Rafal Raciborski

The production function methodology for calculating potential growth rates and output gaps

This paper provides a detailed description of the current version of the Ecofin Council approved production function (PF) methodology which is used for assessing both the productive capacity (i.e. potential output) and cyclical position (i.e. output gaps) of EU economies. Compared with the previous 2010 paper on the same topic, there have been two significant changes to the PF methodology, namely an overhaul of the NAWRU methodology & the introduction of a new T+10 methodology.

Searching for Additional Sources of Inflation Persistence: The Micro-Price Panel Data Approach

It is often argued that the baseline New-Keynesian model, which relies solely on the notion of infrequent price adjustment, cannot account for the observed degree of inflation sluggishness. Therefore it is a common practice among macro modellers to introduce an ad hoc additional source of persistence to their models. Yet, the empirical validity of this practice has never been formally tested. This paper attempts to examine whether there is some additional persistence present in the data on micro-prices, beyond that implied by infrequent price adjustment. We consider two distinct sets of assumptions consistent with the existence of an intrinsic or extrinsic source of sluggishness and build and estimate two alternative models based on these assumptions. It is shown that in he case of certain product categories, particularly food, there is evidence of less sluggishness than what the standard assumptions underlying the New-Keynesian model would imply. We find certain support for the existence of an additional source of sluggishness for some industrial goods and services. Importantly however, the results are sensitive to the choice of the model. We conclude that some inconsistencies with the baseline New-Keynesian assumptions may be tracked in the price behavior. Yet, it is too early to assess their strength or the effect on macro aggregates. Therefore, at the current stage it would be premature to discard the baseline version of the New-Keynesian model based on evidence from micro-data. Similarly, the micro support for introducing an extra source of inflation sluggishness to macro-models is still relatively weak

The Post-Crisis Slump in the Euro Area and the US: Evidence from an Estimated Three-Region DSGE Model

The global financial crisis (2008-09) led to a sharp contraction in both Euro Area (EA) and US real activity, and was followed by a long-lasting slump. However, the post-crisis adjustment in the EA and the US shows striking differences—in particular, the EA slump has been markedly more protracted. We estimate a three-region (EA, US and Rest of World) New Keynesian DSGE model (using quarterly data for 1999-2014) to quantify the drivers of the divergent EA and US adjustment paths. Our results suggest that financial shocks were key drivers of the 2008-09 Great Recession, for both the EA and the US. The post-2009 slump in the EA mainly reflects a combination of adverse aggregate demand and supply shocks, in particular lower productivity growth, and persistent adverse shocks to capital investment, linked to the continuing poor health of the EA financial system. Adverse financial shocks were less persistent for the US. The financial shocks identified by the model are consistent with observed performance indicators of the EA and US banking systems.