nep-mac New Economics Papers
on Macroeconomics
Issue of 2005‒05‒14
fifty-nine papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Relative Prices as Aggregate Supply Shocks with Trend Inflation By David Demery; Nigel W. Duck
  2. Informational Accuracy and the Optimal Monetary Regime By David Demery; Nigel W. Duck
  3. Dynamic Suboptimality of Competitive Equilibrium in Multiperiod Overlapping Generations Economies By Espen Henriksen; Stephen Spear
  4. Modelos Estructurales de Inflación en Colombia: Estimación a través de Mínimos Cuadrados Flexibles By Luis Fernando Melo Velandia; Martha Alicia Misas Arango
  5. Combinación de pronósticos de la inflación en presencia de cambios estructurales By Luis Fernando Melo Velandia; Héctor M. Núñez Amortegui
  7. LA VIVIENDA EN COLOMBIA: Sus Determinantes Socio-Económicos y Financieros By Sergio Clavijo; Michel Janna; Santiago Muñoz
  10. INFLACIÓN Y FINANZAS PÚBLICAS By Leonardo Villar Gómez
  15. INFLATION TARGETING IN A SMALL OPEN ECONOMY: THE COLOMBIAN CASE By Franz Hamann; Juan Manuel Julio; Paulina Restrepo; Alvaro Jose Riascos Villegas
  17. A Framework for Macroeconomic Stability in Emerging Market Economies By Javier Gómez Pineda
  22. Child labour and the economic recession of 1999 in Colombia. By Claudia Marcela Umaña
  23. El origen político del déficit fiscal en Colombia: El contexto institucional 20 años después By Eduardo WIESNER DURÁN
  24. Cálculo correcto y sencillo del valor a precios de mercado. Una comparación con otros métodos. By Ignacio Vélez-Pareja
  25. Tasas de interés efectivas y nominales: el calvario de los estudiantes de finanzas By Ignacio Vélez-Pareja
  26. ECONOMIA DE LA PRODUCCION DE BIENES AGRICOLAS By Ramón Rosales; Edson Apaza; Jorge Alexander Bonilla Londoño
  31. ¿Se ha desarrollado el mercado secundario de acciones colombiano durante el período 1988-2002? By Humberto Bernal Castro; Byron Ortega Gaitán
  32. Pass-Through of Exchange Rate Changes and Macroeconomic Shocks to Domestic Inflation in East Asian Countries By Takatoshi Ito; Yuri N. Sasaki; Kiyotaka Sato
  33. Optimal Choice of Monetary Instruments in an Economy with Real and Liquidity Shocks By Bhattacharya, Joydeep; Singh, Rajesh
  34. The Impact of Labour Turnover: Theory and Evidence from UK Micro-Data By Gaia Garino; Christopher Martin
  35. Trade Liberalisation, Growth and Poverty in Senegal: a Dynamic Microsimulation CGE Model Analysis By Nabil Annabi; Fatou Cissé; John Cockburn; Bernard Decaluwé
  36. Trade Reform and Poverty in the Philippines: a Computable General Equilibrium Microsimulation Analysis By Caesar B. Cororaton; John Cockburn
  37. Impacts of Exchange Rates on Employment in Three Asian Countries: Korea, Malaysia, and the Philippines By Wanjoong Kim; Terrence Kinal
  38. Animal Spirits, Lumpy Investment, and Endogenous Business Cycles By Giovanni Dosi; Giorgio Fagiolo; Andrea Roventini
  39. Optimal Unemployment Insurance and Voting By Andreas Pollak
  40. A new approach to solve old problems By Alexander Harin
  41. Investment-Saving Comovement and Capital Mobility: Evidence from Century Long U.S. Time Series By Daniel Levy
  42. UK Monetary Policy under Inflation Forecast Targeting: Is evidence of Asymmetry an Illusion? By Naveen Srinivasan; Vidya Mahambare; M Ramachandran
  43. Banking Sector Crises and Related New Regulations in Turkey By Aykut Kibritcioglu
  44. Menu Costs, Posted Prices, and Multiproduct Retailers By Shantanu Dutta; Mark Bergen; Daniel Levy; Robert Venable
  45. On Stock Market Dynamics through Ultrametricity of Minimum Spanning Tree By Hokky Situngkir; Yohanes Surya
  46. Price-setting behaviour in Belgium: what can be learned from an ad hoc survey ? By Luc Aucremanne; Martine Druant
  47. Time-dependent versus State-dependent Pricing: A Panel Data Approach to the Determinants of Belgian Consumer Price Changes By Luc Aucremanne; Emmanuel Dhyne
  48. Productivity-Based Asset Pricing: Theory and Evidence By Ronald J. Balvers; Dayong Huang
  49. On the precautionary motive for savings and prudence, in an EU and a NEU framework By Alain Chateauneuf; Ghizlane Lakhnati; Eric Langlais
  50. Steady state analysis and endogenous fluctuations in a finance constrained model By Thomas Seegmuller
  51. The Role of Money Demand in a Business Cycle Model with Staggered Wage Contracts By Rafel Gerke; Jens Rubart
  52. Corporate Currency Hedging and Currency Crises By Andreas Röthig; Willi Semmler; Peter Flaschel
  53. Dynamic Externalities and Policy Coordination By Manjira Datta; Leonard Mirman
  54. Existence and Uniqueness of Equilibrium in Distorted Dynamic Economies with Capital and Labor By Manjira Datta; Leonard Mirman; Kevin Reffett
  55. Evolving Post-World War II U.S. Inflation Dynamics By Timothy Cogley; Thomas Sargent
  56. Equilibrium Dynamics in a Two-Sector Model with Taxes By Manuel Santos; Salvador Ortigueira
  57. Intended and Accidental Bequests in a Life-cycle Economy By Lutz Hendricks
  58. Breaks and Persistency: Macroeconomic Causes of Stock Market Volatility By Andrea Beltratti; Claudio Morana
  59. a structural common factor approach to core inflation estimation and forecasting By Claudio Morana

  1. By: David Demery; Nigel W. Duck
    Abstract: This paper modifies the menu-cost model that Ball and Mankiw (1995) put forward to explain the correlation between the first- and higher-moments of the distribution of US price changes by allowing for non-zero trend inflation. Simulations suggest that even if trend inflation is only mildly positive - such as the 3 percent per annum experienced by the US in the last 50 years - the predictions of the Ball and Mankiw model are greatly altered. We then show that some of these predictions are rejected by annual post-WW2 US data.
