Juha Kilponen

Juha Kilponen
Bank of Finland · Monetary Policy and Research Department

Ph.D Economics

About

71
Publications
4,019
Reads
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478
Citations
Additional affiliations
January 2018 - March 2023
Bank of Finland
Position
  • Head of Department
May 2014 - October 2018
Bank of Finland
Position
  • Head of Department
January 2012 - April 2014
Bank of Finland
Position
  • Consultant

Publications

Publications (71)
Article
We analyze the in-sample fit and the out-of-sample forecast performance of the investment equation using different proxies for Tobin’s Q, controlling for cash flow, and using their frequency-decomposed components. We show that different frequencies of bond Q and cash flow significantly improve the empirical performance (both in-sample and out-of-sa...
Technical Report
Full-text available
This paper provides an assessment of the macroeconomic models regularly used for forecasting and policy analysis in the Eurosystem. These include semi-structural, structural and time-series models covering specific jurisdictions and the euro area within a closed economy, small open economy, multi-country or global setting. Models are used as analyt...
Article
We study the macroeconomic consequences of a major trade disruption using the example of the Finnish–Soviet trade collapse in 1991. This is a rare case of a well–identified large trade shock in a developed economy. We find that the shock significantly affected Finnish output. Even so, the trade collapse was insufficient to generate an all–out crisi...
Preprint
Full-text available
Macroeconomic models typically assume additively separable preferences where consumption enters the utility function in a logarithmic form. This restriction implies that consumption growth is highly sensitive to movements in real interest rates, which in turn implies an unrealistically steep demand curve and intertemporal trade-off. We re-estimate...
Article
We study the effects of the ECB monetary policy and the European crisis resolution policies on the 10 year sovereign bond yields of seven European countries. We find that some of the decisions have had significant impact on sovereign bond yields and have succeeded in reducing stress in the financial markets. However, the impact of the same policy d...
Article
Matching models with endogenous job destruction typically deliver excessively volatile job destruction and moderate volatility of vacancies. In our model, vintage and tenure effects promote the creation of new matches that are temporarily more productive, while reducing the survival of temporarily less productive matches. This cleansing effect prod...
Article
How do cyclical fiscal stabilisation policies affect welfare and government bond risk premia? Using a new Keynesian model we find that the effects of fiscal policy rules on the bond premium and welfare crucially depend on the source of business cycle fluctuations. The overall effect is estimated using Bayesian methods and the mechanism is deconstru...
Article
Full-text available
We derive and estimate an aggregate Euler consumption equation in which non-separability between consumption and leisure and borrowing constrained households makes current consumption dependent on labour and asset (house) prices. Estimation results suggest that when labour is included in the aggregate consumption equation it proves to be more impor...
Article
Full-text available
In this paper, we adopt the Wicksellian view to monetary policy and es-timate the structural Neo-Wicksellian model using the Bayesian Maximum Likelihood Methods for the Nordic countries during the period 1871-1913. Our …ndings suggest that discount rate adjustments were geared towards achieving price stability, although not perfectly. The impulse r...
Article
Full-text available
We introduce a specification of habit formation featuring non-separability between consumption and leisure into an otherwise standard New Keynesian model. The model can be estimated with standard Bayesian techniques and the bond pricing implications are evaluated using higher-order approximations. The model is able to reproduce a sizeable risk prem...
Article
The credibility problems of monetary policy are enlarged by transmission lags whenever the welfare criterion consists of arguments with differing transmission lags. If, as usually argued, prices react to monetary policy with a longer lag than output, the discretionary bias is substantially increased under a consumer welfare maximizing policy criter...
Article
We improve the precision of the test of the implicit contract model that Beaudry and DiNardo proposed twenty years ago. Our data set allows us to define the precise industry and plant of a particular employment relationship, link local labour market characteristics and company characteristics to the individual level of wages, and control for compos...
Article
Full-text available
With fiscal stimulus, the government can try to boost overall economic activity by issuing debt and raising expenditure. But does it work? How large is the output response, i.e. the “fiscal multiplier”? And what determines the size of the fiscal multiplier? This article discusses recent model-based evidence in this regard and highlights key factors...
Article
Full-text available
This paper derives and estimates an aggregate Euler consumption equation which allows one to compare the importance of collateral constraints and non-separability of consumption and leisure as alternative sources of excess sensitivity of consumption to current income. Estimation results suggest that during a severe financial distress both non-separ...
Article
This paper focuses on tenure driven productivity dynamics of a firm-worker match as a potential explanation of "unemployment volatility puzzle". We let new matches and continuing jobs differ by their productivity levels and by their sensitivity to aggregate productivity shocks. As a result, new matches have a higher destruction rate and lower, but...
Article
We estimate a standard production function with a new cross-country data set on business sector production, wages and R&D investment for a selection of 14 OECD countries including the United States. The data sample covers the years 1960–2004. The data suggest that growth differences can largely be explained by capital deepening and an ability to pr...
Article
Model uncertainty affects the monetary policy delegation problem. If there is uncertainty with regards to the determination of the delegated objective variables, the central bank will want robustness against potential model misspecifications. We show that with plausible degree of model uncertainty, delegation of the Friedman rule of increasing the...
