Eric Schaling - Profile on Academia.edu (original) (raw)

Papers by Eric Schaling

This paper develops an estimable hybrid model that combines the theoretical rigor of a micro-foun... more This paper develops an estimable hybrid model that combines the theoretical rigor of a micro-founded DSGE model with the flexibility of an atheoretical VAR model. The model is estimated via maximum likelihood technique based on quarterly data on real Gross National Product (GNP), consumption, investment and hours worked, for the South African economy, over the period of 1970:1-2000:4. Based on a recursive estimation using the Kalman filter algorithm, the out-of-sample forecasts from the hybrid model are then compared with the forecasts generated from the Classical and Bayesian variants of the VAR for the period 2001:1-2005:4. The results indicate that, in general, the estimated hybrid DSGE model outperforms the Classical VAR, but not the Bayesian VARs in terms of out-of-sample forecasting performances. Journal of Economic Literature Classification: E17, E27, E32, E37, E47.

The objective of this paper is to develop a New-Keynesian Dynamic Stochastic General Equilibrium ... more The objective of this paper is to develop a New-Keynesian Dynamic Stochastic General Equilibrium (NKDSGE) Model for forecasting growth rate of output, inflation, and a measure of nominal short-term interest rate, in our case the 91days Treasury Bills rate, for South African economy. The model is estimated via maximum likelihood technique for quarterly data over the period of 1970:12000:4. Based on a recursive estimation using the Kalman filter algorithm, the out-of-sample forecasts from the NKDSGE model are then compared with the same generated from the Classical and Bayesian variants of the VAR models for the period 2001:1-2006:4.

SSRN Electronic Journal, 2008

Copyright and moral rights for the publications made accessible in the public portal are retained... more Copyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights. -Users may download and print one copy of any publication from the public portal for the purpose of private study or research -You may not further distribute the material or use it for any profit-making activity or commercial gain -You may freely distribute the URL identifying the publication in the public portal If you believe that this document breaches copyright, please contact us providing details, and we will remove access to the work immediately and investigate your claim.

Journal of Money, Credit and Banking, Nov 28, 2011

In this paper we incorporate the term structure of interest rates in a standard inflation forecas... more In this paper we incorporate the term structure of interest rates in a standard inflation forecast targeting framework. We find that under flexible inflation targeting and uncertainty in the degree of persistence in the economy, allowing for active learning possibilities has effects on the optimal interest rate rule followed by the central bank. For a wide range of possible initial beliefs about the unknown parameter, the dynamically optimal rule is in general more activist, in the sense of responding aggressively to the state of the economy, than the myopic rule for small to moderate deviations of the state variable from its target. On the other hand, for large deviations, the optimal policy is less activist than the myopic and the certainty equivalence policies.

Journal of Money, Credit and Banking, Dec 1, 2009

We study how determinacy and learnability of worldwide rational expectations equilibrium may be a... more We study how determinacy and learnability of worldwide rational expectations equilibrium may be a¤ected by monetary policy in a simple, two country, New Keynesian framework under both …xed and ‡exible exchange rates. We …nd that open economy considerations may alter conditions for determinacy and learnability relative to closed economy analyses, and that new concerns can arise in the analysis of classic topics such as the desirability of exchange rate targeting and monetary policy cooperation.

Review, 2002

We will show that, in this model, an increase in the weight policymakers place on equity prices i... more We will show that, in this model, an increase in the weight policymakers place on equity prices in the policy rule could be accompanied by increases in the weights placed on inflation deviations and the output gap, such that ultimately the policy rule is unchanged.

