Search results

This paper seeks to explore the sensitivity of these parameters and their impact on fiscal policy outcomes. We use the existing literature to establish possible ranges for each parameter, and we examine how changes within these ranges can alter the outcomes of fiscal policy. In this way, we aim to highlight the importance of these parameters in the formulation and evaluation of fiscal policy.

The role of fiscal policy, its effects and multipliers continues to be a subject of intense debate in macroeconomics. Despite adopting a New Keynesian approach within a macroeconomic model, the reactions of macroeconomic variables to fiscal shocks can vary across different contexts and theoretical frameworks. This paper aims to investigate these diverse reactions by conducting a sensitivity analysis of parameters. Specifically, the study examines how key variables respond to fiscal shocks under different parameter settings. By analyzing the behavioral dynamics of these variables, this research contributes to the ongoing discussion on fiscal policy. The findings offer valuable insights to enrich the understanding of the complex relationship between fiscal shocks and macroeconomic outcomes, thus facilitating informed policy debates.

This paper aims to investigate key elements of New Keynesian Dynamic Stochastic General Equilibrium (DSGE) models. The focus is on the calibration of parameters and their impact on macroeconomic variables, such as output and inflation. The study also examines how different parameter settings affect the response of monetary policy to fiscal measures. In conclusion, this study has relied on theoretical exploration and a comprehensive review of existing literature. The parameters and their relationships have been analyzed within a robust theoretical framework, offering valuable insights for further research on how these factors influence model forecasts and inform policy recommendations derived from New Keynesian DSGE models. Moving forward, it is recommended that future work includes empirical analyses to test the reliability and effectiveness of parameter calibrations in real-world conditions. This will contribute to enhancing the accuracy and relevance of DSGE models for economic policy decision-making.

This study is motivated by the aim to provide a deeper understanding of the roles macroeconomic model parameters play concerning responses to expansionary fiscal policies and the subsequent reactions of monetary authorities. Comprehensive reviews that encompass this breadth of relationships within a single text are rare in the literature, making this work a valuable contribution to stimulating discussions on macroeconomic policies.

By reinforcing monetary policy independence, reducing international financing pressures and avoiding high-risk takings, capital controls strengthen the stability of the financial system and then reduce the volatility of capital inflows. The objective of this study was to conduct an empirical examination of this hypothesis. This topic has received strong support in the theoretical literature; however, empirical work has been quite limited, with few empirical studies that provide direct empirical support to this hypothesis.

This study analyzed quarterly data of 32 emerging economies over the period between 2000 and 2015 and proposes two methods to identify capital control actions. Using panel analysis, Autoregressive Distributed Lag and local projections approaches.

This study found that tighter capital controls may diminish monetary and exchange rate shocks and reduce capital inflows volatility. Furthermore, capital controls respond counter-cyclically to monetary shocks. Under capital controls, countries with floating exchange rate regimes have more potential to buffer monetary shocks. We also found that capital controls on inflows are more effective for reducing the volatility of capital inflows compared to capital controls on outflows.

This study contributes to the question of the effectiveness of capital controls in attenuating the effects of international shocks and reducing the volatility of capital flows. Previous studies have mostly focused on the role of macroprudential regulation; however, there is a lack of systematic effects of capital controls on monetary and exchange rate policies. To our knowledge, this is the first preliminary study to suggest that capital controls may buffer monetary and exchange rate shocks and reduce the volatility of capital inflows. This study investigates the novel notion that capital controls allow for a notable counter-cyclical response of monetary and exchange rate policies to international financial shocks.

This chapter investigates the predictability of the European monetary policy through the eyes of the professional forecasters from a large investment bank. The analysis is based on forward-looking Actual and Perceived Taylor Rules for the European Central Bank which are estimated in real-time using a newly constructed database for the period April 2000–November 2009. The former policy rule is based on the actual refi rate set by the Governing Council, while the latter is estimated for the bank’s economists using their main point forecast for the upcoming refi rate decision as a dependent variable. The empirical evidence shows that the pattern of the refi rate is broadly well predicted by the professional forecasters even though the latter have foreseen more accurately the increases rather than the policy rate cuts. Second, the results point to an increasing responsiveness of the ECB to macroeconomic fundamentals along the forecast horizon. Third, the rolling window regressions suggest that the estimated coefficients have changed after the bankruptcy of Lehman Brothers in October 2008; the ECB has responded less strongly to macroeconomic fundamentals and the degree of policy inertia has decreased. A sensitivity analysis shows that the baseline results are robust to applying a recursive window methodology and some of the findings are qualitatively unaltered from using Consensus Economics forecasts in the regressions.

