Carlos Usabiaga

Relative prices and inflation: new evidence from different inflationary contexts

This paper analyses the relationship between inflation and relative price variability, in the direction of the latter, in two countries with very different inflationary experiences: Argentina and Spain. To address this objective, using disaggregated price indexes (the Wholesale Price Index for Argentina and the Consumer Price Index for Spain), we delimitate different inflationary regimes and compute a set of regressions for each country. Our results suggest evidence in favour of the non-neutrality of inflation (mostly in hyperinflation periods) and do not support either the menu costs or the signal extraction approaches. We also detect significant structural changes in the relationship depending on the inflationary regime.

The Relevance of Supply Shocks for Inflation: The Spanish Case

The methodology applied in this article to the Spanish economy is based on Ball and Mankiw (1995). These authors assume that a good proxy for supply shocks is the third moment of the price changes distribution. The main data used are the monthly consumer price indexes of each region, disaggregated in 57 categories, for the 1993–2005 period. We estimate the relation between mean inflation and the higher moments of the distribution, including several control variables. Our results point out that Spanish regions show a common pattern with regard to nominal rigidities, and that Spanish inflation is vulnerable to supply shocks.

Disaggregate evidence on Spanish inflation persistence

This article investigates the degree of persistence of different inflation rates for the Spanish economy using the Consumer Price Index (CPI) for the aggregate as well as for the regions, provinces and eight groups of goods and services, in addition to the Producer Price Index (PPI) for the aggregate and 24 industrial sectors. For that purpose, we employ: (1) the unit-root tests with good size and power of Ng and Perron (2001) with the small-sample bias correction developed by Perron and Qu (2007); (2) the nonlinear Exponential Smooth Transition Autoregressive (ESTAR) unit-root test proposed by Kapetanios et al. (2003); (3) median-unbiased estimations of the persistence parameter and the respective confidence intervals through the grid-bootstrap method proposed by Hansen (1999) and (4) median-unbiased estimations of the half-life of a shock in addition to the associated confidence intervals through the method based on impulse-response functions proposed by Gospodinov (2004). The results from the application of these techniques indicate that most of the CPI-based inflation rate series clearly contain a unit root. As regards the results for the PPI-based inflation rate series, we have provided evidence that the aggregate series appears to contain a unit root, while at the industry level the inflation rate series are found to be nonlinear stationary in 13 sectors. On the basis of this robust evidence of high persistence in inflation, policymakers should pay more attention to any shock hitting inflation, since the effects are expected to be long-lasting, particularly for consumer prices. Along these lines, it is essential to implement correcting reforms with the aim of raising price adjustment flexibility if one wants to avoid having to intervene actively in the markets to reach the inflation target.

Unit root tests and persistence of unemployment: Spain vs. the United States

In this article, we investigate the existence of infrequent shocks and the degree of persistence of unemployment in the US and Spain over the period 1976–2004. We first apply the minimum Lagrange Multiplier unit root test with up to two endogenous changes in level. The evidence gives support to the hysteresis hypothesis for Spain and to regime-wise stationarity for the US. The computation of median unbiased estimates of half-lives directly from the impulse-response function indicates a much higher degree of persistence of unemployment in Spain than in the US. Our results thus give an indication that aggregate demand policies may have different effects in these two countries.

A PANIC analysis on regional and sectoral inflation: the Spanish case

This article studies the stochastic properties of several inflation rates for the Spanish economy using the consumer price index (CPI) for the 17 regions and 12 groups of goods and services, and the producer price index (PPI) for 26 industrial sectors. To this end, we employ the panel analysis of nonstationarity in idiosyncratic and common components (PANIC) approach proposed by Bai and Ng (2004, 2010). This methodology enables us to decompose the observed inflation rate series into a common and an idiosyncratic component, thus allowing us to identify the exact source of nonstationarity. Our analysis provides strong evidence of the presence of a common stochastic trend driving the observed series forming the panel of CPI-based inflation rates for the regions. This, coupled with the presence of a jointly stationary idiosyncratic component, implies the existence of pairwise cointegration across the regional CPI-based inflation rates, which show a clear pattern of convergence over time. This gives an indication of increased geographical homogeneity in consumption patterns. The evidence for the panels of CPI-based inflation of groups of goods and services and PPI-based inflation of industrial sectors indicates the existence of four independent common stochastic trends. This, combined with jointly stationary idiosyncratic series, provides much weaker evidence of cross-cointegration for these two panels.

Introducing VAR and SVAR predictions in system dynamics models

Vector Autoregressive (VAR) and Structural Vector Autoregressive (SVAR) models may be described as those models that explain, at least partially, the values of a set of variables, based on the past values of this set of variables. During recent decades, these models have increased their importance in the field of economic analysis. In this work, we offer an approximation between these econometric techniques and the methodology of system dynamics. We show that by using usual elements in the models of system dynamics we can carry out the simulation of an SVAR model. We present an application to the Spanish labour market.

Microfoundations of fiscal policy effectiveness: monopolistic competition and fiscal policy multipliers

This paper focuses on the role of imperfect competition as a microfoundation for fiscal policy effectiveness. The seminal papers in this area conclude that the higher the degree of monopoly power the higher the value of fiscal policy multipliers. However, this result has been criticised because it depends on the assumptions of the model. We pay special attention to the assumptions on consumer behaviour, comparing a model with no income effect for the labour supply with a model where leisure is a normal good. Concerning fiscal policy effectiveness we show that the values of the multipliers are positive in any case and that the degree of effectiveness depends heavily on the approach taken. These results highlight the relevance of microfoundations to obtain economic policy conclusions. Regarding the relation between the degree of monopoly power and the value of the multipliers, we conclude that stable relations cannot be established.

Matching and clustering in square contingency tables. Who matches with whom in the Spanish labour market

The general framework of contingency tables is used to develop previous methodological contributions on labour matching data. A contingency table is generated by the combination of the multiple characteristics that define each row and column category (worker and job categories in our field). In this context, a dimension problem arises that has to be addressed. Two key concepts related to the labour matching process are defined: propensity to match and similarity in the matching. Both measures can be divided into partial components which allow a better understanding of the underlying structure of the data. On the basis of the methodological contribution proposed, an application to the Spanish labour market is conducted, which relies on a large database of administrative microdata (Continuous Working Life Sample, MCVL). A scenario in which each worker category and each job category is defined by the combination of two attributes (location and occupational level) is displayed.

Understanding Matching Data Through Their Partial Components.

In this paper we develop a previous work on matching data [2], inserting their contents in the more general framework of contingency tables and dealing with the dimensions problem generated by the combination of the multiple characteristics that define each row and column category. Two concepts related to the matching process are defined: propensity to match and similarity in the matching. Both measures can be divided into partial components which allow a better understanding of the underlying structure of the data. We illustrate our methodology taking as an example a labor market where each worker category and each job category is defined by the combination of two attributes: location and occupational level.

PANIC Analysis of Spanish Regional Unemployment

This chapter investigates the time series properties of the unemployment rate of the Spanish regions over the period 1976–2011. For that purpose, we employ the PANIC procedures of Bai and Ng (2004), which allows us to decompose the observed unemployment rate series into common factor and idiosyncratic components. This enables us to identify the exact source behind the hysteretic behaviour found in Spanish regional unemployment. Overall, our analysis with three different proxies for the excess of labour supply renders strong support for the hysteresis hypothesis, which appears to be caused by a common stochastic trend driving all the regional unemployment series.