Systematic Component of Monetary Policy in Open Economy SVAR’s: A New Agnostic Identification Procedure

Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2015. The project is a required component of every master program.

Adrian Ifrim and Önundur Páll Ragnarsson

Master’s Program:
Macroeconomic Policy and Financial Markets

Paper Abstract:

We propose a new identification method in open economy models by restricting both the systematic component of monetary policy and the IRFs to a monetary policy shock, at the same time remaining agnostic with respect to the effects of monetary policy shocks on output and open economy variables. We estimate the model for the U.S/U.K economies and find that a U.S monetary shock has a significant and permanent effect on output. Quantitatively a 0.4% annual increase in the interest rates causes output to contract by 1.2%. This contradicts the findings of Uhlig (2005) and Scholl and Uhlig (2008). We compute the long-run multipliers implied by the monetary policy reaction function and compare our identification with to the ones proposed by Uhlig (2005), Scholl and Uhlig (2008) and Arias et al. (2015). We argue that neither of the above schemes identify correctly the monetary policy shock since the latter overestimates the effects of the shock and the former implies a counterfactual behavior of monetary policy. We also find that the delayed overshooting puzzle is a robust feature of the data no matter what identification is chosen.

Read the paper or view presentation slides:

UK News Shocks and Business Cycles

Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2015. The project is a required component of every master program.

Jorge Meliveo and Willy Scherrieble

Master’s Program:
Macroeconomic Policy and Financial Markets

Paper Abstract:

In this paper we use a structural Factor Augmented VAR (FAVAR) approach to estimate the effects of news shocks in a new institutional setting: the United Kingdom. We define news shocks as the stock price shock orthogonal to TFP that maximizes the forecast error variance of TFP at the 40 quarter horizon. We find that news shocks account for around 18 – 45% of the variance in output at business cycle frequencies. Furthermore, the predictions of our estimation are in line with the predictions of standard neoclassical business cycle theories, i.e. following a positive news shock, agents increase both consumption and leisure, hence, reducing the amount of hours worked. Our contribution is twofold: First, we enlarge the geographical investigation of the news shock literature by considering a new dataset for the UK. This is important since all major studies have exclusively focused on the US economy so far. Second, we address the problem of non-fundamentalness by comparing a VAR and FAVAR approach. We find that including factors to the VAR changes the results and generates negative co-movement between hours worked and consumption on impact. Furthermore, our results are in line with the findings of Barsky and Sims (2011) and Forni, Gambetti, and Sala (2014) for the US.

Presentation Slides:

Is Abenomics Firing at the Wrong Targets?

Barcelona GSE Macro alum Naomi Fink ’13 offers analysis of Japan’s recent structural reforms in The Diplomat this month.

Photo: Reuters

Barcelona GSE Macro alum Naomi Fink ’13 offers analysis of Japan’s recent structural reforms in The Diplomat this month:

Japan analyst Naomi Fink, chief executive of Europacifica Consulting, argues that stagnant “total factor productivity” (TFP) and unstable labor/capital shares of income are at the heart of the nation’s economic problems – and short-term fiscal and monetary adjustments simply “won’t cut it.”

Read the full analysis on The Diplomat

Photo Diary: Exams Winter 2015

How masters and PhD students are surviving finals this month…

Staking out a cozy corner in the library


It’s all about the snacks


Moments of Zen


A little help from our friends


Have a photo you’d like to share? Email it to or mention @barcelonagse on Twitter or Instagram

More Bruegel blogs by Barcelona GSE alumni

Barcelona GSE Voice

Plucking away

Thomas Walsh ’14 is a Research Assistant at Bruegel and graduate of the Barcelona GSE Master in Macroeconomic Policy and Financial Markets. His recent post on the think tank’s blog, co-authored with Research Fellow Grégory Claeys, examines recovery numbers for countries coming out of deep recessions:

The recovery in certain economies (particularly in the Baltics and more recently in the UK or Spain) is often attributed to decisive economic policies (e.g. quick structural adjustment in Latvia, quantitative easing in the UK or labour market reforms more recently in Spain). While this view may be true, a theory suggested by Milton Friedman in 1964 (and revisited in 1993) proposes a complementary hypothesis: these strong recoveries are just natural after particularly deep recessions…

Read the full post on The “Plucking Model” of recessions and recoveries 

Greek tragedy

Mr. Walsh also recently co-authored a post about the vulnerabilities of the Greek banking system on the think tank’s blog with Bruegel director Guntram Wolff: The Greek banking system: a tragedy in the making?

Wage woes [updated 20.03.15]

In case you missed it, here’s a post on German wages by another Macro alum from the Class of 2014, Allison Mandra, also at Bruegel: Is low inflation translating into lower wage growth in Germany already?

