:24:53 PDT This paper estimates a standard version of the New Keynesian Monetary (NKM) model in order to study the role played by stock market returns in the estimated U.S. monetary policy rule. The estimation procedure implemented is a classical structural method based on the indirect inference principle. The estimation results show that the Fed responds to stock market returns in addition to the standard macroeconomic indicators only under a backward-looking Taylor rule suggesting that monetary policy does not react independently to stock returns. Jesús Vázquez C32 E52 E44 http://works.bepress.com/jesus_vazquez/21 http://works.bepress.com/jesus_vazquez/21 Tue, 08 Jul 2008 03:07:39 PDT This paper analyzes the dynamic features displayed by alternative rational expectations equilibria in the context of a simple present value model with feedback. We show how these features change for small perturbations of the parameters characterizing the forcing variable process. Moreover, we derive some implications of the analysis for both econometric practice and econometric policy evaluation. In particular, our analysis illustrates scenarios where we cannot rule out the possibility that an economy may switch from a `Lucas proof' equilibrium to an equilibrium which is not immune to the Lucas Critique when some economic policies are implemented. María-José Gutiérrez C62, E66 http://works.bepress.com/jesus_vazquez/20 http://works.bepress.com/jesus_vazquez/20 Tue, 08 Jul 2008 02:22:32 PDT The intrinsic bubble characterizing the exchange rate dynamics in the discrete time version of target zone models is analyzed. It is found that the intrinsic bubble in the basic target zone model follows in general an explosive first-order autoregressive process. This result explains the U-shaped distribution of the exchange rate in this model. However, the nonlinear and the uniqueness properties so frequently associated with the intrinsic bubble are not robust for an important class of fundamental processes. Jesús Vázquez F31 http://works.bepress.com/jesus_vazquez/19 http://works.bepress.com/jesus_vazquez/19 Tue, 08 Jul 2008 02:16:16 PDT The model developed in this paper builds on Cagan's demand for money by considering that a share of government expenditure is spent on servicing foreign debt obligations and fixed in foreign currency. Given this fiscal policy the choice of the depreciation rate implies a passive money supply rule. We show in this model that two types of high-inflation path exist. One type is driven by crawling peg rules of the official exchange rate and is characterized by the saddle-stable path dynamics. The other type characterizes hyperinflationary dynamics. This latter type is a consequence of the global dynamics of the model. The existence of these two types of path can generate recurrent hyperinflation. Moreover, hyperinflation can arise independently of government spending. Jesús Vázquez E31, E41 F31 http://works.bepress.com/jesus_vazquez/18 http://works.bepress.com/jesus_vazquez/18 Tue, 08 Jul 2008 02:05:21 PDT Two versions of Cagan's model are estimated to analyse whether or not the money supply was endogenous during the German hyperinflation. The first version is the original version of Cagan's model with rational expectations. The second version, which is called alternative version, builds on Cagan's model by considering that the semi-elasticity of the demand for money is a time-varying parameter. The estimation results for both models support the hypotheses that the alternative version provides a better fit to the German hyperinflation data than the original version, and that the money supply was endogenous. Jesús Vázquez C32 E31, E41 http://works.bepress.com/jesus_vazquez/17 http://works.bepress.com/jesus_vazquez/17 Tue, 08 Jul 2008 01:50:18 PDT The model introduced assumes that the demand for money is a function of the expected inflation rate and expected depreciation rate of the domestic currency, characterizing the costs of holding money. In addition, the depreciation rate is assumed to follow a crawling peg rule in which the rate of depreciation is adjusted in proportion to the gap between the rate of inflation and the rate of depreciation. This model is estimated using a GMM technique called estimation by simulation. The empirical results show that the model introduced in this paper fits the data better than Cagan's model. Moreover, they show that foreign nominal assets were closer substitutes for domestic money than were real assets during German hyperinflation. Jesús Vázquez http://works.bepress.com/jesus_vazquez/16 http://works.bepress.com/jesus_vazquez/16 Tue, 08 Jul 2008 01:35:06 PDT Using US data for the period 1967:5-2002:4 this paper empirically investigates the performance of a Fed funds rate reaction function (from now on, FRF) that (i) allows for the presence of switching regimes; (ii) considers the long-short term spread in addition to the typical variables; and (iii) uses an alternative monthly indicator of general economic activity suggested by Stock and Watson (1999). The estimation results show the existence of three switching regimes, two characterized by low volatility and the third by high volatility. Moreover, the scale of the responses of the Federal funds rate to movements in the rate of inflation and the economic activity index depends on the regime. The estimation results also show robust empirical evidence that the importance of the term spread in the FRF has increased over the sample period and the FRF was more stable during the term of office of Chairman Greenspan than in the pre-Greenspan period. Jesús Vázquez C32 E43 http://works.bepress.com/jesus_vazquez/15 http://works.bepress.com/jesus_vazquez/15 Tue, 08 Jul 2008 01:00:39 PDT In this paper we estimate a standard version of the New Keynesian Monetary (NKM) model augmented with term structure in order to analyze two issues. First, we analyze the effect of introducing an explicit term structure channel in the NKM model on the estimated parameter values of the model, with special emphasis on the interest rate smoothing parameter using data for the Eurozone. Second, we study the ability of the model to reproduce some stylized facts such as highly persistent dynamics, the weak comovement between economic activity and inflation, and the positive, strong comovement between interest rates observed in actual Eurozone data. The estimation procedure implemented is a classical structural method based on the indirect inference principle. Ramón María-Dolores C32 E30 E52 http://works.bepress.com/jesus_vazquez/14 http://works.bepress.com/jesus_vazquez/14 Mon, 07 Jul 2008 09:38:27 PDT This paper empirically studies the dynamic relationship between monetary and fiscal policies by analyzing the comovements between the Fed funds rate and the primary deficit/output ratio. Simple economic thinking establishes that a negative correlation between Fed rate and deficit arises whenever the two policy authorities share a common stabilization objective. However, when budget balancing concerns lead to a drastic deficit reduction the Fed may reduce the Fed rate in order to smooth the impact of fiscal policy, which results in a positive correlation between these two policy instruments. The empirical results show (i) a significant negative comovement between Fed rate and deficit and (ii) that deficit and output gap Granger-cause the Fed funds rate during the post-Volcker era, but the opposite is not true. Jesús Vázquez C32 E52 E62