Jerome Henry

Asymmetry in the EMS revisited: Evidence from the Causality Analysis of Daily Eurorates

This study uses non-stationary econometrics to analyze asymmetry and dominance within the EMS through interest rate linkages between the French franc, the German deutsche mark and the US dollar. High frequency data (daily Eurorates from April 1983 to the end of 1992) are used for their better suitability to the analysis of the causal linkages. We first show there is a break in the long-run structure of the system of interest rates: two sub-periods are therefore analyzed, before and after German unification. Three types of causality are then studied: causality in short-run dynamics and through long-run exogeneity in the VAR representation as well as neutrality in the MA representation. On both periods, causality tests confirm the French rate is submitted to the German dominance in the short-run. Posterior to the unification, the German interest rate is strongly exogenous, even with respect to the dollar. The neutrality analysis also shows the forces driving the system are the dollar and the DM rates prior to unification, but only the latter afterwards.

An area-wide real-time database for the euro area

This paper describes how we constructed a real-time database for the euro area. The database covers more than 200 series regularly published in the European Central Bank Monthly Bulletin, as made available to the Governing Council members for their first monthly meeting. We study the properties of the real-time data flow and data revisions in the euro area, also providing comparisons with the United States and Japan. We illustrate how revisions contribute to the uncertainty surrounding key macroeconomic ratios and the non-accelerating inflation rate of unemployment.

Unit Root in the Wage‐Price Spiral Is Not Hysteresis in Unemployment

Hysteresis is one of the main concepts used in Layard, Nickell and Jackmans book, Unemployment: Macroeconomic Performance and the Labour Market. Attempts to clarify the concept of hysteresis, from its formal representation to its empirical applications. Emphasizes the idea that hysteresis refers back to a given set of formal properties, independently of the phenomenologies within which it is liable to be encountered. In economics, the fields concerned may indeed vary a lot (labour market, foreign trade, etc.). By highlighting all the formal properties of hysteresis, shows how the assimilation of phenomena characterized by a zero eigenvalue for linear systems (or unit-root systems for discrete-time processes) is wrong and, moreover, how the imprecise use of the concepts can lead to the particular constraints affecting unit-root econometrics being overlooked.

Factor Analysis in a Model with Rational Expectations

DSGE models are characterized by the presence of expectations as explanatory variables. To use these models for policy evaluation, the econometrician must estimate the parameters of expectation terms. Standard estimation methods have several drawbacks, including possible lack or weakness of identification of the parameters, misspecification of the model due to omitted variables or parameter instability, and the common use of inefficient estimation methods. Several authors have raised concerns over the implications of using inappropriate instruments to achieve identification. In this paper we analyze the practical relevance of these problems and we propose to combine factor analysis for information extraction from large data sets and GMM to estimate the parameters of systems of forward looking equations. Using these techniques, we evaluate the robustness of recent findings on the importance of forward looking components in the equations of a standard New-Keynesian model.

A Retrospective Structural Break Analysis of the French German Interest Rate Differential in the run up to EMU

Mean breaks in the Franco-German interest rate differential prior to European Monetary Union can have an economic interpretation, namely gains or losses in credibility of the corresponding ERM central exchange rate. A variety of tests are used to detect such breaks, on daily data covering the 1990s. The analysis paints a broadly consistent picture of these breaks and how expectations evolved before EMU. Results suggest that credibility was characterised by gains as well as setbacks; however an effective convergence is found from 1996 onwards, suggesting a major increase of the credibility of the French participation to EMU around that date.