Update: Ms. Mandra has posted new analysis on German wages: updates and stalemates


If you’re a student or alum who blogs, send us links to your work and we’ll share them here on the Barcelona GSE Voice!

Greek Banks in the Headlines (Link Roundup) | Daily Updates

Evolution of news about Greek banks. Curated by @BankingUnion_eu (current student in the Master in Economics).


ECB collateral damages on Greece (Bruegel)

Greek banks will not have any liquidity problems, JP Morgan report‏ (Intelligent News)

Q&A: The ECB’s warning shot to Greece (Financial Times)

ECB turns off the taps, but Greek banks can still get funding (Open Europe)

Levine on Wall Street: Bearer Bonds and Greek Banks (BloombergView)

Greek banks hit after ECB snub, Athens rejects ‘blackmail’ (Reuters)

What are the implications of the ECB’s decision for Greek banks? (Macropolis)

Emergency Liquidity Assistance for Greek Banks: Explainer (BloombergBusiness)

What the ECB’s Move on Greek Government Debt Is Really All About (BloombergBusiness)

What you need to know about ECB’s Greek collateral decision (MarketWatch)

Eligibility of Greek bonds used as collateral in Eurosystem monetary policy operations (ECB Press Release)


European Central Bank resists latest Greek bailout plan (FT)

ECB set to back further liquidity assistance for Greek banks -paper (Reuters)

Greeks Spooked by Debt Clashes Put Cash Under Bathroom Tiles (Bloomberg)

ECB Readies Lifeline for Greek Banks (Handelsblatt)

The state of play with Greek banks’ liquidity (Macropolis)


Exclusive – Three Greek banks tap two billion euros in emergency funding: sources (Reuters)

Greek banks lifted by Syriza debt plan (FT)

First Germany, Now ECB Rejects “Latest Greek Bailout Plan” (Zero Hedge)


So Whose Problem Is Greek Debt, Anyway? (Forbes)

Greece Asks ECB to Keep Banks Afloat, Tsipras Pitches Deal (Bloomberg)

For Greece, Bank Trouble Looms Again as New Government Takes Shape (The New York Times)

What’s Going On with Greece and the ECB? (Medium)

31 JAN

ECB’s Liikanen – No lending to Greek banks if no deal by end of February (Reuters)

Greek Banks May Lose ECB Credit, Says Policy Maker Liikanen (The Wall Street Journal)

30 JAN

Greek bank debt plummets as investors head for the exit (Reuters)

Six things you need to know about Greek banks (CapX)

Europe’s Greek Test (The New York Times)

Greece Sets Up Cash Crunch for March Telling EU Financial Bailout Is Over (Bloomberg)

How Greece Can Run Out of Cash and What ECB’s Draghi Can Do (Bloomberg)

S&P warns on Greek banks (FT)

Greece’s New Government Is About To Start Debt Negotiations With Its Eurozone Partners (Business Insider)

29 JAN

Greek Markets Buckle. New Coalition Government Fans Investors’ Fears of Eurozone Exit (The Wall Street Journal)

Greek Bank Shares Edge Back Up Off Record Lows (The New York Times)

Greek banks find support after fall (FT)

Greek bank crisis leaves time short to strike debt deal (FT)

Greek Markets Steady as Banks Rebound (The Wall Street Journal)

Greek Banks Are Ticking Time Bombs (Bloomberg)

Greek bank deposits fall as pre-election tensions rise (Reuters)

Greek Bank Deposit Flight Said to Accelerate to Record (Bloomberg)

Greek Banks at Mercy of the Fates (The Wall Street Journal)

Greek Bonds Halt Slide as Banks Rally; Ireland Borrows for Free (Bloomberg)

Greek banks rebound amid debt talk hopes (The Telegraph)

28 JAN

Greek banks lose €8bn in three days since Syriza victory as liquidity crisis feared (The Telegraph)

Greek Stocks Crash, Bonds Plummet, Banks Have Worst Day Ever (Zero Hedge)

Thinking About the New Greek Crisis (The New York Times)

Greek Banks Have Just Lost A Third Of Their Value — Here’s Why (Forbes)

Greek banks are getting shattered (Business Insider)

Greek banks extend slide to peg back European shares (Reuters)

Greek bank stocks hit record lows after leftist poll win (Reuters)

Greek banks plunge as new government challenges bailout (CNN)

Now We ‘Know’ Greek Banks Are Really In Trouble (Zero Hedge)

ECB Supervisor Nouy Says Greek Banks Strong Enough to Survive (Bloomberg)

Renewed plunge in Greek banks hits European shares (Reuters)

Greek bank stocks and deposits hit by default fears (CNBC)

$11 Billion Wiped From Greek Banks on Nationalization Threat (Bloomberg)

Alumni reflections for the Barcelona GSE Class of 2015

alumniNicola Cofelice ’14

Macroeconomic Policy and Financial Markets
Research Assistant, CaixaBank (Barcelona)

Nicola gave the following remarks to the new students in the Barcelona GSE Class of 2015 earlier this fall at a welcome reception in Bellaterra.