    Keywords: Inflation, menu-cost, relative price variance, relative price skewness, skew-normal.
    JEL: E30 E31
    Date: 2005–01
  2. By: David Demery; Nigel W. Duck
    Abstract: King (1997) develops a framework for assessing four monetary regimes: an optimal state-contingent rule; a non-contingent rule; pure discretion; and a Rogoffian conservative central banker. Using this framework we show (a) that King is wrong to claim that it implies that an optimally-conservative central banker always dominates a fixed-rule monetary regime; (b) that if the private sector has a signal of the shock to which monetary policy responds - the accuracy of which is exogenously fixed - then either the optimal state-contingent rule or the optimally-conservative central bank can dominate; and (c) that if the private sector optimally chooses the accuracy of its signal then any regime can dominate.
    Keywords: Monetary policy, expectations, Rogoffian central banker.
    JEL: E3 E52
    Date: 2005–04
  3. By: Espen Henriksen; Stephen Spear
    Abstract: The question we ask is: within the set of a three-period-lived OLG economies with a stochastic endowment process, a stochastic dividend process, and sequentially complete markets, under what set of conditions may a set of government transfers dynamically Pareto dominate the laissez faire equilibrium? We start by characterizing perfect risk sharing and find that it implies a strongly stationary set of state-dependent consumption claims. We also derive the stochastic equivalent of the deterministic steady-state by steady-state optimal marginal rate of substitution. We show then that the risk sharing of the recursive competitive laissez faire equilibrium of any overlapping generations economy with weakly more than three generations is non-stationary and that risk is suboptimally shared. We then show that we can construct a sequence of consumption allocations that only depends on the exogenous state and which Pareto dominate the laissez faire allocations in an ex interim as well as ex ante sense. We also redefine conditional Pareto optimality to apply within this framework and show that under a broad set of conditions, there also exists a sequence of allocations that dominates the laissez faire equilibrium in this sense. Finally, we apply these tools and results to an economy where the endowment is constant, but where fertility is stochastic, i.e. the number of newborn individuals who enters the economy follows a Markov Process.
  4. By: Luis Fernando Melo Velandia; Martha Alicia Misas Arango
    Abstract: En este documento se presenta evidencia de cambios estructurales, a finales de la década de los noventa, en las relaciones económicas planteadas en los modelos uniecuacionales de inflación en Colombia. Hecho que afecta la inferencia y los pronósticos obtenidos a través de uso de técnicas clásicas de estimación. La metodología de estimación de mínimos cuadrados flexibles (Kalaba y Tesfatsion 1989, 1990), propuesta en esta investigación, permite incorporar tales cambios superando los problemas asociados a las metodologías tradicionales. Los pronósticos obtenidos a partir de esta metodología son superiores, en sentido de menor error mínimo cuadrático, a aquellos obtenidos a través de mínimos cuadrados ordinarios.
    Date: 2004–03–31
  5. By: Luis Fernando Melo Velandia; Héctor M. Núñez Amortegui
    Abstract: En este trabajo se implementan diferentes metodologías de combinación de pronósticos para la inflación colombiana durante el período trimestral comprendido entre 1999:I y 2003:I I. Los métodos de combinación propuestos permiten modelar cambios estructurales con el objeto de capturar el cambio de nivel de la inflación ocurrido en 1998 y 1999. Los resultados obtenidos muestran que la metodología de Castaño y Melo (1998), que no considera cambios estructurales, sigue siendo apropiada para pronósticos de horizontes de 1, 2 y 3 trimestres. Sin embargo, para horizontes mayores las metodologías de combinación que consideran cambios estructurales son las mejores, en el sentido de que tienen el menor error cuadrático medio de predicción.
    Date: 2004–05–31
  6. By: Martha López P.
    Abstract: En este documento se calibra un modelo de equilibrio general dinámico para el sector de vivienda en Colombia. El modelo tiene en cuenta el papel de las fricciones del mercado de crédito en la explicación del ciclo económico. La vivienda sirve dos propósitos: el de proveer servicios de vivienda y el de servir como colateral para disminuir los costos de financiamiento relativos a la actividad de pedir prestado. Con el modelo se pretende mostrar la relación existente entre la hoja de balance de los hogares, la inversión en vivienda, los precios de la misma y el consumo. Se encuentra evidencia empírica de que existe un mecanismo de acelerador financiero en la inversión en vivienda y de que el consumo de los hogares responde a los efectos de la hoja de balance. En la década de los noventa, el mecanismo de acelerador financiero explica cerca del cuarenta por ciento de la respuesta máxima de la inversión en vivienda y de los precios de la misma ante un choque en tasas de interés. Finalmente, se hace un experimento para capturar la forma como desde 2000 el mecanismo de acelerador financiero se ve afectado por un cambio estructural en el mercado de financiación de vivienda.
    Date: 2004–08–31
  7. By: Sergio Clavijo; Michel Janna; Santiago Muñoz
    Abstract: El objetivo de este trabajo es proporcionar una visión de conjunto del mercado hipotecario en Colombia y su relación con los principales determinantes que se encuentran a nivel internacional. Nuestras recomendaciones apuntan a examinar la cadena productiva y obtener un mejor entendimiento de las estadísticas “vitales” del sector vivienda y su relación con las condiciones crediticias. También presentamos un modelo simultáneo tendiente a explicar los ciclos de precios hipotecarios en Colombia durante el periodo 1990-2003. Por el lado de la demanda, encontramos que el metraje construido es bastante elástico al ingreso laboral de los hogares y al precio de la vivienda nueva, así como a la tasa de interés real. Por el lado de la oferta, se observó una elasticidad alta a los costos de construcción y un efecto riqueza moderado. Estos resultados son robustos a diferentes tipos de estimación.
