A common practice in empirical macroeconomics is to examine alternative recursive orderings of the variables in structural vector autoregressive (VAR) models. When the implied impulse responses look similar, the estimates are considered trustworthy. When they do not, the estimates are used to bound the true response without directly addressing the identification challenge. A leading example of this practice is the literature on the effects of uncertainty shocks on economic activity. We prove by counterexample and show by simulation that this practice is invalid, whether the data generating process is a structural VAR model or a dynamic stochastic general equilibrium model. Simulation evidence suggests that the underlying identification challenge can be addressed using an instrumental variables estimator.

Our study verified the implications of the spillover of geopolitical risk (GPR) shocks to the economic crisis in Ghana. Our analysis employed the VAR-based spillover models by Diebold and Yilmaz (Int J Forecast 28:57–66, 2012; J Econ 182:119–134, 2014) and the Time-Varying Parameter Vector Autoregressive (TVP-VAR) connectedness approach by Gabauer and Antonakakis (Munich personal RePEc archive refined measures of dynamic connectedness based on TVP-VAR refined measures of dynamic connectedness based on TVP-VAR*, 2017). We scrutinized the interconnections and transmission mechanisms among key macro-financial variables spanning from 2000 to 2022. Our findings indicate that GPR is a fundamental source of shocks to the foreign exchange reserve (FXI), real exchange rate (REER), consumer price index (CPI), and debt. Other significant contributors include export (EXP) and import (IMP), with EXP standing out as the main shock transmitter. On the receiving end, CPI is most impacted by transmissions from IMP and GPR. Our study demonstrates that EXP and IMP are the top shock contributors, while FXI and CPI are the major recipients of these shocks. Such findings provide policymakers with valuable insights into the ramifications of geopolitical risk on the macroeconomic environment. Hence, policymakers are expected to provide necessary buffers to curb the influence of geopolitical risks on the economy.

We review the literature on uncertainty shocks and business cycle research. First, we motivate the study of uncertainty shocks by documenting the presence of time-variation in the volatility of macroeconomic time series. Second, we enumerate the mechanisms that researchers have postulated to link uncertainty shocks and business cycles. Third, we outline how we can specify uncertainty shocks. Fourth, we postulate a real business cycle model augmented with financial frictions and uncertainty shocks. Fifth, we use the model to illustrate our previous discussions and to show how uncertainty shocks can be expansionary, a useful finding in several contexts.

We estimate the short‐run effects of weather‐related disasters on local economic activity and cross‐border spillovers that operate through economic linkages between U.S. states. To this end, we use emergency declarations triggered by natural disasters and estimate their effects using a monthly global vector autoregressive (GVAR) model for U.S. states. Impulse responses highlight the nationwide effects of weather‐related disasters that hit individual regions. Taking into account economic linkages between states allows capturing much stronger spillovers than those associated with mere spatial proximity. The results underscore the importance of geographic heterogeneity for impact evaluation and the critical role of supply‐side propagation mechanisms.

of new classical macroeconomics models in which business-cycle fluctuations are accounted for by real, in contrast to nominal, shocks. RBC theory sees Real business-cycle theory (RBC theory) is a class of new classical macroeconomics models in which business-cycle fluctuations are accounted for by real, in contrast to nominal, shocks. RBC theory sees business cycle fluctuations as the efficient response to exogenous changes in the real economic environment. That is, the level of national output necessarily maximizes expected utility. In RBC mode Real business-cycle theory (RBC theory) is a class of new classical macroeconomics models in which business-cycle fluctuations are accounted for by real, in contrast to nominal, shocks. RBC theory sees business cycle fluctuations as the efficient response to exogenous changes in the real economic environment. That is, the level of national output necessarily maximizes expected utility. In RBC models, business cycles are described as "real" because they reflect optimal adjustments by economic agents rather than failures of markets to clear. As a result, RBC theory suggests that governments should concentrate on long-term structural change rather than intervention through discretionary fiscal or monetary policy. These ideas are strongly associated with freshwater economics within the neoclassical economics tradition, particularly the Chicago School of Economics.

