Essays on applied macroeconometrics

The focus of this dissertation lies in three chapters that study three different macroeconomic empirical applications. The first chapter examines the identification of an unconventional monetary policy shock in the Euro Area. Further, the second chapter explores how different countries of the Euro Area individually respond to a sovereign debt shock. Finally, the third chapter investigates an asset pricing application where risk factors are identified. In Chapter 1, we (together with Sebastian Laumer) study what the effects of unconventional policy interventions are on the Euro Area economy as a big entity. Many empirical studies rely on traditional SVAR models that use only a handful of macroeconomic variables. They often find expansionary effects on output and prices, which is also the goal of these expansionary programs. However, we show that the informational content used in these models is not sufficient to recover structural shocks. We use a non-fundamentalness statistical test to prove our point. We argue that this is due to the policy foresight issue. Unconventional monetary policy interventions are often announced months before they are implemented; economic agents consequently have enough time to adjust their strategies in advance the implementation of the purchase programs. As a solution, we estimate a factor-augmented VAR model with 35 macroeconomic variables for the Euro Area from 2007:01 to 2018:12. Our results indicate that an unconventional monetary policy shock does not have the desired expansionary effects on the real economy while it reduces unemployment rate, interest rates, interest rate spreads, and government bond yields. Next, in Chapter 2, I utilize an empirical structural VAR approach to identify a sovereign risk premium shock that hit strongly the periphery Eurozone countries, and inevitably the core countries. When the Greek government announced their budget deficit for 2009, sovereign debt spreads started rising sharply for most of the European countries, which led to the sovereign debt crisis, one of the most severe periods in the Euro Area. Identification in this work is achieved by combining a number of different strategies: maximum FEVD (forecast error variance decomposition), sign and narrative restrictions. By analyzing 10 countries of the Euro Area, I investigate the major macroeconomic and financial effects of a sovereign spread shock and highlight the main differences between periphery and core countries. Results show that labor markets and output respond heterogeneously on the impact of the shock. While core countries are more robust and able to recover fast, periphery countries are hit hard and suffer long term. Financial markets of all countries are also adversely affected, with similar duration of the effects. A homogeneous short-term increase of inflation, both in periphery and core countries, can be observed. Lastly, in Chapter 3 (together with Pooyan Amir-Ahmadi), we work on asset pricing factors and attempt to explain the cross-sectional of excess returns. By using and transforming the estimator of Lettau and Pelger (2020) into the Bayesian framework, we estimate the most important risk factors. Doing so allow us the chance to incorporate economic intuition into the priors. Further, we propose a different forecasting method for the one step ahead out-of-sample forecasting, with our forecasting method we find higher Sharpe-Ratios, but also higher pricing errors. Lastly, literature is mostly focused on providing point forecasts for predicting expected stock returns, but we also provide density forecasting scores.

Name thesis:degree_name

Ph.D.

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Economics

Grantor

University of Illinois at Urbana-Champaign

Year dc:date

2023

Author dc:creator

• Violaris, Andreas Entony

Contributors dc:contributor

• Amir-Ahmadi, Pooyan
• Howard, Greg
• Deltas, George
• Parente, Stephen

• Macroeconomics
• Identification

Statement dc:rights

• Copyright 2023 Andreas Entony Violaris

Language dc:language

en, eng

Handle dc:identifier

https://hdl.handle.net/2142/121331

OAI record oai:identifier

https://www.ideals.illinois.edu/oai-pmh?verb=GetRecord&metadataPrefix=etdms&identifier=oai%3Awww.ideals.illinois.edu%3A2142%2F121331