|
on Central Banking |
| By: | Douglas W. Diamond; Raghuram Rajan |
| Abstract: | Do low interest rates alleviate banking fragility? Banks finance illiquid assets with demandable deposits, which discipline bankers but expose them to damaging runs. Authorities may choose to bail out banks being run. Unconstrained bailouts undermine the disciplinary role of deposits. Moreover, competition forces banks to promise depositors more, increasing intervention and making the system worse off. By contrast, constrained intervention to lower rates maintains private discipline, while offsetting contractual rigidity. It may still lead banks to make excessive liquidity promises. Anticipating this, central banks can reduce financial fragility by raising rates in normal times to offset their propensity to reduce rates in adverse times. |
| JEL: | E4 E5 G2 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:16994&r=cba |
| By: | Andrew Ang; Francis A. Longstaff |
| Abstract: | We study the nature of systemic sovereign credit risk using CDS spreads for the U.S. Treasury, individual U.S. states, and major European countries. Using a multifactor affine framework that allows for both systemic and sovereign-specific credit shocks, we find that there is considerable heterogeneity across U.S. and European issuers in their sensitivity to systemic risk. U.S. and Euro systemic shocks are highly correlated, but there is much less systemic risk among U.S. sovereigns than among European sovereigns. We also find that U.S. and European systemic sovereign risk is strongly related to financial market variables. These results provide strong support for the view that systemic sovereign risk has its roots in financial markets rather than in macroeconomic fundamentals. |
| JEL: | E44 F21 F34 F36 G12 G13 G15 G18 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:16982&r=cba |
| By: | Gianni De Nicolò; Marcella Lucchetta |
| Abstract: | This paper presents a modeling framework that delivers joint forecasts of indicators of systemic real risk and systemic financial risk, as well as stress-tests of these indicators as impulse responses to structural shocks identified by standard macroeconomic and banking theory. This framework is implemented using large sets of quarterly time series of indicators of financial and real activity for the G-7 economies for the 1980Q1-2009Q3 period. We obtain two main results. First, there is evidence of out-of sample forecasting power for tail risk realizations of real activity for several countries, suggesting the usefulness of the model as a risk monitoring tool. Second, in all countries aggregate demand shocks are the main drivers of the real cycle, and bank credit demand shocks are the main drivers of the bank lending cycle. These results challenge the common wisdom that constraints in the aggregate supply of credit have been a key driver of the sharp downturn in real activity experienced by the G-7 economies in 2008Q4-2009Q1. |
| JEL: | E17 E44 G21 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:16998&r=cba |
| By: | Viral V. Acharya; Sergei A. Davydenko; Ilya A. Strebulaev |
| Abstract: | Intuition suggests that firms with higher cash holdings are safer and should have lower credit spreads. Yet empirically, the correlation between cash and spreads is robustly positive and higher for lower credit ratings. This puzzling finding can be explained by the precautionary motive for saving cash. In our model endogenously determined optimal cash reserves are positively related to credit risk, resulting in a positive correlation between cash and spreads. In contrast, spreads are negatively related to the "exogenous'' component of cash holdings that is independent of credit risk factors. Similarly, although firms with higher cash reserves are less likely to default over short horizons, endogenously determined liquidity may be related positively to the longer-term probability of default. Our empirical analysis confirms these predictions, suggesting that precautionary savings are central to understanding the effects of cash on credit risk. |
| JEL: | G32 G33 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:16995&r=cba |
| By: | Viral V. Acharya; Alberto Bisin |
| Abstract: | We model the opacity of over-the-counter (OTC) markets in a setup where agents share risks, but have incentives to default and their financial positions are not mutually observable. We show that this setup results in excess "leverage" in that parties take on short OTC positions that lead to levels of default risk that are higher than Pareto-efficient ones. In particular, OTC markets feature a "counterparty risk externality" that we show can lead to ex-ante productive inefficiency. This externality is absent when trading is organized via a centralized clearing mechanism that provides transparency of trade positions, or a centralized counterparty (such as an exchange) that observes all trades and sets prices competitively. While collateral requirements and subordination of OTC positions in bankruptcy can ameliorate the counterparty risk externality, they are in general inadequate in addressing it fully. |
