Open Access
The great moderation of inflation: a structural analysis of recent U.S. monetary business cycles
(2012) Casares Polo, Miguel; Vázquez, Jesús; Economía; Ekonomia
U.S. inflation has experienced a great moderation in the last two decades. This paper examines the factors behind this and other stylized facts, such as the weaker correlation of inflation and nominal interest rate (Gibson paradox). Our findings point at lower exogenous variability of supply-side shocks and, to a lower extent, structural changes in money demand, monetary policy, and firms’ sticky pricing behavior as the main driving forces of the changes observed in recent U.S. business cycles.
Embargo
On staggered prices and optimal inflation
(2019) Aguilera Bravo, Asier; Casares Polo, Miguel; Ekonomia; Institute for Advanced Research in Business and Economics - INARBE; Economía; Universidad Pública de Navarra / Nafarroako Unibertsitate Publikoa
This paper computes the steady-state optimal rate of inflation assuming two different sticky-price specifications, Calvo (1983) and Taylor (1980), in a model with monopolistic competition. The optimal rate of inflation in steady state is always positive. This result is robust to changes in the degree of price stickiness. In both cases of staggered prices, the optimal rate of inflation is approximately equal to the ratio between the rate of discount and the Dixit-Stiglitz elasticity.
Open Access
An estimated new-Keynesian model with unemployment as excess supply of labor
(2010) Casares Polo, Miguel; Moreno Pérez, Antonio; Vázquez, Jesús; Economía; Ekonomia
As one alternative to search frictions, wage stickiness is introduced in a New-Keynesian model to generate endogenous unemployment fluctuations due to mismatches between labor supply and labor demand. The effects on an estimated New-Keynesian model for the U.S. economy are: i) the Calvo-type probability on wage stickiness rises, ii) the labor supply elasticity falls, iii) the implied second-moment statistics of the unemployment rate provide a reasonable match with those observed in the data, and iv) wage-push shocks, demand shifts and monetary policy shocks are the three major determinants of unemployment fluctuations.
Open Access
Why are labor markets in Spain and Germany so different?
(2016) Casares Polo, Miguel; Vázquez, Jesús; Economía; Ekonomia
The volatility of unemployment fluctuations has been about 3 times higher in Spain than in Germany over the recent business cycles (1996-2013). In contrast, fluctuations of the rate of wage inflation were significantly more volatile in Germany than in Spain. We estimate a New-Keynesian model and find several explanatory factors: wage rigidity has been higher in Spain, the labor force has been more elastic in Germany than in Spain, large and persistent shocks augmenting the labor force have been estimated for Spain whereas in Germany there have been substantial shocks reducing the intensity of hours per worker, and the ECB’s policy design brought monetary shocks with much greater influence to the Spanish unemployment.
Open Access
A structural analysis of US entry and exit dynamics. Technical appendix
(2018) Casares Polo, Miguel; Khan, Hashmat; Poutineau, Jean-Christophe; Economía; Ekonomia
A. The optimizing programs of the model and other technical details (pages 1-7) B. Short-run and long-run equilibria in the DSGE model with endogenous entry and exit (pages 8-12) C. Average productivity (pages 13-15) D. Data and measurement equations (pages 16 and 17) E. The loglinearized equation for short-run fluctuations of critical productivity, zcr (pages 18 and 19) F. Aggregation (pages 20-24) G. The overall resources constraint (pages 25 and 26) H. Estimated shock decomposition for US data (pages 27-31) I. The sources of fluctuations in the Great Recession (pages 32-37)
Open Access
Firm entry under financial frictions
(2011) Casares Polo, Miguel; Poutineau, Jean-Christophe; Economía; Ekonomia
Introducing both endogenous firm entry and a requirement for external finance in a general-equilibrium model leads to three main results. First, the financial constraint has contractionary effects on both equity investment and the labor supply as they are inversely related to the marginal finance cost. Second, net firm creation amplifies the steady-state impact of changes in either productivity or banking efficiency due to procyclical firm entry. Third, a higher elasticity of substitution (that implies a lower mark-up) cuts the number of firms and makes aggregate output fall in steady state, opposite to standard models with constant number of firms.
Open Access
Entry and exit in recent US business cycles
(2015) Casares Polo, Miguel; Economía; Ekonomia
I show evidence indicating that the variability of the total number of business units (establishments) has significantly increased in recent US business cycles, accounting for nearly 2/3 of real GDP fluctuations during the 2003-2012 decade. Next, I examine the role of business creation and destruction in an estimated DSGE-style model extended with endogenous entry and exit. Shocks on both entry and, especially, exit have played a crucial role on explaining the latest boom-bust cycle in the US economy. I also find that the estimated innovations of total factor productivity are positive and high in 2010-2012, which might be the consequence of the dramatic increase in the exit rates observed during the recession of 2008-2009.
Open Access
Data revisions in the estimation of DSGE models
(2011) Casares Polo, Miguel; Vázquez, Jesús; Economía; Ekonomia
Revisions of US macroeconomic data are not white-noise. They are persistent, correlated with real-time data, and with high variability (around 80% of volatility observed in US real-time data). Their business cycle effects are examined in an estimated DSGE model that distinguishes real-time data from final data. Both the consumption habit formation and the price indexation to lagged inflation fall significantly in the estimation. The model also shows that revision shocks of both output and inflation are expansionary because they occur when real-time published data are too low and the Fed reacts by cutting interest rates. Consumption revisions, by contrast, are countercyclical as consumption habits mirror the observed reduction in real-time consumption. Finally, revisions of the three variables explain 9.3% of changes of output in its long-run variance decomposition.
Open Access
Business dynamism and economic growth: U.S. regional evidence
(2016) Casares Polo, Miguel; Khan, Hashmat; Economía; Ekonomia
We document empirical evidence on the determinants of U.S. regional growth over the last 25 years, with a special attention to the role of entrepreneurial activity or `business dynamism'. The main data source is the Business Dynamics Statistics (BDS) released by the U.S. Census Bureau. The key findings are: i) business entry and exit rates are similarly distributed across states, ii) neither entry nor exit rates have had a significant impact on regional growth, iii) higher business density results in faster regional growth, iv) entry rates have fallen over time and the states with greater business detrending have had weaker economic growth, v) states where entry and exit show substantial comovement (business churning) tend to grow faster, especially after 2007, vi) state-level population growth has no substantial effect on regional growth, and vii) the convergence hypothesis holds across the states of the U.S.
Open Access
A portfolio-choice model to analyze the recent gross capital flows between Canada and the US
(2019) Casares Polo, Miguel; Villar Olano, Alba del; Economía; Ekonomia
We calibrate a two-country New Keynesian model with endogenous portfolio choice and valuation effects to discuss the determinants of the increase in Canadian Net Foreign Assets with the US observed after 2012. Furthermore, we discuss the shocks that may explain the “reversed two-way” capital flows pattern recently characterizing the Canada-US asset trading: Canada has a negative position on bond holdings owned by US investors while a positive balance emerges on its equity holdings from US firms. The combination of a global technology shock, the US fiscal contraction, an adverse wage-push shock in the US and the greater monetary stimulus in the US than in Canada (QE) provide insights to describe the recent capital flows between Canada and the US. Both the QE and the negative wage-push shock in the US play a crucial role as explanatory factors through substantial valuation effects.