    Keywords: Mercados financieros,
    JEL: E44
    Date: 2004–08–31
  8. By: Hernán Rincón; Jorge Ramos; Ignacio Lozano
    Abstract: Después de la ejecución del programa de ajuste fiscal y macroeconómico aplicado entre 1999 y 2002, y de las medidas económicas tomadas por la actual administración, se conoce que el país no se encuentra aún sobre una senda fiscal sostenible. Este documento recapitula integralmente el problema de las finanzas del gobierno y plantea algunas recomendaciones en materia de ingresos, gastos y deuda, con el fin de sanearlas y hacerlas sostenibles en el mediano y largo plazo. Haciendo un reconocimiento a los esfuerzos que han hecho las anteriores administraciones y la actual, el documento contribuye al debate que busca la adopción de nuevas y efectivas decisiones de política fiscal.
    Keywords: Ingresos y gastos del gobierno;
    JEL: E62
    Date: 2004–07–30
  9. By: Alejandro Reveiz
    Abstract: The set of objectives in reserves management are normally predefined and include: protecting the economy against potential external shocks on the current account or on capital flows; invest the reserves minimizing the potential of a loss and ensuring the availability of international liquidity when necessary. Whereas the adoption of a floating exchange rate in theory reduces the need for reserves to protect against external shocks, in the context of free capital movements it will be a function of the efficiency of international markets. In practical terms, Reserves Management is a process with a high effective complexity. The manager is confronted with the randomness of markets – including its own through the impact on the Reserves of Central Bank intervention – and the regularities that arise from its guidelines (i.e. credit and market risk, as well as liquidity policies) and the foreign exchange intervention mechanisms. Recently, given the increase in the size of the foreign reserves in recent decades for some central banks, as a result and in response to globalization and more volatility on currency flows, portfolio foreign investment and other related factors as contagion effects, the pressure to generate long-term returns has increased. However, the goal of increased returns is subdued to the security and liquidity objectives in international reserves management. As a result, the process of asset allocation and the construction of an efficient set of investment guidelines, as well as a risk policy, must be framed by a liquidity policy and, generally, to an asymmetric exposure to risk where capital loses are to be avoided in specific time horizons; i.e. a fiscal year.
    Date: 2004–05–30
  10. By: Leonardo Villar Gómez
    Abstract: El propósito de este artículo es mostrar que, en contra de lo que muchos analistas preveían hace pocos años, las finanzas públicas en Colombia han obtenido un beneficio significativo del proceso reciente de reducción de la inflación. El menor ritmo de crecimiento de los precios ha estimulado la demanda por saldos monetarios reales y ha aumentado por esa vía el señoreaje total generado por el Banco de la República. Por esa razón, la magnitud del señoreaje se mantiene en niveles relativamente altos, pese a drástica contracción en los encajes requeridos al sistema financiero que tuvo lugar desde mediados de la década de los noventa y a la consiguiente reducción en esta fuente de señoreaje. Por su parte, los cambios en la utilización del señoreaje han permitido que la porción que beneficia directamente al gobierno –el señoreaje fiscal- aumente de manera notoria en el período reciente. Este beneficio fiscal, sin embargo, puede verse afectado negativamente en la medida en que una porción mayor del señoreaje total se destine a la compra de divisas para acumulación de reservas internacionales. Finalmente, el artículo cuantifica el beneficio que ha tenido la caída de la inflación sobre las necesidades de financiamiento del gobierno y la magnitud del déficit fiscal, a través del impacto de menores tasas nominales de interés.
    Keywords: Finanzas públicas,
    Date: 2004–06–30
  11. By: Gerson Javier Pérez V.; Peter Rowland
    Abstract: This paper presents four case studies of economies with well-developed regional policies. These include the European Union, Spain, Italy and Brazil. These cases have been chosen because of their relevance when studying regional problems in Colombia. In all of the cases regional policy has had a relatively poor performance, since regional disparities have not been significantly reduced. However, one could argue that disparities would have been larger without these policy initiatives. Thus, the results highlight the difficulties in developing a successful regional policy.
    Date: 2004–08–31
  12. By: José Fernando Escobar R.; Carlos Estaban Posada
    Abstract: A partir de un esquema de oferta y demanda de dinero se estimó un modelo de relaciones de corto y largo plazo entre cinco variables: base monetaria, dinero (M1), tasa de interés, producto y nivel de precios al consumidor (cifras trimestrales desde 1984:I hasta 2003:IV). El modelo es del tipo denominado SVEC (Structural Vector Error Correction). Los parámetros de las funciones de oferta y demanda de dinero son compatibles con las restricciones teóricas convencionales. La estimación utilizó la metodología de tendencias estocásticas comunes para realizar un análisis de impulsorespuesta y un ejercicio de pronóstico con las posibles variables débilmente exógenas.
    Keywords: Dinero,
    JEL: E41
    Date: 2004–08–31
  13. By: Pamela Cardozo
    Abstract: Desde finales de los años 80 el sistema financiero colombiano ha experimentado cambios fundamentales acompañados de una mayor volatilidad del entorno en que se desenvuelve la actividad financiera. Como parte del fortalecimiento de la regulación prudencial, desde el 2000 en Colombia, se está supervisando el riesgo de mercado medido a través del Valor en Riesgo (VeR). El VeR se define como la máxima pérdida potencial en el valor de un activo o portafolio, dada una probabilidad, debido a cambios en los precios del mercado, en un horizonte de tiempo determinado. Para obtener el VeR de un activo generalmente se supone que los retornos siguen una distribución normal, sin embargo existe gran evidencia de que ésta no se ajusta en forma correcta a la serie de retornos financieros. En este estudio se utiliza la teoría de valor extremo (TVE) para obtener el VeR de 6 activos financieros colombianos utilizando el método de Picos sobre un umbral (Peaks over Thresholds (POT)) mostrando que la distribución normal no se ajusta a la distribución de los retornos de los activos colombianos. Se modela de forma satisfactoria la distribución de las series, bajo el supuesto de observaciones independientes e idénticamente distribuidas, especialmente en la parte extrema de la distribución. Se compara el VeR obtenido (VeR TVE) y el VeR bajo el supuesto de distribución normal con los retornos reales dando como resultado un mejor ajuste del VeR de TVE. En el último examen de desempeño, la hipótesis nula de que el modelo realiza una buena estimación es rechazada 11 veces por el método tradicional (distribución normal) mientras que el método de TVE lo hace 6 veces.