| JEL: | D52 D53 D62 G14 G2 G33 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17000&r=cba |
| By: | Jagjit S. Chadha; Sean Holly |
| Abstract: | We assess recent developments in monetary policy practice following the financial crisis drawing on papers from a specially convened conference in March 2010. In particular, we consider why central banks throughout the world have injected substantial quantities of liquidity into the financial system and seen their balance sheets expand to multiples of GDP. We outline the rationale for balance sheet operations: (i) portfolio balance of the non-bank financial sector; (ii) an offset for the zero bound; (iii) signalling mechanism about medium term inflation expectations and (iv) the alleviation of the government's budget constraint. We briefly outline the recent experience with QE and draw a distinction between liquidity and macroeconomic stabilisation operations. |
| Keywords: | zero bound, open-market operations, quantitative easing, monetary policy |
| JEL: | E31 E40 E51 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1109&r=cba |
| By: | Jagjit S. Chadha; Luisa Corrado |
| Abstract: | The financial crisis has led to the development of an active debate on the use of macro-prudential instruments for regulating the banking system, in particular for liquidity and capital holdings. Within the context of a micro-founded macroeconomic model, we allow commercial banks to choose their optimal mix of assets, apportioning these either to reserves or private sector loans. We examine the implications for quantities, relative non-financial and financial prices from standard macroeconomic shocks alongside shocks to the expected liquidity of banks and to the efficiency of the banking sector. We focus on the response by the monetary sector, in particular the optimal reserve-deposit ratio adopted by commercial banks over the business cycle. Overall we find some rationale for Basel III in providing commercial banks with an incentive to hold a greater stock of liquid assets, such as reserves, but also to provide incentives to increase the cyclical variation in reserves holdings as this acts to limit excessive procyclicality of lending to the private sector. |
| Keywords: | Liquidity, interest on reserves, policy instruments, Basel |
| JEL: | E31 E40 E51 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1108&r=cba |
| By: | Evren Caglar; Jagjit S. Chadha; Jack Meaning; James Warren; Alex Waters |
| Abstract: | At the zero lower bound, the scale and scope of non-conventional monetary policies have become the key decision variables for monetary policy makers. In the UK, quantitative easing has involved the creation of a fund to purchase medium term dated government bonds with borrowed central bank reserves and so has increased the liquidity of the non-bank financial sector and temporarily eased the budget constraint of HMT. Some of these reserves have been used to increase the extent of capital held by banks and there have also been direct injections of capital into the banking system. We assess some of the issues arising from the three policies by using three separate DSGE models, which take seriously the role of financial frictions. We find that it is possible to correct the effects of a lower zero bound in DSGE models, by (i) offsetting the liquidity premium embedded in long term bonds and/or (ii) adopting countercyclical subsidies to bank capital able and/or (iii) the creation of central bank reserves that reduce the costs of loan supply. But the correct quantitative response and ongoing interaction with standard monetary policy remains an open question. |
| Keywords: | zero bound, open-market operations, quantitative easing |
| JEL: | E31 E40 E51 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1110&r=cba |
| By: | Leonardo Gambacorta; David Marques-Ibanez |
| Abstract: | The 2007-2010 financial crisis highlighted the central role of financial intermediaries' stability in buttressing a smooth transmission of credit to borrowers. While results from the years prior to the crisis often cast doubts on the strength of the bank lending channel, recent evidence shows that bank-specific characteristics can have a large impact on the provision of credit. We show that new factors, such as changes in banks' business models and market funding patterns, had modified the monetary transmission mechanism in Europe and in the US prior to the crisis, and demonstrate the existence of structural changes during the period of financial crisis. Banks with weaker core capital positions, greater dependence on market funding and on non-interest sources of income restricted the loan supply more strongly during the crisis period. These findings support the Basel III focus on banks' core capital and on funding liquidity risks. They also call for a more forward-looking approach to the statistical data coverage of the banking sector by central banks. In particular, there should be a stronger focus on monitoring those financial factors that are likely to influence the functioning of the monetary transmission mechanism particularly in a period of crisis. |
