Federal policies and local economies: Europe and the US

By M. Forni, L. Reichlin. 2001

160 citations recorded by the source corpus.

Abstract This paper establishes stylized facts on regional output fluctuations in Europe and the US. Moreover, it proposes a measure of the potential output target of the future European central bank, estimates the potential variance stabilization of a fiscal federation and constructs a regional map of the potential beneficiaries of monetary and fiscal federal policies. The econometric model is an extention of the dynamic factor model a la Sargent and Sims (1977. In: Sims, C.A. (Ed.), New Methods in Business Research. Federal Reserve Bank of Minneapolis) where we introduce an intermediate-level shock, which is common to all regions (counties) in each country (state), but it is not common to Europe (US) as a whole. We build on Forni and Reichlin 1996. Empirical Economics, Long-Run Economic Growth (special issue) 21 (1996) 27–42. Review of Economic Studies 65 (1998) 453–473 to propose an estimation method which exploits the large cross-sectional dimension of our data set. Our analysis shows that (i) Europe has a level of integration similar to that of the US and that national shocks are not a sizeable source of fluctuations: around 75% of output variance is explained by global and purely local dynamics; (ii) Europe, unlike the US, has no traditional business cycle; (iii) the core of the most integrated regions in Europe does not have national boundaries; (iv) the future European Central Bank has a potential stabilization target of about 18% of total output fluctuations; (v) a fiscal federation, if implemented, could have a smoothing effect on output in addition to what done by national fiscal policy, which accounts also for about 18% of total output fluctuations.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/8c39b598d0edab402536d8f3ac1995c80dfafdba

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Citations in the corpus

Some Stylised Facts on the Euro Area Business Cycle (2001, unknown): “This is at odds with the common wisdom that Europe is less cyclical than the US (Forni and Reichlin, 2001), which is typically based on sample periods that (as shown in Chart 2) do not include the last years of the «New Economy» in the US.”
Understanding the Evolution of World Business Cycles (2005, background): “The first, 1960:1–72:2, 8 See also Forni, Hallin, Lippi, and Reichlin (2002) and Forni and Reichlin (2001) for the use of nonparametric methods in estimating dynamic factor models for business cycle analysis.”
A real time coincident indicator of the euro area business cycle (2001, background): “8 McDermott and Scott (2000), Lumsdaine and Prasad (1999), Cheung and Westermann (2000), Dickerson et al.”
Common Factors of Commodity Prices † (2018, methodology): “For instance, Forni and Reichlin (2001) distinguish between European and national components to study the potential degree of output stabilization deriving from federal policies; using Bayesian estimation methods, Kose, Otrok, and Whiteman (2003) study the sources of the international business…”
Bi-cross-validation for factor analysis (2015, unknown): “and econometrics [20, 6] and other areas [38, 26, 33].”
Will business cycles in the Euro Area converge: a critical survey of empirical research (2008, background): “However, the analysis of fluctuations of regions within European countries by Forni and Reichlin (2001) shows that the European component is responsible for nearly half of the fluctuations, while for EMU regions the country-specific component is reduced to 25%–30%.”
A Quasi–Maximum Likelihood Approach for Large, Approximate Dynamic Factor Models (2012, unknown): “Beside the potential e‐ciency improvements over principal components, our parametric approach provides a natural framework for structural analysis since it allows for imposing restrictions on the factor structure as done, for example, in Bernanke, Boivin, and Eliasz (2005); Boivin and Giannoni (2005”
A two-step estimator for large approximate dynamic factor models based on Kalman filtering (2011, methodology): “This estimator has been considered in Forni and Reichlin (2001), Boivin and Ng (2006), Forni et al. (2005).”
A Measure of Comovement for Economic Variables: Theory and Empirics (2001, background): “An interpretation, also suggested by the results of Forni and Reichlin (2001), is that European nations contain clusters of regions with different degrees of synchronization and that geographical effects are not defined by political boundaries.”
Regional Inflation Dynamics within and Across Euro Area Countries and a Comparison with the Us (2006, methodology): “A similar framework was used by Forni & Reichlin (2001) to analyse regional output fluctuations.”