Frequency-domain analysis of debt service in a macro-finance model for the euro area.

This paper illustrates how a parsimonious macro-finance model can be exploited to investigate the frequency-domain properties of debt service implied by various financing srategies. This orginal approach is valuable to public debt managers seeking to assess the fiscal-hedging properties of the financing strategies they implement. The model, inspired by Rudebusch and Wu (2008), is estimated on euro-area data over the period 1999-2009. At business-cycle frequencies, the variance of interest payments is lower when nominal long-term bonds are issued. From a budget-smoothing perspective, debt service variability plays a major role, but pro- or counter-cyclicality of debt service also matters. In this respect, the results suggest that while interest payments associated with medium- to long-term nominal bonds are negatively correlated with real activity, those associated with inflation-linked bonds and short-term nominal bonds tend to be pro-cyclical.Macro-finance model , spectral analysis , term-structure of interest rates , public debt management

Does uncertainty make a time-varying natural rate of interest irrelevant for the conduct of monetary policy?

We compute optimized monetary policy rules for the ECB when the euro area economy is described by a small empirical macroeconomic model with a time-varying natural interest rate which is positively correlated with fluctuations in trend output growth. We investigate the consequences of both measurement uncertainty with respect to unobservable variables and uncertainty about key model parameters. An optimized Taylor rule with time-varying neutral rate appears to perform well compared to the unconstrained optimal policy, and better than other simple rules found in the literature, even when it is penalized by taking into account both types of uncertainty.Monetary policy rules ; Natural rate of interest ; Uncertainty.

A Time-Varying Natural Rate for the Euro Area

In this article we estimate a time-varying " natural " rate of interest (TVNRI) for a synthetic euro area over the period 1979Q1-2002Q4 using a small backward-looking macroeconomic model, broadly following a methodology developed by Laubach and Williams (2003) for the United States. The Kalman filter simultaneously estimates two unobservable variables: the output gap and the natural rate of interest. The underlying state-space model incorporates an aggregate demand equation and a Phillips curve. Consistent with the theoretical intuition, our identifying assumptions include a close relationship between the TVNRI and the low-frequency fluctuations of potential output growth. The resulting interest rate gap, that is, the difference between the real rate of interest and its estimated natural level, provides us with a valuable tool for assessing the monetary policy stance in EU12 over the last two decades. While our TVNRI estimate seems quite robust to changes in model specifications, the relatively high uncertainty surrounding the estimate hampers its direct integration into the policy-making process.Natural rate of interest ; Interest rate gap ; Monetary policy ; Kalman filter ; Output gap.

Condom use and the popular press in Nigeria

The increased acceptability and use of condoms by men in southwestern Nigeria is reflected in joking references to condoms in the comic-style popular press. Yet these references display an ambivalence about condoms that is mirrored in survey data and in interviews regarding condom use by rural Ekiti Yoruba men. This ambivalence, which is often couched in terms of health, has implications for the acceptance of government-sponsored HIV/AIDS-related educational programs. Because of the irreverence of comic-style newspapers and the ‘unofficial’ nature of their authority which coincides with popular attitudes about health programs, they have a credibility that could be useful in educating adolescents about sexually-transmitted diseases and HIV/AIDS

Credit and liquidity risks in euro area sovereign yield curves

In this paper, we propose a model of the joint dynamics of euro-area sovereign yield curves. The arbitrage-free valuation framework involves five factors and two regimes, one of the latter being interpreted as a crisis regime. These common factors and regimes explain most of the fluctuations in euro-area yields and spreads. The regime-switching feature of the model turns out to be particularly relevant to capture the rise in volatility experienced by fixed-income markets over the last years. In our reduced-form set up, each country is characterized by a hazard rate, specified as some linear combinations of the factors and regimes. The hazard rates incorporate both liquidity and credit components, that we aim at disentangling. The estimation suggests that a substantial share of the changes in euro-area yield differentials is liquidity-driven. Our approach is consistent with the fact that sovereign default risk is not diversifiable, which gives rise to specific risk premia that are incorporated in spreads. Once liquidity-pricing effects and risk premia are filtered out of the spreads, we obtain estimates of the actual –or real-world– default probabilities. The latter turn out to be significantly lower than their risk-neutral counterparts.default risk, liquidity risk, term structure of interest rates, regime-switching, euro-area spreads.