This thesis explores three essays in macroeconomics with an application to Botswana. The first chapter studies the transmission path of the impact and response to a negative shock to commodity prices on resource-rich developing economies using a medium-scale dynamic stochastic general equilibrium (DSGE) model. The model incorporates a detailed fiscal block and is calibrated for Botswana. The results show that a negative shock on diamond prices has a negative impact on mining GDP, government revenues, and total GDP. The main channel of propagation is the fiscal effect, a fall in government spending due to the fall in resource revenues. The analysis demonstrate that without macroeconomic policy intervention, the impact of the shock is deep and prolonged. In contrast, a macroeconomic policy response that includes a modest decrease in government spending, an increase in public debt and an increase in tax rates alongside an expansionary monetary policy mitigates the impact of the shock on the economy. The second chapter presents a large monthly macroeconomic dataset for Botswana to be used for empirical macroeconomic analysis and forecasting that require “big data”. The dataset consists of 96 economic indicators that represent a broad coverage of the economy in line with earlier compilations of datasets of this type. The variance explained by static factors and dynamic factors demonstrate that the dataset allows for a factor representation. A forecasting demonstration suggests tha

Purpose: The Central Bank, as the organ in charge of monetary policies, implements those policies that achieve the selected final goals. In order to achieve these goals, central banks usually use a mechanism. In the first step, the operational tool is selected, and, in the second step, this tool has an effect on a variable called the intermediate goal. Then, through its changes, the final goals are achieved. Depending on the economic conditions and environmental characteristics, the selected tools of the central bank can have different degrees of effectiveness in achieving the macroeconomic goals. Since the monetary policy used in Iran's economy is based on the prohibition of usury and the non-use of interest rates, the question to arise is how the restriction of zero interest rate (prohibition of usury) is applied in the Islamic economic system. Although we know that the theory of zero interest rate, which is discussed in conventional economics, has structural (theoretical and practical) differences with the concept of prohibition of usury, it can have implications for the Islamic economy and our country. In this regard, the issue of compensation for currency depreciation has always been the focus of Islamic economic researchers. For example, compensation for the depreciation of money up to the inflation is accepted according to the fatwa of the Supreme Leader of Islamic Republic of Iran. Therefore, it is necessary to evaluate the economic effects of the zero real interest r

This dissertation is composed of three chapters that study topics in the fields of international macroeconomics and international finance. Chapter 1 studies how news about future Total Factor Productivity (TFP) impacts the investment channel and, in turn, affects the susceptibility to financial crises such as Sudden Stop episodes. A Sudden Stop episode is a crisis stemming from a rapid and severe reduction in economic capital inflows. The study employs a small open economy model with capital accumulation and a representative agent borrowing against an occasionally binding collateral constraint to explore the influence of persistent news shocks on financial stability and optimal policy response. It shows that news shocks increase the probability of Sudden Stops and require an active and substantial policy rate intervention. In a similar framework of endogenous Sudden Stop crises triggered by occasionally binding borrowing constraints, chapter 2 examines policy interventions available in a two-sector small open economy. It distinguishes between the taxes on household debt policy that targets the borrowing activity in the economy and a tradable revenue policy that allocates resources across the two sectors, consistent with an exchange rate policy. It shows that optimal policy when only a single policy tool is available is a tax before and a subsidy during the crisis. Furthermore, the tradable revenue policy over a borrowing-targeted policy provides higher welfare gains. Lastly,

The property of a (New Keynesian) macroeconomic model that stabilizing inflation and stabilizing the (relevant) output gap is equivalent.: #* 2007, Oliver Blanchard and Jordi Galí, Real Wage Rigidities and the New Keynesian Model, Journal of Money, Credit and Banking 39(s1), pp. 35--65 #*: In [the standard new Keynesian framework], stabilizing inflation is equivalent to stabilizing the welfare-relevant output gap. In this paper, we argue that this property of the new Keynesian framework, which we call the divine coincidence, is due to a special feature of the model […] #* 2023, Eric Sims, Jing Cynthia Wu, and Ji Zhang, The Four-Equation New Keynesian Model, The Review of Economics and Statistics 105(4), pp. 931--947 #*: Because credit shocks appear in the Phillips curve, the so-called divine coincidence […] does not hold, and it is not possible to achieve the global minimum of the loss function with just one policy instrument.

