Central bank research hub - Papers by Alpo Willman
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Research hub papers by author Alpo WillmanenThe role of factor substitution and technical progress in China's great expansion
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2180.en.pdf
European Central Bank Working Papers by Ana-Simona Manu, Peter McAdam and Alpo WillmanThe role of factor substitution and technical progress in China's great expansion2018-09-01T00:22:20ZWe offer a macroeconomic assessment of China's Reform Period, highlighting several neglected channels underlining its great expansion. Estimating the supply side of the post-Reform economy reveals the relatively high (above unity) value of the elasticity of factor substitution and the time-varying pattern of factor-saving technical change. The latter we relate to trade, human capital and reallocation factors. We then demonstrate how, in addition to factor accumulation and technical progress, the above-unity elasticity of substitution can be a source of growth (the 'de La Grandville hypothesis'). We then draw upon our estimated framework to rationalize China's high and rising savings ratio as well as the dynamic nature of its convergence path.The role of factor substitution and technical progress in China's great expansionECBFull texthttps://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2180.en.pdfPeter McAdamAlpo WillmanAna-Simona ManuAna-Simona Manu, Peter McAdam and Alpo Willman2018-09European Central Bank Working PapersD24E13O11Unraveling the skill premium
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1800.en.pdf
European Central Bank Working papers by Peter McAdam, Alpo WillmanUnraveling the skill premium2015-06-09T12:33:59ZFor the US the supply and wages of skilled labor relative to those of unskilled labor have grown over the postwar period. The literature has tended to explain this through skill-biased technical change. Empirical work has concentrated around two variants: (1) Capital-skill complementarity, and (2) Skill-augmenting technical change. Our purpose is to nest and discriminate between these two explanations. We do so in the framework of 2- and 3-level CES production function where factors are disaggregated into skilled and unskilled labor, and the capital stock into structures and equipment capital. Using a 5-equation system approach and several nesting alternatives, we retrieve estimates of the elasticities of substitution and factor augmenting technical changes. Our estimations are able to produce results in line with capitalskill- complementarity hypothesis. However, those results are outperformed results where the only source of the widening skill-premium has been skill augmenting technical change. We also show that the different explanations for SBTC have very different implications for future projected developments of the skill premium.Unraveling the skill premiumECBAbstracthttp://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1800.en.pdfFull texthttp://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1800.en.pdfAlpo WillmanPeter McAdamPeter McAdam, Alpo Willman2015-06-09European Central Bank Working PapersJ01J31O4Model of the United States economy with learing MUSEL
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1745.en.pdf
European Central Bank Working papers by Ursel Baumann, Alistair Dieppe, Alberto González Pandiella and Alpo WillmanModel of the United States economy with learing MUSEL2014-12-02T12:31:59ZThe model presented here is an estimated medium-scale model for the United States (US) economy developed to forecast and analyse policy issues for the US. The model is specified to track the deviation of the medium- run developments from the balanced-growth-path via an estimated CES production function for the private sector, where factor augmenting technical progress is not constrained to evolve at a constant rate. The short-run deviations from the medium run are estimated based on three optimising private sector decision making units: firms, trade unions and households. We assume agents optimise under limited-information model-consistent learning, where each agent knows the parameters related to his/her optimization problem. Under this learning approach the effect of a monetary policy shock on output and inflation is more muted but persistent than under rational expectations, but both specifications are broadly comparable to other US macro models. Using the learning version, we .find stronger expansionary effects of an increase in government expenditure during periods of downturns compared to booms.Model of the United States economy with learing MUSELECBFull texthttp://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1745.en.pdfAlpo WillmanAlberto González PandiellaUrsel BaumannAlistair DieppeUrsel Baumann, Alistair Dieppe, Alberto González Pandiella and Alpo Willman2014-12European Central Bank Working PapersC51C6E5Aggregation, the skill premium, and the two-level production function,
