Georgios Georgiadis

Towards an Explanation of Cross-Country Asymmetries in Monetary Transmission

I quantify the importance of financial structure, labor market rigidities and industry mix for cross-country asymmetries in monetary transmission. To do so, I determine how closely the impulse responses to a monetary policy shock obtained from country-specific vectorautoregressive (VAR) models and a non-standard panel VAR model match. In the country-specific VAR models, the impulse responses vary across countries in an unrestricted fashion. In the panel VAR model, the impulse responses also vary across countries, but only to the extent that countries differ regarding their financial structure, labor market rigidities and industry mix. For a sample of 20 industrialized countries over the time period from 1995 to 2009, I find that up to 70% (50%) of the cross-country asymmetries in the responses of output (prices) to a monetary policy shock can be accounted for by crosscountry differences in financial structure, labor market rigidities and industry mix. While in the short run asymmetries in the output responses arise mainly due to cross-country differences in industry mix, in the medium and long run differences in financial structure and labor market rigidities gain more importance. Moreover, cross-country differences in industry mix appear to be of rather minor importance for cross-country asymmetries in the transmission of monetary policy to prices.

Growth, Real Exchange Rates and Trade Protectionism Since the Financial Crisis

Existing evidence suggests that protectionist activity since the financial crisis has been muted, raising the question whether the historically well-documented relationship between growth, real exchange rates and trade protectionism has broken down. This paper re-visits this relationship for the time period since 2009. To this end, we use a novel and comprehensive dataset which considers a wide range of trade policies stretching beyond the traditionally considered tariff and trade defence measures. We find that the specter of protectionism has not been banished: Countries continue to pursue more trade-restrictive policies when they experience recessions and/or when their competitiveness deteriorates through an appreciation of the real exchange rate; and this finding holds for a wide array of contemporary trade policies, including JEL Classification: F13, F14

Has the Preston Curve Broken Down

Three apparently contradictory stylized facts characterize the relationship between per capita incomes and life expectancy: (i) the existence of a strong correlation between the level of life expectancy and the level of per capita income, (ii) the absence of a significant correlation between changes in per capita income and changes in life expectancy, and (iii) the persistence of twin peaks in the distribution of life expectancy, despite their progressive disappearance from the income data. This paper seeks to reconcile these apparently contradictory findings. We argue that a data generating process in which there is a relationship between income and life expectancy for high levels of development but not for low ones can explain these stylized facts, while models that apply a uniform relationship to all countries cannot. We also argue that the slope of the relationship between income and life expectancy is significantly overestimated by standard cross-sectional estimates, with the true slope being much lower for some countries and not statistically significantly different from zero for others. Lastly, we provide evidence from an error-correction model showing that the elasticity of life expectancy to incomes has been declining both for countries at high and low levels of development. We suggest that these results can be interpreted as showing that income matters only for countries that are close enough to the world health technological frontier.

Determinants of Human Development: Capturing the Role of Institutions

In this paper, we study development in a panel of 87 countries from 1970 to 2005. We focus on characterizing institutionally driven heterogeneities in the development effects of macroeconomic policies and on comparing the development process as measured by GDP to that measured by the Human Development Index (HDI). We do so within a novel dynamic panel modelling framework that can account for crucial aspects of both the cross-sectional and intertemporal features of the observed process of development, and that can capture the dependence of the development effects of macroeconomic policies on differences in countries’ persistent characteristics, such as their institutions. Among our findings are that macroeconomic policies affect development with less delay than suggested by conventional econometric frameworks, yet impact HDI with longer delay and overall less strongly than GDP. Differences in countries’ persistent characteristics may even affect the sign of the long-run development effects of a given macroeconomic policy: Fiscal stimuli in the form of government consumption expansions positively affect long-run GDP in countries with low institutional quality, but negatively affect long-run GDP in countries with high institutional quality.

Global Financial Market Impact of the Announcement of the ECB's Extended Asset Purchase Programme

We estimate the impact of the ECB’s announcement of the extended asset purchase programme (EAPP) on 22 January 2015 on global equity prices, bond yields and the euro exchange rate. We find that the EAPP announcement benefited global financial markets by boosting equity prices in the euro area and the rest of the world. At the same time, the EAPP announcement caused a depreciation of the euro vis-à-vis advanced and emerging market economy currencies. Comparing the EAPP to previous ECB announcements of unconventional monetary policies, the main channel of transmission of the EAPP announcement to global financial markets was through signalling—the ECB convincingly conveying to market participants that its future monetary policy stance will remain accommodative—rather than through improving confidence (as was the case for the OMT) or through portfolio re-balancing (as for the SMP). Similarly, in contrast to the OMT and the SMP announcements the signaling channel also played a major role for the domestic financial market impact of the EAPP. Cross-country heterogeneities in the global financial market spillovers from the EAPP announcement were linked to differences in economies’ financial openness, exchange rate regime, trade and financial integration with the euro area and their attractiveness for carry trades.

Financial Globalisation, Monetary Policy Spillovers and Macro-modelling: Tales from 1001 Shocks

Financial globalisation and spillovers have gained immense prominence over the last two decades. Yet, powerful cross-border financial spillover channels have not become a standard element of structural monetary models. Against this background, we hypothesise that New Keynesian DSGE models that do not feature powerful financial spillover channels confound the effects of domestic and foreign disturbances when confronted with the data. We derive predictions from this hypothesis and subject them to data on monetary policy shock estimates for 29 economies obtained from more than 280 monetary models in the literature. Consistent with the predictions from our hypothesis we find: Monetary policy shock estimates obtained from New Keynesian DSGE models that do not account for powerful financial spillover channels are contaminated by a common global component; the contamination is more severe for economies that are more susceptible to financial spillovers in the data; and the shock estimates imply implausibly similar estimates of the global output spillovers from monetary policy in the US and the euro area. None of these findings applies to monetary policy shock estimates obtained from VAR and other statistical models, financial market expectations and the narrative approach.