Switching volatility in a nonlinear open economy

Abstract

Uncertainty about an economy's regime can change drastically around a crisis. An imported crisis such as the global financial crisis in the euro area highlights the effect of foreign shocks. Estimating an open-economy nonlinear dynamic stochastic general equilibrium model for the euro area and the United States including Markov-switching volatility shocks, we show that these shocks were significant during the global financial crisis compared with periods of calm. We describe how US shocks from both the real economy and financial markets affected the euro area economy and how bond reallocation occurred between short-and long-term maturities during the global financial crisis. Importantly, the estimated nonlinearities when domestic and foreign financial markets influence the economy should not be neglected. The nonlinear behavior of market-related variables highlights the importance of higher-order estimation for providing additional interpretations to policymakers.

Impact of R&D, patents and innovations disclosure on market capitalization: Russian evidence

“…This paper employs SOM-technique to conduct EDA of innovation indicators and innovation disclosure since neural modeling is a tool of nonlinear clustering-classification (Liao et al, 2012) that helps to find complex patterns in economic data (Benchimol and Ivashchenko, 2021). SOMtechnique makes it possible to combine the benefits of a nonlinear classifier (Shi et al, 2021) with visual EDA.…”

Monetary policy models: lessons from the Eurozone crisis

“…Some are exogenously driven, as happens with macroprudential policies, but there exist others that seem to be intrinsic to each crisis period (see Benchimol and Fourçans, 2017;Hurtado, 2014 for the Eurozone). As the previously quoted work by Belke and Cui (2010), Bussière et al (2021), and Benchimol and Ivashchenko (2021) show, the determination of their causes, relationships and consequences is also complicated, but, in any case, it is clear that these structural changes substantially affect the effectiveness of the monetary policy and need to be carefully modeled. Our study coincides with the findings of the cited authors, identifying changes in the monetary transmission mechanism and in the effects of monetary policy specific to the GFC.…”

“…The distinct IRFs obtained in the two considered periods evidence this structural change, very likely also related to the changes during the crisis in the degree of interdependence of the Eurozone and US financial systems. This issue, analyzed by Belke and Cui (2010) and Benchimol and Ivashchenko (2021), has relevant implications for the monetary transmission mechanism that will be commented on in the Conclusions section. In this respect, the altered short-term dynamics of our IRF analysis reflect the potential non-linearities in the monetary transmission mechanisms identified by Benchimol and Ivashchenko (2021) with a two-country general equilibrium model and motivate further research on this subject.…”