Alessandro Galesi

Regional Financial Spillovers across Europe: A Global VAR Analysis

The recent financial crisis raises important issues about the transmission of financial shocks across borders. In this paper, a global vector autoregressive (GVAR) model is constructed to assess the relevance of international spillovers following a historical slowdown in U.S. equity prices. The GVAR model contains 27 country-specific models, including the United States, 17 European advanced economies, and 9 European emerging economies. Each country model is linked to the others by a set of country-specific foreign variables, computed using bilateral bank lending exposures. Results reveal considerable comovements of equity prices across mature financial markets. However, the effects on credit growth are found to be country-specific. Evidence indicates that asset prices are the main channel through which - in the short run - financial shocks are transmitted internationally, while the contribution of other variables - like the cost and quantity of credit - becomes more important over longer horizons.

Uncovering the heterogeneous effects of ecb unconventional monetary policies across euro area countries

En este docuemento se evalua el efecto de las medidas no convencionales de politica monetaria adoptadas recientemente por el BCE por medio de un modelo VAR Global que explota la variacion existente entre las variables de las economias que conforman el area del euro y tiene en cuenta de forma explicita las interdependencias entre paises. La estimacion del modelo muestra que las medidas de politica monetaria no convencional tienen efectos positivos sobre la actividad, el credito, la inflacion y el precio de los activos, y producen una depreciacion del tipo de cambio. La mayoria de los paises miembros se benefician de estas medidas, pero existe un elevado grado de heterogeneidad. Una parte muy significativa de esta heterogeneidad se explica por las interacciones entre las economias del area del euro, recogidas explicitamente en nuestro modelo, que a su vez amplifican sustancialmente los efectos estimados. Si se compara con la politica monetaria convencional (expansiva), las medidas de caracter no convencional parecen ser mas efectivas en la coyuntura actual para reducir el coste de financiacion de las empresas y potenciar el credito.

Key Elements of Global Inflation

Against the background of large fluctuations in world commodity prices and global growth, combined with ongoing structural changes relating to globalization, this paper examines some of the key factors affecting global inflation. The paper empirically investigates various relative price and structural impacts on global inflation by: estimating a GVAR to examine how oil price shocks feed through to core and headline inflation; calculating the impact of increased imports from low-cost countries on manufacturing import prices; estimating Phillips curves in order to shed light on whether the inflationary process in the OECD countries has changed over time, particularly with respect to the roles of import prices, unit labour costs and the output gap. Overall, the paper finds that there seem to be various significant pressures on global trade prices and labour markets associated with structural factors possibly partly due to globalisation which, in addition to monetary policy, seem to be behind some of the changes in the inflation process over the period examined in this paper.

Fast ML Estimation of Dynamic Bifactor Models: An Application to European Inflation

We generalise the spectral EM algorithm for dynamic factor models in Fiorentini, Galesi and Sentana (2014) to bifactor models with pervasive global factors complemented by regional ones. We exploit the sparsity of the loading matrices so that researchers can estimate those models by maximum likelihood with numerous series from multiple regions. We also derive convenient expressions for the spectral scores and information matrix, which allows us to switch to the scoring algorithm near the optimum. We explore the ability of a model with one global factor and three regional factors to capture inflation dynamics across 25 European countries in the period 1999-2014.

Structural Transformation, Services Deepening, and the Transmission of Monetary Policy

Advanced economies are undergoing a structural transformation from manufacturing to services. We document that structural change comes with a process of services deepening: over time, both services and manufacturing become more intensive in service inputs. We argue that structural transformation and services deepening affect the transmission of monetary policy by increasing the relative importance of services, which have stickier prices than manufacturing. We study the implications of the U.S. sectoral reallocation with a New Keynesian model with two sectors connected by an input-output matrix, which varies endogenously over time. The rise of services dampens the responses of aggregate and sectoral inflation rates to a monetary policy shock. The changes in the responses of sectoral inflation rates are entirely driven by services deepening.