nep-fdg New Economics Papers
on Financial Development and Growth
Issue of 2017‒04‒09
three papers chosen by
Iulia Igescu
Ministry of Presidential Affairs

  1. Ultra-accommodative Monetary Policy and Unintentional Drags on Consumer Spending By Xing, Victor
  2. Financial Cycles with Heterogeneous Intermediaries By Coimbra, Nuno; Rey, Hélène
  3. Oil price shocks and policy uncertainty: New evidence on the effects of US and non-US oil production By Kang, Wensheng; Ratti, Ronald. A.; Vespignani, Joaquin

  1. By: Xing, Victor
    Abstract: New York Fed President Dudley recently commented that “real consumer spending growth appears to have moderated somewhat from the relatively robust pace of the second half of 2015” (Dudley, 2016). While this may suggest headwinds from cyclical economic conditions, there are emerging signs that ultra-accommodative policy also acts as a constraint on consumer spending via income effects. Instead of inducing savers to spend and borrow, rapid asset price appreciation as a result of monetary easing have outpaced wage growth, and pass-through services inflation subsequently reduced discretionary income and forced already-levered consumers to save instead of spend. This unintended consequence worked against accommodative policy’s desired substitution effects and suggests further easing would likely yield diminishing results if asset price appreciation continues to outpace real income growth.
    Keywords: Quantitative Easing, Malinvestment, Consumer Spending, Involuntary Renter, Asset Price Inflation, Financial Conditions, Wage Growth
    JEL: E2 E5 G11 G12
    Date: 2016–04–23
  2. By: Coimbra, Nuno; Rey, Hélène
    Abstract: This paper develops a dynamic macroeconomic model with heterogeneous financial intermediaries and endogenous entry. It features time-varying endogenous macroeconomic risk that arises from the risk-shifting behaviour of financial intermediaries combined with entry and exit. We show that when interest rates are high, a decrease in interest rates stimulates investment and increases financial stability. In contrast, when interest rates are low, further stimulus can increase systemic risk and induce a fall in the risk premium through increased risk-shifting. In this case, the monetary authority faces a trade-off between stimulating the economy and financial stability.
    Keywords: banks; cycle; leverage; risk-shifting; systemic risk
    JEL: E44 E58 G21
    Date: 2017–03
  3. By: Kang, Wensheng (Kent State University); Ratti, Ronald. A. (Economics, Finance and Property, Western Sydney University); Vespignani, Joaquin (Tasmanian School of Business & Economics, University of Tasmania)
    Abstract: Important interaction has been established for US economic policy uncertainty with a number of economic and financial variables including oil prices. This paper examines the dynamic effects of US and non-US oil production shocks on economic policy uncertainty using a structural VAR model. Such an examination is motivated by the substantial increases in US oil production in recent years with implications for US political and economic security. Positive innovations in US oil production are associated with decreases in US economic policy uncertainty. The economic forecast interquartile ranges about the US CPI and about federal/state/local government expenditures are particularly sensitive to innovations in US oil supply shocks. Shocks to US oil supply disruption causes rises in the CPI forecast uncertainty and accounts for 21% of the overall variation of the CPI forecaster disagreement. Dis-aggregation of oil production shocks into US and non-US oil production yield novel results. Oil supply shocks identified by US and non-US origins explain as much of the variation in economic policy uncertainty as structural shocks on the demand side of the oil market.
    Keywords: US oil production, economic policy uncertainty, CPI forecast uncertainty, structural VAR
    JEL: E44 G12 Q43
    Date: 2017–02

This nep-fdg issue is ©2017 by Iulia Igescu. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.