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One of the leading methods of estimating the structural parameters of DSGE models is the VAR-based impulse response matching estimator. The existing asympotic theory for this estimator does not cover situations in which the number of impulse response parameters exceeds the number of VAR model parameters. Situations in which this order condition is violated arise routinely in applied work. We establish the consistency of the impulse response matching estimator in this situation, we derive its asymptotic distribution, and we show how this distribution can be approximated by bootstrap methods. Our methods of inference remain asymptotically valid when the order condition is satisfied, regardless of whether the usual rank condition for the application of the delta method holds. Our analysis sheds new light on the choice of the weighting matrix and covers both weakly and strongly identified DSGE model parameters. We also show that under our assumptions special care is needed to ensure the asymptotic validity of Bayesian methods of inference. A simulation study suggests that the frequentist and Bayesian point and interval estimators we propose are reasonably accurate in finite samples. We also show that using these methods may affect the substantive conclusions in empirical work.
The propagation of regional shocks in housing markets: evidence from oil price shocks in Canada
(2018)
Shocks to the demand for housing that originate in one region may seem important only for that regional housing market. We provide evidence that such shocks can also affect housing markets in other regions. Our analysis focuses on the response of Canadian housing markets to oil price shocks. Oil price shocks constitute an important source of exogenous regional variation in income in Canada because oil production is highly geographically concentrated. We document that, at the national level, real oil price shocks account for 11% of the variability in real house price growth over time. At the regional level, we find that unexpected increases in the real price of oil raise housing demand and real house prices not only in oil-producing regions, but also in other regions. We develop a theoretical model of the propagation of real oil price shocks across regions that helps understand this finding. The model differentiates between oil-producing and non-oil-producing regions and incorporates multiple sectors, trade between provinces, government redistribution, and consumer spending on fuel. We empirically confirm the model prediction that oil price shocks are propagated to housing markets in non-oil-producing regions by the government redistribution of oil revenue and by increased interprovincial trade.
Although oil price shocks have long been viewed as one of the leading candidates for explaining U.S. recessions, surprisingly little is known about the extent to which oil price shocks explain recessions. We provide the first formal analysis of this question with special attention to the possible role of net oil price increases in amplifying the transmission of oil price shocks. We quantify the conditional recessionary effect of oil price shocks in the net oil price increase model for all episodes of net oil price increases since the mid-1970s. Compared to the linear model, the cumulative effect of oil price shocks over course of the next two years is much larger in the net oil price increase model. For example, oil price shocks explain a 3% cumulative reduction in U.S. real GDP in the late 1970s and early 1980s and a 5% cumulative reduction during the financial crisis. An obvious concern is that some of these estimates are an artifact of net oil price increases being correlated with other variables that explain recessions. We show that the explanatory power of oil price shocks largely persists even after augmenting the nonlinear model with a measure of credit supply conditions, of the monetary policy stance and of consumer confidence. There is evidence, however, that the conditional fit of the net oil price increase model is worse on average than the fit of the corresponding linear model, suggesting much smaller cumulative effects of oil price shocks for these episodes of at most 1%.
Traditional least squares estimates of the responsiveness of gasoline consumption to changes in gasoline prices are biased toward zero, given the endogeneity of gasoline prices. A seemingly natural solution to this problem is to instrument for gasoline prices using gasoline taxes, but this approach tends to yield implausibly large price elasticities. We demonstrate that anticipatory behavior provides an important explanation for this result. We provide evidence that gasoline buyers increase gasoline purchases before tax increases and delay gasoline purchases before tax decreases. This intertemporal substitution renders the tax instrument endogenous, invalidating conventional IV analysis. We show that including suitable leads and lags in the regression restores the validity of the IV estimator, resulting in much lower and more plausible elasticity estimates. Our analysis has implications more broadly for the IV analysis of markets in which buyers may store purchases for future consumption.
A series of recent articles has called into question the validity of VAR models of the global market for crude oil. These studies seek to replace existing oil market models by structural VAR models of their own based on different data, different identifying assumptions, and a different econometric approach. Their main aim has been to revise the consensus in the literature that oil demand shocks are a more important determinant of oil price fluctuations than oil supply shocks. Substantial progress has been made in recent years in sorting out the pros and cons of the underlying econometric methodologies and data in this debate, and in separating claims that are supported by empirical evidence from claims that are not. The purpose of this paper is to take stock of the VAR literature on global oil markets and to synthesize what we have learned. Combining this evidence with new data and analysis, I make the case that the concerns regarding the existing VAR oil market literature have been overstated and that the results from these models are quite robust to changes in the model specification.
