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Teaching
Curriculum Vitae
RESEARCH
Current
Projects:
- Common Trends
and Idiosyncratic Shocks in Structural Small Open Economies
- International
Business Cycles in Estimated Multi-Country DSGE Models
- Stochastic
Volatility and Parameter Drifting in DSGE Models (joint with
Jesus Fernandez-Villaverde and Juan
Rubio-Ramirez)
Published
Papers:
·
New Macroeconometrics: A Bayesian Approach
(joint with Jesus Fernandez-Villaverde and
Juan Rubio-Ramirez, forthcoming Handbook of Applied Bayesian Analysis.
January 2009)
Working
Papers:
- Common Factors in Small Open Economies:
Inference and Consequences
Abstract: Inference
about a common international stochastic trend is gained using a small
open economy model, data from seven developed economies, and Bayesian
methods. Shocks to this trend explain up to 14% of the
variability of real variables. Country-specific preference and premium
disturbances account for the bulk of the volatility observed in the
data. There is substantial heterogeneity in the estimated structural
parameters as well as stochastic processes for the countries in the
sample. This diversity translates into a rich array of impulse
responses across countries. The inclusion of a common stochastic factor
influences inference of other stochastic processes in the model.
Abstract: We show that in weakly identified models (1)
the posterior mode will not be a consistent estimator of the true
parameter, (2) the posterior distribution will not be Gaussian even asymptotically,
and (3) Bayesian credible sets and frequentist
confidence sets will not coincide asymptotically. This means that
Bayesian DSGE estimation should not be interpreted merely as a
convenient device for obtaining asymptotically valid point estimates
and confidence sets from the posterior distribution. As an alternative,
we develop a new class of frequentist
confidence sets for structural DSGE model parameters that remains
asymptotically valid regardless of the strength of the identification.
The proposed set correctly reflects the uncertainty about the
structural parameters even when the likelihood is flat, it protects the
researcher from spurious inference, and it is asymptotically invariant
to the prior in the case of weak identification.
Abstract: This paper investigates the extent to which
technology and uncertainty contribute to the volatility observed in
real exchange rates. Using a structural VAR and bilateral exchange
rates is found that neutral technology shocks
are important contributors to the dynamics of real exchange rates.
Investment-specific and uncertainty shocks have more restricted effects
on international prices. All three disturbances cause short-run
deviations from uncovered interest rate parity.
Abstract: This paper shows how changes in the volatility of
the real interest rate at which small open emerging economies borrow
have a quantitatively important effect on real variables like output,
consumption, investment, and hours worked. To motivate our
investigation, we document the strong evidence of time varying
volatility in the real interest rates faced by a sample of four small
emerging open economies: Argentina, Ecuador, Venezuela, and Brazil. We
postulate a stochastic volatility process for real interest rates using
T-Bill rates and country spreads and estimate it with the help of the
Particle filter and Bayesian methods. Then, we feed the estimated
stochastic volatility process for real interest rates in an otherwise
standard small open economy business cycle model. We calibrate eight
versions of our model to match basic aggregate observations, two
versions for each of the four countries in our sample. We find that an
increase in real interest rate volatility triggers a fall in output,
consumption, investment, and hours, and a notable change in the current
account of the economy.
Abstract: Using state level personal income, we
document the substantial heterogeneity in the magnitude and timing of
the Great Moderation. Low income states experienced remarkable
moderation, but some richer states experienced significant increases in
volatility. Empirical analysis of the determinants of volatility
demonstrates and important role for economic development. Reduction in
income volatility is associated with increase in income and degree of
diversification. Expansion of interstate banking and the size of the
service sector also influenced volatility.
Abstract: This paper studies the steady state and
dynamic consequences of inflation in an estimated dynamic stochastic
general equilibrium model of the U.S. economy. It is found that 10
percentage points of inflation entails a steady state welfare cost as
high as 13 % of annual consumption. This large cost is mainly driven by
staggered price contracts and price indexation. The transition from
high to low inflation inflicts a welfare loss equivalent to 0.57%. The
role of nominal/real frictions as well as that of parameter uncertainty
is also addressed.
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