On Tuesday, October 25, the 2nd DIW Europe Lecture will be held on “Stability, Equity and Monetary Policy”. The President of the European Central Bank, Mario Draghi, will look at Europe’s economic and financial future: which challenges will Europe and the European Central Bank have to face in the months and years ahead? The event will be streamed live. The DIW Europe Lecture ...
Changes in residual volatility in vector autoregressive (VAR) models can be used for identifying structural shocks in a structural VAR analysis. Testable conditions are given for full identification for the case where the volatility changes can be modelled by a multivariate GARCH process. Formal statistical tests are presented for identification and their small sample properties are investigated via ...
A central question in the empirical monetary policy literature is how do asset prices respond to an unexpected monetary policy shock. We provide empirical evidence on this issue by augmenting the VAR model specification of Uhlig (2005) with the S&P 500 Composite Index, and estimating the model on monthly US data. We use the sign restrictions put forth in Uhlig (2005) as identifying assumptions...
We show that the impact of monetary policy on exchange rates has been growing significantly in recent years. Our results are established by a high-frequency event study of how key fixed income instruments - Overnight-Index Swaps (OIS) and Bonds - respond jointly with exchange rates to news about monetary policy from seven major central banks. News a ecting short-term maturity bonds tend to have...
This paper studies the interaction between monetary policy, financial markets, and the real economy. We develop a Bayesian framework to estimate proxy structural vector autoregressions (SVARs) in which monetary policy shocks are identified by exploiting the information contained in high frequency data. For the Great Moderation period, we find that monetary policy shocks are key drivers of ...
A broadly accepted view of the financial crisis contends that it was caused by an expansion in the supply of credit to high risk borrowers during the 2002-2006 credit boom. The expansion in subprime credit led to the spike in defaults and foreclosures that sparked the 2007-09 crisis. The resulting decline in housing values determined a broad contraction in credit and consumption, substantially...
This paper shows that initial cross-country institutional differences can explain to a substantial extent the relative GDP performance of European countries since 1995, after controlling for the initial level of GDP per capita and government debt. It shows that improving the quality of institutions could lead to significantly higher per capita GDP. It also shows that an initial government debt...
Member countries of the European Monetary Union (EMU) have initiated wideranging labor market reforms in the last decade. This process is ongoing, as countries that are faced with serious labor market imbalances perceive reforms as the fastest way to restore competitiveness within a currency union. This fosters fears among observers about a beggar-thy-neighbor policy that leaves non-reforming...
