Francis Vitek

Macroeconomic Model Spillovers and Their Discontents

The Great Recession underlined that policies in some countries can have profound spillovers elsewhere. Sadly, the solution of simulating large macroeconomic models to measure these spillovers has been found wanting. Typical models generate lower international correlations of output and financial asset prices than are seen in even pre-crisis data. Imposing higher financial market correlations creates more reasonable cross-country spillovers, and is likely to become the norm in policy modeling despite weak theoretical underpinnings, as is already true of sticky wages. We propose using event studies to calibrate market reactions to particular policy announcements, and report results for U.S. monetary and fiscal policy announcements in 2009 and 2010 that are plausible and event-specific.

An Assessment of External Price Competitiveness for Mozambique

This paper conducts an assessment of external price competitiveness for Mozambique. A variety of indicators suggest that Mozambique has recently lost external price competitiveness with respect to its major trading partners. Consistent with these indicators, an exchange rate assessment indicates that the metical is overvalued by 26 to 41 percent in real effective terms. If sustained, an overvaluation of this magnitude has the potential to retard economic growth and jeopardize external stability, calling for an adjustment of monetary policy to gradually restore external price competitiveness.

The Global Macroeconomic Costs of Raising Bank Capital Adequacy Requirements

This paper examines the transitional macroeconomic costs of a synchronized global increase in bank capital adequacy requirements under Basel III, as well as a capital increase covering globally systemically important banks. The analysis, using an estimated multi-country model, contributed to the work of the Macroeconomic Assessment Group analysis, especially in estimating the potential international spillovers associated with a global increase in capital requirements. The magnitude of the effects found in this analysis is relatively modest, especially if monetary policies have scope to ease in response to a widening of interest rate spreads by banks.

Policy Analysis and Forecasting in the World Economy; A Panel Dynamic Stochastic General Equilibrium Approach

This paper develops a structural macroeconometric model of the world economy, disaggregated into thirty five national economies. This panel unobserved components model encompasses an approximate linear panel dynamic stochastic general equilibrium model featuring a monetary transmission mechanism, a fiscal transmission mechanism, and extensive macrofinancial linkages, both within and across economies. A variety of monetary policy analysis, fiscal policy analysis, spillover analysis, and forecasting applications of the estimated model are demonstrated, based on a Bayesian framework for conditioning on judgment.

Australia and New Zealand Exchange Rates: A Quantitative Assessment

The paper describes three empirical models commonly used to conduct exchange rate assessments and applies them to data for Australia and New Zealand. The baseline results using data and mediumterm projections available as of October 2008, suggest that the Australian and New Zealand dollars were broadly in line with fundamentals, but with a wide variation across models. A battery of sensitivity tests illustrate that altering the underlying assumptions can yield substantially different assessments. The results are particularly sensitive to the choice of assessment horizon, the set of economies included in the sample, medium-term forecasts, and the exchange rate reference period.

Policy Analysis and Forecasting in the World Economy; A Panel Unobserved Components Approach

This paper develops a structural macroeconometric model of the world economy, disaggregated into thirty five national economies. This panel unobserved components model features a monetary transmission mechanism, a fiscal transmission mechanism, and extensive macrofinancial linkages, both within and across economies. A variety of monetary policy analysis, fiscal policy analysis, spillover analysis, and forecasting applications of the estimated model are demonstrated, based on a Bayesian framework for conditioning on judgment.

Monetary Policy Analysis and Forecasting in the World Economy: A Panel Unobserved Components Approach

This paper develops a panel unobserved components model of the monetary transmission mechanism in the world economy, disaggregated into its fifteen largest national economies. This structural macroeconometric model features extensive linkages between the real and financial sectors, both within and across economies. A variety of monetary policy analysis and forecasting applications of the estimated model are demonstrated, based on a novel Bayesian framework for conditioning on judgment.

Output and Unemployment Dynamics During the Great Recession: A Panel Unobserved Components Analysis

This paper analyzes the sources of output and unemployment dynamics in the world economy during the Great Recession. This analysis is based on a panel unobserved components model of the world economy, disaggregated into its fifteen largest national economies. We find that excess supply pressure was primarily transmitted from the output market to the labor market by economy specific combinations of negative domestic or foreign output demand shocks, mitigated to varying degrees by countercyclical labor market policies or institutions.

Monetary Policy Analysis and Forecasting in the Group of Twenty; A Panel Unobserved Components Approach

This paper develops a panel unobserved components model of the monetary transmission mechanism in the world economy, disaggregated into twenty national economies along the lines of the Group of Twenty. This structural macroeconometric model features extensive linkages between the real and financial sectors, both within and across economies. A variety of monetary policy analysis and forecasting applications of the estimated model are demonstrated, based on a Bayesian framework for conditioning on judgment.

Macrofinancial Analysis in the World Economy: A Panel Dynamic Stochastic General Equilibrium Approach

This paper develops a structural macroeconometric model of the world economy,disaggregated into forty national economies. This panel dynamic stochastic generalequilibrium model features a range of nominal and real rigidities, extensivemacrofinancial linkages, and diverse spillover transmission channels. A variety ofmonetary policy analysis, fiscal policy analysis, macroprudential policy analysis, spilloveranalysis, and forecasting applications of the estimated model are demonstrated. Theseinclude quantifying the monetary, fiscal and macroprudential transmission mechanisms,accounting for business cycle fluctuations, and generating relatively accurate forecasts ofinflation and output growth.