Predictions of oil prices reaching $100 per barrel during the winter of 2021/22 have raised fears of persistently high inflation and rising inflation expectations for years to come. We show that these concerns have been overstated. A $100 oil scenario of the type discussed by many observers, would only briefly raise monthly headline inflation, before fading rather quickly. However, the short-run effects on headline inflation would be sizable. For example, on a yearover- year basis, headline PCE inflation would increase by 1.8 percentage points at the end of 2021 under this scenario, and by 0.4 percentage points at the end of 2022. In contrast, the impact on measures of core inflation such as trimmed mean PCE inflation is only 0.4 and 0.3 percentage points in 2021 and 2022, respectively. These estimates already account for any increases in inflation expectations under the scenario. The peak response of the 1-year household inflation expectation would be 1.2 percentage points, while that of the 5-year expectation would be 0.2 percentage points.
We present results on transverse momentum (pT) and rapidity (y) differential production cross sections, mean transverse momentum and mean transverse momentum square of inclusive J/ψ and ψ(2S) at forward rapidity (2.5 < y < 4) as well as ψ(2S)-to-J/ψ cross section ratios. These quantities are measured in pp collisions at center of mass energies s√=5.02 and 13 TeV with the ALICE detector. Both charmonium states are reconstructed in the dimuon decay channel, using the muon spectrometer. A comprehensive comparison to inclusive charmonium cross sections measured at s√=2.76, 7 and 8 TeV is performed. A comparison to non-relativistic quantum chromodynamics and fixed-order next-to-leading logarithm calculations, which describe prompt and non-prompt charmonium production respectively, is also presented. A good description of the data is obtained over the full pT range, provided that both contributions are summed. In particular, it is found that for pT > 15 GeV/c the non-prompt contribution reaches up to 50% of the total charmonium yield.
The production of beauty hadrons was measured via semi-leptonic decays at mid-rapidity with the ALICE detector at the LHC in the transverse momentum interval 1<p T < 8 GeV/c in minimum-bias p-Pb collisions at sNN−−−√=5.02 TeV and in 1.3 < p T < 8 GeV/c in the 20% most central Pb-Pb collisions at sNN−−−√=2.76 TeV. The pp reference spectra at sNN−−−√=5.02 TeV and s√=2.76 TeV, needed for the calculation of the nuclear modification factors R pPb and R PbPb, were obtained by a pQCD-driven scaling of the cross section of electrons from beauty-hadron decays measured at s√=7 TeV. In the p T interval 3 < p T < 8 GeV/c, a suppression of the yield of electrons from beauty-hadron decays is observed in Pb-Pb compared to pp collisions. Towards lower p T, the R PbPb values increase with large systematic uncertainties. The R pPb is consistent with unity within systematic uncertainties and is well described by theoretical calculations that include cold nuclear matter effects in p-Pb collisions. The measured R pPb and these calculations indicate that cold nuclear matter effects are small at high transverse momentum also in Pb-Pb collisions. Therefore, the observed reduction of R PbPb below unity at high p T may be ascribed to an effect of the hot and dense medium formed in Pb-Pb collisions.
The production of K∗(892)0 and ϕ(1020) mesons has been measured in p–Pb collisions at √sNN = 5.02 TeV. K∗0 and ϕ are reconstructed via their decay into charged hadrons with the ALICE detector in the rapidity range - 0.5 < y < 0. The transverse momentum spectra, measured as a function of the multiplicity, have a pT range from 0 to 15 GeV/c for K∗0 and from 0.3 to 21 GeV/c for ϕ. Integrated yields, mean transverse momenta and particle ratios are reported and compared with results in pp collisions at √s = 7 TeV and Pb–Pb collisions at √sNN = 2.76 TeV. In Pb–Pb and p–Pb collisions, K∗0 and ϕ probe the hadronic phase of the system and contribute to the study of particle formation mechanisms by comparison with other identified hadrons. For this purpose, the mean transverse momenta and the differential proton-to-ϕ ratio are discussed as a function of the multiplicity of the event. The short-lived K∗0 is measured to investigate re-scattering effects, believed to be related to the size of the system and to the lifetime of the hadronic phase.
We present the charged-particle pseudorapidity density in Pb–Pb collisions at √sNN = 5.02 TeV in centrality classes measured by ALICE. The measurement covers a wide pseudorapidity range from −3.5 to 5, which is sufficient for reliable estimates of the total number of charged particles produced in the collisions. For the most central (0–5%) collisions we find 21 400 ± 1 300, while for the most peripheral (80–90%) we find 230 ± 38. This corresponds to an increase of (27 ± 4)% over the results at √sNN = 2.76 TeV previously reported by ALICE. The energy dependence of the total number of charged particles produced in heavy-ion collisions is found to obey a modified power-law like behaviour. The chargedparticle pseudorapidity density of the most central collisions is compared to model calculations — none of which fully describes the measured distribution. We also present an estimate of the rapidity density of charged particles. The width of that distribution is found to exhibit a remarkable proportionality to the beam rapidity, independent of the collision energy from the top SPS to LHC energies.