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1400.pdf
European Central Bank Working papers by Miguel A. León-Ledesma, Peter McAdam, Alpo WillmanAggregation, the skill premium, and the two-level production function,2011-11-30T17:36:59ZWe examine the two-level nested Constant Elasticity of Substitution production function where both capital and labor are disaggregated in two classes. We propose a normalized system estimation method to retrieve estimates of the inter- and intra-class elasticities of substitution and factoraugmenting technical progress coefficients. The system is estimated for US data for the 1963-2006 period. Our findings reveal that skilled and unskilled labor classes are gross substitutes, capital structures and equipment are gross complements, and aggregate capital and aggregate labor are gross complements with an elasticity of substitution close to 0.5. We discuss the implications of our findings and methodology for the analysis of the causes of the increase in the skill premium and, by implication, inequality in a growing economy.Aggregation, the skill premium, and the two-level production function,ECBFull texthttp://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1400.pdfAlpo WillmanPeter McAdamMiguel A. León-LedesmaMiguel A. León-Ledesma, Peter McAdam, Alpo Willman2011-11-28European Central Bank Working PapersTechnology, utilization and inflation: what drives the New Keynesian Phillips Curve?,
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1369.pdf
European Central Bank Working papers by Peter McAdam, Alpo WillmanTechnology, utilization and inflation: what drives the New Keynesian Phillips Curve?,2011-08-22T17:36:59ZWe argue that the New-Keynesian Phillips Curve literature has failed to deliver a convincing measure of "fundamental inflation". We start from a careful modeling of optimal price setting allowing for non-unitary factor substitution, non-neutral technical change and timevarying factor utilization rates. This ensures the resulting real marginal cost measures match volatility reductions and level changes witnessed in many US time series. The cost measure comprises conventional counter-cyclical cost elements plus pro-cyclical (and co-varying) utilization rates. Although pro-cyclical elements dominate, real marginal costs are becoming less cyclical over time. Incorporating this richer driving variable produces more plausible price-stickiness estimates than otherwise and suggests a more balanced weight of backward and forward-looking inflation expectations than commonly found. Our results challenge existing views of inflation determinants and have important implications for modeling inflation in New-Keynesian models.Technology, utilization and inflation: what drives the New Keynesian Phillips Curve?,ECBFull texthttp://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1369.pdfAlpo WillmanPeter McAdamPeter McAdam, Alpo Willman2011-08-22European Central Bank Working PapersThe ECB's New Multi-Country Model for the euro area: NMCM - with boundedly rational learning expectations,
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1316.pdf
European Central Bank Working papers by Alistair Dieppe, Alberto González Pandiella, Stephen Hall, Alpo WillmanThe ECB's New Multi-Country Model for the euro area: NMCM - with boundedly rational learning expectations,2011-04-07T12:35:59ZRational expectations has been the dominant way to model expectations, but the literature has quickly moved to a more realistic assumption of boundedly rational learning where agents are assumed to use only a limited set of information to form their expectations. A standard assumption is that agents form expectations by using the correctly specified reduced form model of the economy, the minimal state variable solution (MSV), but they do not know the parameters. However, with medium-sized and large models the closed-form MSV solutions are difficult to attain given the large number of variables that could be included. Therefore, agents base expectations on a misspecified MSV solution. In contrast, we assume agents know the deep parameters of their own optimising frameworks. However, they are not assumed to know the structure nor the parameterisation of the rest of the economy, nor do they know the stochastic processes generating shocks hitting the economy. In addition, agents are assumed to know that the changes (or the growth rates) of fundament variables can be modelled as stationary ARMA (p,q) processes, the exact form of which is not, however, known by agents. This approach avoids the complexities of dealing with a potential vast multitude of alternative mis-specified MSVs. Using a new Multi-country Euro area Model with Boundedly Estimated Rationality we show this approach is compatible with the same limited information assumption that was used in deriving and estimating the behavioral equations of different optimizing