Fiscal Policy and Lending Relationships

Melina, Giovanni; Villa, Stefania

doi:10.2139/ssrn.2084651

Cited by 5 publications

(1 citation statement)

References 64 publications

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“…(i) Baa minus 10-year Treasury constant maturity rate (TCM); (ii) Moody's Baa minus Aaa yield; and (iii) the bank prime loan rate minus the quarterly Treasury bill rate as in Melina and Villa (2014). All the proxies are clearly countercyclical.…”

Section: Introductionmentioning

confidence: 99%

Dealing with financial instability under a DSGE modeling approach with banking intermediation: A predictability analysis versus TVP-VARs

Bekiros

Cardani

Paccagnini

et al. 2016

Journal of Financial Stability

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In the dynamic stochastic general equilibrium (DSGE) literature there has been an increasing awareness on the role that the banking sector can play in macroeconomic activity. We present a DSGE model with …nancial intermediation as in Gertler and Karadi (2011). The estimation of shocks and of the structural parameters shows that time-variation should be crucial in any attempted empirical analysis. Since DSGE modelling usually fails to take into account inherent nonlinearities of the economy, we propose a novel time-varying parameter (TVP) state-space estimation method for VAR processes both for homoskedastic and heteroskedastic error structures. We conduct an exhaustive empirical exercise to compare the out-of-sample predictive performance of the estimated DSGE model with that of standard ARs, VARs, Bayesian VARs and TVP-VARs. We …nd that the TVP-VAR provides the best forecasting performance for the series of GDP and net worth of …nancial intermediaries for all steps-ahead, while the DSGE model outperforms the other speci…cations in forecasting in ‡ation and the federal funds rate at shorter horizons.JEL Classi…cation: C11, C13, C32, E37

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Section: Introductionmentioning

confidence: 99%

Dealing with financial instability under a DSGE modeling approach with banking intermediation: A predictability analysis versus TVP-VARs

Bekiros

Cardani

Paccagnini

et al. 2016

Journal of Financial Stability

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Expansionary Versus Contractionary Government Spending

Makin

2014

Contemporary Economic Policy

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This article theoretically examines the impact of different forms of government spending on national income in a financially open economy with a significant net international investment position the central bank of which sets domestic interest rates to target inflation. It shows that whether government spending is expansionary or contractionary ultimately depends on the productivity of that expenditure, a result that has major implications for the efficacy of fiscal policy deployed for either stimulus or austerity reasons. The key prediction of the model is that public consumption and unproductive public investment are procyclical, whereas only productive public investment is countercyclical. (JEL F41)

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House Prices and Government Spending Shocks

Khan¹,

Reza²

2017

J of Money Credit Banking

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We show that dynamic stochastic general equilibrium (DSGE) models with housing and collateralized borrowing predict a fall in house prices following positive government spending shocks. By contrast, we show that house prices in the United States rise persistently after identified positive government spending shocks. We clarify that the incorrect house price response is due to a general property of DSGE models—approximately constant shadow value of housing—and that modifying preferences and production structure cannot help in obtaining the correct house price response. Properly accounting for the empirical evidence on government spending shocks and house prices using a DSGE model therefore remains a significant challenge.

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Fiscal Policy and Lending Relationships

Cited by 5 publications

References 64 publications

Dealing with financial instability under a DSGE modeling approach with banking intermediation: A predictability analysis versus TVP-VARs

Dealing with financial instability under a DSGE modeling approach with banking intermediation: A predictability analysis versus TVP-VARs

Expansionary Versus Contractionary Government Spending

House Prices and Government Spending Shocks

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