The development of banking in a country cannot be separated from internal and external factors that can influence it. The monetary crisis in 1998 and the global financial crisis in 2008 are some examples that show that the banking sector can be affected by the surrounding economic conditions, both from within and outside the country. The purpose of this study is to determine the resilience of Islamic commercial banks in Indonesia if there are shocks that occur in macroeconomics, in this case, namely inflation, exchange rates, Bank Indonesia benchmark interest rate (BI rate), SBIS yields (rSBIS) and Federal Reserve funds interest rates. (FFR). This study uses the Vector Autoregression (VAR) and Vector Error Correction Model (VECM) methods. The conclusion of this study is that Non-Performing Financing (NPF) and Return on Assets (ROA) in Islamic commercial banks in Indonesia tend to be more resistant to fluctuations that occur in domestic macroeconomics and FFR. The Capital Adequacy Ratio (CAR) is relatively stable in responding to a shock, while the Return on Equity (ROE) and Financing Deposit Ratio (FDR) have fluctuated in the long term in other words, they are more vulnerable to shocks and fluctuations that occur in domestic macroeconomic variables and FFR.

The Phillips curve has long pointed out. Inflation and unemployment have a negative relationship. This study checks again. Does this idea work in the United States? The time is from 2000 to 2024. This time had financial crises, pandemics, and supply-side shocks. This study uses monthly inflation and unemployment data from the Bureau of Labor Statistics and the Federal Reserve Economic Database. This study uses an ordinary least squares (OLS) regression. It does this to check if there is a clear linear relationship between the variables people care about. It also does this to see if this relationship is statistically significant. The number that shows how unemployment affects inflation (regression coefficient) is 0.0024. Its p-value is 0.433. The R-squared is 0.001. The results show there is no statistically significant linear relationship between inflation and unemployment in the United States from 2000 to 2024. This challenges the traditional Phillips curve framework. It also suggests its ability to explain things in modern macroeconomics is limited.

Objective: This study aims to connect two strands of the psychology and economics literature, i.e., behavioural finance and agent-based macroeconomics, to assess the impact of managerial overconfidence at the micro and macro levels of the economy as a whole. Method: We build a macroeconomic stock-flow consistent agent-based model that is calibrated for the specific case of Poland to explore whether the overconfidence of top corporate managers in the context of their initial capital structure decisions is detrimental for the firms being managed in this way, the financial market dynamics, and th

(1937–) founded New Classical Macroeconomics based on Milton Friedman's monetarist critique of Keynesian macroeconomics, and the idea of rational expectations The history of economic thought is the study of the philosophies of the different thinkers and theories in the subjects that later became political economy and economics, from the ancient world to the present day. This field encompasses many disparate schools of economic thought. Ancient Greek writers such as the philosopher Aristotle examined ideas about the art of wealth acquisition, and questio In… In the early 1970s American Chicago School economist Robert E. Lucas, Jr. (1937–) founded New Classical Macroeconomics based on Milton Friedman's monetarist critique of Keynesian macroeconomics, and the idea of rational expectations, first proposed in 1961 by John F. Muth, opposing the idea that government intervention can or should stabilize the economy. The Policy-Ineffectiveness Proposition (1975) of Thomas J. Sargent (1943–) and Neil Wallace (1939–), which seemed to refute a basic assumption of Keynesian economics was also adopted. The Lucas aggregate supply function states that economic output is a function of money or price "surprise." Lucas was awarded the 1995 Nobel Economics Prize. Lucas' model was superseded as the standard model of New Classical Macroeconomics by the Real Business Cycle Theory, proposed in 1982 by Finn Kydland (1943–) and Edward C. Prescott (1940–), which seeks to explain observed fluctuations in output and employment in terms of real variables such as changes in technology and tastes. Assuming competitive markets, real business cycle theory implies that cyclical fluctuations are optimal responses to variability in technology and tastes, and that macroeconomic stabilization policies must reduce welfare. In 1982 Kydland and Prescott also founded the theory of Dynamic Stochastic…

Modern ‘inflation targeting’ monetary policy has been one of the prototypes of future-oriented modes of social coordination which in recent years have captured the sociological imagination. Modern central banking is commonly presented as achieving greater efficacy by directly managing economic expectations, in particular when contrasted with the previous heavy-handed, “hydraulic” transmission of policy objectives through systems of economic aggregates. Such empirical claims are mirrored in the theoretical distinction drawn by sociologists between the openness and efficacy of future-oriented co