agents. We find that there are strong differences in the adjustment path to the shocks to the economy when agent form expectations using our learning approach compared to expectations formed under the assumption of strong rationality. Furthermore, we find that some variation in expansionary fiscal policy in periods of downturns compared to boom periods.The ECB's New Multi-Country Model for the euro area: NMCM - with boundedly rational learning expectations,ECBFull texthttp://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1316.pdfAlpo WillmanAlberto González PandiellaStephen HallAlistair DieppeAlistair Dieppe, Alberto González Pandiella, Stephen Hall, Alpo Willman2011-04-07European Central Bank Working PapersThe ECB's New Multi-Country Model for the euro area: NMCM - simulated with rational expectations,
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1315.pdf
European Central Bank Working papers by Alistair Dieppe, Alberto González Pandiella, Alpo WillmanThe ECB's New Multi-Country Model for the euro area: NMCM - simulated with rational expectations,2011-04-07T12:35:59ZThe model presented here is a New estimated medium-scale Multi-Country Model (NMCM) which covers the five largest euro area countries and is used for forecasting and scenarios analysis at the European Central Bank. The model has a tight theoretical structure which allows for non-unitary elasticity of substitution, non-constant augmenting technical progress and heterogeneous sectors with differentiated price and income elastiticites of demand across sectors. Furthermore, it has the explicit inclusion of expectations on the basis of three optimising private sector decision making units: i.e. firms, trade unions and households, where output is in the short run demand-determined and monopolistically competing firms set prices and factor demands. Labour is indivisible and monopoly-unions set wages and households make consumption/saving decisions. We assume agents optimise under limited information where each agent knows only the parameters related to his/her optimization problem. Therefore we estimate with GMM, which implicitly assumes limited information boundedly rational expectations. In this paper we provide some simulation results under the assumption of model-consistent rational expectations, we show that there is some heterogeneity across countries and that the reactions of the economies to shocks depends strongly on whether the shocks are pre-announced, announced and credible or unannounced and uncredible.The ECB's New Multi-Country Model for the euro area: NMCM - simulated with rational expectations,ECBFull texthttp://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1315.pdfAlpo WillmanAlberto González PandiellaAlistair DieppeAlistair Dieppe, Alberto González Pandiella, Alpo Willman2011-04-07European Central Bank Working PapersThe normalized CES production function: theory and empirics,
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1294.pdf
European Central Bank Working papers by Rainer Klump, Peter McAdam, Alpo WillmanThe normalized CES production function: theory and empirics,2011-02-16T18:21:00ZThe elasticity of substitution between capital and labor and, in turn, the direction of technical change are critical parameters in many fields of economics. Until recently, though, the application of production functions with non-unitary substitution elasticities (i.e., non Cobb Douglas) was hampered by empirical and theoretical uncertainties. As has recently been revealed, "normalization" of production functions and production-technology systems holds out the promise of resolving many of those uncertainties. We survey and critically assess the intrinsic links between production (as conceptualized in a macroeconomic production function), factor substitution (as made most explicit in Constant Elasticity of Substitution functions) and normalization (defined by the fixing of baseline values for relevant variables). First, we recall how the normalized CES function came into existence and what normalization implies for its formal properties. Then we deal with the key role of normalization in recent advances in the theory of business cycles and of economic growth. Next, we discuss the benefits normalization brings for empirical estimation and empirical growth research. Finally, we identify promising areas of future research on normalization and factor substitution.The normalized CES production function: theory and empirics,ECBFull texthttp://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1294.pdfRainer KlumpAlpo WillmanPeter McAdamRainer Klump, Peter McAdam, Alpo Willman2011-02-16European Central Bank Working PapersShocking stuff: technology, hours, and factor substitution
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1278.pdf
