Suchergebnisse

Purpose
The purpose of this paper is to investigate the relationship between inflation, interest rate, and output gap in the US economy in the post Second World War period, without assuming any structure nor imposing any restriction on that relationship.


Design/methodology/approach
The authors apply vine copula modeling to investigate asymmetry and tail behavior on both conditional and unconditional dependence among those variables. The dependence parameter is allowed to evolve over time according to a stochastic autoregressive processes. Additionally, a conditional expectation based on vine copula is used to analyze the conditional expectation of interest rate.


Findings
The results suggest that the joint distribution, both conditional and unconditional, of the interest rate and inflation is asymmetric to the left, while the pair interest rate and output gap have symmetrical distributions coupled with low persistence and high volatility. Besides the unquestionable evidence that the US monetary policy has been mostly focused on inflation stabilization, there is also indication of nonlinearity in the conditional expected interest rate and asymmetric behavior by the Federal Reserve in the long run.


Originality/value
The vine copula modeling allows for several forms of asymmetries and tail dependence, which is a flexible modeling strategy for multivariate distributions. Moreover, the conditional expectation implied by vine copulas is suitable to account for nonlinearity in the interest rate conditional on inflation and output gap.

Abstract This paper investigates the Ricardian Equivalence (RE) under collateralized debt, default, transaction costs and incomplete markets. The public debt is neutral and the RE holds only if the collateral-transfer cost depends linearly on the lump-sum tax and is fully offset. Lenders and borrowers should enter in a voluntary agreement to compensate for any transfer cost under default. However, any perturbation in the assumed affine relation undermines the debt neutrality. It is not the transaction cost per se that invalidates the RE, but rather how this cost affects the households' indebtedness and budget constraint. The underlying mechanism is the credit channel of the fiscal policy. Whenever the transfer cost is not fully offset, there is a net tax balance leftover that affects the budget set and real allocations. This is fundamentally different from a liquidity constrained economy because the credit channel of the fiscal policy is binding and uncompensated transaction costs lead to the RE failure.