Economics - Research Publications

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    Policy Forum: Uncertainty and the Business Cycle - Some New Findings Introduction
    Castelnuovo, E (Wiley, 2019-09-01)
    Uncertainty has been a pretty hot topic among academics and economists working in policy circles since the global financial crisis. I believe we now know a lot more about its effects on the business cycles of a variety of countries than we knew before the crisis. Uncertainty tends to be recessionary, it exerts stronger effects when the economy is already experiencing difficulties from an aggregate standpoint, or when financial markets operate less smoothly, and it tends to harm macroeconomic policies’ effectiveness. In spite of the impressive amount of knowledge accumulated so far, gaps in the literature are still present. First, we do not know much about how long term rates respond to uncertainty shocks. While dynamic stochastic general equilibrium models approximated at third order offer predictions on how the term structure responds to uncertainty shocks, the literature has not yet produced many model‐free reduced‐form types of regressions on the link between uncertainty and long rates. This is a big hole, given the relevance of long rates on consumption and investment decisions. Second, we need to sharpen our understanding of monetary policy risk management. Uncertainty is clearly relevant from a policy standpoint. But do policymakers systematically monitor uncertainty? Moreover, do they disagree on the economic outlook, and if so, does this influence their decisions? Third, we need proxies for uncertainty for a broader set of countries than the G7. For example, how does uncertainty evolve in a country like New Zealand as opposed to, say, the United States? This special issue addresses all these questions. The first paper, ‘Yield curve and financial uncertainty: Evidence based on US data’, estimates the response of the US yield curve to a jump in financial uncertainty. I address this question by conducting a local projection analysis with US monthly data from 1962–2018. I find both ends of the yield curve respond negatively and significantly. The response of the short end of the yield curve is stronger than that of the long end, that is, a financial uncertainty shock causes a temporary steepening of the yield curve. This result is consistent, among other interpretations, with medium‐term expectations of a recovery in real activity after a financial uncertainty shock.
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    Yield Curve and Financial Uncertainty: Evidence Based on US Data
    Castelnuovo, E (Wiley, 2019-09-01)
    How do short‐ and long‐term interest rates respond to a jump in financial uncertainty? We address this question by conducting a local projections analysis with US monthly data, period: 1962–2018. The state‐of‐the‐art financial uncertainty measure proposed by Ludvigson, Ma and Ng (2019) is found to predict movements in interest rates at different maturities. In particular, an increase in financial uncertainty is found to trigger a negative and significant response of both short‐ and long‐term interest rates. The response of the short end of the yield curve (i.e., of short‐term interest rates) is found to be stronger than that of the long end (i.e., of long‐term ones). In other words, a financial uncertainty shock causes a temporary steepening of the yield curve. This result is consistent, among other interpretations, with medium‐term expectations of a recovery in real activity after a financial uncertainty shock.
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    Policy Forum: Macroeconomic Policies in the New Normal
    Castelnuovo, E ; -, - (Wiley, 2019-03-01)
    This issue of the policy forum focuses on a theme that has become dominant on the policymakers’ agenda since the global financial crisis: How to conduct monetary and fiscal policies in an environment characterised by low interest rates and concerns over fiscal sustainability.
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    What Do We Know About the Macroeconomic Effects of Fiscal Policy? A Brief Survey of the Literature on Fiscal Multipliers
    Castelnuovo, E ; Lim, G (Wiley, 2019-03-01)
    This article discusses recent research on the macroeconomic effects of fiscal policy—the theme of the 2018 edition of the Melbourne Institute Macroeconomic Policy Meeting. We review recent research findings on the effects of fiscal multipliers in normal times, during booms/busts, and in the presence of the zero lower bound. Studies on the effects of fiscal policy in open economy settings as well as contributions on the fiscal‐monetary policy mix are also considered. We conclude by outlining a few research avenues that are particularly relevant from a policy standpoint.
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    Policy Forum: Cryptocurrencies Introduction
    Castelnuovo, E (WILEY, 2018-12-01)
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    Macroeconomic Policies in a Low Interest Rate Environment: Back to Keynes?
    Castelnuovo, E ; Lim, G ; Pellegrino, G (WILEY, 2018-03-01)