European Central Bank Working papers by Cristiano Cantore, Miguel A. León-Ledesma, Peter McAdam, Alpo WillmanShocking stuff: technology, hours, and factor substitution2010-12-14T12:35:59ZThe reaction of hours worked to technology shocks represents a key controversy between RBC and New Keynesian explanations of the business cycle. It sparked a large empirical literature with contrasting results. We demonstrate that, with a more general and data coherent supply and production framework (¿normalized¿ factor-augmenting CES technology), both models can plausibly generate impacts of either sign. We develop analytical expressions to establish the threshold between positive and negative contemporaneous correlations for both models. These will crucially depend on the factor-augmentation nature of the shock, the elasticity of factor substitution, the capital income share, and the reaction of consumption. The impact of technology on hours can thus hardly be taken as evidence in support of any particular business-cycle model. Our results are also important as: i) we introduce the concept of normalization for DSGE models and, ii) they may help interpret possible time-variation in technology and hours correlations over time.Shocking stuff: technology, hours, and factor substitutionECBFull texthttp://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1278.pdfCristiano CantoreAlpo WillmanPeter McAdamMiguel A. León-LedesmaCristiano Cantore, Miguel A. León-Ledesma, Peter McAdam, Alpo Willman2010-12-14European Central Bank Working PapersIn dubio pro CES - Supply estimation with mis-specified technical change,
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1175.pdf
European Central Bank Working papers by Miguel A. León-Ledesma, Peter McAdam, Alpo Willman,In dubio pro CES - Supply estimation with mis-specified technical change,2010-04-21T17:40:59Z(JEL: C15, C32, E23, O33, O51) Capital-labor substitution and total factor productivity (TFP) estimates are essential features of growth and income distribution models. In the context of a Monte Carlo exercise embodying balanced and near balanced growth, we demonstrate that the estimation of the substitution elasticity can be substantially biased if the form of technical progress is misspecified. For some parameter values, when factor shares are relatively constant, there could be an inherent bias towards Cobb-Douglas. The implied estimates of TFP growth also yield substantially different results depending on the specification of technical progress. A Constant Elasticity of Substitution production function is then estimated within a ¿normalized¿ system approach for the US economy over 1960:1¿2004:4. Results show that the estimated substitution elasticity tends to be significantly lower using a factor augmenting specification (well below one). We are able to reject Hicks-, Harrod- and Solow-neutral specifications in favor of general factor augmentation with a non-negligible capital-augmenting component. Finally, we draw some important lessons for production and supply-side estimation.In dubio pro CES - Supply estimation with mis-specified technical change,ECBFull texthttp://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1175.pdfAlpo WillmanPeter McAdamMiguel A. León-LedesmaMiguel A. León-Ledesma, Peter McAdam, Alpo Willman,2010-04-21European Central Bank Working PapersC15C32E23O33O51Identifying the elasticity of substitution with biased technical change
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1001.pdf
European Central Bank Working papers by Miguel A. León-Ledesma, Peter McAdam, Alpo WillmanIdentifying the elasticity of substitution with biased technical change2009-01-29T13:55:00ZDespite being critical parameters in many economic fields, the received wisdom, in theoretical and empirical literatures, states that joint identification of the elasticity of capital-labor substitution and technical bias is infeasible. This paper challenges that pessimistic interpretation. Putting the new approach of "normalized" production functions at the heart of a Monte Carlo analysis we identify the conditions under which identification is feasible and robust. The key result is that the jointly modeling the production function and first-order conditions is superior to single-equation approaches in terms of robustly capturing production and technical parameters, especially when merged with "normalization". Our results will have fundamental implications for production-function estimation under non-neutral technical change, for understanding the empirical relevance of normalization and the variability underlying past empirical studies.Identifying the elasticity of substitution with biased technical changeECBFull texthttp://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1001.pdfAlpo WillmanPeter McAdamMiguel A. León-LedesmaMiguel A. León-Ledesma, Peter McAdam, Alpo Willman2009-01-28European Central Bank Working PapersC22E23O30Medium run redux: technical change, factor shares and frictions in the euro area
http://www.ecb.int/pub/pdf/scpwps/ecbwp915.pdf
