What Accounts for the German Labor Market Miracle? A Structural VAR Approach

This study examines the driving forces behind the strong decline in German unemployment from 2005 onwards and the exceptionally small increase during the Great Recession. Structural vector autoregressions (VARs) with sign restrictions show that wage moderation in the aftermath of labor market reforms was the dominant factor of the unemployment decline, and that improved matching and shrinking labor supply also contributed to it. The adjustment to business cycle shocks (Great Recession), on the other hand, is to a large extent borne by the intensive margin, which can be explained by institutional aspects of the German labor market.

Religious, Civil, and Economic Freedoms: What’s the Chicken and What’s the Egg?

This paper studies the relationship between religious liberty and economic freedom. First, three new facts emerge: (a) religious liberty has increased since 1960, but has slipped substantially over the past decade; (b) the countries that experienced the largest declines in religious liberty tend to have greater economic freedom, especially property rights; (c) changes in religious liberty are associated with changes in the allocation of time to religious activities. Second, using a combination of vector autoregressions and dynamic panel methods, improvements in religious liberty tend to precede economic freedom. Finally, increases in religious liberty have a wide array of spillovers that are important determinants of economic freedom and explain the direction of causality. Countries cannot have long-run economic prosperity and freedom without actively allowing for and promoting religious liberty.

VALIDATING DSGE MODELS WITH SVARS AND HIGH-DIMENSIONAL DYNAMIC FACTOR MODELS

A popular validation procedure for Dynamic Stochastic General Equilibrium (DSGE) models consists in comparing the structural shocks and impulse-response functions obtained by estimation-calibration of the DSGE with those obtained in an Structural Vector Autoregressions (SVAR) identified by means of some of the DSGE restrictions. I show that this practice can be seriously misleading when the variables used in the SVAR contain measurement errors. If this is the case, for generic values of the parameters of the DSGE, the shocks estimated in the SVAR are not “made of” the corresponding structural shocks plus measurement error. Rather, each of the SVAR shocks is contaminated by noncorresponding structural shocks. We argue that High-Dimensional Dynamic Factor Models are free from this drawback and are the natural model to use in validation procedures for DSGEs.

Moment tests of independent components

We propose simple specification tests for independent component analysis and structural vector autoregressions with non-Gaussian shocks that check the normality of a single shock and the potential cross-sectional dependence among several of them. Our tests compare the integer (product) moments of the shocks in the sample with their population counterparts. Importantly, we explicitly consider the sampling variability resulting from using shocks computed with consistent parameter estimators. We study the finite sample size of our tests in several simulation exercises and discuss some bootstrap procedures. We also show that our tests have non-negligible power against a variety of empirically plausible alternatives.

Effect of Monetary Policy on Investment in Russian Regions

This paper assesses the effect of monetary policy on investment in Russian regions. In the first stage of the research, we estimate the responses of regional investment to interbank market rate shocks using structural vector autoregressions. In the second stage, we estimate regression models using impulse responses as dependent variables and explanatory factors as independent variables. The regression calculations are performed using the Elastic Net regularisation technique. We find that regions with higher shares of manufacturing, agriculture and construction are more responsive to monetary policy shocks. In addition, we identified the high importance of these sectors in explaining the different effects of monetary policy on investment. The results also show that the larger is the share of the mining and quarrying sector in the gross regional product (GRP) and the greater the imports to GRP ratio, the smaller is the absolute change in investment from a monetary policy shock.

The time-varying and volatile macroeconomic effects of immigration

This paper studies the impact of immigration on the US macroeconomy. I identify structural vector autoregressions (SVARs) with time-varying parameters (TVPs) and stochastic volatility (SV) using a novel set of restrictions. The TVP-SV-SVARs are estimated on a quarterly sample including average labor productivity (ALP), hours worked, immigration, consumption, and term spread from 1953 to 2017. An immigration supply shock increases domestic ALP and hours worked over the business cycle horizons. Movements in immigration are explained by its own shock and to a lesser extent by the productivity and news shocks. IRFs driven by these shocks vary over the sample, especially around changes in immigration policy such as the Immigration Act of 1990. In contrast, the forecast error variance decompositions exhibit little change over the sample. Immigration plays an important role in the US macroeconomy.