Before I begin, let me join the faculty and the School staff and congratulate all of you for having been accepted to the Barcelona Graduate School of Economics; I have to admit that it’s a pleasure to give you the welcome speech as Alumni speaker from the previous year.

I remember sitting where you are now exactly 1 year ago: I had no idea what lay ahead of me, what challenges I was going to face and the new friends I was going to make. Like all of you, I was at the beginning of a new path: in my case, I had been working as an engineer for 5 years when I decided to join the master in Macro. But still, I had plenty of questions in my mind: am I going to be up to the level of the School? What am I going to learn? Will I have time to go back home from time to time or is the rhythm of the Master going to destroy me J?

Now, after 1 year, I have been asked to share with you my experience at Barcelona GSE, and I will do my best to give you a few pieces of advice that may help you during this year:

First: Be open to sharing your knowledge and experience!

One of the main assets of the Master is not only what you can learn from the professors, but also what you can learn from your classmates, and what your classmates can learn from you. Some of you may already have working experience, some of you may come from a different background (political science, mathematics, physics, engineering, etc.) and you must take advantage of this cultural mix. The faculty will encourage you to study and carry out the assignments in small groups and after studying Game Theory, I understood that cooperating and helping each other is better than competing against each other (well, at least not during an exam, where you are not allowed to do that J). So my advice is to be open-minded and share your knowledge with others.

Second: Don’t be scared to work with data analysis software!

The Barcelona GSE is well known not only for the rigorous mathematical and statistical approach but also for the computational skills that you are going to acquire. You will have the possibility to work with different software (i.e. Matlab, Gretl, Stata, to mention only a few) and the knowledge of this software may help you find a job afterwards: companies and universities are strongly interested in candidates who are able to perform data analysis and work with numbers. If you work in a company, your future manager may ask you to help him or her in taking the right decision under uncertainty; and you will need to be able to process the information that you have available, both quantitative and qualitative. If you opt for a career at the University, you may develop a model to better understand the phenomena that you are investigating; in both cases you will need the programming skills that you can learn and develop this year. So, again, my advice is: don’t be afraid to get your hands “dirty” with data analysis software.

Third: Get involved!

This is once in a life opportunity, and you must take fully advantage of it! You have the unique chance to share this experience with people from all around the world, with different cultures, ages and backgrounds. This is something I found fascinating and my advice is to enjoy this opportunity. Although the Master is demanding, having a day off in a city like Barcelona will help you to recover your energy, and I am sure you will spend some unforgettable evenings and nights with your classmates.

All right, that’s all from my side. Once again, congratulations to everyone and good luck.

Government spending news and the term structure of interest rates

Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2014. The project is a required component of every master program.

Government spending news and the term structure of interest rates


Nicola Cofelice and Sarah Zoi

Master Program:

Macroeconomic Policy and Financial Markets

Paper Abstract:

Studying the effect of a fiscal policy shock on the term structure of interest rates has long been a controversial issue. On the one hand, economic theory predicts that government spending should drive up interest rates; on the other hand, many empirical analyses found negative or not significant responses of the yield curve to different types of fiscal shocks. A recent stream of literature on fiscal foresight showed how news about future fiscal policy may anticipate the effects of public expenditure and pose a challenge for the recovery of structural shocks due to a problem of non-fundamentalness. We study the effect of a “foresight shock” on the term structure of interest rates using an identification strategy based on the information contained in the projections by the Survey of Professional Forecasters. Our results support the evidence of fiscal foresight and show how changes in expectations stimulate positive responses of the term structure anticipating the effects of a government spending shock.

Read the full paper or view slides below:

Sticky House Price? – Barcelona GSE Master Projects 2014

Editor’s note: This post is part of a series showcasing Barcelona GSE master projects by students in the Class of 2014. The project is a required component of every master program.

Sticky House Price?


Vorada Limjaroenrat

Master Program:

Macroeconomic Policy and Financial Markets

Paper Abstract:

The assumption of fully flexible house price is widespread in several general equilibrium monetary models. In this paper, I provide selective survey of existing evidence, arguing that rigidities do exist in house price movements, along with empirical and theoretical contributions. In the 18 OECD countries evidence-based VAR analysis of monetary transmission mechanism, a rent puzzle arises as real rent increases in response to exogenous increase in interest rate, opposite with what the theory suggests. In the final part of the paper, 18 OECD countries are divided into two subgroups of low and high credit market flexibility. The results present interesting linkages between sticky price, bubbles, monetary policy, and credit market condition that should be high on future research agenda.

Read the full paper or view slides below: