nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2016‒05‒21
four papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Effects of US monetary policy shocks during financial crises - A threshold vector autoregression approach By Renee Fry-McKibbin; Jasmine Zheng
  2. Debt-dependent effects of fiscal expansions By Bi, Huixin; Shen, Wenyi; Yang, Shu-Chun
  3. Rent-seeking, Government Size and Economic Growth By Wadho, Waqar Ahmed; Ayaz, Umair
  4. Soft budget constraints, European Central Banking and the financial crisis By Jannik, Jäger; Grigoriadis, Theocharis

  1. By: Renee Fry-McKibbin; Jasmine Zheng
    Abstract: This paper analyzes the impact of monetary policy during periods of low and high financial stress in the US economy using a Threshold Vector Autoregression model. There is evidence that expansionary monetary policy is effective during periods of high financial stress with larger responses having a higher proportionate effect on output. The existence of a cost channel effect during periods of high financial stress implies the existence of a short run output-inflation trade off during financial crises. Large expansionary monetary shocks also increase the likelihood of moving the economy out of a high financial stress regime.
    Keywords: Monetary policy, financial stress, threshold vector autoregression models
    JEL: F44 E44 E52
    Date: 2016–05
  2. By: Bi, Huixin (Federal Reserve Bank of Kansas City); Shen, Wenyi; Yang, Shu-Chun
    Abstract: Economists often postulate that fiscal expansions are less stimulative when government debt is high than when it is low. Empirical evidence, however, is ambiguous. Using a nonlinear neoclassical growth model, we show that the difference in government spending effects between high- and low-debt environments depends on the wealth effect on labor supply and on whether the government uses taxes or spending to retire debt. Because of interrelated state variables, structural VAR estimations conditioning on debt alone can fail to isolate debt-dependent effects. Also, uncertainty on when the government will conduct fiscal consolidations generates wide confidence bands for spending multipliers, further complicating efforts to estimate debt-dependent government spending effects.
    Keywords: Dependent fiscal policy effects; Fiscal multipliers; Fiscal uncertainty
    JEL: E62 H30 H60
    Date: 2016–03–01
  3. By: Wadho, Waqar Ahmed; Ayaz, Umair
    Abstract: We explore the relationship between government size and economic growth in an endogenous growth model with human capital and unproductive social capital. We show that with endogenous discounting, growth outcome is history dependent and is function of initial endowment of human capital. With low endowment, government intervention of any size is growth depressing. With high endowment, government intervention is not associated with any depressing effect. For intermediate levels, there are multiple equilibria. Furthermore, countries with identical endowment and government size can be in different equilibrium, and can have different growth rates within same equilibrium if they differ in institutional quality.
    Keywords: Government size, Rent-seeking, Economic Growth, Human capital, Discounting
    JEL: D72 D90 H11 J24 O41 O43
    Date: 2015–02–22
  4. By: Jannik, Jäger; Grigoriadis, Theocharis
    Abstract: During the European financial crisis, the European Central Bank implemented a series of unconventional monetary policy measures. We argue that these unconventional monetary policy measures created soft budget constraints for the Eurozone countries by lowering their bond yield spreads. This hypothesis is tested using pooled OLS estimations and two different datasets: monetary policy event dummies and the purchase volumes of the Securities Markets Programme (SMP). We find significantly negative effects on bond yield spreads for both datasets, leading us to accept the hypothesis. The results are confirmed by robustness checks that directly estimate the effect of unconventional monetary policy on central government debt.
    Keywords: soft budget constraints,bond yield spreads,monetary policy events,securities markets programme,European Central Bank
    JEL: F34 F37 F42 P17 P51
    Date: 2016

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