    Keywords: Valor en riesgo,
    Date: 2004–08–31
  14. By: Gloria Alonso; Jorge Niño; Héctor Zárate
    Abstract: La legislación cambiaria vigente permite a los residentes colombianos efectuar transacciones en divisas con no residentes, a través de dos mecanismos: el mercado cambiario regulado y/o el mercado libre. El mercado cambiario regulado está constituido por la totalidad de las divisas que deben canalizarse obligatoriamente por conducto de los intermediarios autorizados o a través de cuentas de compensación en el exterior. En particular, en este mercado se deben negociar las divisas para operaciones de comercio exterior, de inversión extranjera directa y de portafolio, así como de endeudamiento externo entre otras operaciones que se detallan más adelante. En el mercado libre, por su parte, se pueden negociar las divisas que no son de obligatoria canalización en el mercado regulado, como aquellas relacionadas con la prestación (contratación) de servicios no financieros, remesas de trabajadores y movimiento de cuentas libres en el exterior. No obstante, los agentes también pueden utilizar el mercado regulado para canalizar divisas del mercado libre. En la medida en que las divisas del mercado cambiario regulado son negociadas a través de los intermediarios del mercado cambiario (IMC) y/o cuentas de compensación, existe obligatoriedad de reporte sobre las mismas. Dichos reportes son consolidados por el Banco de la República y divulgados en la “balanza cambiaria consolidada”. Por el contrario, dado que parte de las operaciones del mercado libre no se transa con IMC ni genera movimientos de cuentas de compensación, no es posible cuantificar su magnitud, ni llevar un registro completo de las transacciones que se efectúan en dicho mercado, así como tampoco se conocen las tasas que en él se negocian. Por lo anterior y para suplir en parte esta deficiencia de información, se decidió construir un indicador que facilitara el seguimiento de la tasa de cambio peso-dólar en el mercado libre y permitiera evaluar el margen de negociación de tasas entre los dos mercados. Con tal propósito, a partir de mayo de 2002 la SGEE, con la colaboración de las sucursales del Banco, está llevando a cabo una encuesta diaria a profesionales de compra y venta de divisas a nivel nacional, que pregunta por tasa y monto negociado de divisas en el mercado libre. El objeto del presente documento es presentar el cálculo de la tasa de cambio del mercado libre, mostrar su comportamiento durante 2003 y lo corrido de 2004 hasta junio y compararlo con la dinámica de la tasa de cambio del mercado regulado (TRM para operaciones en efectivo). En la segunda sección se describe brevemente la legislación cambiaria en lo que concierne a operaciones del mercado libre. En la tercera se presenta el diseño muestral utilizado para la encuesta y la metodología de cálculo empleada. La cuarta sección, analiza la dinámica del precio de la divisa en el mercado libre, los resultados del margen de intermediación de la negociación de las divisas entre los dos mercados y la posibilidad de arbitraje entre los mismos. En la quinta se hablará sobre negociaciones de divisas entre el mercado regulado y el libre y, finalmente, se presentan las conclusiones.
    Date: 2004–09–30
  15. By: Franz Hamann; Juan Manuel Julio; Paulina Restrepo; Alvaro Jose Riascos Villegas
    Abstract: This paper presents a dynamic stochastic general equilibrium model of inflation targeting in small open economy. We calibrate the model to the Colombian economy and present the response of some macroeconomic variables to different types of shocks that are relevant for emerging economies. We also analyze the sensitivity of those responses to some key parameters. Furthermore, using simulated data from the model we study the ability of the model to capture the spectra, the phase and the coherence of observed output and inflation. We follow a frequency domain comparison methodology proposed by Diebold, Ohanian and Berkowitz (1998,[19]). The Colombian data is characterized by: first, cyclical inflation and output gap (as measured by Hodrick – Prescott filter) are dominated by periodic movements between 2 and 25 quarters with a peak between 10 and 12 quarters. The cross spectrum and coherence show results in the the same direction. Second, the coherence does not show any significant dominance of frequencies for the cross movements but the correlation jumps to 0,6 for periodic movements around 5 quarters. These facts are compared to the data simulated from the model. We conclude that the simulated data spectra and cross spectra do not differ statistically from the respective population quantities for, at least, frequencies beyond 0,05 . Which correspond to periodic movements of up to at least 10 quarters. The model spectra presents more persistence than the observed data the population coherence is captured for most frequencies but the ones around the peack of the model's theoretical coherence and very long run periodic movements. Subsequent research will address these issues.
    Date: 2004–09–30
  16. By: Carlos A. Arango A.; Martha A. Misas A.; Juan Nicolás Hernández
    Abstract: Las tesorerías de los Bancos Centrales enfrentan el problema de pronosticar las necesidades de especies monetarias requeridas por los agentes económicos para finalizar sus transacciones. Dichos pronósticos son utilizados para hacer sus planes a mediano plazo (2 a 3 años en el caso colombiano) de producción, e inventarios de materia prima y unidades terminadas por denominación. El objetivo de este trabajo es evaluar distintas técnicas de pronóstico que sean lo suficientemente flexibles como para incorporar las innovaciones recientes en los determinantes de la demanda y la estructura denominacional de las especies monetarias, y reconocer las posibles no-linealidades en la relación de aquellos con el uso del efectivo. La estrategia seguida se basa en la utilización de redes neuronales artificiales (ANN) y mínimos cuadrados flexibles (FLS), dos técnicas econométricas bastante robustas frente a cambios estructurales y que permiten incorporar elementos no-lineales en la modelación del efectivo.
