Pau Rabanal

Technology Shocks and Aggregate Fluctuations: How Well Does the RBC Model Fit Postwar U.S. Data? ∗

Our answer: Not so well. We reached that conclusion after reviewing recent research on the role of technology as a source of economic fluctuations. The bulk of the evidence suggests a limited role for aggregate technology shocks, pointing instead to demand factors as the main force behind the strong positive comovement between output and labor input measures.

Government Spending and Consumption-Hours Preferences

In this paper we present two extensions that have been largely omitted in the recent literature on Bayesian estimation of DSGE models. First, we pay special attention to different forms of complementarity between consumption and hours affecting the households preferences. Second, we allow for the presence of a fraction of non-Ricardian households - i.e. that have limited access to financial markets. We show that exogenous changes in government transfers are crucial to distinguish between the two sources of comovements of consumption and hours in response to government spending shocks. The main conclusion from the estimated models is that private consumption increases after a government spending shock, when either nonseparability, non-Ricardian behavior, or both, are introduced in the model. In addition, allowing for consumption-hours complementarity leads to a small, and stable over time, estimated fraction of non-Ricardian households.

The Cost Channel of Monetary Policy: Further Evidence for the United States and the Euro Area

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Prudential Issues in Less Diversified Economies

This paper examines the prudential issues associated with credit concentration in less diversified economies (LDEs), which are identified as countries where one or two sectors represent a large share of exports. In preparing this analysis, the characteristics of their financial and banking systems and their interactions with the real sector are studied. The paper also examines the limitations on portfolio diversification confronting banks in these countries, both from the viewpoint of the real sector and of the financial system. The paper finds that banks in LDEs, particularly in low-income countries, appear to face higher risk than their peers in more diversified economies and makes suggestions for policy options and regulatory practices which could be encouraged in such systems.

Inflation Differentials in a Currency Union: A DSGE Perspective

Cross country studies of inflation differentials, in particular in the EMU, have focused on three explanations: (i) the role of tradable and nontradable sector technology shocks and the Balassa-Samuelson effect, (ii) the role of the demand-side effects, and (iii) heterogeneity of inflationary processes inside the EMU. This paper estimates a two country, two sector Dynamic Stochastic General Equilibrium (DSGE) model with nominal rigidities in a currency union using data for Spain and the euro area, to understand the role of each feature in shaping inflation differentials. The paper finds that tradable sector technology shocks are the most important source of inflation differentials, while nontradable sector technology shocks help explain nontradable inflation only, and demand shocks help explain a fraction of output growth, but not of inflation dispersion. In addition, the estimated model finds evidence against inflation dynamics being different in Spain and in the rest of the euro area.

Explaining Inflation Differentials between Spain and the Euro Area

This paper investigates the behavior of inflation differentials between Spain and the rest of the euro area member countries. Cross country studies of inflation differentials, and in particular in the EMU, have focused on three explanations: (i) the role of tradable and nontradable sector productivity improvements, and the Balassa-Samuelson effect, (ii) the role of the demand-side effects, and (iii) heterogeneity of inflationary processes inside the EMU. First, the paper documents that, during the 2002-2006 period, inflation differentials in the tradable goods sector have been driving the inflation differentials in the headline HICP inflation. Second, the paper uses the estimates of a two country, two sector Dynamic Stochastic General Equilibrium (DSGE) model with nominal rigidities in a currency union using data for Spain and the euro area, to understand the role of each feature in shaping inflation differentials. The paper finds that fluctuations in productivity improvements in the tradable sector are the most important source of headline HICP inflation differentials. Demand shocks help explain a fraction of output growth, but not of inflation dispersion. In addition, the estimated model finds no evidence that inflation dynamics are different in Spain and in the rest of the euro area.