| Keywords: | bank lending channel, monetary policy, financial innovation |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:345&r=cba |
| By: | Pierre-Richard Agénor; K. Alper; Luiz A. Pereira da Silva |
| Abstract: | This paper examines the roles of bank capital regulation and monetary policy in mitigating procyclicality and promoting macroeconomic and financial stability. The analysis is based on a dynamic stochastic model with imperfect credit markets. Macroeconomic (financial) stability is defined in terms of the volatility of nominal income (real house prices). Numerical experiments show that even if monetary policy can react strongly to inflation deviations from target, combining a credit-augmented interest rate rule and a Basel III-type countercyclical capital regulatory rule may be optimal for promoting overall economic stability. The greater the degree of interest rate smoothing, and the stronger the policymaker’s concern with macroeconomic stability, the larger is the sensitivity of the regulatory rule to credit growth gaps. |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:237&r=cba |
| By: | Jean Pisani-Ferry; Zsolt Darvas |
| Abstract: | This Policy Contribution was prepared as a briefing paper for the European Parliament Economic and Monetary Affairs Committee's Monetary Dialogue, entitled The threat of currency wars?: global imbalances and their effect on currencies,? held on 30 November 2010. Bruegel Fellows Jean Pisani-Ferry and Zsolt Darvas argue the so-called currency war? is manifested in three ways: 1) the inflexible pegs of undervalued currencies; 2) attempts by floating exchange-rate countries to resist currency appreciation; 3) quantitative easing. Europe should primarily be concerned about the first issue, which relates to the renewed debate about the international monetary system. The attempts of floating exchange-rate countries to resist currency appreciation are generally justified while China retains a peg. Quantitative easing cannot be deemed a beggar-thy-neighbour? policy as long as the Fed's policy is geared towards price stability. Central banks should come to an agreement about the definition of price stability at a time of deflationary pressures, as current US inflationary expectations are at historically low levels. Finally, the exchange rate of the Euro has not been greatly impacted by the recent currency war; the euro continues to be overvalued, but less than before. |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polcon:482&r=cba |
| By: | Magud, Nicolas; Reinhart, Carmen; Rogoff, Kenneth |
| Abstract: | In this note we summarize our recent paper, where we delved into the details of this apple-to-oranges problem with the aim of defining a minimum common ground. We begin our analysis by explicitly documenting the kinds of measures that are construed as capital controls. Along the way, we describe the more drastic differences across countries/episodes and between controls on inflows and outflows as well a more subtle differences in types of inflow or outflow controls. Given that success is measured differently across studies, we standardize (to some degree) the results across studies. Inasmuch as possible, we highlight episodes that are less well known than the heavily analyzed cases of Chile and Malaysia. Our results are based on a meta-analysis of 37 empirical studies. |
| Keywords: | capital controls; capital inflows; exchange rate; monetary policy |
| JEL: | F32 F30 E50 F33 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:30274&r=cba |
| By: | Fernando Broner (CREI and Universitat Pompeu Fabra); Tatiana Didier (World Bank); Aitor Erce (Banco de España); Sergio L. Schmukler (World Bank) |
| Abstract: | This paper analyzes the joint behavior of international capital flows by foreigners and domestic agents over the business cycle and during financial crises. We show that gross capital flows by foreigners and domestic agents are very large and volatile relative to net capital flows. Namely, when foreigners invest in a country domestic agents tend to invest abroad, and vice versa. Gross capital flows are also pro-cyclical. During expansions, foreigners tend to bring in more capital and domestic agents tend to invest more abroad. During crises, especially during severe ones, there is retrenchment, i.e. a reduction in capital inflows by foreigners and an increase in capital inflows by domestic agents. This evidence sheds light on the nature of the shocks driving international capital flows and discriminates among existing theories. Our findings are consistent with shocks that affect foreigners and domestic agents asymmetrically - e.g. sovereign risk and asymmetric information - over productivity shocks. |
| Keywords: | Gross capital flows, net capital flows, domestic investors, foreign investors, crises |
| JEL: | F21 F32 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1039&r=cba |