European Central Bank Working papers by Peter McAdam and Alpo WillmanMedium run redux: technical change, factor shares and frictions in the euro area2008-06-30T17:34:59ZMedium run redux: technical change, factor shares and frictions in the euro areaECBFull texthttp://www.ecb.int/pub/pdf/scpwps/ecbwp915.pdfAlpo WillmanPeter McAdamPeter McAdam and Alpo Willman2008-06European Central Bank Working PapersState-dependency and firm-level optimization: a contribution to Calvo price staggering
http://www.ecb.int/pub/pdf/scpwps/ecbwp806.pdf
European Central Bank Working papers by Peter McAdam and Alpo WillmanState-dependency and firm-level optimization: a contribution to Calvo price staggering2007-08-21T17:34:59ZState-dependency and firm-level optimization: a contribution to Calvo price staggeringECBFull texthttp://www.ecb.int/pub/pdf/scpwps/ecbwp806.pdfAlpo WillmanPeter McAdamPeter McAdam and Alpo Willman2007-08European Central Bank Working PapersSequential optimization, front-loaded information, and U.S. consumption
http://www.ecb.int/pub/pdf/scpwps/ecbwp765.pdf
European Central Bank Working papers by Alpo WillmanSequential optimization, front-loaded information, and U.S. consumption2007-06-14T07:10:00ZSequential optimization, front-loaded information, and U.S. consumptionECBFull texthttp://www.ecb.int/pub/pdf/scpwps/ecbwp765.pdfAlpo WillmanAlpo Willman2007-06European Central Bank Working PapersD11D12D82E21Wealth and asset price effects on economic activity
http://www.ecb.int/pub/pdf/scpops/ecbocp29.pdf
European Central Bank Occasional papers by Filippo Altissimo, Evaggelia Georgiou, Teresa Sastre, Maria Teresa Valderrama, Gabriel Sterne, Marc Stocker, Mark Weth, Karl Whelan and Alpo WillmanWealth and asset price effects on economic activity2005-06-23T07:06:59ZWealth and asset price effects on economic activityECBFull texthttp://www.ecb.int/pub/pdf/scpops/ecbocp29.pdfFilippo AltissimoAlpo WillmanEvaggelia GeorgiouMark WethMarc StockerKarl WhelanGabriel SterneMaria Teresa ValderramaTeresa SastreFilippo Altissimo, Evaggelia Georgiou, Teresa Sastre, Maria Teresa Valderrama, Gabriel Sterne, Marc Stocker, Mark Weth, Karl Whelan and Alpo Willman2005-06European Central Bank Occasional PapersFactor substitution and factor augmenting technical progress in the US: a normalized supply-side system approach
http://www.ecb.int/pub/pdf/scpwps/ecbwp367.pdf
European Central Bank Working papers by Rainer Klump, Peter McAdam and Alpo WillmanFactor substitution and factor augmenting technical progress in the US: a normalized supply-side system approach2004-06-09T17:32:00ZFactor substitution and factor augmenting technical progress in the US: a normalized supply-side system approachECBFull texthttp://www.ecb.int/pub/pdf/scpwps/ecbwp367.pdfAlpo WillmanRainer KlumpPeter McAdamRainer Klump, Peter McAdam and Alpo Willman2004-06European Central Bank Working PapersC22E23E25New Keynesian Phillips Curves: a reassessment using euro-area data
http://www.ecb.int/pub/pdf/scpwps/ecbwp265.pdf
European Central Bank Working papers by Peter McAdam and Alpo WillmanNew Keynesian Phillips Curves: a reassessment using euro-area data2004-04-13T17:32:00ZNew Keynesian Phillips Curves: a reassessment using euro-area dataECBFull texthttp://www.ecb.int/pub/pdf/scpwps/ecbwp265.pdfAlpo WillmanPeter McAdamPeter McAdam and Alpo Willman2003-09European Central Bank Working PapersE31Consumption
http://www.ecb.int/pub/pdf/scpwps/ecbwp251.pdf
European Central Bank Working papers by Alpo WillmanConsumption2003-08-18T17:30:59ZConsumptionECBFull texthttp://www.ecb.int/pub/pdf/scpwps/ecbwp251.pdfAlpo WillmanAlpo Willman2003-08European Central Bank Working PapersD12E21Euro area production function and potential output: a supply side system approach
http://www.ecb.int/pub/pdf/scpwps/ecbwp153.pdf
European Central Bank Working papers by Alpo WillmanEuro area production function and potential output: a supply side system approach2003-04-02T15:23:59ZEuro area production function and potential output: a supply side system approachECBFull texthttp://www.ecb.int/pub/pdf/scpwps/ecbwp153.pdfAlpo WillmanAlpo Willman2002-06European Central Bank Working PapersE23E25The Spanish block of the ESCB-multi-country model
http://www.ecb.int/pub/pdf/scpwps/ecbwp149.pdf
European Central Bank Working papers by Alpo Willman and Angel EstradaThe Spanish block of the ESCB-multi-country model2003-04-02T15:23:59ZThe Spanish block of the ESCB-multi-country modelECBFull texthttp://www.ecb.int/pub/pdf/scpwps/ecbwp149.pdfAlpo WillmanAngel EstradaAlpo Willman and Angel Estrada2002-05European Central Bank Working PapersE10E13E17The Spanish block of the ESCB-Multi-Country model
http://www.bde.es/informes/be/docs/dt0212e.pdf
Bank of Spain Working Papers by Alpo Willman and Ángel EstradaThe Spanish block of the ESCB-Multi-Country model2002-12-01T12:00:00ZThe Spanish block of the ESCB-Multi-Country modelFull texthttp://www.bde.es/informes/be/docs/dt0212e.pdfAlpo WillmanÁngel EstradaAlpo Willman and Ángel Estrada2002Bank of Spain Working PapersE10E13E17