nep-fdg 2016-11-06 papers

on Financial Development and Growth

Issue of 2016‒11‒06
four papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

Public Capital and Asset Prices: Time-series Evidence from Japan By Kazuki Hiraga; Masafumi Kozuka; Tomomi Miyazaki
Public debt frontiers: The Greek case Abstract: This paper attempts to quantify the maximum amount of debt that a government can sustain by itself. Using a Dynamic General Equilibrium model where the government is fully characterized, we compute the steady state inverse relationship between the public debt to output ratio and the size of the government, measured as the total public expenditures to output ratio. This line, called the debt frontier, divides the debt/output, expenditure/output space in two regions: The upper contour set corresponds to debt to output ratios where public debt is long-run unsustainable. Calibration of the model for the Greek economy to ?scal targets reveals that, for the period just before the current recession, i.e. 2002-2006, the debt to GDP ratio was well below the calculated frontier, and that Greek ?scal ?gures where in line with other euro area countries. We conclude that an original ?scal indiscipline did not cause the debt crisis and we have to look for alternative causes such as self-ful?lling crises such as the gambling for redemption hypothesis. By Gonzalo F. de-Córdoba; José L. Torres
Currency Unions and Regional Trade Agreements: EMU and EU Effects on Trade By Glick, Reuven
The Heterogeneous Effects of Government Spending: It's All About Taxes By Gaston Navarro; Axelle Ferriere

Public Capital and Asset Prices: Time-series Evidence from Japan

By:	Kazuki Hiraga (School of Political Science and Economics, Tokai University); Masafumi Kozuka (Faculty of Economics, University of Marketing and Distribution Sciences); Tomomi Miyazaki (Graduate School of Economics, Kobe University)
Abstract:	This research examines the effects of public infrastructure capital on asset prices in Japan over the periods from 1983:Q1 to 2008:Q4. The empirical results show that while public infrastructure capital forecasts the stock price returns and total factor productivity by Granger fs causality test after 1991, the contribution of public investment on stock returns is small by variance decomposition using Factor-Augmented VAR model. Our empirical evidence on the post high-growth era in Japan suggest that although public capital forecasts stock price returns and TFP, public infrastructure investment is not expected to play a key role of revitalizing capital markets. @
Keywords:	Public infrastructure capital in Japan; Stock price targeting; Lag-augmented VAR; Factor Augmented VAR;
JEL:	E44 G12 H54
Date:	2016–09
URL:	http://d.repec.org/n?u=RePEc:koe:wpaper:1625&r=fdg

Public debt frontiers: The Greek case Abstract: This paper attempts to quantify the maximum amount of debt that a government can sustain by itself. Using a Dynamic General Equilibrium model where the government is fully characterized, we compute the steady state inverse relationship between the public debt to output ratio and the size of the government, measured as the total public expenditures to output ratio. This line, called the debt frontier, divides the debt/output, expenditure/output space in two regions: The upper contour set corresponds to debt to output ratios where public debt is long-run unsustainable. Calibration of the model for the Greek economy to ?scal targets reveals that, for the period just before the current recession, i.e. 2002-2006, the debt to GDP ratio was well below the calculated frontier, and that Greek ?scal ?gures where in line with other euro area countries. We conclude that an original ?scal indiscipline did not cause the debt crisis and we have to look for alternative causes such as self-ful?lling crises such as the gambling for redemption hypothesis.

By:	Gonzalo F. de-Córdoba (Departamento de Teoría e Historia Económica, Universidad de Málaga); José L. Torres (Departamento de Teoría e Historia Económica, Universidad de Málaga)
JEL:	H5 H6
Date:	2016–10
URL:	http://d.repec.org/n?u=RePEc:mal:wpaper:2016-3&r=fdg

Currency Unions and Regional Trade Agreements: EMU and EU Effects on Trade

By:	Glick, Reuven (Federal Reserve Bank of San Francisco)
Abstract:	The effects of the European Economic and Monetary Union (EMU) and European Union (EU) on trade are separately estimated using an empirical gravity model. Employing a panel approach with both time-varying country and dyadic fixed effects on a large span of data (across both countries and time), it is found that EMU and EU each significantly boosted exports. EMU expanded European trade by 40% for the original members, while the EU increased trade by almost 70%. Newer members have experienced even higher trade as a result of joining the EU, but more time is necessary to see the effects of their joining EMU.
JEL:	F15 F33
Date:	2016–10–28
URL:	http://d.repec.org/n?u=RePEc:fip:fedfwp:2016-27&r=fdg

The Heterogeneous Effects of Government Spending: It's All About Taxes

By:	Gaston Navarro (Federal Reserve Board); Axelle Ferriere (European University Institute)
Abstract:	Empirical work suggests that government spending generates large expansions of output and consumption. Most representative-agent models predict a moderate expansion of output, and a crowding-out of consumption. We reconcile these findings by taking into account the distribution of taxes. Using US data from 1913 to 2012, we provide evidence that government spending induces larger expansions in output and consumption when financed with more progressive taxes. We then develop a model with heterogeneous households and idiosyncratic risk, to show that a rise in government spending can be expansionary, both for output and consumption, only if financed with more progressive labor taxes. Key to our results is the model endogenous heterogeneity in householdsâ€™ marginal propensities to consume and labor supply elasticities. In this respect, the distributional impact of fiscal policy is central to its aggregate effects.
Date:	2016
URL:	http://d.repec.org/n?u=RePEc:red:sed016:1286&r=fdg

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