1,721,049 research outputs found
If the Fed sneezes, who catches a cold?
No full textThis paper studies the international spillovers of US monetary policy shocks on a number of macroeconomic and financial variables in 36 advanced and emerging economies. In most countries, a surprise US monetary tightening leads to depreciation against the dollar; industrial production and real GDP fall, unemployment rises. Inflation declines especially in advanced economies. At the same time, there is significant heterogeneity across countries in the response of asset prices, and portfolio and banking cross-border flows. However, no clear-cut systematic relation emerges between country responses and likely relevant country characteristics, such as their income level, dollar exchange rate flexibility, financial openness, trade openness vs. the US, dollar exposure in foreign assets and liabilities, and incidence of commodity exports
Housing finance and monetary policy
No full textEmpirical and theoretical analysis of effects of monetary policy shocks on different OECD countries as a function of the characteristics of the mortgage marke
Delegated portfolio management: a survey of the theoretical literature
No full textThis paper provides a selective review of the theoretical literature on delegated portfolio management as a principal-agent relationship. The main focus of the paper is to review the analytical issues raised by the peculiar nature of the delegated portfolio management relationship within the broader class of principalagent models. In particular, the paper discusses the performance of linear vs. nonlinear compensation contracts in a single-period setting, the possible effects of limited liability of portfolio managers, the role of reputational concerns in a multiperiod framework, and the incentives to noise trading. In addition, the paper deals with some general equilibrium dimensions and asset pricing implications of delegated portfolio management. The paper also suggests some directions for future research
The optimal allocation of risks under prospect theory
No full textThis paper deals with the optimal allocation of risks for an agent whose preferences may be represented with prospect theory (Tversky and Kahneman, 1992). A simple setting is considered with n identically distributed and symmetric sources of risk. Under expected utility, equal diversification of risks is optimal in this setting ('do not put your eggs in the same basket'). Conversely, under prospect theory, provided that the subjective probability of obtaining a perfect hedge is negligible, risk concentration is optimal ('do put your eggs in the same basket'). The intuitive reason behind this result is that a prospect theory agent is risk-seeking over losses, with the consequence that the proerty of diversification of averaging downside risks is welfare-reducing rather than welfare-improving
The functional form of the demand for euro area M1
Full text linkA remarkable development seen in recent years is the pronounced decline in euro area M1 velocity vis--vis a moderate decline in short-term interest rates, which represent the most natural opportunity cost for M1, suggesting an increase in the interest rate elasticity of M1 demand. In fact, estimating a theoretically plausible and stable demand function for M1 in the euro area is possible, if a functional form of money demand allowing for an interest rate elasticity decreasing in size with the level of the interest rate is imposed. This finding would apparently suggest that the decline in inflation and nominal interest rates in Europe experienced in the run-up to the euro should have 'naturally' brought about an increased degree of preference for liquidity without any fundamental change in agents' preferences. To test the validity of this conclusion, a time-varying parameters model is estimated through Kalman filter on the level of real M1, which is able to test simultaneously the stability of the parameters and the functional form of the demand for euro area M1. In this case, results clearly suggest the double log function to be very close to the true 'deep' functional form of M1 demand in the euro area, consistent with the findings of Chadha, Haldane and Janssen (1998) for the United Kingdom and of Lucas (2000) for the United States. At the same time, there is evidence of an increased interest rate elasticity in M1 demand in the most recent years, presumably associated with the transition to the new environment prevailing from the start of Stage Three of EMU JEL Classification: E41, E52
Financial imbalances and household welfare: empirical evidence from the EU
No full textThis paper uses Eurobarometer survey data from 26 EU countries to evaluate whether the general public cares about financial stability and imbalances over and above their effects on key macroeconomic variables such as unemployment and inflation. I confirm previous results in the literature that life satisfaction - a widely used measure of household welfare - negatively depends on the unemployment rate. In addition to previous results in the literature, I establish a strong empirical link between life satisfaction and consumer confidence as measured by the European Commission consumer survey. The main result of the paper is that life satisfaction generally does not systematically depend on a number of measures of financial imbalance based on credit and asset prices once the other macroeconomic controls are included
Should we take inside money seriously?
No full textThis paper presents a dynamic general equilibrium model with sticky prices, in which "inside" money, made out of commercial banks’ liabilities, plays an active, structural role role. It is shown that, in such a model, an inside money shock has a well-defined meaning. A calibrated version of the model is shown to generate small, but non-negligible effects of inside money shocks on output and inflation. I also simulate the effect of a banking crisis in the model. Moreover, I find that it is optimal for monetary policy to react to such shocks, although reacting to inflation alone does not result in a significant welfare loss
Does liquidity matter? Properties of a synthetic divisia monetary aggregate in the euro area
No full textThis paper sets out to build a synthetic quarterly Divisia monetary aggregate for the euro area using area wide data over the sample period from 1980 to 2000. Then, the analysis proceeds in two separate steps. First, the demand for this Divisia monetary aggregate is evaluated using econometric techniques. By means of a cointegrated VECM model, a theoretically plausible and stable demand function may be estimated. Second, the information content of the Divisia monetary aggregate as regards future output and inflation in the euro area is analysed. The outcome of this analysis suggests that the Divisia monetary aggregate has some information content from a forward-looking perspective, of comparable quality as simple sum M1 and M3. More in general, the paper lends further support to the view that money and 'liquidity' should be assigned an important role in shaping monetary policy in the euro area
Delegated portfolio management: a survey of the theoretical literature
Full text linkThis paper provides a selective review of the theoretical literature on delegated portfolio management as a principal-agent relationship. The main focus of the paper is to review the analytical issues raised by the peculiar nature of the delegated portfolio management relationship within the broader class of principalagent models. In particular, the paper discusses the performance of linear vs. nonlinear compensation contracts in a single-period setting, the possible effects of limited liability of portfolio managers, the role of reputational concerns in a multiperiod framework, and the incentives to noise trading. In addition, the paper deals with some general equilibrium dimensions and asset pricing implications of delegated portfolio management. The paper also suggests some directions for future research. JEL Classification: D82, G11adverse selection, agency, Delegated portfolio management, Moral Hazard, principal-agent models
Does liquidity matter? Properties of a synthetic divisia monetary aggregate in the euro area
Full text linkThis paper sets out to build a synthetic quarterly Divisia monetary aggregate for the euro area using area wide data over the sample period from 1980 to 2000. Then, the analysis proceeds in two separate steps. First, the demand for this Divisia monetary aggregate is evaluated using econometric techniques. By means of a cointegrated VECM model, a theoretically plausible and stable demand function may be estimated. Second, the information content of the Divisia monetary aggregate as regards future output and inflation in the euro area is analysed. The outcome of this analysis suggests that the Divisia monetary aggregate has some information content from a forward-looking perspective, of comparable quality as simple sum M1 and M3. More in general, the paper lends further support to the view that money and 'liquidity' should be assigned an important role in shaping monetary policy in the euro area. JEL Classification: E41, E52Divisia monetary aggregates, EMU, liquidity, Money demand
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