Helsinki Center of Economic Research (HECER) discussion papers


ISSN 1795-0562

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  • Silvo, Aino (HECER - Helsinki Center of Economic Research, 2015)
    HECER Discussion Paper No.395
    I analyse the dynamics of a New Keynesian DSGE model where the financing of investments is affected by a moral hazard problem. I solve for jointly Ramsey-optimal monetary and macroprudential policies. I find that when there is a financial friction besides the standard nominal friction, the optimal policy can replicate the first-best if the social planner can conduct both monetary and macroprudential policy to control both inflation and the level of investments. Using monetary policy alone is not enough to fully stabilise the economy: it leads to a policy trade-off between stabilising inflation and the output gap. When policy follows simple rules instead, the source of fluctuations is highly relevant for the choice of the appropriate policy mix. JEL Classification: E32, E44, E52, G28 Keywords: monetary policy, macroprudential policy, financial frictions
  • Puonti, Päivi (HECER – Helsinki Center of Economic Research,, 2015)
    HECER Discussion Paper No. 394
    This paper estimates the effects of fiscal policy shocks on GDP in the United States with a vector error correction (VEC) model where shocks are identified by exploiting the nonnormal distribution of the model residuals. Unlike previous research, the model used here takes into account cointegation between the variables and identifies fiscal policy shocks without imposing any restrictions. The approach also allows statistical testing of previous identification strategies, which may help discriminate between them and hence also explain differences between various fiscal multiplier estimates. According to the results, a deficit financed government spending shock has a weak negative effect on output, whereas a tax raise to finance government spending has a positive impact on GDP.
  • Kanniainen, Vesa; Ringbom, Staffan (HECER - Helsinki Center of Economic Research, 2015)
    HECER Discussion Papers No. 393
    The paper introduces a welfarist approach to the national safety of a nation with membership in a defense alliance as an option. The members are risk averse but heterogeneous in their safety classification. There are two public goods as insurance devices, the domestic military budget and the incremental safety provided by the membership in the alliance. The commitment of the alliance in the creation of safety is,however, imperfect. A sufficient condition is stated for the non-membership. Under a positive option value of the membership, several adverse incentive effects shaping the option value are identified, including the incentive to free ride in domestic defense investment and a moral hazard effect in terms of national commitment to the defense effort. The cost of participation is determined in the spirit of the median voter theorem. The alliance equilibrium is shown to be of two potential types, a stable alliance equilibrium with a positive mass and or a degenerate one with one member only. The driving force in the adjustment of the alliance is its size relative to the safety class of the median voter. Expectations of the decision making of the co-members concerning the commitment can result in multiple equilibria.
  • Gillanders, Robert; Parviainen, Sinikka (HECER - Helsinki Center of Economic Research, 2015)
    HECER Discussion Paper No. 392
    The links between corruption and the shadow economy have mostly been studied empirically at the country level. This paper contributes to this literature by examining the relationship at the sub-national level. Using World Bank Enterprise Survey data, we find that sub-national units in which more firms report that corruption is an obstacle to their operations also tend to have more firms that report informal competitors as an obstacle and vice versa. We also ask whether within country variation matters and find that regions with a bigger problem in one of these dimensions than their national average also tend to have a relatively bigger problem in the other dimension. Sub-Saharan Africa is different in that neither of these findings are evident in that sub-sample.
  • Breen, Michael; Gillanders, Robert; McNulty, Gemma; Suzuki, Akisato (HECER - Helsinki Center of Economic Research, 2015)
    HECER Discussion Paper No. 391
    Are women less corrupt in business? We revisit this question using firm-level data from the World Bank’s Enterprise Surveys, which measure firms’ experience of corruption and the gender of their owners and top managers. We find that women in positions of influence are associated with less corruption: female-owned businesses pay less in bribes and corruption is seen as less of an obstacle in companies where women are represented in top management. By providing evidence that women are, ethically at least, good for business our research contributes to the literature on development, gender equality, and corruption more generally.