    Date: 2004–09–30
  17. By: Javier Gómez Pineda
    Abstract: In this paper, sectoral balance sheets and sectoral stock and flow consistency are embedded into a new open economy model based on the financial accelerator. The framework has nominal inertia, real rigidities and market frictions, and it is designed to evaluate exchange rate risk in the economy and across sectors. The model is perturbed by a shock to investor sentiment and a sudden stop to capital inflow. It is used to evaluate the claims that usually back the fear of floating strategy: the effect of the exchange rate on foreign debt, and the pass-through of exchange rate depreciation to inflation. We conclude that fear of floating, the policy that intends to stabilize foreign debt, is precisely the policy that leads to a higher increase in the government debt to GDP ratio. The reason is that, in order to control the exchange rate, the authorities have to increase interest rates. While a lower depreciation does contain the level of debt, it increases the cost of interest on the debt, and this increases the change in the debt to GDP ratio. The pass-through does not seem an important argument for fear of floating either. We also find that under fear of floating the transfer problem is solved by the private sector alone in the midst of a recession; and that under floating, the government balance is in surplus thereby contributing to the transfer.. _______________ *Research Department, Banco de la República (the central bank of Colombia) The author would like to thank Lavan Mahadeva for his comments.
    JEL: E
    Date: 2004–11–30
  18. By: Leonardo Villar; Ricardo Ffrench-Davis
    Abstract: In 1995, when contagion from the tequila crisis was spreading in Latin America, both Chile and Colombia were exempt from contagion and presented high rates of economic growth. Several analysts attribute this positive performance to the fact that both had undertaken prudential measures to avoid excessive exposure to short term capital flows and pressures towards excessive real exchange rate appreciation: Both countries were using a reserve requirement on short term foreign indebtedness, crawling-bands, and other instruments for reducing domestic vulnerability to capital flows. The parallelism between Chile and Colombia continued after the Asian crisis. In this period, despite the fact that short-term liabilities represented only a small share of foreign debt in both countries, vulnerability to the international financial crisis was high. In both, real interest rates rose sharply in 1998 and GDP growth was negative in 1999. The similarities between Chile and Colombia, however, do not go much farther. During the 1990s, GDP growth rates were very high in Chile while in Colombia they were below historical standards. Chile had fiscal surpluses and high private savings, while in Colombia there was a rapidly increasing fiscal deficit and falling domestic savings. This paper presents a comparative analysis of the macroeconomic policies of Chile and Colombia during the 1990s, in particular the exchange rate regimes, the capital account regulations, and the gestation and management of financial crises.. _______________ Paper prepared for the Project on Management of Volatility, Financial Globalization and Growth in Emerging Economies, coordinated by ECLAC with the support of the Ford Foundation. **Ffrench-Davis is Principal Regional Adviser of ECLAC and Professor of Economics of Universidad de Chile. Villar is Co-Director at the Board of Directors of Banco de la República of Colombia and Professor of Economics of Universidad de los Andes. The authors appreciate the valuable comments and suggestions of Guillermo Le Fort, Carlos Quenan and other participants at two ECLAC Seminars in Santiago and at a technical meeting of G-24 in Geneva. Opinions expressed herein are exclusively of the authors and not of the institutions in which they work
    Date: 2004–07–30
  19. By: Martha Misas A>rango; Enrique López Enciso; Juana Téllez Corredor; José Fernando Escobar Restrepo
    Abstract: En este documento se presenta la estimación de la inflación subyacente en Colombia durante el período comprendido entre enero de 1983 y marzo del 2004, obtenida mediante un esquema de tendencias estocásticas comunes asociadas a un modelo vectorial de corrección de errores con restricciones de carácter estructural (SVEC). En el sistema de información, la inflación subyacente se relaciona de manera directa con el crecimiento de un agregado monetario amplio, el nivel del producto, los términos de intercambio y el crecimiento de los salarios nominales. La medida resultante de inflación subyacente corresponde a la estimación de largo plazo de la inflación que es obtenida mediante el modelo de tendencias estocásticas comunes. La inflación subyacente estimada posee las características deseadas en cuanto a varianza y está relacionada con el comportamiento de la inflación observada. Con el fin de probar las bondades de la metodología, se calculan dos series de pronósticos de la inflación y de la inflación subyacente, con sus respectivos intervalos de confianza, mediante técnicas de bootstrapping basadas en dos longitudes de muestreo que son seleccionadas de manera aleatoria.
    Date: 2005–01–31
  20. By: Adolfo Cobo
    Abstract: In an economy conducted under an Inflation Targeting regime, the output gap becomes one of the most important variables to guide monetary policy. Defined as the difference between observed and potential or non-inflationary output, the gap is a measure of the state of aggregate demand and, therefore, of inflationary pressures on the economy. However, this relationship might be obscured by supply and price shocks, perhaps more relevant in the case of emerging economies. This paper estimates and evaluates the output gap for Colombia between 1970 and 2003 using a wide array of methods that go from univariate approaches such as Hodrick-Prescott (HP) and Band Pass filters to multivariate or structural methods obtained by the Kalman filter technique or the production function approach. We also include some mixed procedures like the multivariate filter and the prior-consistent filter. The last one takes into account some supply and price shocks observed in the Colombian economy since 1990. An evaluation of the different estimators is made by a simulated out-of sample forecasting exercise. The results show that multivariate structural filters have a better performance than pure mechanical approaches, but the difference is marginal with respect to a prior-consistent HP filter that takes into account supply shocks. In general, the forecasting performance of all the output gaps estimators improves when we re-define core inflation to exclude some price shocks.
