Browsing by Subject "kansantaloustiede"

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  • Kortelainen, Mika (2001)
    Suomen Pankin keskustelualoitteita 3/2001
    We present a dynamic general equilibrium model with some nominal rigidities and calibrate it to euro area data.The most important features of the model include consumption/saving decisions according to Blanchard's stochastic lifetimes approach; valuation of private financial wealth according to the present value of capital income; overlapping Calvo wage contracts in the labour market; and a neoclassical supply side with Cobb-Douglas technology.The model is developed for use in analysing differences between perceived and actual monetary policy rules, which is then done as a means of evaluating the macroeconomic benefits of credibility in monetary policy.General properties of the model are analysed with a variety of simulation experiments.Key words: EDGE, rational expectation, DGE models, nominal rigidites
  • Mayes, David G.; Virén, Matti (2000)
    Bank of Finland. Discussion papers 11/2000
    Published in Economic Modelling, Vol. 22, No 2, March 2005: 219-251
    This paper highlights the implications for EU macroeconomic policy at a relatively disaggregated level when key economic relationships are nonlinear or asymmetric.Using data for the EU and OECD countries we show that there are considerable non-linearities and asymmetries in the Phillips and Okun curves.High unemployment has a relatively limited effect in pulling inflation down while low unemployment can be much more effective in driving it up.Downturns in the economy are both more rapid and sustained in driving unemployment up than recoveries are in bringing it down.There is considerable variety in these relationships and in IS curves across not just countries but also sectors and regions. Key words: aggregation, asymmetry, monetary policy, nonlinear models, Okun curve, Phillips curve
  • Pesola, Jarmo (2005)
    Bank of Finland Research Discussion Papers 13/2005
    The macroeconomic determinants of banking sector distresses in the Nordic countries, Belgium, Germany, Greece, Spain and the UK are analysed using an econometric model estimated on panel data from partly the early 1980s to 2002.The dependent variable is the ratio of banks' loan losses to lending.In addition to the lagged dependent variable, the explanatory variables include a surprise change in incomes and real interest rates, both variables as a separate cross-product term with lagged aggregate indebtedness.The underlying macroeconomic account that this paper puts forward is that loan losses are basically generated by strong adverse aggregate shocks under high exposure of banks to such shocks.The underlying innovations to income and real interest rates are constructed using published macro-economic forecast for these variables.According to the results, high customer indebtedness combined with adverse macroeconomic surprise shocks to income and real interest rates contributed to the distress in banking sector. Loan losses also display strong autoregressive behaviour which might indicate a feedback effect from loan losses back to macroeconomic level in deep recessions.The results can be used in macro stresstesting the banking sector. Key words: financial fragility, shock, loan loss, banking crisis JEL Classification numbers: G21, E44
  • Välimäki, Tuomas (2002)
    Bank of Finland. Discussion papers 1/2002
    This paper presents a model of the optimal bidding behaviour of a single bank in the context of fixed rate liquidity tenders.Banks' bidding is shown to depend crucially on the central bank's liquidity policy as regards tender allotments.The paper also analyses ECB liquidity policy in terms of the model.The ECB, while applying fixed rate tenders, appears to have been attempting stabilise the market interest rate at a level close to the main refinancing rate.However, this aim was at least partially overridden by that of stabilising total money market liquidity over the course of the reserve maintenance period - even more so when banks were expecting the ECB to raise the main refinancing rate in the near future.The banks' aggregate bids increased considerably during the period of fixed rate tenders.This was seen to result mainly from profit opportunities associated with a positive spread between market interest rate and main refinancing rate.The positive spread resulted from the combination of expectations of an interest rate hike and liquidity-oriented allotment policy.Key words: bidding, money market tenders, liquidity policy, central bank operating framework
  • Vilmunen, Jouko (2002)
    Suomen Pankin keskustelualoitteita 22/2002
    In this paper we estimate reduced form investment equations for Finland using aggregate as well as firm-level panel data.We obtain significant estimates of the accelerator and user-cost effects on investment with both aggregate and firm level data, but these effects appear to be stronger at the aggregate level.Although the response of firms' investment spending to shifts in monetary policy seems to be quantitatively nontrivial, it is surprisingly weak according to the results with firm-level data, and a considerable amount of heterogeneity also exists across firms in this respect. The firm-level estimates do not provide evidence for the existence of binding financing constraints in firms' investment spending, at least among the sampled large firms, as we cannot obtain a significant coefficient estimate on the cash flow variable. Key words: accelerator, user cost, transmission of monetary policy, panel data
  • Junttila, Juha (2002)
    Bank of Finland. Discussion papers 2/2002
    Using recently developed modelling methodology of Economic Tracking Portfolios (ETP), we find that it is possible to forecast future values of inflation and changes in industrial production in the United States and at least three core euro countries - Italy, France and Germany - utilising only current and past financial market information.The longer the forecasting horizon, the better the forecasts based solely on financial market information compared to results from other methods.Of the analysed countries, the overall forecasting performance of the tracking portfolios is the best for the United States, and the method employed here clearly outperforms the forecasting performance of a more traditional VAR approach. Key words: financial markets, forecasting, macroeconomy, euro area, USA