| By: | Philip Hans Franses (Econometrisch Instituut (Econometric Institute), Faculteit der Economische Wetenschappen (Erasmus School of Economics), Erasmus Universiteit); Michael McAleer (Econometrisch Instituut (Econometric Institute), Faculteit der Economische Wetenschappen (Erasmus School of Economics) Erasmus Universiteit, Tinbergen Instituut (Tinbergen Institute).); Rianne Legerstee: (Nyenrode Business Universiteit) |
| Abstract: | Macroeconomic forecasts are frequently produced, widely published, intensively discussed and comprehensively used. The formal evaluation of such forecasts has a long research history. Recently, a new angle to the evaluation of forecasts has been addressed, and in this review we analyse some recent developments from that perspective. The literature on forecast evaluation predominantly assumes that macroeconomic forecasts are generated from econometric models. In practice, however, most macroeconomic forecasts, such as those from the IMF, World Bank, OECD, Federal Reserve Board, Federal Open Market Committee (FOMC) and the ECB, are typically based on econometric model forecasts jointly with human intuition. This seemingly inevitable combination renders most of these forecasts biased and, as such, their evaluation becomes non-standard. In this review, we consider the evaluation of two forecasts in which: (i) the two forecasts are generated from two distinct econometric models; (ii) one forecast is generated from an econometric model and the other is obtained as a combination of a model and intuition; and (iii) the two forecasts are generated from two distinct (but unknown) combinations of different models and intuition. It is shown that alternative tools are needed to compare and evaluate the forecasts in each of these three situations. These alternative techniques are illustrated by comparing the forecasts from the (econometric) Staff of the Federal Reserve Board and the FOMC on inflation, unemployment and real GDP growth. It is shown that the FOMC does not forecast significantly better than the Staff, and that the intuition of the FOMC does not add significantly in forecasting the actual values of the economic fundamentals. This would seem to belie the purported expertise of the FOMC. |
| Keywords: | Macroeconomic forecasts, econometric models, human intuition, biased forecasts, forecast performance, forecast evaluation, forecast comparison. |
| JEL: | C22 C51 C52 C53 E27 E37 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ucm:doicae:1111&r=cba |
| By: | Philip Hans Franses (Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam); Michael McAleer (Erasmus University Rotterdam, Tinbergen Institute, The Netherlands, and Institute of Economic Research, Kyoto University); Rianne Legerstee (Erasmus School of Economics, Erasmus University Rotterdam and Tinbergen Institute) |
| Abstract: | Macroeconomic forecasts are frequently produced, widely published, intensively discussed and comprehensively used. The formal evaluation of such forecasts has a long research history. Recently, a new angle to the evaluation of forecasts has been addressed, and in this review we analyse some recent developments from that perspective. The literature on forecast evaluation predominantly assumes that macroeconomic forecasts are generated from econometric models. In practice, however, most macroeconomic forecasts, such as those from the IMF, World Bank, OECD, Federal Reserve Board, Federal Open Market Committee (FOMC) and the ECB, are typically based on econometric model forecasts jointly with human intuition. This seemingly inevitable combination renders most of these forecasts biased and, as such, their evaluation becomes non-standard. In this review, we consider the evaluation of two forecasts in which: (i) the two forecasts are generated from two distinct econometric models; (ii) one forecast is generated from an econometric model and the other is obtained as a combination of a model and intuition; and (iii) the two forecasts are generated from two distinct (but unknown) combinations of different models and intuition. It is shown that alternative tools are needed to compare and evaluate the forecasts in each of these three situations. These alternative techniques are illustrated by comparing the forecasts from the (econometric) Staff of the Federal Reserve Board and the FOMC on inflation, unemployment and real GDP growth. It is shown that the FOMC does not forecast significantly better than the Staff, and that the intuition of the FOMC does not add significantly in forecasting the actual values of the economic fundamentals. This would seem to belie the purported expertise of the FOMC. |
| Keywords: | Macroeconomic forecasts, econometric models, human intuition, biased forecasts, forecast performance, forecast evaluation, forecast comparison. |
| JEL: | C22 C51 C52 C53 E27 E37 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:771&r=cba |
| By: | Chia-Lin Chang; Philip Hans Franses; Michael McAleer (University of Canterbury) |
