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The global slack hypothesis is central to the discussion of the trade-offs that monetary policy faces in an increasingly more integrated world. The workhorse New Open Economy Macro (NOEM) model of Martínez-García and Wynne (2010), which fleshes out this hypothesis, shows how expected future local inflation and global slack affect current local inflation. In this chapter, I propose the use of the orthogonalization method of Aoki (1981) and Fukuda (1993) on the workhorse NOEM model to further decompose local inflation into a global component and an inflation differential component. I find that the log-linearized rational expectations model of Martínez-García and Wynne (2010) can be solved with two separate subsystems to describe each of these two components of inflation.

I estimate the full NOEM model with Bayesian techniques using data for the United States and an aggregate of its 38 largest trading partners from 1980Q1 until 2011Q4. The Bayesian estimation recognizes the parameter uncertainty surrounding the model and calls on the data (inflation and output) to discipline the parameterization. My findings show that the strength of the international spillovers through trade – even in the absence of common shocks – is reflected in the response of global inflation and is incorporated into local inflation dynamics. Furthermore, I find that key features of the economy can have different impacts on global and local inflation – in particular, I show that the parameters that determine the import share and the price-elasticity of trade matter in explaining the inflation differential component but not the global component of inflation.

Open-Economy models are central to the discussion of the trade-offs monetary policy faces in an increasingly more globalized world (e.g., Marínez-García & Wynne, 2010), but bringing them to the data is not without its challenges. Controlling for misspecification bias, we trace the problem of uncertainty surrounding structural parameter estimation in the context of a fully specified New Open Economy Macro (NOEM) model partly to sample size. We suggest that standard macroeconomic time series with a coverage of less than forty years may not be informative enough for some parameters of interest to be recovered with precision. We also illustrate how uncertainty also arises from weak structural identification, irrespective of the sample size. This remains a concern for empirical research and we recommend estimation with simulated observations before using actual data as a way of detecting structural parameters that are prone to weak identification. We also recommend careful evaluation and documentation of the implementation strategy (specially in the selection of observables) as it can have significant effects on the strength of identification of key model parameters.

We investigate the Bayesian approach to model comparison within a two-country framework with nominal rigidities using the workhorse New Keynesian open-economy model of Martínez-García and Wynne (2010). We discuss the trade-offs that monetary policy – characterized by a Taylor-type rule – faces in an interconnected world, with perfectly flexible exchange rates. We then use posterior model probabilities to evaluate the weight of evidence in support of such a model when estimated against more parsimonious specifications that either abstract from monetary frictions or assume autarky by means of controlled experiments that employ simulated data. We argue that Bayesian model comparison with posterior odds is sensitive to sample size and the choice of observable variables for estimation. We show that posterior model probabilities strongly penalize overfitting, which can lead us to favor a less parameterized model against the true data-generating process when the two become arbitrarily close to each other. We also illustrate that the spillovers from monetary policy across countries have an added confounding effect.

One explanation for why people wear masks to prevent the spread of COVID-19 focuses on political party affiliation. This study explores the role of values in attempts by five South Dakota cities to pass local mask mandates.

A nonrandom convenience sample used search engines to find documents on mask mandates in South Dakota. The working hypotheses are: (1) the debate over mask mandates is a form of value conflict over freedom of choice and the role of government that reflect those held by Emerson, Thoreau, and Spencer and (2) the mandates themselves prescribe Value-Rational rather than Instrumental-Rational action to control the pandemic.

Antimaskers valued freedom of choice, and were willing to defy authority while promasker health professionals valued science and were willing to sacrifice themselves for the health of their patients. South Dakota cities encouraged mask wearing but did not include penalties for noncompliance. The vociferous opposition to the mask mandates resembles the opposition cities encountered when deciding to fluoridate drinking water in the 1950s and 1960s.

A case study cannot be generalized and may reflect sampling and researcher bias. Future research could include a content analysis of documents and videos presenting both sides of the debate.

This case study may provide the first in-depth analysis of values in the masking debate.

We analyze fluctuations in inflation and the nominal exchange rate under optimal monetary policy with local currency pricing by developing two-country DSGE local currency pricing and producer currency pricing models. We estimate our models using Bayesian techniques with Japanese and US data, and calculate impulse response functions. Our estimation results show that local currency pricing is strongly supported against producer currency pricing. From the estimated parameters, we show that completely stabilizing consumer price index inflation is optimal from the viewpoint of minimizing welfare costs and that completely stabilizing consumer price index inflation is consistent with completely stabilizing the nominal exchange rate.

This volume of Advances in Econometrics is devoted to dynamic stochastic general equilibrium (DSGE) models, which have gained popularity in both academic and policy circles as a theoretically and methodologically coherent way of analyzing a variety of issues in empirical macroeconomics. The volume is divided into two parts. The first part covers important topics in DSGE modeling and estimation practice, including the modeling and role of expectations, the study of alternative pricing models, the problem of non-invertibility in structural VARs, the possible weak identification in new open economy macro models, and the modeling of trend inflation. The second part is devoted to innovations in econometric methodology. The papers in this section advance new techniques for addressing key theoretical and inferential problems and include discussion and applications of Laplace-type, frequency domain, empirical likelihood, and method of moments estimators.

The objectives of this chapter are: first, to analyze the magnitude of the COVID-19 impact on homestay business in Bali and second, to identify the most significant determinant of COVID-19 to the homestay industry. It hopes that the results would contribute to policy recommendations and business strategies to increase the resilient capacity of the homestay business during the pandemic period. Due to the pandemic situation, 74 respondents of homestay owners were interviewed through an online survey (Google form). The data gathering was through three events of focus group discussion and several in-depth interviews. Partial Least Squares regression and descriptive statistics were applied. The result shows that, first, the COVID-19 pandemic has a considerable decreasing impact on the (1) homestay occupancy rate, (2) homestay characters (room rental price), (3) homestay competency capital, (4) provided facilities, and (5) guest composition. Second, during the global pandemic, the homestay business association, the number of media promotions, the number of room booking channels, and the homestay characters significantly impact the homestay occupancy rate. Third, to increase the demand for tourism, appropriate measures and policies should be taken, such as increasing the travel bubble consent, mobilizing central government officers working in Bali, increasing the number of domestic promotions, and only using an effective and efficient room booking channel.