  • Palokangas, Tapio (HECER – Helsinki Center of Economic Research, 2015)
    HECER Discussion Paper No. 390
    Heterogeneous countries produce goods from fixed resources and emitting inputs that cause simultaneous localized and global externality problems (e.g. smog and global warming). Since there is no benevolent international government, the issue of emission permits is delegated to an international self-interested regulator whom the countries try to influence. A single country can exceed its emission permits with a fixed penalty. In this setup, this article shows that emission trading is welfare diminishing, because it grants less (more) permits to countries with relatively clean (dirty) localized technology.
  • Fornaro, Paolo (HECER – Helsinki Center of Economic Research, 2015)
    HECER Discussion Paper No. 389
    In this paper, I use a large set of macroeconomic and financial predictors to forecast U.S. recession periods. I adopt Bayesian methodology with shrinkage in the parameters of the probit model for the binary time series tracking the state of the economy. The in-sample and out-of-sample results show that utilizing a large cross-section of indicators yields superior U.S. recession forecasts in comparison to a number of parsimonious benchmark models. Moreover, data rich models with shrinkage manage to beat the forecasts obtained with the factor-augmented probit model employed in past research.
  • Palokangas, Tapio (HECER – Helsinki Center of Economic Research, 2015)
    HECER Discussion Paper No. 388
    This article considers the case where a number of countries produce goods from labor, government input and natural resources. Because conservation of natural resources anywhere yields utility in all countries and there is no benevolent international government, the coordination of conservation must be delegated to a regulator that may have its own interests. This article examines what is the efficient package of tools for that regulator. It is shown that if the minimum standards for conservation are used, then conservation subsidies are welfare decreasing, involving excessive conservation. This suggests that e.g. in the EU project called NATURA 2000, it is not appropriate to provide ’’co-financing’’ for sites.
  • Puonti, Päivi (HECER – Helsinki Center of Economic Research, 2015)
    HECER Discussion Paper No. 387
    The identifying restrictions of an earlier VAR model are validated to assess the macroeconomic impact of the risk-taking channel of monetary policy in the U.S. Structural shocks are obtained by exploiting the nonnormality of residuals. The data is found to object to the previously imposed recursive ordering, but a different recursive ordering is supported. Based on the resulting impulse responses, there is no strong and significant evidence of the risk-taking channel during the sample period. This finding is in contrast with both the predictions of the underlying theoretical model and previous empirical findings.
  • Kalliovirta, Leena; Meitz, Mika; Saikkonen, Pentti (HECER – Helsinki Center of Economic Research, 2014)
    HECER Discussion Paper No. 386
    This paper proposes a new nonlinear vector autoregressive (VAR) model referred to as the Gaussian mixture vector autoregressive (GMVAR) model. The GMVAR model belongs to the family of mixture vector autoregressive models and is designed for analyzing time series that exhibit regime-switching behavior. The main difference between the GMVAR model and previous mixture VAR models lies in the definition of the mixing weights that govern the regime probabilities. In the GMVAR model the mixing weights depend on past values of the series in a specific way that has very advantageous properties from both theoretical and practical point of view. A practical advantage is that there is a wide diversity of ways in which a researcher can associate different regimes with specific economically meaningful characteristics of the phenomenon modeled. A theoretical advantage is that stationarity and ergodicity of the underlying stochastic process are straightforward to establish and, contrary to most other nonlinear autoregressive models, explicit expressions of low order stationary marginal distributions are known. These theoretical properties are used to develop an asymptotic theory of maximum likelihood estimation for the GMVAR model whose practical usefulness is illustrated in a bivariate setting by examining the relationship between the EUR-USD exchange rate and a related interest rate data.
  • Pönkä, Harri (HECER – Helsinki Center of Economic Research, 2014)
    HECER Discussion Paper No. 385
  • Gillanders, Robert; Parviainen, Sinikka (HECER – Helsinki Center of Economic Research, 2014)
    HECER Discussion Paper No. 384
  • Kanniainen, Vesa; The EuroThinkTank of Finland (HECER – Helsinki Center of Economic Research, 2014)
    HECER Discussion Paper No. 383
  • Tervala, Juha (HECER – Helsinki Center of Economic Research, 2014)
    HECER Discussion Paper No. 382
  • Zhu, Min (HECER – Helsinki Center of Economic Research, 2014)
    HECER Discussion Paper No. 381