Research at the macroeconomic level of analysis is now more relevant than it has ever been. The Centre for Research in Macroeconomics and Macro-Finance (CReMMF) aims to promote research on international (open-economy) macro-modelling, real estate finance, banking, fiscal and monetary policy, and productivity, at both theoretical and empirical level. Within our research group, one developing research strand focuses on understanding regional responses to macroeconomic shocks; such analysis will enable us to feed into public policy in Wales. A further focus is to use our quantitative research to engage with the policy debate on how macroeconomic policy, alongside new banking and financial regulations, should be designed to support price stability and economic growth in the post credit crisis world. The CReMMF aims to raise the profile of our work, signalling the existence of a macroeconomic hub at Swansea to policymakers, academic collaborators and doctoral students. Our Centre includes researchers at Swansea as well as a network of collaborators including academics, professionals, and policymakers from other universities, research institutes and organisations around the world.

Recent Speakers in our Seminar Series

Professor Konstantinos Theodoridis (Cardiff Business School and European Stability Mechanism)
'Fiscal Policy Shocks and Stock Prices in the United States'

Professor Chetan Ghate (Indian Statistical Institute, Delhi)
'Redistributive Policy Shocks and Monetary Policy with Heterogeneous Agents'

Governments in EMDEs routinely intervene in agriculture markets to stabilize food prices in the wake of adverse domestic or external shocks. Such interventions typically involve a large increase in the procurement and redistribution of food, which we call a redistributive policy shock. What is the impact of a redistributive policy shock on the sectoral and aggregate dynamics of inflation, and the distribution of consumption amongst rich and poor households? To address this, we build a tractable two-sector (agriculture and manufacturing) two-agent (rich and poor) New Keynesian DSGE model with redistributive policy shocks. We calibrate the model to the Indian economy. We show that for an inflation targeting central bank, consumer heterogeneity matters for whether monetary policy responses to a variety of shocks raises aggregate welfare or not. Our paper contributes to a growing literature on understanding the role of consumer heterogeneity in monetary policy.

Dr Vasco Gabriel (University of Surrey)
'Institutional Arrangements and Inflation Bias: A Dynamic Heterogeneous Panel Approach'

The paper investigates whether the institutional arrangements that determine the conduct of monetary and macroprudential policies influence policymakers' actions in pursuing their designated mandates. The first part of the paper develops a theoretical model that assesses the interaction between different policy transmission channels. Focusing on central banks with the combined mandates of monetary and financial stability, cases where the price and financial stabilisation objectives are complementary or conflicting are identified, highlighting the role of policy instruments and types of macroeconomic shocks on social welfare. In the second part of the paper, we employ recently developed dynamic heterogeneous panel methods to empirically assess whether central banks assigned with both policy mandates experienced an inflation bias problem using data for 25 industrialised countries from 1960 to 2018. Our results show that, once we appropriately control for relevant policy and institutional factors, the separation of macroprudential regulation and monetary policy does not have a significant effect on inflation outcomes.

Dr Junior Maih (Norges Bank and BI Norwegian Business School)
'Rethinking Monetary Policy: A Tale of Switching Rules'

The 2007-09 Global Financial Crisis pushed most of the advanced economies to the zero-lower bound (ZLB), leading to a renewed interest in exploring alternatives to interest rate (IR) rules. In that regard, one recent proposal in the literature is to replace IR rules with money growth (MG) rules. In this study, we quantitatively investigate the merits of those two alternative monetary policy rules using an estimated small-scale NK-DSGE model with money, in which policy can endogenously switch between an IR rule and a MG rule. The estimation of the model based on the U.S. data from 1980 to 2019 reveals, not surprisingly, that the ZLB period is characterized by a dominance of the MG rule. Elsewhere, however, the IR rule is found to better explain the behavior of monetary policy. The results also suggest that key macroeconomic variables such as inflation and output growth respond very little to changes in the stock of money. This implies that the implementation of MG rules could be hard in practice. For the economies displaying this feature, to the extent that this is possible, it is advisable to avoid situations in which monetary authorities need to resort to MG rules.

Professor Arnab Bhattacharjee, Heriot-Watt University
Spatial and Spatio-temporal Engle-Granger representations, Networks and Common Correlated Effects

We provide a way of representing spatial and temporal equilibria in terms of a Engle-Granger representation theorem in a panel setting. We use the mean group, common correlated effects estimator plus multiple testing to provide a set of weakly cross correlated correlations that we treat as spatial weights. We apply this model to the 324 local authorities of England, and show that our approach successfully mops up weak cross section correlations as well as strong cross sectional correlations.
Link to Working Paper.

Dr Bo Yang

- Director

man smiling