| Abstract: | Macroeconomic forecasts are often based on the interaction between econometric models and experts. A forecast that is based only on an econometric model is replicable and may be unbiased, whereas a forecast that is not based only on an econometric model, but also incorporates expert intuition, is non-replicable and is typically biased. In this paper we propose a methodology to analyze the qualities of individual and means of non-replicable forecasts. One part of the methodology seeks to retrieve a replicable component from the non-replicable forecasts, and compares this component against the actual data. A second part modifies the estimation routine due to the assumption that the difference between a replicable and a non-replicable forecast involves measurement error. An empirical example to forecast economic fundamentals for Taiwan shows the relevance of the methodological approach using both individuals and mean forecasts. |
| Keywords: | Individual forecasts; mean forecasts; efficient estimation; generated regressors; replicable forecasts; non-replicable forecasts; expert intuition |
| JEL: | C53 C22 E27 E37 |
| Date: | 2011–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:11/16&r=cba |
| By: | Honkapohja , Seppo (Bank of Finland); Turunen, Arja H (University of New Orleans. Department of Economics and Finance); Woodland, Alan D (University of New South Wales) |
| Abstract: | We study a many-country endogenous growth model in which decisions about innovation and new investment are influenced by growth expectations. Adaptive learning dynamics determine the country-specific short-run transition paths. The countries differ in basic structural parameters and may impose tariffs on imports of capital goods. Numerical experiments illustrate the adjustment dynamics that follow the use of tariffs. We show that countries that limit trade in capital goods can experience dynamic gains both in growth and in utility and that such gains persist longer the larger the structural advantages of the region that applies tariffs. Substantial differences in levels of innovation, consumption, output and utility can appear, and asymmetries in economic outcomes that were present before trade restrictions are made more severe. |
| Keywords: | endogenous growth; expectations; learning; short-run dynamics; tariffs; complementary capital goods |
| JEL: | F15 F43 |
| Date: | 2011–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2011_009&r=cba |
| By: | Kaszab, Lorant (Cardiff Business School) |
| Abstract: | This paper uses a simple new-Keynesian model (with and without capital) and calculates multipliers of four types. That is, we assume either an increase in government spending or a cut in sales/labor/capital tax that is financed by lump-sum taxes (Ricardian evidence holds). We argue that multipliers of a temporary fiscal stimulus for separable preferences and zero nominal interest rate results in lower values than what is obtained by Eggertsson (2010). Using Christiano et al. (2009) non-separable utility framework which they used to calculate spending multipliers we study tax cuts as well and find that sales tax cut multiplier can be well above one (joint with government spending) when zero lower bound on nominal interest binds. In case of a permanent stimulus we show in the model without capital and assuming non-separable preferences that it is the spending and wage tax cut which produce the highest multipliers with values lower than one. In the model with capital and assuming that the nominal rate is fixed for a one-year (or two-year) duration we present an impact multiplier of government spending that is very close to the one in Bernstein and Romer (2009) but later declines with horizon in contrast to their finding and in line with the one of Cogan et al. (2010). We also demonstrate that the long-run spending multiplier calculated similarly to Campolmi et al. (2010) implies roughly the same value for both types of preferences for particular calibrations. For comparison, we also provide long-run multipliers using the method proposed by Uhlig (2010). |
| Keywords: | New-Keynesian model; fiscal multipliers; zero lower bound; monetary policy; government spending; tax cut; permanent; transitory |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2011/11&r=cba |
| By: | Hanley, Brian P. |
| Abstract: | Use of a promise to pay by a bank to insure an outstanding loan in order to return the value of the insured amount into capital for use in writing a new loan is an invention in banking with calculably greater potential economic impact than the original invention of reserve banking. The consequence of this lending invention is to render the existing money multiplier equations of reserve banking obsolete whenever it is used. The equations describing this multiplier do not converge. Each set of parameters for reserve percentage, nesting depth, etc. creates a unique logarithmic curve rather than approaching a limit. Thus it is necessary to show behavior of this new equation by numerical methods. It is shown that remarkable multipliers occur and early nesting iterations can raise the multiplier into the thousands. This money creation innovation has the demonstrated capacity to impact nations. Understanding this new multiplier is necessary for economic analyses of the GFC. -- |
| Keywords: | GFC,CDS,AIG,money multiplier,banking multiplier |