    Keywords: Colombia,
    JEL: E31
    Date: 2005–02–28
  21. By: Paulina Restrepo Echavarría
    Abstract: Since 1991, inflation in Colombia was reduced from 25% on average to about 6% more recently. Although this performance is in line with a long run inflation target of 3%, some analysts ask whether the Central Bank should continue ting. In this paper we present a dynamic stochastic general equilibrium model of inflation targeting for a small open economy to answer this question. We calibrate the model to the Colombian economy and compute the welfare cots and benefits of achieving the long run inflation target. We find that the long run welfare gains are about 4.54% in terms of capital. Furthermore,accounting for the transition the welfare gains are about 1.18% in terms of capital. Our results differ from previous findings because transition costs are introduced and our environment considers the presence of real rigidities (monopolistic competition) and nominal rigidities (sticky information) in a small open economy.We also analyze the sensitivity of the results to some key parameters and conclude that higher price flexibility leads to lower gains from reducing inflation and that a country with markups around 15% receives higher gains than those countries with different levels of markups. The weight given to the inflation gap in the monetary policy rule is important, as a more aggressive Central Bank can improve welfare. Finally,we find that disinflation is more expensive in the case of a closed economy.
    Keywords: Small Open Economy;
    JEL: E31
    Date: 2005–02–28
  22. By: Claudia Marcela Umaña
    Abstract: This paper examines the relationship between economic growth, households’ income, child labour and school attendance in Colombia. It also analyses the impact of the economic recession of 1999 on child labour and education. An important contribution of this paper is the use of micro and macro data in the estimation of the empirical models, since they allow analysing micro and macro sources of child labour. The results show that both households’ earnings and economic growth are relevant for the families’ decision-making process regarding education or labour activities of their children. I find that, in Colombia, child labour is contra-cyclical and education is pro-cyclical to economic growth. Therefore, higher levels of social income increase the children’s welfare providing them with more education and less economic responsibilities. This implies that the main reason why children work in Colombia is poverty. The late nineties’ economic crisis impact on child labour and education was a sharp increase of children in the labour force and a slight decrease of school attendance.
    Date: 2004–01–16
  23. By: Eduardo WIESNER DURÁN
    Abstract: El presente artículo desarrolla la tesis que la Constitución de 1991 elevó el gasto público total a niveles no sostenibles generando serios problemas fiscales que no han podido ser corregidos en su raíz estructural. La gran limitante a esta corrección ha sido la insuficiencia de apoyo político para proteger la estabilidad macroeconómica del país y verla como un patrimonio político “común” a todos los ciudadanos. Esta situación ha sido agravada por recientes fallos de la Corte Constitucional que interfieren con las leyes de ajuste fiscal. Dentro de este contexto la independencia del Banco de la República ha sido un avance de enorme beneficio al desarrollo institucional del marco macroeconómico en general.
    Keywords: Estado Social de Derecho
    Date: 2004–04–02
  24. By: Ignacio Vélez-Pareja
    Abstract: En la práctica financiera y la enseñanza de las finanzas el tratamiento que se le da a algunos de los conceptos más importantes en la evaluación de proyectos y la valoración de empresas en muchos casos es por decir lo menos, ligero. Por un lado está la determinación de los flujos de caja para valorar una firma o proyecto y por el otro el costo de capital como tasa de descuento para valorar esos flujos. El problema de los flujos de caja radica en que para muchos estudiosos o practicantes este ejercicio se convierte en un proceso dispendioso y que algunas veces propenso a que se pasen por alto algunas partidas. El problema del costo de capital o tasa de descuento para descontar flujos de caja muchas veces se resuelve escogiendo una tasa (a veces el costo de la deuda o lo que el dueño le gustaría ganarse y a eso se le añaden unos puntos porcentuales). Otras veces se calcula un promedio ponderado del costo de la deuda y del costo de capital del dueño usando los valores en libros iniciales y se utiliza como tasa única. Ante esta situación se pretende abordar el tema de la manera más sencilla, pero a la vez correcta y proponer así un cálculo del flujo de caja para valoración y el cálculo de la tasa de descuento apropiada para descontar flujos de caja. Aunque determinar el costo de capital es uno de los problemas más difíciles y controvertidos de la teoría financiera y aunque es realmente meterse en camisa de once varas, se hará el intento. En este trabajo presentaremos un enfoque muy sencillo y correcto en términos de valores de mercado para determinar los flujos de caja, en particular el flujo de caja de capital, FCC (Capital Cash Flow, CCF en inglés) utilizado por Ruback, 2000 y para definir el costo de capital para descontar el FCC. Como ambientación al tema presentamos los errores más comunes que se encuentran en la valoración de flujos de caja. El cuerpo del trabajo pretende mostrar cómo esos errores se pueden evitar.
    Keywords: Financial statements, forecasting, net present value (NPV), firm valuation, equity valuation, cost of capital, break even analysis, sensitivity analysis, scenario analysis, cash flow valuation
    JEL: G31 H43 M40 D92 E22
    Date: 2004–07–31
  25. By: Ignacio Vélez-Pareja
    Abstract: A nuestros estudiantes de Finanzas les enseñan que lo más importante en ese área es saber calcular y utilizar la tasa de interés efectiva o capitalizada. Para algunos de nuestros profesores, eso es todo; si un estudiante llega sin saber esa ficción, no sabe Finanzas. Más aun, una gran mayoría de las personas del sector financiero, por no decir todas, trabajan, toman decisiones y hacen que otros (sus clientes) tomen decisiones, es decir, escojan alternativas de inversión, con base en la tasa de interés efectiva anual. Por ejemplo, ante una situación en que varias alternativas de liquidación de un bono, le recomendarían a sus clientes que mientras la tasa de interés efectiva anual sea la misma, da lo mismo cualquier modalidad de pago. Esto es equivocado y se puede demostrar con un ejemplo real y sencillo. En esta nota se demuestra por medio de ejemplos sencillos lo equivocado de dar preponderancia a la tasa efectiva sobre la tasa nominal. En uno de los ejemplos se muestra cómo se llega a una decisión equivocada sobre la base de la tasa efectiva de interés y se desprecia el ahorro en impuestos que contribuye a la generación de valor de una firma.
