In the SVAR literature, there exist a disagreement on the relative contribution of demand and supply shocks to oil price fluctuations that finds its roots in the different identification assumption imposed on the short-run elasticity of oil supply. In this paper, we first show that these different identification assumptions also translate into differences in the long-run elasticity of oil supply. Second, we build an RBC model in which both the short and long-run elasticities of oil supply (and demand) are easily pinned down as a function of a few structural parameters. We show that varying the long-term elasticity of supply strongly alters the transmission of demand and supply shocks to oil prices and can explain the disagreement found in the SVAR literature, while its short-run counterpart - taken in isolation - cannot. We then estimate our model by incorporating prior knowledge on both the short and long-run elasticities to revisit the question of the source of oil price fluctuations. The ability to incorporate priors on a long-run elasticity is a clear advantage of our model over SVARs that focus on the short-term elasticity.
First draft coming soon!
First draft coming soon!
We evaluate the welfare effects of the temporary job retention schemes (JRS) implemented in response to the COVID-19 pandemic in a DSGE model with incomplete insurance and heterogeneous agents calibrated to the euro area. JRS have large favorable welfare effects and benefit all households when they are well targeted at potentially viable jobs at risk of being lost. These gains are particularly strong for liquid-asset-poor households, especially for those that are also unemployed or on furlough. The job protection component of JRS explains almost all the welfare gains they deliver, while their high level of generosity plays a minor role and has ambiguous net aggregate welfare effects. We also discuss the conditions that make JRS valuable and show that they can cause a decrease in welfare when they subsidize too many safe jobs; when they are targeted at non-viable jobs that will inevitably be lost once schemes end; and when implemented in economies where labor market frictions are low.
Preprint on SSRN.
This paper (i) reviews the different channels of transmission of prudential policy highlighted in the literature and (ii) provides a quantitative assessment of the impact of Basel III reforms using "off-the-shelf" DSGE models. It shows that the effects of regulation are positive on GDP whenever the costs and benefits of regulation are both introduced. However, this result may be associated with a temporary economic slowdown in the transition to Basel III, which can be accommodated by monetary policy. The assessment of liquidity requirements is still an area for research, as most models focus on costs, rather than on benefits, in particular in terms of lower contagion risk.
See the preprint version of our paper.
This paper offers a solution to the international co-movement puzzle found in open-economy macroeconomic models. We develop a small open economy (SOE) dynamic stochastic general equilibrium (DSGE) model describing three endogenous channels that capture spillovers from the world to a commodity exporter: a world commodity price channel, a domestic commodity supply channel, and a financial channel. We estimate our model with Bayesian methods on two commodity-exporting SOEs, namely Canada and South Africa. In addition to explaining international business cycle synchronization, the new model attributes an important fraction of business cycle fluctuations to foreign shocks in the SOEs.
The working paper version is free to read here!
This paper evaluates the welfare cost of business cycles and the effects of monetary policies in a DSGE model tailored to a small open emerging economy. The model generates rich business cycle fluctuations, features labor market idiosyncratic risks and accounts for imperfect financial and capital markets inclusion. In this context, households excluded from financial and capital markets experience larger costs of business cycle fluctuations due to their inability to hedge against labor market idiosyncratic risks. Different degrees of exposure to different types of risks generate divergent preferences regarding the conduct of monetary policy. While a strong response to inflation deviation from target maximizes welfare for included households, excluded households benefit the most from unemployment and wage stabilization policies.
See my preprint on SSRN.
We examine the role of global and domestic shocks in driving macroeconomic fluctuations for Ghana. We are able to study the impact of exogenous shocks including productivity, credit supply, and commodity price shocks. We identify the shocks with a combination of sign and recursive restrictions within Bayesian VAR models. As a benchmark we provide results for South Africa to document the difference between two economies with similar structures but different levels of development. We find that global shocks play a more dominant role in South Africa than in Ghana. These shocks operate through three channels: trade, credit and commodity prices.
Free to read as an IMF working paper.
In this paper, we examine the role of global and domestic credit supply shocks in macroeconomic fluctuations for Emerging Markets. For this purpose, we impose a set of zero and sign restrictions within a medium-scale Bayesian Vector Auto-Regressive model. Quarterly data from South Africa and G-7 countries in 1985-2010 show that credit supply shocks impact significantly on macroeconomic aggregates in these economies. However, credit supply shocks have played, on average, a less important role than credit demand shocks. Moreover, shocks originating from G7-countries are the main drivers of real activity in South Africa, although they played a marginal role in the 1996-1999 South African recession.
The Covid-19 pandemic, followed by Russia’s war in Ukraine and the ensuing energy crisis, led to a surge in macroeconomic uncertainty in the euro area. A newly developed indicator reveals that the recent bout of uncertainty is closely linked to price fluctuations in commodity markets and variations in consumer and producer prices. Elevated levels of uncertainty continue to pose a challenge for forecasters trying to predict future economic conditions and the trajectory of inflation.
Certain categories of households were hit harder by the pandemic from a financial point of view, incurring losses of income and wealth. Which households were affected the most? What impact would the crisis have had in the absence of compensatory measures? Read our work on Belgian households using survey data !
How strong is the financial health of Belgian issuers? You will find out reading our note !