We explore the macroeconomic impact of a compression in the long-term bond yield spread within the context of the Great Recession of 2007-2009 via a Bayesian time-varying parameter structural VAR. We identify a ‘pure’ spread shock which, leaving the short-term rate unchanged by construction,...

Based on standard New Keynesian models I show that policy counterfactuals based on the theoretical structural VAR representations of the models fail to reliably capture the impact of changes in the parameters of the Taylor rule on the (reduced-form) properties of the economy. Based on estimated...

We characterise the evolution of the U.S. unemployment-inflation trade-off since the late XIX century era via a Bayesian time-varying parameters structural VAR. The Great Inflation episode appears as historically unique along several dimensions. In particular, the shape of the ‘Phillips...

Over the last two centuries, the cross-spectral coherence between either narrow or broad money growth and inflation at the frequency ù=0 has exhibited little variationbeing, most of the time, close to onein the U.S., the U.K., and several other countries, thus implying that the fraction of...

Following Fuhrer and Moore (1995), several authors have proposed alternative mechanisms to 'hardwire' inflation persistence into macroeconomic models, thus making it structural in the sense of Lucas (1976). Drawing on the experience of the European Monetary Union, of inflation-targeting...

We evaluate residual projection strategies in the context of a large-scale macro model of the euro area and smaller benchmark time-series models. The exercises attempt to measure the accuracy of model-based forecasts simulated both out-of-sample and in-sample. Both exercises incorporate...

This paper studies the role of global input-output linkages in transmitting economic disturbances in the international economy. Our empirical results suggest that these sectoral spillovers are both statistically significant and of economic importance. We also provide evidence that it is not the...

This paper develops a theory of the credit cycle to account for recent evidence that capital is increasingly allocated to inefficiently risky projects over the course of the boom. The model features lenders who sell risk exposure to non-lender investors in order to relax borrowing constraints,...

The contribution of this paper is to revisit the Early Warning System (EWS) literature by analysing selected episodes of financial market crisis, i.e. those preceded by a spell of credit and real estate expansions. The aim is to disentangle instances when this constitutes a natural phenomenon...

We explore a view of the crisis as a shock to investor sentiment that led to the collapse of a bubble or pyramid scheme in financial markets. We embed this view in a standard model of the financial accelerator and explore its empirical and policy implications. In particular, we show how the...