  • Kuismanen, Mika (2000)
    Bank of Finland. Discussion papers 5/2000
    It is well known that estimation of the labour supply function is complicated by the non-linearity of the individual s budget constraint.Non-linearity may be caused by a number of factors such as the structure of the tax/benefit scheme or overtime rates. Non-linearities also cause problems in interpreting the policy implications of the estimates.In this study we use a well-structured econometric labour supply model that mimics actual budget constraints as closely as possible to analyse the labour-supply effects of different income tax regimes and systems. In addition to the empirically-specified labour supply model, we construct, for the first time in Finland, a behavioural microsimulation model.Our intent is to contribute to the tax debate in Finland by simulating several suggested changes in the tax system.Our simulation results show that none of the proposed reforms are self-financing.Revenue-neutral move to a proportional tax system does not have major effects on labour supply.The most pronounced behavioural effects are achieved when marginal tax rates are reduced at the lower end of the income tax schedule. Keywords: microsimulation, labour supply, taxation
  • Schaling, Eric (2003)
    Bank of Finland. Discussion papers 20/2003
    In this paper we analyse disinflation policy in two environments. In the first, the central bank has perfect knowledge, in the sense that it understands and observes the process by which private sector inflation expectations are generated; in the second, the central bank has to learn the private sector inflation forecasting rule.With imperfect knowledge, results depend on the learning scheme that is employed.Here, the learning scheme we investigate is that of least-squares learning (recursive OLS) using the Kalman filter.A novel feature of a learning-based policy as against the central bank's disinflation policy under perfect knowledge is that the degree of monetary accommodation (the extent to which the central bank accommodates private sector inflation expectations) is no longer constant across the disinflation, but becomes state-dependent.This means that the central bank's behaviour changes during the disinflation as it collects more information. Key words: learning, rational expectations, separation principle, Kalman filter, time-varying parameters, optimal control JEL classification numbers: C53, E43, E52, F33
  • Virolainen, Kimmo (2003)
    Suomen Pankin keskustelualoitteita 18/2004
    In the discussion paper, we employ data on industry-specific corporate sector bankruptcies over the time period from 1986 to 2003 and estimate a macroeconomic credit risk model for the Finnish corporate sector.The sample period includes a severe recession with significantly higher-than-average default rates in the early 1990s.The results suggest a significant relationship between corporate sector default rates and key macroeconomic factors including GDP, interest rates and corporate indebtedness.The estimated model is employed to analyse corporate credit risks conditional on current macroeconomic conditions.Furthermore, the paper presents some examples of applying the model to macro stress testing, ie analysing the effects of various adverse macroeconomic events on the banks credit risks stemming from the corporate sector.The results of the stress tests suggest that Finnish corporate sector credit risks are fairly limited in the current macroeconomic environment. Key words: banking, credit risk, stress tests JEL classification numbers: C15, G21, G28, G33
  • Kajanoja, Lauri (2003)
    Suomen Pankin keskustelualoitteita 9/2003
    This paper studies the gain from using money as an indicator when monetary policy in made under data uncertainty.We use a forward and backward looking model, calibrated for the euro area.The policymaker cannot completely observe the state of the economy. Money reveals some of the private sector's information to the policymaker, especially if there is a forward looking element in money demand.We show that observing money can considerably reduce the loss that is due to incomplete information.However, taking also into account other financial market data could decrease the marginal importance of money as an indicator. Key words: monetary policy, partial information, money, monetary aggregates, euro area JEL classification numbers: E52, E58, E47
  • Fischer, Christoph (2002)
    BOFIT Discussion Papers 8/2002
    Published in Review of World Economics/Weltwirtschaftliches Archiv vol. 140, no 2 (2004), pp. 179-210
    The Balassa-Samuelson effect is usually seen as the prime explanation of the continuous real appreciation of central and east European (CEE) transition countries' currencies against their western counterparts.The response of a small country's real exchange rate to various shocks is derived in a simple model.It is shown that productivity shocks work not only through a Balassa-type supply channel but also through an investment demand channel. Therefore, empirical evidence apparently in favour of Balassa-Samuelson effects may require a re-interpretation.The model is estimated for a panel of CEE countries.The results are consistent with the model, plausibly explain the observed real appreciation and support the existence of the proposed investment demand channel.JEL classification: F31, F41, C33
  • Leong, Kenneth (2002)
    Suomen Pankin keskustelualoitteita 19/2002
    Despite sound theoretical foundations, a drawback of the New Keynesian model is its inability to generate adequate persistence in the variables it seeks to explain.A common solution is to modify the model to include lagged variables.However, this is unsatisfactory, as many such modifications depart from the microeconomic underpinnings of the original model.This paper presents results from simulation exercises that support the fully forward-looking New Keynesian model.In particular, we show that the exchange rate channel of monetary policy, which has been largely overlooked in existing studies of persistence, is instrumental in generating inflation persistence.However, the combination of full forward-looking behaviour and an open economy is unable to generate sufficient persistence in the output gap. Adding an autocorrelated noise term to the assumption of rational expectations makes the model capable of generating persistence matching that of US inflation, the output gap, and the nominal interest rate, as well as the real exchange rate. Key words: New Keynesian model, rational expectations, persistence, open economy JEL classification numbers: E31, E52