Article
Building on Cecchetti and Li (2005), we show that the bank lending channel affects monetary policy trade-offs only when interest rates affect marginal costs of production (ie when there is a cost channel of monetary policy) in the New Keynesian monetary policy model. In our calibrated model the resulting impact of the bank lending channel on output...
Article
We show theoretically that a proportional R&D subsidy accelerates innovation activity at all degrees of competition in the modern Schumpeterian growth model, but less so at high degrees of competition. We then use company-level data on patenting activity, product market competition and R&D subsidies of Finnish firms during 1990–2001 to test the the...
Article
Full-text available
This paper tries to assess the proximity of the macroeconomic outcomes which could arise from a monetary policymaking process based upon either a robust control or a Bayesian (Ã la Brainard) approach towards parameter uncertainty. We use a small, structural, backward-looking, aggregate model of the EMU economies as the basis for this empirical exer...
Article
Full-text available
This paper extends Gertler’s (1999) tractable overlapping generations model with life-cycle features by allowing for distortionary taxation, demographic transition and stochastic variation in demographic structure. The model is then used to study demographic change in the small open economy of Finland. Simulations highlight the key role played by l...
Article
Business cycles in different regions of the United States tend to synchronize. This study investigates the reasons behind this synchronization of business cycles and the consequent formation of a national business cycle. Trade between regions may not be strong enough for one region to "drive" business cycle fluctuations in another region. This stud...
Article
Full-text available
Monetary policies of the ECB and US Fed can be characterised by Taylor rules, that is both central banks seem to be setting rates by taking into account the output gap and inflation. We also set up and tested Taylor rules which incorporate money growth and the euro-dollar exchange rate, thereby improving the fit between actual and Taylor rule based...
Article
Inflation targeting involves using all available information in stabilizing inflation around some target rate (Svensson, 2003). Inflation is typically at the very end of the transmission mechanism and hence its de-termination is subject to much model uncertainty which the central bank will want to guard against using robust policies. Such robustnes...
Article
Using the DGE model of the Finnish Economy (the ‘Aino’ model), we study the response of the economy to reforms in both labour and product markets. The reforms are two-fold. We assume that the wage mark-up, ie the monopoly power of wage-setters is gradually reduced by 5 percentage points. At the same time, the degree of competition is increased, ie...
Article
Full-text available
Resumen Presentamos una serie temporal de la velocidad de circulación del dinero en España usando la M2 y explicamos su comportamiento en el siglo y medio que va de 1850 a 2000. La velocidad de circulación del dinero en España presenta un declive secular hasta 1973 y apunta la forma de U en el último cuarto del siglo XX. Existe un retraso en los ca...
Article
Full-text available
This study assesses the macroeconomic impacts of increasing competition in the non-tradable goods and labour markets in Portugal. We lean on evidence that the maintenance of low competition in these markets may have contributed to the recent poor performance of the Portuguese economy. The analysis is performed using PESSOA, a dynamic general equili...
Article
Full-text available
This paper studies implications of centralised wage setting for the level of taxation and public expenditure in an analytical model with unionised labour markets. We extend the previous studies by allowing for both demand and supply effects of labour. Also, in addition to the standard social planner approach, we consider a political economy set up,...
Article
Full-text available
In this study we provide a theoretical prediction of a complementary relationship between the incentive effects of product market competition and R&D subsidies using the theory of Aghion et. al (1997, 2001). The complementarity relationship and that of an inverted U-relationship is then tested using a large Finnish firm level data set combined with...
Article
Full-text available
This paper investigates the efficiency implications of two kinds of worker protection, namely job security and income protection. Both of them have important aggregate efficiency effects in the dynamic labour markets, where worker mobility is costly. In the absence of firing costs, income security has ambiguous effect on production efficiency. If m...
Article
The implications of centralised wage setting for the relationship between taxation, wages and employment are studied allowing for endogenous adjustment in work hours. We show that centralisation promotes wage moderation, makes wages and employment less sensitive to changes in wage taxation and reduces the hours worked. With an individual supply of...
Article
In this paper we provide an introductory discussion of several issues relating to robust policy design. We apply H∞ methods to a standard empirical New Keynesian model of inflation and output gap and derive optimal LQG and H∞ interest rate policy rules and compare them with the historical record in the UK over 1988 -2001. Both optimal rules are sub...
Article
This paper analyzes the relationship between unemployment, average effective labour tax rates and public spending in 17 OECD countries. The focus is on the degree of centralization and cooperation in wage setting. Estimation results from a dynamic time-series-cross-section model suggest that the countries where wage setting takes place at the firm...
Article
This paper extends Svensson and Woodford’s (2003) partial information framework by allowing the private agents to achieve robustness against incomplete information about the structure of the economy by distorting their expectations in a particular direction. It shows how a linear rational expectations equilibrium under concern for robustness can be...
Article
