Working papers results

The estimation of structural dynamic factor models (DFMs) for large sets of variables
is attracting considerable attention. In this paper we briefly review the underlying
theory and then compare the impulse response functions resulting from two alternative
estimation methods for the DFM. Finally, as an example, we reconsider the issue of
the identification of the driving forces of the US economy, using data for about 150
macroeconomic variables.

The estimation of dynamic factor models for large sets of variables has attracted
considerable attention recently, due to the increased availability of large datasets. In
this paper we propose a new parametric methodology for estimating factors from large
datasets based on state space models and discuss its theoretical properties. In particular,
we show that it is possible to estimate consistently the factor space. We also
develop a consistent information criterion for the determination of the number of factors
to be included in the model. Finally, we conduct a set of simulation experiments
that show that our approach compares well with existing alternatives.

This paper develops a dynamic general equilibrium model that
integrates labor market search and matching into an otherwise
standard New Keynesian model. I allow for changes of the labor
input at both the extensive and the intensive margin and develop
two alternative specifications of the bargaining process. Under
efficient bargaining (EB) hours are determined jointly by the firm
and the worker as a part of the same Nash bargain that determines
wages. With right to manage (RTM), instead, firms retain the right to
set hours of work unilaterally. I show that introducing search and
matching frictions affects the cyclical behavior of real marginal costs
by way of two different channels: a wage channel under RTM and an
extensive margin channel under EB. In both cases, the presence of
search and matching frictions may cause a lower elasticity of marginal
costs with respect to output and thus help to account for the observed
inertia in inflation.

We investigate identifiability issues in DSGE models and their consequences for
parameter estimation and model evaluation whenthe objective function measures
the distance between estimated and model impulse responses. We show that
observational equivalence, partial and weak identification problems are widespread,that
they lead to biased estimates, unreliable t-statistics and may induce investigators to
select false models. We examine whether different objective functions affect identification
and study how small samples interact with parameters and shock identification.
We provide diagnostics and tests to detect identification failures and apply them to a
state-of-the-art model.

Does democracy promote economic development? This paper reviews recent
attempts to addresses this question that exploited within-country variation.
It shows that the answer is largely positive, but also depends on the details
of democratic reforms. First, the sequence of economic vs political reforms
matters: countries liberalizing their economy before extending political rights
do better. Second, different forms of democratic government lead to different
economic policies, and this might explain why presidential democracy leads
to faster growth than parliamentary democracy. Third, it is important to distinguish
between expected and actual political reforms. Taking expectations of regime
change into account helps identify a stronger growth effect of democracy.