Hafedh Bouakez

Why Does Private Consumption Rise After a Government Spending Shock

The present method and apparatus use image processing to determine information about the position of a designated object. The invention is particularly useful in applications where the object is difficult to view or locate. In particular, the invention is used in endoscopic surgery to determined positional information about an anatomical feature within a patients body. The positional information is then used to position or reposition an instrument (surgical instrument) in relation to the designated object (anatomical feature). The invention comprises an instrument which is placed in relation to the designated object and which is capable of sending information about the object to a computer. Image processing methods are used to generated images of the object and determine positional information about it. This information can be used as input to robotic devices or can be rendered, in various ways (video graphics, speech synthesis), to a human user. Various input apparatus are attached to the transmitting or other used instruments to provide control inputs to the computer.

THE TRANSMISSION OF MONETARY POLICY IN A MULTISECTOR ECONOMY

This article constructs and estimates a sticky-price, Dynamic Stochastic General Equilibrium model with heterogeneous production sectors. Firms in different sectors vary in their price rigidity, production technology, and the combination of material and investment inputs. In particular, firms buy inputs from all sectors using the actual Input–Output Matrix and Capital Flow Table of the U.S. economy. By relaxing the standard assumption of symmetry, this model allows idiosyncratic sectoral dynamics in response to monetary policy shocks. The model is estimated by the Generalized Method of Moments using sectoral and aggregate U.S. time series.

Habit formation and the persistence of monetary shocks

Abstract The dynamic effects and relative importance of monetary shocks in the US business cycle are studied using a sticky-price dynamic stochastic general equilibrium model with habit formation and capital adjustment costs. The model is estimated via maximum likelihood using data on output, real money balances, and the nominal interest rate. Econometric results indicate that the model has a strong internal propagation mechanism that can explain the persistent and hump-shaped response of US output and consumption to monetary shocks.

Fluctuations in the foreign exchange market: How important are monetary policy shocks?

We study the effects of U.S. monetary policy shocks on the bilateral exchange rate between the U.S. and each of the G7 countries. We also estimate deviations from uncovered interest rate parity conditional on these shocks. The analysis is based on a structural vector autoregression in which monetary policy shocks are identified through the conditional heteroscedasticity of the structural disturbances. Unlike earlier work in this area, our empirical methodology avoids making arbitrary assumptions about the relevant policy indicator or transmission mechanism in order to achieve identification. At the same time, it allows us to assess the implications of imposing invalid identifying restrictions. Our results indicate that the nominal exchange rate exhibits delayed overshooting in response to a monetary expansion, depreciating for roughly ten months before starting to appreciate. The shock also leads to large and persistent departures from uncovered interest rate parity. Variance-decomposition results indicate that monetary policy shocks account for a non-trivial proportion of exchange rate fluctuations.

Optimal Pass-Through of Oil Prices in an Economy with Nominal Rigidities

In many developing and emerging market economies, governments intervene to limit the degree to which oil-price increases are passed through to domestic fuel prices. This paper investigates whether, and to what extent, this intervention is warranted in an oil-importing economy characterized by nominal rigidities in the goods and labor markets. Our results indicate that, to the extent that monetary policy is capable of stabilizing the economy, government intervention in the oil market must be avoided. On the other hand, when complete stabilization is not attainable as a result of sub-optimal monetary policy, the government can improve social welfare by limiting the degree of pass-through of oil prices. We find, however, that the welfare gain from pursuing such a policy is negligible.

Government spending, monetary policy, and the real exchange rate

Both the traditional Mundell-Fleming-Dornbusch framework and standard dynamic general-equilibrium models with complete financial markets predict that an unanticipated increase in public spending in a given country appreciates its currency in real terms. This prediction, however, contradicts the findings of a number of recent empirical studies, which instead document a significant and persistent depreciation of the real exchange rate following an expansionary government spending shock. In this paper, we rationalize the findings of the empirical literature by proposing a small-open-economy model that features three key ingredients: incomplete and imperfect international financial markets, sticky prices, and a not-too-aggressive monetary policy. The model predicts that in response to an unexpected increase in public expenditure, the long-term real interest rate rises less than the countrys debt elastic interest-rate premium. As a result, the long-term real interest rate differential vis-a-vis the rest of the world falls, leading the domestic currency to depreciate in real terms. We establish this result both analytically, within a special version of the model, and numerically for the more general case.

Sectoral price rigidity and aggregate dynamics

This paper studies the business cycle implications of sectoral heterogeneity in price rigidity using a highly disaggregated multi-sector model. The model is estimated by the Simulated Method of Moments using a mix of aggregate and sectoral U.S. data. The frequencies of price changes implied by our estimates are consistent with those reported in micro-based studies. We show that heterogeneity in price rigidity is the primary factor explaining the heterogeneity in the responses of sectoral output and inflation to a monetary policy shock. We also find that ignoring sectoral heterogeneity in price rigidity leads to the mismeasurement of the relative importance of aggregate and sector-specific shocks in aggregate and sectoral fluctuations.

Sectoral Price Rigidity and Aggregate Dynamics

This paper studies the business cycle implications of sectoral heterogeneity in price rigidity using a highly disaggregated multi-sector model. The model is estimated by the Simulated Method of Moments using a mix of aggregate and sectoral U.S. data. The frequencies of price changes implied by our estimates are consistent with those reported in micro-based studies. We show that heterogeneity in price rigidity is the primary factor explaining the heterogeneity in the responses of sectoral output and inflation to a monetary policy shock. We also find that ignoring sectoral heterogeneity in price rigidity leads to the mismeasurement of the relative importance of aggregate and sector-specific shocks in aggregate and sectoral fluctuations.

Tests of the present-value model of the current account: a note

Using a Monte Carlo approach, we evaluate the small-sample properties of four different tests of the present-value model (PVM) of the current account: the nonlinear Wald, linear Wald, Lagrange multiplier and likelihood ratio tests. We find that the nonlinear Wald test is biased towards over-rejecting the cross-equation restrictions implied by the PVM, and that the test statistic is uncorrelated with the goodness of fit of the PVM. The three alternative tests are essentially equivalent and are more reliable in evaluating the PVM.

Government Spending, Monetary Policy, and the Real Exchange Rate

A robust prediction across a wide range of open-economy macroeconomic models is that an unanticipated increase in public spending in a given country appreciates it currency in real terms. This result, however, contradicts the findings of a number of recent empirical studies, which instead document a signifi...cant and persistent depreciation of the real exchange rate following an expansionary government spending shock. In this paper, we rationalize the findings of the empirical literature by proposing a small-open-economy model that features three key ingredients : incomplete and imperfect international financial markets, sticky prices, and a not-too-aggressive monetary policy. The model predicts that in response to an unexpected increase in public expenditures, the risk-adjusted long-term real interest rate falls, causing the real exchange rate to depreciate. We establish this result both analytically, within a special version of the model, and numerically for the more general case.