Alasdair Scott

Monetary and Macroprudential Policy Rules in a Model with House Price Booms

Using a dynamic stochastic general equilibrium (DSGE) model with housing, this paper shows that strong monetary reactions to accelerator mechanisms that push up credit growth and house prices can help macroeconomic stability. In addition, using a macroprudential instrument specifically designed to dampen credit market cycles would also provide stabilization benefits when an economy faces financial sector or housing demand shocks. However, the optimal macroprudential rule under productivity shocks is to not intervene. Therefore, it is crucial to understand the source of house price booms for the design of monetary and macroprudential policy.

The Myth of Comoving Commodity Prices

There is a common perception that the prices of unrelated commodities move together. This paper re-examines this notion, using a measure of comovement of economic time series called concordance. Concordance measures the proportion of time that the prices of two commodities are concurrently in the same boom period or same slump period. Using data on the prices of several unrelated commodities, the paper finds no evidence of comovement in commodity prices. The results carry an important policy implication, as the study provides no support for earlier claims of irrational trading behavior by participants in world commodity markets.

Macroeconomic Patterns and Monetary Policy in the Run-Up to Asset Price Busts

We find that inflation, output and the stance of monetary policy do not typically display unusual behavior ahead of asset price busts. By contrast, credit, shares of investment in GDP, current account deficits, and asset prices typically rise, providing useful, if not perfect, leading indicators of asset price busts. These patterns could also be observed in the build-up to the current crisis. Monetary policy was not the main, systematic cause of the current crisis. But, with inflation typically under control, central banks effectively accommodated these growing imbalances, raising the risk of damaging busts.

A Multivariate Unobserved Components Model of Cyclical Activity

This paper presents results from the estimation of a multivariate unobserved components model of cyclical activity. The model is motivated by a desire to let the data speak as much as possible, and hence to avoid imposing ad hoc and unjustifiable assumptions about trends and cycles. Estimated over the period 1970:1 to 1999:3 via the Kalman filter and maximum likelihood, the model identifies a common, trend-reverting component to real output, unemployment and capacity utilisation. The structure of the model allows an interesting factor interpretation to be put on the estimate of the output gap. These estimates are consistent with priors, but there is no consistent match to any one simple smoother such as the HP filter.

Developing a Structured Forecasting and Policy Analysis System to Support Inflation-Forecast Targeting (IFT)

A computer method and system for configuring device driver is provided. In a preferred embodiment, a device driver comprises a minidriver associated with each output device and a universal driver. Each minidriver implements a plurality of minidriver functions for controlling the outputting of data to the output device by invoking functions of the universal driver. During execution of a program, the program selects an output device and invokes the minidriver functions of the minidriver associated with the selected output device. An initialization function of each minidriver invokes an initialization function of the universal driver passing an indication of and attributes of the selected output device. Other minidriver functions invoke an analogous function of the universal driver passing an indication of the selected output device. The initialization function of the universal driver processes the passed attributes and stores the indication and the processed attributes. Each analogous function accesses the stored attributes and performs the behavior of the analogous function to effect the controlling of the output device.

Recurring patterns in the run-up to house price busts

We present evidence that shows that large increases in credit and residential investment shares, along with deteriorating current account balances, provide useful leading indicators of house price busts. These variables also explain cross-sectional patterns in the build-up to the 2007 crisis. Interestingly, movements in output and inflation have little ability to predict house price busts.