  • Fidrmuc, Jarko; Korhonen, Iikka (2001)
    BOFIT Discussion Papers 14/2001
    Published in Economic Systems vol 27, no 3 (2003), pp. 313-334
    We assess the correlation of supply and demand shocks between the euro area, the EU accession countries and also the present EU countries.Shocks are recovered from estimated structural vector autoregressive models.We find that some advanced accession countries have quite high correlation with the euro area.However, even for many high income accession countries the degree of correlation remains low.Also, in the 90s many EU countries seemed to have much higher correlation with the core euro area countries than in previous decades.Continuing integration within the EU seems to have aligned business cycles of the countries as well. Keywords: optimal currency area, monetary union, EU enlargement JEL classification numbers: E32, F42
  • Ellison, Martin (2001)
    Suomen Pankin keskustelualoitteita 4/2001
    This paper investigates the consequences of introducing endogenous price stickiness into a standard monetary policy model.We find that the modification reduces the optimal degree of inflation stabilization to which the central bank should commit.The reason is that less inflation stabilization encourages firms to review their prices more frequently.The economy becomes more flexible and the Phillips-curve tradeoff is improved, making it easier for the central bank to control inflation.This reduces, and may even reverse, the stabilization bias that is present in models with exogenous price stickiness and that recommends that the central bank generally commit to tighter stabilization of inflation than it would in a discretionary policy regime.Key words: price stickiness, monetary policy, stabilization bias
  • Railavo, Jukka (2004)
    Suomen Pankin keskustelualoitteita 1/2004
    Using an optimisation-based model with endogenous labour supply and a proportional tax rate, we compare the stabilising properties of different fiscal policy rules.The economy is affected by shocks from both government spending and technology.The fiscal policy rule can be based on government liabilities or the government budget deficit.As both are given as measures of fiscal policy performance in the Stability and Growth Pact (SGP), we also use a fiscal policy rule based on the combination of the two.We compare the accounting definition of deficit with the economic definition which takes inflation into account.The fiscal policy rule based on debt, with monetary policy consistent with the Taylor principle, results in an unstable solution.However, a fiscal policy rule based on deficit produces stable solutions with a wide range of fiscal policy parameters.Moreover, we find that putting more weight on the deficit than the debt in the fiscal policy rule creates less cyclical responses to shocks.Finally we find out that the SGP definition of deficit performs as well as the real deficit based on the government budget constraint. Key words: inflation, fiscal and monetary policy, stabilisation JEL classification numbers: E52, E31, E61
  • Fidrmuc, Jarko; Korhonen, Iikka (2003)
    BOFIT Discussion Papers 6/2003
    Published in Comparative Economic Studies vol. 46 no 1 (2004), pp. 45-62
    We assess the correlation of supply and demand shocks between current countries in the euro area and EU accession candidates from 1993/1995 to 2002.Supply and demand shocks are recovered from estimated structural VAR models of output growth and inflation. Notably, the economic slowdown between 2000 and 2002 increased heterogeneity of business cycles between the euro area and acceding counties.We find that several acceding countries have a quite high correlation of underlying shocks with the euro area and conclude that continuing integration within the EU is likely to align the business cycles of these countries in a manner similar to the synchronisation of supply and demand shocks we document for the EU in the 1990s.JEL numbers E32, F42.Keywords: Optimum currency area, EU enlargement, structural VAR.
  • Vetlov, Igor (2004)
    BOFIT Discussion Papers 13/2004
    This paper presents preliminary results of modelling the Lithuanian block of the ESCB Multi-Country Model, LT_MCM.The theoretical structure of the LT_MCM is in line with most current mainstream macro models, i.e. supply factors determine the long-run equilibrium, while output is demand determined in the short run. Starting with a brief overview of the common features and main building blocks of a typical MCM country model block, we report the preliminary results of estimation of the Lithuanian MCM block.To illustrate the main characteristics of the estimated model, some standard shocks are introduced in the model and the responses studied.Compared to other MCM country blocks, we find that the Lithuanian macro model is characterised by relatively large and rapid response to shocks.Model simulation reveals that, compared to domestic prices, GDP is more responsive to shocks in the short run, while investment on average is more volatile than private consumption.The latter findings are similar to those reported for other EU country macro models. JEL classification: E10, E13, C5 Keywords: Macro Model, Lithuania
  • Herrala, Risto (2003)
    Suomen Pankin keskustelualoitteita 31/2003
    We study the basic economic problem of choice between long-term and short-term commitments under a general characterization of uncertainty (aggregate uncertainty).When contingencies are contractible, a perfect market of Arrow-Debreau contingent claims implements the social optimum.When contingencies are not contractible, long-term commitments receive too much weight in individual portfolios.The economy as a whole is too rigid during periods of high aggregate shocks.The model links a rigidity bias with the operation of the price mechanism and the monetary system. Keywords: liquidity, central banking, monetary system JEL classification numbers: G0, E0