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This paper proposes a novel way of formulating priors for estimating economic models. System priors are priors about the model's features and behavior as a system, such as the sacrifice ratio or the maximum duration of response of inflation to a particular shock, for instance. System priors represent a very transparent and economically meaningful way of formulating priors about parameters, without the unintended consequences of independent priors about individual parameters. System priors may complement or also substitute for independent marginal priors. The new philosophy of formulating priors is motivated, explained and illustrated using a structural model for monetary policy.

Monetary policy. --- Monetary management --- Economic policy --- Currency boards --- Money supply --- Econometrics --- Macroeconomics --- Money and Monetary Policy --- Monetary Policy --- Computable and Other Applied General Equilibrium Models --- Econometric Modeling: General --- Labor Economics: General --- Econometrics & economic statistics --- Monetary economics --- Labour --- income economics --- Inflation targeting --- Dynamic stochastic general equilibrium models --- Econometric models --- Labor --- Monetary policy --- Labor economics

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This paper builds a model-based dynamic monetary and fiscal conditions index (DMFCI) and uses it to examine the evolution of the joint stance of monetary and fiscal policies in the euro area (EA) and in its three largest member countries over the period 2007-2018. The index is based on the relative impacts of monetary and fiscal policy on demand using actual and simulated data from rich estimated models featuring also financial intermediaries and long-term government debt. The analysis highlights a short-lived fiscal expansion in the aftermath of the Global Financial Crisis, followed by a quick tightening, with monetary policy left to be the “only game in town” after 2013. Individual countries’ DMFCIs show that national policy stances did not always mirror the evolution of the aggregate stance at the EA level, due to heterogeneity in the fiscal stance.

Italy --- Econometrics --- Financial Risk Management --- Macroeconomics --- Public Finance --- Fiscal Policy --- National Government Expenditures and Related Policies: General --- Computable and Other Applied General Equilibrium Models --- Financial Crises --- Public finance & taxation --- Econometrics & economic statistics --- Economic & financial crises & disasters --- Fiscal policy --- Fiscal stance --- Expenditure --- Dynamic stochastic general equilibrium models --- Financial crises --- Econometric analysis --- Expenditures, Public --- Econometric models

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Non-extensive Entropy Econometrics for Low Frequency Series provides a new and robust power-law-based, non-extensive entropy econometrics approach to the economic modelling of ill-behaved inverse problems. Particular attention is paid to national account-based general equilibrium models known for their relative complexity.In theoretical terms, the approach generalizes Gibbs-Shannon-Golan entropy models, which are useful for describing ergodic phenomena. In essence, this entropy econometrics approach constitutes a junction of two distinct concepts: Jayne's maximum entropy principle and the Bayesian generalized method of moments. Rival econometric techniques are not conceptually adapted to solving complex inverse problems or are seriously limited when it comes to practical implementation. Recent literature showed that amplitude and frequency of macroeconomic fluctuations do not substantially diverge from many other extreme events, natural or human-related, once they are explained in the same time (or space) scale. Non-extensive entropy is a precious device for econometric modelling even in the case of low frequency series, since outputs evolving within the Gaussian attractor correspond to the Tsallis entropy limiting case of Tsallis q-parameter around unity. This book introduces a sub-discipline called Non-extensive Entropy Econometrics or, using a recent expression, Superstar Generalised Econometrics. It demonstrates, using national accounts-based models, that this approach facilitates solving nonlinear, complex inverse problems, previously considered intractable, such as the constant elasticity of substitution class of functions. This new proposed approach could extend the frontier of theoretical and applied econometrics.

Business cycles. --- Econometrics. --- Maximum entropy method. --- generalized cross-entropy, general equilibrium macro-economic model, econometrics. --- BUSINESS & ECONOMICS / Econometrics. --- Entropy maximization --- Entropy maximum principle --- Maximization, Entropy --- Entropy (Information theory) --- Maximum principles (Mathematics) --- Economics, Mathematical --- Statistics --- Economic cycles --- Economic fluctuations --- Cycles

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This paper examines the extent to which a dynamic international general equilibrium model can account for observed movements in real interest rates and interest rate differentials. Using data for Group of Seven, the study finds that measured real interest rates are countercyclical in a single country and that the contemporaneous cross-correlations between international real interest differentials and output growth spreads are negative. Predictions of the baseline model are, however, inconsistent with the data. Extending the benchmark model to include habit persistence in consumption improves the match between theory and data.

Banks and Banking --- Econometrics --- Macroeconomics --- Macroeconomics: Production --- Interest Rates: Determination, Term Structure, and Effects --- Open Economy Macroeconomics --- Macroeconomics: Consumption --- Saving --- Wealth --- Innovation --- Research and Development --- Technological Change --- Intellectual Property Rights: General --- Computable and Other Applied General Equilibrium Models --- Finance --- Technology --- general issues --- Econometrics & economic statistics --- Real interest rates --- Consumption --- Production growth --- General equilibrium models --- Financial services --- National accounts --- Production --- Econometric analysis --- Interest rates --- Economics --- Economic theory --- Econometric models --- United States

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In recent years, New Keynesian dynamic stochastic general equilibrium (NK DSGE) models have become increasingly popular in the academic literature and in policy analysis. However, the success of these models in reproducing the dynamic behavior of an economy following structural shocks is still disputed. This paper attempts to shed light on this issue. We use a VAR with sign restrictions that are robust to model and parameter uncertainty to estimate the effects of monetary policy, preference, government spending, investment, price markup, technology, and labor supply shocks on macroeconomic variables in the United States and the euro area. In contrast to the NK DSGE models, the empirical results indicate that technology shocks have a positive effect on hours worked, and investment and preference shocks have a positive impact on consumption and investment, respectively. While the former is in line with the predictions of Real Business Cycle models, the latter indicates the relevance of accelerator effects, as described by earlier Keynesian models. We also show that NK DSGE models might overemphasize the contribution of cost-push shocks to business cycle fluctuations while, at the same time, underestimating the importance of other shocks such as changes to technology and investment adjustment costs.

Econometrics --- Labor --- Public Finance --- Computable and Other Applied General Equilibrium Models --- Demand and Supply of Labor: General --- National Government Expenditures and Related Policies: General --- Innovation --- Research and Development --- Technological Change --- Intellectual Property Rights: General --- Wages, Compensation, and Labor Costs: General --- Econometrics & economic statistics --- Labour --- income economics --- Public finance & taxation --- Technology --- general issues --- Dynamic stochastic general equilibrium models --- Labor supply --- Expenditure --- Real wages --- Econometric models --- Labor market --- Expenditures, Public --- Wages --- United States