Macroeconomic Model Spillovers and Their Discontents

January 8, 2013

Preview Citation

Format: Chicago

Tamim Bayoumi, and Francis Vitek. Macroeconomic Model Spillovers and Their Discontents, (USA: International Monetary Fund, 2013) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The Great Recession underlined that policies in some countries can have profound spillovers elsewhere. Sadly, the solution of simulating large macroeconomic models to measure these spillovers has been found wanting. Typical models generate lower international correlations of output and financial asset prices than are seen in even pre-crisis data. Imposing higher financial market correlations creates more reasonable cross-country spillovers, and is likely to become the norm in policy modeling despite weak theoretical underpinnings, as is already true of sticky wages. We propose using event studies to calibrate market reactions to particular policy announcements, and report results for U.S. monetary and fiscal policy announcements in 2009 and 2010 that are plausible and event-specific.

Subject: Bond yields, Emerging and frontier financial markets, Financial institutions, Financial markets, Financial sector policy and analysis, Financial services, Securities markets, Spillovers, Yield curve

Keywords: Asia and Pacific, Bond market, Bond yield, Bond yields, Correlations produce, Emerging and frontier financial markets, Equity market spillover, Equity price, Europe, Global, Growth spillover, Growth spillovers, International financial links, Macroeconomic models, Market reaction, Monetary policy, Monetary policy rule, Price, Securities markets, Spillovers, WP, Yield curve

Publication Details

Pages:

25
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/004
Stock No:

WPIEA2013004
ISBN:

9781475519860
ISSN:

1018-5941

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