Zisimos Koustas

On the Fisher Effect

We use post-war quarterly data from Belgium, Canada, France, Germany, Greece, Ireland, Japan, theNetherlands, the United Kingdom, and the United States to examine the Fisherian link between inflation and the short-term nominal interest rates.

International Evidence on the Neutrality of Money

We use Backus and Kehoe (1992) long, low frequency data on real GNP/GDP and money for Australia, Canada, Denmark, Germany, Italy, Japan, Norway, Sweden, the United Kingdom and the Uniter States to examine the long-run neutrality and superneutrality of money propositions. In doing so, we apply the King and Watson (1992) methodology, paying particular attention to the integration and cointegration properties of the variable, since meaningful neutrality tests critically depend on such properties.

Unemployment Hysteresis in Canada: An Approach Based on Long-Memory Time Series Models

Long-memory univariate time series models, known as ARFIMA, are applied to measure shock persistence for Canada and the USA. Both output and unemployment exhibit higher persistence in Canada than in the USA. The finding that the rate of unemployment in Canada exhibits high shock persistence supports the notion of hysteresis in unemployment. The analysis of disaggregated Canadian unemployment rates indicates that hysteresis is most pronounced for adult male workers. The same class of models is used to obtain a generalization of the Beveridge-Nelson decomposition of time series into a permanent and a cyclical component. The permanent component of the Canadian unemployment rate exhibits a kink in the early 1970s.

Canadian Evidence on Long-Run Neutrality Propositions

The empirical methodology developed by King and Watson (1992) is employed to test the validity of a number of long-run neutrality propositions in the Canadian context. We test for long-run money neutrality, the vertical long-run Phillips curve, and the long-run Fisher relationship using quarterly post WWII data for the Canadian economy.

Long-run Phillips-type trade-offs in European Union countries

Abstract The empirical methodology recently developed [Econ. Q. 83 (1997) p. 69] is employed to test for a zero long-run elasticity of the rate of unemployment with respect to permanent shocks in the rate of inflation. We use quarterly data spanning the last 30–40 years for Austria, Denmark, Finland, France, Germany, Italy, Spain, Sweden and the UK. There is considerable evidence against a vertical long-run Phillips curve, when the model is identified by specifying a short-run Phillips curve of the type favoured by Keynesian economists. Possible exceptions are Denmark, France and Germany, for which evidence against a vertical long-run Phillips curve is limited. When identification is achieved by postulating a short-run trade-off consistent with the monetarist rational expectations models, the vertical long-run Phillips curve cannot be rejected, except in the case of Italy.

Evidence of nonlinear mean reversion in the real interest rate

This article utilizes tests for a unit root that have power against nonlinear alternatives to provide empirical evidence on the time series properties of the ex-post real interest rate in the G7 countries. We find that the unit root hypothesis can be rejected in the presence of a nonlinear alternative motivated by theoretical literature on optimal monetary policy rules. This represents a reversal of the results obtained using standard linear unit-root and cointegration tests. Tests for linearity reject this hypothesis for Canada, France, Italy and Japan for which we estimate nonlinear models capturing the dynamics of the interest rate. For these countries, ex-post real interest rates follow a nonlinear model characterized by mean reversion and provide statistical evidence for the Fisher effect.

Is there a phillips curve in Canada? A rational expectations approach☆

Abstract Most recent empirical studies of the expectations-augmented Phillips curve for Canada support the re-emergence of the short-run Phillips curve whose existence had been cast in doubt by the results of earlier studies covering the post-1967 period. Moreover, these studies find that the long-run Phillips curve is vertical in Canada. In this paper, using standard micro underpinnings, we derive an expression for excess demand in the labor market that incorporates only observable variables. Further, we assume that expectations are rational. Our empirical results indicate that rationality does not wipe out the short-run Phillips curve and interestingly it also allows a long-run trade-off between excess demand for labor and inflation. The latter finding suggests that caution should be exercised in attempting to estimate the Canadian natural rate of unemployment.

Estimation of a Nonlinear Taylor Rule Using Real-Time U.S. Data

Abstract This paper extends the work in Orphanides (2003) by re-examining the empirical evidence for a Taylor rule in a nonlinear framework. In doing so, it updates the Greenbook dataset used by the afore mentioned author to the most recent available period. A three-regime threshold regression model is utilized to capture the possibly asymmetric policy reaction function used by the U.S. Federal Reserve. The theoretical foundations for such an approach to monetary policy are discussed in Orphanides and Wilcox (2002). Our results indicate that the estimated Taylor rule for the U.S., based on real-time Greenbook data for the period 1982:3-2003:4, is probably nonlinear.

Testing for short-run money neutrality in a small open economy: The case of Canada

This paper adopts an econometric methodology which is based on standard nested-hypotheses testing in order to test the policy ineffectiveness proposition in the context of the Canadian economy. It thus avoids some problems associated with the non-nested hypotheses framework used by Barro and numerous other writers.The substantial openness of the Canadian economy is taken into account through the use of a Mundell-Flemming aggregate demand side. The supply response of the economy is carefully modelled, in the same context, and the familiar Sargent-Wallace aggregate supply function is derived as a special case of a more general Keynesian function — by assuming instantaneous adjustment of prices to costs.Empirical tests based on a data sample spanning the period of Canadas recent experience with flexible exchange rates are unfavorable to the policy ineffectiveness proposition.