This paper applies the robust control approach to a simple positive theory of monetary policy, when the central bank’s model of the economy is subject to misspecifications. It is shown that a central bank should react more aggressively to supply shocks when the model misspecifications grow larger. Moreover, the model misspecifications aggravate the...
Article
Full-text available
KNOGG, an EU financed thematic network, studies the role ST&I policies play in driving economic growth in six small European economies. It aims to develop guidelines at the EU level for improving knowledge-based growth in small European economies. This report sets the stage of the project, and provides a selective survey of the current literature o...
Article
This paper applies risk sensitivity (or robust control) approach to a simple positive theory of monetary policy. It is shown that robustness of a robust rule is contingent on the inflation bias and that a trade-off between output stabilisation and inflation bias gets worse when uncer-tainty surrounding the central bank's model increases. This impli...
Article
Full-text available
This paper considers the effect of labour taxation on wages and employment in a trade union model with endogenous working hours. In the model, individuals choose working hours with a given wage rate, competitive firms decide on employment taking wages and working hours as given and a monopoly union sets wages allowing for the response of both worke...
Article
Full-text available
This paper analyses how collective bargaining affects the level and structure of labour and capital taxes in OECD countries by using cross-country-time-series data. Corporatist countries are found to have higher effective labor taxes on average during the 1970-1996 period. Effective capital taxes, in turn, are higher in the countries where union me...
Article
This paper studies the relationship between central bank independence, wage bargaining structure and macroeconomic performance in OECD countries. A cross-sectional time-series (TSCS) model for inflation, nominal wage growth and unemployment for the period 1973–1996 is estimated using different and updated measures of central bank independence. The...
Article
Full-text available
In this study, the determination of optimal monetary policy in unionised economies is considered from the new political economy point of view. In the empirical part of the study it is shown that, in addition to the institutional position of the central bank, labour market institutions also matter for successful anti-inflationary policy. As regards...
Article
Both the optimal inflation target and the optimal degree of output stabilization are found to be conditional on the prevailing wage bargaining structure. If monopolistic wage setters act as strategic leaders of the monetary policy game, an explicit inflation targeting regime removes inflation bias from monetary policy, but does not remove the trade...
Article
Full-text available
This paper calculates indices of central bank autonomy (CBA) for 163 central banks as of end-2003, and comparable indices for a subgroup of 68 central banks as of the end of the 1980s. The results confirm strong improvements in both economic and political CBA over the past couple of decades, although more progress is needed to boost political auton...
Article
Full-text available
Forecasts are an inherent part of economic science and the quest for perfect foresight occupies economists and researchers in multiple fields. The release of economic forecasts (and its revisions) is a popular and often publicized event, with a multitude of institutions and think-tanks devoted almost exclusively to that task. The European Central B...
Article
Full-text available
The financial crisis has led to the strongest global downturn since the Great Depression in the 1930s. Although economies are stabilising and recovering, the recession is still feeding through the labour market. In this paper, we analyse the labour market reactions to past financial crisis by extracting stylised facts about the role of wage rigidit...
Article
The steady state interest rate for the Finnish economy is calculated from the national accounts data and is compared to the interest derived from a dynamic general equilibrium in which the markets are complete. By exploiting a Euler equation decomposition, I show that the difference in interest rates gives the magnitude of precautionary savings. He...
Article
The Bank of Finland has used a newly built D(S)GE model (Aino model) as its main forecasting tool since August 2004. A common fore- casters' prejudice is that DSGE models are difficult to use andtheir data coherence is very low. In this paper we provide contradicting view. We describe the Aino model, its forecasting related modifications, and colle...
Article
Using a DSGE model of a small open economy we study the response of the economy and income tax rate, in particular, to the reforms in the labour and product markets. The model is non-Ricardian due to the distortionary taxation and built-in life-cycle features. We assume that the wage markup and the price margins are reduced by one per cent each. Bo...
Article
Full-text available
Using DGE model of the Finnish Economy (Aino model) we study the re- sponse of the economy to the reforms both in labour and in product markets. The reforms are two-fold. We assume that the wage mark-up, ie monopoly power of the wages setters is gradually reduced by 4 percentage points. At the same time, the degree of competition, ie the price marg...
Article
The interaction between monetary and fiscal policy gives rise to general equi-librium effects that have sizeable implications for bond pricing in an estimated dynamic general equilibrium model. Procyclical fiscal policy leads to a deterio-ration in the policy trade-off faced by the monetary authority and increases the bond risk premium. While the e...
Article
Full-text available
Between 2001 and 2004 massive portfolio shifts took place in the Euro area from eq-uity to money balances. The European Central Bank (ECB, 2004) suggests that this was caused by heightened risk aversion in the wake of financial market instability. Al-though the relation between these portfolio shifts and movements in equity prices has been investig...
Article
Using an a large employer-employee panel we study implicit wage contracting in the Finnish labor market by nesting di wage setting models into a simple wage regression equation in line with Beaudry and DiNardo (1991). We strong evidence for the nega-tive wage-current unemployment elasticity, i.e. support for the wage curve. We also that current wag...

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Projects (4)
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