    Keywords: Costo promedio ponderado de capital, WACC, tasas de interés, tasa nominal
    JEL: E43 G12 G21 G31
    Date: 2004–02–14
  26. By: Ramón Rosales; Edson Apaza; Jorge Alexander Bonilla Londoño
    Abstract: El documento tiene como objetivo principal mostrar el marco teórico y operativo de la economía de la producción de los bienes agrícolas. En el marco teórico se desarrollan los principios microeconómicos relacionados con la producción y los costos de los bienes agrícolas, así como las leyes que soportan la teoría de la dualidad. La parte empírica o aplicada del documento se centra en la estimación de modelos econométricos de las funciones de producción más utilizadas en la agricultura. A partir de los modelos estimados se derivan y se representan gráficamente los conceptos más importantes que se tienen en cuenta en el análisis económico de la producción agrícola. Las bases de datos se han construido a partir de experimentos agrícolas llevados a cabo en los centros de investigación agropecuaria de Colombia y México. Finalmente, el presente documento pretende contribuir al inicio de una serie de publicaciones en las que se muestre los resultados de distintos estudios llevados a cabo en el área de economía agrícola del Programa de Maestría en Economía del Medio Ambiente y Recursos Naturales – PEMAR de la Facultad de Economía de la Universidad de los Andes.
    Keywords: economía agrícola
    JEL: E23
    Date: 2004–09–01
    Abstract: Forecasting the demand for cash in Colombia has become a true challenge in the recent past. The last decade witnessed strong changes in the variables that determine the demand for money: Inflation and, hence, interest rates, fall substantially, technological progress was strong in the Colombian Payment System and distorting Tobin-like taxes to financial transactions were imposed. These changes are of special relevance when the demand for money is a non-linear function of its determinants. In this paper we exploit the flexibility of artificial neural networks (ANN) to explore the existence of nonlinearity in the demand for cash. The results show that the ANN models outperform those of linear nature in terms of forecast errors. Furthermore, significant evidence is found of non-linearity in the dynamics of the demand for cash.
    Keywords: DEMAND FOR MONEY,
    JEL: C45
    Date: 2004–12–31
    Abstract: Utilizando un modelo macroeconómico de pequeña escala para la economía colombiana, se investiga el problema de seleccionar una regla de política simple; una regla que utilice un conjunto reducido de información, que sea consistente con un régimen de inflación objetivo. A pesar de que las reglas de política simples no son tan eficientes como lo serían las reglas de política óptimas, en la literatura se ha mostrado que algunas reglas simples pueden aproximarlas muy bien. Se explican las características de los parámetros de reacción y de producto en reglas simples de Taylor e IFB, así como el horizonte óptimo de pronóstico para inflación objetivo. Mediante el uso de simulaciones estocásticas del modelo se encuentra que, como se esperaba, las reglas simples que utilizan proyecciones de la inflación en lugar de la inflación contemporánea tienen mejores propiedades de estabilización.
    JEL: C45
    Date: 2004–12–31
    Abstract: En este documento estudiamos algunos canales, mecanismos de ampli- ficación y los efectos cuantitativos de la política monetaria en Colombia. Adicionalmente, sugerimos una metodología completa, consistente teóricamente con la teoría del Equilibrio General y práctica para el análisis de política y pronósticos de variables económicas de interés.
    Keywords: MONETARY POLICY,
    Date: 2004–12–31
    Abstract: En este documento se hará primeramente una revisión de las diferentes corrientes económicas que han estudiado la tasa de desempleo, para determinar como el estudio macroeconómico, ha ido dando paso al estudio de este problema en términos microeconómicos; de la misma manera se mostrará como se ha utilizado el modelo de búsqueda y su análisis en términos micro y macroeconómicos. En el segundo punto se planteará la teoría de la búsqueda como pilar fundamental para el análisis microeconómico de la probabilidad de estar desempleado. En un tercer punto se esboza el estado del arte en Colombia, en un cuarto y quinto punto algunas consideraciones del estado del arte en Colombia con relación a los determinantes de la probabilidad de estar desempleado y un cuadro sinóptico sobre el mismo. Cerrando el trabajo se presenta la metodología, los resultados y las conclusiones.
    Keywords: Desempleo
    Date: 2004–07–21
  31. By: Humberto Bernal Castro; Byron Ortega Gaitán
    Abstract: Este trabajo busca analizar el desarrollo del mercado secundario de acciones para Colombia desde 1988 hasta 2002. Para ello se toman cuatro variables: tamaño, liquidez, concentración e integración internacional. Esta investigación complementa trabajos anteriores sobre el mercado de acciones, como el de Demirgüç-Kunt y Levine (1995), a nivel internacional, y el de Arbeláez, Zuluaga y Guerra (2002) entre otros, a nivel nacional. De igual forma, aporta la importancia de cada uno de los indicadores para medir las variables y amplía el período de análisis.
    Keywords: Mercado bursátil
    JEL: E44
    Date: 2004–06–15
  32. By: Takatoshi Ito; Yuri N. Sasaki; Kiyotaka Sato
    Abstract: We examine the pass-through effects of exchange rate changes on the domestic prices among the East Asian countries using the conventional pass-through equation and a VAR analysis. First, dynamics of pass-through from the exchange rate to import prices and consumer prices is analyzed using the conventional model of pass-through based on the micro-foundations of the exporter's pricing behavior. Both the short-run and long-run elasticities of the exchange rate pass-through are estimated. Second, a vector autoregression (VAR) technique is applied to the pass-through analysis. A Choleski decomposition is used to identify structural shocks and to examine the pass-through of each shock to domestic price inflation by the impulse response function and variance decomposition analyses. Both the conventional analysis and VAR analysis show that while the degree of exchange rate pass-through to import prices is quite high in the crisis-hit countries, the pass-through to CPI is generally low, with a notable exception of Indonesia. The VAR analysis shows that the size of the pass-through of monetary shocks is even larger in Indonesia. Thus, it was Indonesia's accommodative monetary policy as well as the high degree of the CPI responsiveness to exchange rates that contributed to high domestic price inflation, resulting in the loss of its export competitiveness, even when the currency depreciated sharply in nominal terms in 1997-98.
