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Members Research Papers

Financial Innovation, the Discovery of Risk, and the U.S. Credit Crisis

JEL codes: 
D82, E44, F41
Keywords: 
learning, asset prices, credit crisis, financial innovation, Fisherian deflation, imperfect information
Version Date: 
Jul 2010
Author/s: 
Enrique Mendoza
Abstract: 

Uncertainty about the riskiness of a new financial environment was an important factor behind the U.S. credit crisis. We show that a boom-bust cycle in debt, asset prices and consumption characterizes the equilibrium dynamics of a model with a collateral constraint in which agents learn "by observation" the true riskiness of the new environment.

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Business Cycles around the Globe: A Regime-switching Approach

JEL codes: 
C32, E32, E37
Keywords: 
business cycles, Markov switching approach, turning point analysis, nonparametric modeling
Version Date: 
Jul 2010
Author/s: 
Sumru Altug
Abstract: 

This paper characterizes business cycle phenomena in a sample of 27 developed and developing economies using a univariate Markov regime switching approach. It examines the efficacy of this approach for detecting business cycle turning points and for identifying distinct economic regimes for each country in question.

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Asynchronous Business Cycles in the E.U.: the Effect of the Common Currency

JEL codes: 
E32, E37, E40
Keywords: 
Business Cycle; Synchronisation; Eurozone
Version Date: 
May 2010
Author/s: 
Periklis Gogas
Abstract: 

The purpose of this paper is to examine the effectiveness of the policies and procedures towards economic convergence between the countries that participated in the European Exchange Mechanism I and which are now members states of the Eurozone.

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Housing Markets and Current Account Dynamics

JEL codes: 
F32
Keywords: 
Housing, Current Account, sign restrictions
Version Date: 
Apr 2010
Author/s: 
Pedro Gete
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Expectation Shocks and Learning as Drivers of the Business Cycle

JEL codes: 
E31, E32, E52, E58
Keywords: 
behavioral explanations of the business cycle, constant-gain learning, DSGE estimation with survey expectations, expectation formation, expectation shocks and waves of optimism and pessimism
Version Date: 
Mar 2010
Author/s: 
Fabio Milani
Abstract: 

Psychological factors, market sentiments, and shifts in beliefs are believed by many to play a nontrivial role in inducing and amplifying economic fluctuations. Yet, these forces are rarely considered in macroeconomic models. This paper provides an attempt to evaluate the empirical role of expectational shocks on business cycle fluctuations.

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Measuring Output Gap Uncertainty

JEL codes: 
C32, C53, E37
Keywords: 
density combination, ensemble forecasting, output gap uncertainty and VAR models
Version Date: 
Mar 2010
Author/s: 
Anthony Garratt, James Mitchell
Abstract: 

We propose a methodology for producing density forecasts for the output gap in real time using a large number of vector autoregessions in inflation and output gap measures. Density combination utilizes a linear mixture of experts framework to produce potentially non-Gaussian ensemble densities for the unobserved output gap.

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Currency Union, Free Trade Areas, and Business Cycle Synchronization

JEL codes: 
C12, C13, C14, C15, C32, E32, F15
Keywords: 
Cycle Synchronization, Hypothesis Testing, Bootstrap Methods
Version Date: 
Mar 2010
Author/s: 
Pierangelo De Pace
Abstract: 

Since the 1970s the characteristics of international business cycles have changed and deeper economic integration has modified the features of cross-country comovement. We formally test for correlation shifts in measures of real economic activity and economic/financial integration.

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