Journal of Money, Credit and Banking, May 1, 2000

RePEc: Research Papers in Economics, 2013

Available evidence supports the view that growth is faster in more open economies. In order to an... more Available evidence supports the view that growth is faster in more open economies. In order to analyze the implications of openness and growth on determinacy and learnability of worldwide rational expectations equilibria we develop a two-country New Keynesian model with growth. We analyze these issues for contemporaneous data and expectations-based monetary policy rules. Our results highlight how growth matters for the overall effect of opening an economy to more trade, as we find that (i) under the contemporaneous data policy rule the conditions for determinacy and learnability become more stringent on account of openness but less stringent on account of growth, so that growth weakens the effect of openness, (ii) under the expectations-based policy rule the conditions for determinacy and learnability also become more stringent on account of openness while on account growth the conditions for determinacy become more stringent (thus reinforcing the effect of openness) but those for learnability become less stringent (thus weakening the effect of openness). As in the elasticity of intertemporal substitution is key to our result but within a framework that is consistent with long-run labor supply and balanced growth facts.

We study how determinacy and learnability of global rational expectations equilibrium may be a¤ec... more We study how determinacy and learnability of global rational expectations equilibrium may be a¤ected by monetary policy in a simple, two country, New Keynesian framework. The two blocks may be viewed as the U.S. and Europe, or as regions within the euro zone. We study cases in which optimal policies are being pursued country by country -where exhange rates are ‡oating -as well as types of managed exchange rate regimes, including monetary union. This case is of strong practical relevance for monetary policy analysis in the euro area. We …nd that new concerns can arise in the analysis of classic topics such as the desirability of exchange rate targeting and monetary conditions indices (MCIs), the so-called ´corner solu-tions´debate, and monetary union.

Social Science Research Network, 2003

In this paper we analyze disinflation in two environments. One in which the central bank has perf... more In this paper we analyze disinflation in two environments. One in which the central bank has perfect knowledge, in the sense that it understands and observes the process by which private sector inflation expectations are generated, and one in which the central bank has to learn the private sector inflation forecasting rule. Here, the learning scheme we investigate is that of least-squares learning (recursive OLS) using the Kalman filter. With imperfect knowledge, results depend on the learning scheme that is employed. A novel feature of the passive learning policy -compared to the central bank's disinflation policy under perfect knowledge -is that the degree of monetary accommodation (the extent to which the central bank accommodates private sector inflation expectations) is no longer constant across the disinflation, but becomes state-dependent. This means that the central bank's behaviour changes during the disinflation as it collects more information.

Social Science Research Network, 2006

All rights reserved. The views expressed in this paper do not necessarily reflect those of the Eu... more All rights reserved. The views expressed in this paper do not necessarily reflect those of the European Central Bank.

RePEc: Research Papers in Economics, Nov 11, 2005

We study how determinacy and learnability of global rational expectations equilibrium may be affe... more We study how determinacy and learnability of global rational expectations equilibrium may be affected by monetary policy in a simple, two country, New Keynesian framework. The two blocks may be viewed as the U.S. and Europe, or as regions within the euro zone. We seek to understand how monetary policy choices may interact across borders to help or hinder the creation of a unique rational expectations equilibrium worldwide which can be learned by market participants. We study cases in which optimal policies are being pursued country by country as well as some forms of cooperation. We find that open economy considerations may alter conditions for determinacy and learnability relative to closed economy analyses, and that new concerns can arise in the analysis of classic topics such as the desirability of exchange rate targeting and monetary policy cooperation.

SSRN Electronic Journal, 2003

In this paper we analyse disinflation policy in two environments. In the first, the central bank ... more In this paper we analyse disinflation policy in two environments. In the first, the central bank has perfect knowledge, in the sense that it understands and observes the process by which private sector inflation expectations are generated; in the second, the central bank has to learn the private sector inflation forecasting rule. With imperfect knowledge, results depend on the learning scheme that is employed. Here, the learning scheme we investigate is that of least-squares learning (recursive OLS) using the Kalman filter. A novel feature of a learningbased policy -as against the central bank's disinflation policy under perfect knowledge -is that the degree of monetary accommodation (the extent to which the central bank accommodates private sector inflation expectations) is no longer constant across the disinflation, but becomes state-dependent. This means that the central bank's behaviour changes during the disinflation as it collects more information.

