Working papers results
We study the joint dynamics of economic and political change. Predictions of the simple model that we formulate in the paper get
considerable support in a panel of data on political regimes and GDP per capita for about 150 countries over 150 years. Democratic cap-
ital - measured by a nation's historical experience with democracy and by the incidence of democracy in its neighborhood - reduces the
exit rate from democracy and raises the exit rate from autocracy. In democracies, a higher stock of democratic capital stimulates growth
in an indirect way by decreasing the probability of a sucessful coup. Our results suggest a virtuous circle, where the accumulation of phys-
ical and democratic capital reinforce each other, promoting economic development jointly with the consolidation of democracy.
model misspecification. The principal tools used to solve robust control problems
are state-space methods (see Hansen and Sargent, 2006, and Giordani and
Soderlind, 2004). In this paper we show that the structural-form methods
developed by Dennis (2006) to solve control problems with rational expectations
can also be applied to robust control problems, with the advantage that they
bypass the task, often onerous, of having to express the reference model in
statespace form. Interestingly, because state-space forms and structural forms
are not unique the two approaches do not necessarily return the same equilibria
for robust control problems. We apply both state-space and structural solution
methods to an empirical New Keynesian business cycle model and find that the
differences between the methods are both qualitatively and quantitatively important.
In particular, with the structural-form solution methods the specification errors generally
involve changes to the conditional variances in addition to theconditional means of the
shock processes.
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.
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.
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.
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.
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.
The Italian economy is often said to be on a declining path. In this paper, we document that:
(i) Italy�s current decline is a labor productivity problem (ii) the labor productivity slowdown
stems from declining productivity growth in all industries but utilities (with manufacturing
contributing for about one half of the reduction) and diminished inter-industry reallocation of
workers from agriculture to market services; (iii) the labor productivity slowdown has been
mostly driven by declining TFP, with roughly unchanged capital deepening. The only mild
decline of capital deepening is due to the rise in the value added share of capital that
counteracted declining capital accumulation.
We lay out a tractable model for fiscal and monetary policy analysis in
a currency union, and analyze its implications for the optimal design of such
policies. Monetary policy is conducted by a common central bank, which sets
the interest rate for the union as a whole. Fiscal policy is implemented at
the country level, through the choice of government spending level. The model
incorporates country-specific shocks and nominal rigidities. Under our assumptions,
the optimal monetary policy requires that inflation be stabilized at the
union level. On the other hand, the relinquishment of an independent monetary
policy, coupled with nominal price rigidities, generates a stabilization role
for fiscal policy, one beyond the efficient provision of public goods. Interestingly,
the stabilizing role for fiscal policy is shown to be desirable not only from
the viewpoint of each individual country, but also from that of the union as
a whole. In addition, our paper offers some insights on two aspects of policy
design in currency unions: the conditions for equilibrium determinacy and
the effects of exogenous government spending variations.
Pooling forecasts obtained from different procedures typically reduces
the mean square forecast error and more generally improves the quality
of the forecast. In this paper we evaluate whether pooling interpolated
or backdated time series obtained from different procedures can also
improve the quality of the generated data. Both simulation results
and empirical analyses with macroeconomic time series indicate that
pooling plays a positive and important role also in this context.