| JEL: | E20 E51 E17 H56 H63 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:20118&r=cba |
| By: | Jochem, Axel; Volz, Ute |
| Abstract: | This paper aims to identify the determinants of portfolio restructuring in EMU member states since the introduction of the euro and especially during the financial turbulence of the past years. We find that, besides exchange rate volatility and traditional indicators of information and transaction costs, the perception of sovereign risk has become more important as a determinant of portfolio allocation. The shares of financial corporations have been affected disproportionately by this development. At the same time, banks substantially reduced their international investment, possibly the result of a deleveraging process. -- |
| Keywords: | Financial Integration,Home Bias,Institutional Sectors,Financial Crisis |
| JEL: | F30 F32 F36 G11 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:201107&r=cba |
| By: | Agnes Benassy-Quere; Benjamin Carton; Ludovic Gauvin |
| Abstract: | Based on simulations of an original DGE model of the US, Chinese and Euro area economies with financial frictions and various monetary regimes, the paper shows that the contribution of China in global rebalancing should primarily rely on structural policies aiming at reducing aggregate savings in China. The role of the exchange-rate regime would be minor under standard monetary policies, although more important if monetary policies in advanced countries are constrained, as they are today. Finally, relying only on a change in China’s monetary regime (without structural reforms) could end up in delaying rather than accelerating the rebalancing, depending on China’s policy regarding accumulated reserves. |
| Keywords: | Global imbalances; exchange rate regimes; capital controls; China |
| JEL: | F32 F42 F47 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2011-08&r=cba |
| By: | Mehrotra, Aaron (BOFIT); Nuutilainen, Riikka (BOFIT); Pääkkönen, Jenni (BOFIT) |
| Abstract: | We construct a small-scale dynamic stochastic general equilibrium (DSGE) model that features price rigidities, habit formation in consumption and costs in capital adjustment, and calibrate the model with data for the Chinese economy. Our interest centers on the impact of technology and monetary policy shocks for different structures of the Chinese economy. In particular, we evaluate how a rebalancing of the economy from investment-led to consumption-led growth would affect the economic dynamics after a shock occurs. Our findings suggest that a rebalancing would reduce the volatility of the real economy in the event of a technology shock, which provides support for policies aiming to increase the consumption share in China. |
| Keywords: | DSGE; rebalancing; monetary policy shocks; technology shocks; China |
| JEL: | E52 E60 |
| Date: | 2011–04–28 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2011_005&r=cba |
| By: | Heiner Mikosch (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Jan-Egbert Sturm (KOF Swiss Economic Institute, ETH Zurich, Switzerland) |
| Abstract: | By using a model of trade union behaviour Grüner (2010) argues that the introduction of the European Monetary Union (EMU) led to lower wage growth and lower unemployment in participating countries. Following Grüner’s model, monetary centralization lets the central bank react less flexibly to national business cycle movements. This increases the amplitude of national business cycles which, in turn, leads to higher unemployment risk. In order to counter-balance this effect, trade unions lower their claims for wage mark-ups resulting in lower wage growth and lower unemployment. This paper uses macroeconomic data on OECD countries and a difference-in-differences approach to empirically test the implications of this model. Although we come up with some weak evidence for increased business cycle amplitudes within the EMU, we neither find a significant general effect of the EMU on wage growth nor on unemployment. |
| Keywords: | Common currency areas, EMU, Phillips curve, unemployment, wages |
| JEL: | E52 E58 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:11-280&r=cba |
| By: | Zhang, Tiantian (Cardiff Business School); Matthews, Kent (Cardiff Business School) |
| Abstract: | This paper examines the convergence properties of cost efficiency for Indonesian banks for the period 1992-2007. It employs the Simar and Wilson's (2007) two stage semi-parametric double bootstrap DEA procedure to estimate cost efficiency. Using panel data estimation, the paper examines β-convergence and σ-convergence, to test the speed at which Indonesian banks are converging, towards the best practice and country average. We find evidence that in general the post-crisis structural reform process improved the average level of efficiency and improved the distribution of efficiency across banks significantly. The Asian financial crisis and the structural reform had the effect of slowing the adjustment speed of bank efficiency. |
| Keywords: | Banks; Efficiency; Indonesia; Convergence |
| JEL: | G21 G28 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2011/12&r=cba |