A two-block open economy model is estimated in this paper using Australian and U.S. data. Evaluation of the estimated model is carried out in relation to a simple closed economy alternative. Namely, we inspect the implied transmission mechanisms, and examine the relative out-of-sample...

This paper re-examines the empirical evidence on the price puzzle and proposes a new theoretical interpretation. Using structural VARs and two different identification strategies based on zero restrictions and sign restrictions, we find that the positive response of price to a monetary policy...

This paper formulates dynamic R\&D investment decisions of private firms as an optimal stochastic control problem. It derives explicitly R\&D investment decision rule and the cross equations parameter restrictions imposed by the rational expectations hypothesis, using the Riccati equations only...

Successful descriptions of the short-term nominal interest rate inertial behavior have frequently been obtained with small scale macro models in which a Central Banker minimizes a loss function containing an argument labelled as interest rate smoothing. The rationale for this argument is not...

During the decade of the 1970’s the US economy unexpectedly suffered from “stagflation” namely, high unemployment, slowed economic growth and high rates of inflation. During the 1980’s the major macroeconomic problem became high interest rates and massive government deficits....

Most prices and interest rates display fluctuating levels that embody extractable energy and equivalent amounts of money. Such fluctuations are also associated with varying degrees of uncertainty. Shannon's derivations of spectral entropy and information content offer computational techniques...

In this paper we analyse disinflation policy in two environments. In the first, the central bank has perfect knowledge, in the sense that it understands and observes the process by which private sector inflation expectations are generated; in the second, the central bank has to learn the private...

This research explored two major insurance-market issues. First, it investigated the dynamic interactions between premiums and losses using vector autoregressive (VAR) models. Second, it showed how premiums respond to shocks to losses, surplus, interest rates, the variance in losses, and the...

This paper proposes a novel Maximum Likelihood (ML) strategy to estimate Euler equations implied by dynamic stochastic theories. The strategy exploits rational expectations cross-equation restrictions, but circumvents the problem of multiple solutions that arises in Sargent's (1979) original...