Given the persistence of low oil prices and the continued shrinking of government revenues, Gulf Cooperation Council (GCC) countries continue to adapt to the new normal of the oil price environment, with a focus on pressing ahead with subsidies’ reforms and measures to increase non-oil revenues, as well as accelerating debt issuance, which raise concerns about fiscal sustainability and the implications on macroeconomic stability.

The purpose of this paper is to examine the sustainability of fiscal policy in GCC by exploring governments’ reaction to rising public debt accumulation via the estimation of a fiscal reaction function to higher debt. Subsequently, the paper compares the obtained results with other similar and non-similar groups, in terms of economic structures and oil dependency, to understand how some macroeconomic factors affect differently the fiscal policy responses, in a context of oil price shocks and high price volatility.

The results show that the coefficient of the lagged debt stock was significant and positive, which means that GCC are increasing the pace of reforms and the fiscal primary balance as they issue more debt to ensure a sustainable fiscal policy. The evidence is consistent with the theory that higher levels of debt warrant greater fiscal effort, but at lower debt levels, countries still have the space to increase spending without jeopardizing debt sustainability as long as they remain committed to fiscal reforms to increase the primary balance. The evidence supports the notion that the region’s public finances have improved in response to recent fiscal adjustments. However, national experiences differ considerably, especially given variation in the fiscal breakeven prices against the new normal of low oil prices. Moreover, the findings reveal that various measures of economic performance, as captured by economic growth, openness and the oil price, were also found to be important factors in explaining fiscal performance. The combined effects of low oil prices and high degree of openness warrant further efforts to reform the budget to increase the primary balance while safeguarding priority spending tomobilize non-energy growth and ensure debt sustainability in GCC.

Given recent experiences and the “low for long” oil price, policy priorities and reforms are necessary in oil-dependent economies, including GCC, to ensure macroeconomic sustainability. Sustaining the momentum of non-energy growth would reduce continued dependency of GCC economies on oil revenues and fiscal spending in the medium-term, creating a bigger scope for private sector participation in economic activity and increasing the prospects of further diversification away from long dependency on oil price volatility and their adverse implications on the fiscal budget and economic cycles.

This paper proposes a probit regression with autocorrelated errors (PAR) to estimate the reaction function of monetary policy in Taiwan using newly constructed binary monetary indicators. We develop a practical sampling scheme via the Gibbs sampling algorithm with data augmentation to make posterior inference of the binary monetary policy reaction function. In contrast to the conventional approach, our method avoids the problem of multiple integrals by directly drawing values of latent variables from the relevant full conditional density along with all the other parameters. Empirical results show that the monetary authority responds to macroeconomic conditions asymmetrically. Specifically, in the high‐inflation regime, a contractionary monetary policy is implemented to reduce the inflation rate. Once inflation is under control, that is, in the low‐inflation regime, attention is paid to stimulating the growth of the economy.

This study contributes to the pool of knowledge about the impact of monetary policy communication of central banks on financial instruments' prices and assets' value in emerging markets.

Empirical analysis is executed using the National Bank of Poland (NBP) announcements about its monetary policy covering the data from the broad financial market in its three main segments: stock market, foreign exchange market and bonds market. The reactions are measured relative to the changes in the NBP announcements and also with respect to investors' expectations. Autoregressive conditional heteroscedasticity (ARCH) models with dummy variables are used as the main methodological tool.

Bonds market and foreign exchange market are the most sensitive market segments, while interest rate and money supply are the most influential types of announcements. The changes of the revealed new macroeconomic figures had more impact on assets' prices movements than the deviations from their expectations. Moreover, greater diversity of the Monetary Policy Council (MPC) members' opinions on the voted motions, captured in the MPC voting reports, is associated with more cases of statistically significant NBP communication events.

The findings have direct relevance for fund managers, portfolio analysts, investors and also for financial market regulators.

The results provide novel evidence about how the emerging financial market responds to monetary policy announcements. They help understand the nature of the impact of public information on financial assets' valuation and on movements of their prices, analysed comprehensively in three market segments, in the emerging market environment.

