Thomas Osowski

INTERNATIONAL EFFECTS OF EURO AREA VERSUS U.S. POLICY UNCERTAINTY: A FAVAR APPROACH: INTERNATIONAL SPILLOVERS OF POLICY UNCERTAINTY

Building on the growing evidence on the importance of large data sets for empirical macroeconomic modeling, we estimate a large-scale FAVAR model for 18 OECD member countries. We quantify the global effects of economic policy uncertainty shocks and check whether the signs, the magnitude, and the persistence profile are consistent with the literature on the real and financial sector effects of uncertainty. In that respect, we compare the impacts of a US and a Euro area uncertainty shock. According to our results, an increase in uncertainty has a strong negative impact on economic activity, consumer prices, equity prices and interest rates. Uncertainty shocks cause deeper recessions in Continental Europe (except Germany) than in Anglo- Saxon countries. This pattern is compatible with the view that continental Europe still suffers from institutions which prevent flexible markets. And US uncertainty shocks have a bigger impact than their European counterparts. Uncertainty does not only impact that country where the shock originates but also has large cross-border effects. In that respect, Switzerland turns out to be the most affected non-Euro area European country. We also find a high degree of synchronization among the responses of national variables to a (foreign) uncertainty shock, indicating evidence of an international business cycle. With respect to the responses of national long-term interest rates to an uncertainty shock, our results reveal a strong “North-South” divide within EMU with rates decreasing less significantly in the South. Another important result is that uncertainty shocks emerging in one region quickly raise uncertainty outside the region of origin which appears to be an important transmission channel of uncertainty.

Did quantitative easing affect interest rates outside the US? New evidence based on interest rate differentials

This paper explores the effects of non-standard monetary policies on international yield relationships. Based on a descriptive analysis of international long-term yields, we find evidence that long-term rates have followed a global downward trend prior to as well as during the financial crisis. Comparing interest rate developments in the United States and the Eurozone, it appears difficult to find a distinct impact of the Feds QE1 on US interest rates for which the global environment - the global downward trend in interest rates - does not account. Motivated by these results, we analyze the impact of the Feds QE1 program on the stability of the US-Euro long-term interest rate relationship by using a CVAR and, in particular, recursive estimation methods. Using data between 2002 and 2014, we find limited evidence that QE1 caused a breakup or a destabilization of the transatlantic interest rate relationship. Taking global interest rate developments into account, we thus find no significant evidence that QE had an independent, distinct impact on US interest rates.

Planned Fiscal Consolidations and Growth Forecast Errors – New Panel Evidence on Fiscal Multipliers

This paper analyzes the effect of planned fiscal consolidation on GDP growth forecast errors from the years 2010-2013 using cross section analyses and fixed effects estimations. Our main findings are that fiscal multipliers have been underestimated in most instances for the year 2011 while we find little to no evidence for the years 2010 and especially the latter years 2012/13. Since the underestimation of fiscal multipliers seems to have decreased over time, it may indicate learning effects of forecasters. However, the implications for fiscal policy should be considered with caution as a false forecast of fiscal multipliers does not confirm that austerity is the wrong fiscal approach but only suggests a too optimistic assessment of fiscal multipliers for the year 2011.