Asset-price boom-bust cycles and credit: what is the scope of macro-prudential regulation?

Over the recent months, several initiatives have taken place to develop macro-prudential regulation in order to prevent systemic risk and the built-up of financial imbalances. Crucial to the success of such policy is the ability of the macro-prudential authority to identify in due time such imbalances, generally featured by asset-price boom-bust cycles. In this paper, we investigate the possibility of detecting asset-price booms according to alternative identification strategies and assess their robustness. We infer the probability that an asset-price boom turns into an asset-price bust. In addition, we try to disentangle costless or low-cost from costly asset-price booms. We find some evidence that house price booms are more likely to turn into costly recession than stock price booms. Resorting both to a non-parametric approach and a discrete-choice (logit) model, we analyze the ability of a set of indicators to robustly explain costly asset-price booms. According to our results, real long-term interest rates, total investment, real credit and real stock prices tend to increase the probability of a costly housing-price boom, whereas real GDP and house prices tend to increase the probability of a costly stock-price boom. Regarding the latter, credit variables tend to play a less convincing role. From this perspective, we specify the scope of macro-prudential regulation as a set of tools aiming at avoiding "costly" asset-price booms. In doing so, we try both to make the case for state-contingent macro-prudential regulations and to set out clear delineation between monetary and financial stability objectives.Early Warning Indicators , Discrete-Choice Model , Asset Price Booms and Busts , Macro-prudential Regulation , Leaning Against the Wind Policies.

Règle de Taylor et politique monétaire dans la zone euro

We estimate the reaction function of monetary policy in the Euro area and derive the Taylor-type policy rule that a would-be ECB would have followed since the beginning of the European Monetary System (1979-2003). We first follow the standard GMM methodology developed by Clarida, Galí and Gertler (1998) under the statistically valid assumption of a stationary data set. A detailed robustness analysis is conducted, in order to assess how the estimation results are affected by changes in the period under review, the set of instruments and the way the output gap is computed. Using the Kalman filter, we estimate in particular a measure of the output gap that is consistent with a small macroeconomic model, which constitutes a novelty of our approach. Secondly, we re-estimate the historical interest rate rule under the assumption of non-stationary data over the 1985-2003 period, following a methodology recently proposed by Gerlach-Kristen (2003). These empirical investigations lead to a reasonably robust descriptive tool of the systematic element in the monetary policy that prevailed on average in the "Euro area" over the last two decades.Kalman filter ; Monetary policy ; Taylor rule ; Euro area.

Trapped Ar isotopes in meteorite ALH 84001 indicate Mars did not have a thick ancient atmosphere

Water is not currently stable in liquid form on the martian surface due to the present mean atmospheric pressure of ∼7 mbar and mean global temperature of ∼220 K. However, geomorphic features and hydrated mineral assemblages suggest that Mars’ climate was once warmer and liquid water flowed on the surface. These observations may indicate a substantially more massive atmosphere in the past, but there have been few observational constraints on paleoatmospheric pressures. Here we show how the [superscript 40]Ar/[superscript 36]Ar ratios of trapped gases within martian meteorite ALH 84001 constrain paleoatmospheric pressure on Mars during the Noachian era [∼4.56–3.8 billion years (Ga)]. Our model indicates that atmospheric pressures did not exceed ∼1.5 bar during the first 400 million years (Ma) of the Noachian era, and were <400 mbar by 4.16 Ga. Such pressures of CO[subscript 2] are only sufficient to stabilize liquid water on Mars’ surface at low latitudes during seasonally warm periods. Other greenhouse gases like SO[superscript 2] and water vapor may have played an important role in intermittently stabilizing liquid water at higher latitudes following major volcanic eruptions or impact events.United States. National Aeronautics and Space Administration. Mars Fundamental Research Program (Grant MFRP05-0108)Ann and Gordon Getty Foundatio