This chapter examines the impacts of scheduled announcements of 14 widely followed macroeconomic news on the corporate bond market from July 2002 to June 2017 and documents several new findings. First, good (bad) macroeconomic news tends to have a negative (positive) effect on IG bond returns and a positive (negative) effect on high-yield (HY) bond returns. Second, nonfarm payroll (NFP) appears to be the “King of announcements” for the corporate bond market. Third, while information about revisions of prior releases is incorporated into bond prices on announcement days, future revisions fail to be priced in. Fourth, the news information is thoroughly and quickly reflected in bond prices on the announcement day. Finally, corporate bond volatility increases on announcement days, whereas the Zero Lower Bound (ZLB) policy has little effect on conditional volatility.

The purpose of this study is to investigate how changes in the firm's information disclosure practices impact the way investors process macroeconomic news. Specifically, the authors examine the role of derivative instruments and hedging activities disclosure, as required by SFAS 133, in shaping invertors response to good and bad interest rate news. In addition, the authors examine whether the effect of SFAS 133 on investors' response to good and bad interest rate news varies between firms with higher and lower earnings volatility.

This study uses data on all US public firms over the period from 1990 to 2019. The authors mainly apply multivariate regression and a difference-in-difference approach to test their hypotheses.

The results show a significant decrease in the asymmetry of responses to good and bad interest rate news for users of interest rate derivatives following the adoption of SFAS 133. However, in contrast to this finding, the authors also find that the adoption of SFAS 133 has no impact on the asymmetry of responses to good and bad interest rate news for nonusers of interest rate derivatives. Consistent with the ambiguity theory, the finding suggests that SFAS 133 indeed decreases investors’ uncertainty (ambiguity) about the cash flow implications of changes in the interest rate. The authors also find that the decrease in the asymmetry of response to good and bad interest rate news after the adoption of SFAS 133 is greater for users of interest rate derivatives with higher than lower earnings volatility. This implies that derivatives and hedging activities disclosure, as required by SFAS 133, are more important for firms with higher than lower earnings volatility. The finding is consistent with the idea that investors demand more accounting information when underlying earnings volatility is higher. In a set of additional analyses, the authors find that the effect of SFAS 133 on investors' response to good and bad interest rate news varies depending on the level of analyst coverage and interest rate exposure. Specifically, the authors find that the decrease in the asymmetry of response to good and bad interest rate news after the adoption of SFAS 133 is greater for users of interest rate derivatives with higher interest rate exposure and lower analyst coverage.

The findings of this study help market participants including regulators and standard setters to understand the impact of mandatory disclosure practices on investors' reaction to macroeconomic news. Moreover, the findings of the study help managers to understand the influence firm-specific characteristics (e.g. earnings volatility, analyst coverage and interest rates exposure) on the effectiveness of mandatory derivative instruments and hedging activities disclosure.

To the best of the authors' knowledge, this is the first paper to explore how firm-specific information environment affects the way investors process macroeconomic news. This study contributes to the literature by providing the empirical evidence that derivatives instruments and hedging activities, as required by SFAS 133, affect investors' response to good and bad interest rate news. In doing so, the results provide insights about how firm-specific information environment affects the way investors process macroeconomic news. This study shows that the cross-sectional variation in earnings volatility, analysts’ coverage and interest rate exposure affects the impact of SFAS 133 on investors' response to good and bad interest rate news. The findings are not only the notable addition to the existing literature on the topic but also can aid to market participants including policy makers, regulators, standard setters and managers to understand the influence of firm-specific characteristics on the effectiveness of mandatory derivative instruments and hedging activities disclosure. Finally, the findings contribute to the general debate about the effectiveness of SFAS 133 by showing that the adoption of SFAS 133 indeed decreases information ambiguity.

The purpose of this paper is to investigate whether fiscal policy may be a complementary instrument to monetary policy in the macrostabilization process.

The authors developed a dynamic system with two linear differential equations in order to verify if an active fiscal policy can be compatible with macroeconomic equilibrium in three monetary policy regimes (conservative, alternative and hybrid). The authors also use numerical simulations because it is impossible to extract analytically full conclusions from the theoretical model.

The results suggest that fiscal policy can be a useful tool for macroeconomic stabilization; the counter-cyclical role of fiscal policy is compatible with dynamic equilibrium only if the monetary authority is not lenient towards inflation; and under an active fiscal policy a hybrid monetary regime is preferable to a conservative one.

This paper offers a theoretical contribution to explicate the macroeconomic implications of fiscal policy.