Sgherri, Silvia (2000) Policy evaluation with macroeconometric models. PhD thesis, University of Warwick.

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Abstract

This thesis presents a number of examples where macroeconometric models are employed as
useful tools for evaluation of contemporary policy problems. A range of approaches is
proposed to shed light on how macromodels can actually contribute to the policy debate. In
particular, the thesis emphasises how different models maybe augmented or modified and
stresses the need for care in the experimental design of policy simulations.
Small stylised models of the UK economy are estimated in the first part of this thesis. They are
used to assess the performance of simple monetary policy rules under the current inflation
targeting monetary regime. In a monetary policy regime of inflation targeting, the appropriate
target band-width can be assessed by calculating the variance of inflation in a macroeconomic
model under alternative policy rules. A recent Bank of England study concludes from
stochastic simulation of a small semi-structural model that a 'fairly substantial lump of
inflation uncertainty' exists in the United Kingdom. In chapter 2 an extended and improved
version of that model is developed while their estimates of inflation variability are revised
downwards by deploying analytic techniques. In chapter 3 a new small 'semi structural'
dynamic model of the UK economy is estimated, with particular attention to the modelling of
wages and prices. It is used to assess the performance of simple monetary policy rules,
including 'inflation forecast targeting' and 'Taylor' rules, while taking into account different
degrees of forward-lookingness in both inflation targeting horizon and wage bargaining.
Computation of asymptotic inflation-output standard-error trade-offs is provided under various
specifications and parametrisations of the model. Large-scale country models have the convenience to make explicit a complete range of
relationships among macroeconomic variables most of which, for obvious reasons, are
neglected in smaller dynamic models. As a consequence, such quantitative framework offers
an unique opportunity to evaluate not only the aggregate impact of exogenous shocks on the
variables of interest, but also to identify the underlying economic mechanisms enabling the
transmission of such shocks. In the second part of the thesis, I undertake simulations of the
National Institute's Domestic Econometric Model (NIDEM) to analyse the characteristics of
the UK monetary transmission mechanism. Chapter 4 emphasises that the impact of interest
rate movements on real variables is strictly determined by both the monetary regime at work
and the underlying assumptions regarding consumption behaviour.
Certainly, the steady integration of the members of the EMU and increasing awareness of the
need for closer co-operation in monetary and fiscal policy have stimulated greater interest in
modelling interdependencies between European countries and the impact and feedbacks from
the rest of the world economy. Many of the key issues have now an international aspect, so it
becomes more and more difficult to rely on single-country models to provide necessary
analysis. International transmission mechanisms can therefore be better tackled with a multi-country
model. The third and last part of this thesis focuses on cross-country asymmetric
transmissions in response to a common monetary shock within EMU. In particular, in chapter
5 an empirical analysis of the links between monetary and fiscal policy within EMU is
presented. This is done through simulation of a neo-classical highly non-Ricardian multi-country
model: the IMF's MULTIMOD Mark III (MM3). Chapter 6 provides further evidence
about the effects of embracing a Monetary Union when underlying macroeconomist structures
still differ across countries. By use of the same model-based quantitative framework, this
chapter examines the role of nominal and real rigidities in European labour markets for the
assessment of asymmetries in monetary transmission under various monetary regimes.

Item Type:	Thesis (PhD)
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance
Library of Congress Subject Headings (LCSH):	Econometric models, Monetary policy -- Great Britain -- Econometric models, Transmission mechanism (Monetary policy) -- Econometric models, International finance -- Econometric models
Official Date:	July 2000
Dates:	Date Event July 2000 Submitted
Institution:	University of Warwick
Theses Department:	Department of Economics
Thesis Type:	PhD
Publication Status:	Unpublished
Supervisor(s)/Advisor:	Wallis, Kenneth Frank ; Bianchi, C. (Carlo)
Sponsors:	Nederlandsche Bank
Extent:	viii, 217 leaves
Language:	eng

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