International Journal of Central Banking, 2019

In this paper we estimate a Phillips curve for South Africa using a bounded random walk model. Ce... more In this paper we estimate a Phillips curve for South Africa using a bounded random walk model. Central bank credibility, the slope of the Phillips curve, the natural rate of unemployment and the central bankÂ’s inÂ‡ation target band are time-varying. We Â…find that the slope of the Phillips curve has Â‡attened since the mid 2000s - particularly after the Great Recession - which is in line with the Â…findings in most advanced countries. Our results do not lend support to the hypothesis that the ability of the SARB to hit its inÂ‡flation target has decreased. With respect to the faith in the IT regime as measured by the degree to the extent of which inÂ‡flation expectations are anchored to the target our results indicate that the SARBÂ’s credibility has decreased from 1994 to 2001, remained constant from 2001 to 2008, and eventually increased around 2008. This pattern is different from that of advanced countries where expectations have become better anchored relatively early in the IT...

Journal of Economic and Financial Sciences, 2007

A stylised fact of monetary policymaking is that central banks do not immediately respond to new ... more A stylised fact of monetary policymaking is that central banks do not immediately respond to new information but seem instead to prefer to wait until sufficient ‘evidence’ to warrant a change has accumulated. However, theoretical models of inflation targeting imply that an optimising central bank should continuously respond to shocks. This article attempts to explain this stylised fact by introducing a small menu cost which is incurred every time the central bank changes the interest rate. It is shown that this produces a relatively large range of inaction because this cost will induce the central bank to take the option value of the status quo into account. In other words, because action is costly, the central bank will have an incentive to wait and see whether or not the economy will move closer to the inflation target of its own accord. Next, the article analyses the implications for the time series properties of interest rates. In particular, we examine the effect of the interes...

South African Journal of Economic and Management Sciences, 2014

We find that for the period 1994-2011 there is robust statistical evidence that, in the long run,... more We find that for the period 1994-2011 there is robust statistical evidence that, in the long run, net exports are boosted by a weaker real effective exchange rate. However, this effect does not hold in the short run. We thus find empirical evidence supporting the J-curve effect for South Africa.

South African Journal of Economic and Management Sciences, 2011

This paper examines the implications of the expectations theory of the term structure of interest... more This paper examines the implications of the expectations theory of the term structure of interest rates for the implementation of inflation targeting. We show that the responsiveness of the central bank’s instrument to the underlying state of the economy is increasing in the duration of the long-term bond. On the other hand, an increase in duration will make long-term inflationary expectations - and therefore also the long-term nominal interest rate - less responsive to the state of the economy. The extent to which the central bank is concerned with output stabilisation will exert a moderating influence on the central bank’s response to leading indicators of future inflation. However, the effect of an increase in this parameter on the long-term nominal interest rate turns out to be ambiguous. Next, we show that both the sensitivity of the nominal term spread to economic fundamentals and the extent to which the spread predicts future output, are increasing in the du...

SSRN Electronic Journal, 2004

Heterogeneous information about the term structure, least-squares learning and optimal rules for ... more Heterogeneous information about the term structure, least-squares learning and optimal rules for inflation targeting The views expressed are those of the authors and do not necessarily reflect the views of the Bank of Finland.

Journal of Economic Dynamics and Control, 2010

In this paper we analyze disinflation policy when a central bank has imperfect information about ... more In this paper we analyze disinflation policy when a central bank has imperfect information about private sector inflation expectations but learns about them from economic outcomes, which are in part the result of the disinflation policy. The form of uncertainty is manifested as uncertainty about the effect of past disinflation policy on current output gap. Thus current as well as past policy actions matter for output gap determination. We derive the optimal policy under learning (DOP) and compare it two limiting cases-certainty equivalence policy (CEP) and cautionary policy (CP). It turns out that under the DOP inflation stay between the levels implied by the CEP and the CP. A novel result is that this holds irrespective of the initial level of inflation. Moreover, while at high levels of inherited inflation the DOP moves closer to the CEP, at low levels of inherited inflation the DOP resembles the CP.