    Date: 2005–05
  33. By: Bhattacharya, Joydeep; Singh, Rajesh
    Abstract: Poole (1970) using a stochastic IS-LM model presented the first formal treatment of the classic question: how should a monetary authority decide whether to use the money stock or the interest rate as the policy instrument? We update the seminal work of Poole in a microfounded flexible-price general equilibrium model of money using explicit welfare criteria. Specifically, we study the optimal choice of monetary policy instruments in a overlapping-generations economy where limited communication and stochastic relocation creates an endogenous transactions role for fiat money. We characterize stationary welfare maximizing monetary and inflation targets for settings in which the economy is separately hit with i.i.d endowment and liquidity shocks. Our analysis suggests that the central insight of Poole survives: when the shocks are real, welfare is higher under money growth targeting; when the shocks are nominal and not large, welfare is higher under inflation rate targeting.
    JEL: E0
    Date: 2005–05–10
  34. By: Gaia Garino; Christopher Martin
    Abstract: We analyse the impact of labour turnover on profits. We extend the efficiency wage model of Salop (1979) by separating incumbent and newly hired workers in the production function. We show that an exogenous increase in the turnover rate can increase profits, but only where firms do not choose the wage. This effect of turnover varies across firms as it depends on turnover costs, the substitutability of incumbents and new hires and other factors. We test our model on UK cross-sectional establishment-level data. We find that the data are consistent with our predictions.
    Keywords: Labour Turnover; Turnover Costs; Optimal Turnover
    JEL: J21 J23 E3 F4
    Date: 2005–05
  35. By: Nabil Annabi; Fatou Cissé; John Cockburn; Bernard Decaluwé
    Abstract: Much current debate focuses on the role of growth in alleviating poverty. However, the majority of computable general equilibrium (CGE) models used in poverty and inequality analysis are static in nature. The inability of this kind of model to account for growth (accumulation) effects makes them inadequate for long run analysis of the poverty and inequality impacts of economic policies. They exclude accumulation effects and do not allow the study of the transition path of the economy where short run policy impacts are likely to be different from those of the long run. To overcome this limitation we use a sequential dynamic CGE microsimulation model that takes into account accumulation effects and makes it possible to study poverty and inequality through time. Changes in poverty are then decomposed into growth and distribution components in order to examine whether de-protection and factor accumulation are pro-poor or not. The model is applied to Senegalese data using a 1996 social accounting matrix and a 1995 survey of 3278 households. The main findings of this study are that trade liberalisation induces small increases in poverty and inequality in the short run as well as contractions in the initially protected agriculture and industrial sectors. In the long run, it enhances capital accumulation, particularly in the service and industrial sectors, and brings substantial decreases in poverty. However, a decomposition of poverty changes shows that income distribution worsens, with greater gains among urban dwellers and the non-poor.
    Keywords: Dynamic CGE model, trade liberalisation, poverty, inequality, Senegal
    JEL: D33 D58 E27 F17 I32 O15 O55
    Date: 2005
  36. By: Caesar B. Cororaton; John Cockburn
    Abstract: The paper employs an integrated CGE-microsimulation approach to analyze the poverty effects of tariff reduction. The results indicate that the tariff cuts implemented between 1994 and 2000 were generally poverty-reducing, primarily through the substantial reduction in consumer prices they engendered. However, the reduction is much greater in the National Capital Region (NCR), where poverty incidence is already lowest, than in other areas, especially rural, where poverty incidence is highest. Tariff cuts lower the cost of local production and bring about real exchange rate depreciation. Since the non-food manufacturing sector dominates exports in terms of export share and export intensity, the general equilibrium effects of tariff reduction is an expansion of this sector and a contraction in the agricultural sector. This, in turn, leads to an increase in the relative returns to factors, such as capital, used intensively in the non-food manufacturing sector and a fall in returns to unskilled labor. As rural households depend more on unskilled labor income, income inequality worsens as a result.
    Keywords: Dynamic CGE model, trade liberalisation, poverty, inequality, Senegal
    JEL: D33 D58 E27 F13 F14 I32 O15 O53
    Date: 2005
  37. By: Wanjoong Kim (Korea Institute for International Economic Policy); Terrence Kinal (Korea Institute for International Economic Policy)
    Abstract: Exchange rate fluctuations provide a source of movements in employment both within and across industries. Previous studies focus on only developed countries such as OECD countries. But country and industry characteristics in developing countries are different form those developed countries, so that the effects of fluctuations in real exchange rates on employment in developing countries may be different form those in developed countries. This paper examines the relationship between exchange rates and employment using a panel of 28 industries in three developing countries (Korea, Malaysia, and the Philippines) from 1970 to the 1990s using a panel VAR model. The impulse response functions show that Korean and Malaysian employment responds positively only after 1985. Compared to e the developed countries over the same period, the developing countries show a larger response to exchange rate shocks.
    Keywords: Exchange rates, employment, East Asian Countries, Panal VAR
    JEL: F31 F3 F4 E24
    Date: 2004–11
  38. By: Giovanni Dosi; Giorgio Fagiolo; Andrea Roventini
    Abstract: In this paper, we present an evolutionary model of industry dynamics yielding en- dogenous business cycles with 'Keynesian' features. The model describes an economy composed of firms and consumers/workers. Firms belong to two industries. The first one performs R&D and produces heterogeneous machine tools. Firms in the second industry invest in new machines and produce a homogenous consumption good. Consumers sell their labor and fully consume their income. In line with the empirical literature on investment patterns, we assume that the investment decisions by firms are lumpy and constrained by their financial structures. Moreover, drawing from behavioral theories of the firm, we assume boundedly rational expectation formation. Simulation results show that the model is able to deliver self-sustaining patterns of growth characterized by the presence of endogenous business cycles. The model can also replicate the most important stylized facts concerning micro- and macro-economic dynamics. Indeed, we find that investment is more volatile than GDP; consumption is less volatile than GDP; investment, consumption and change in stocks are procyclical and coincident variables; employment is procyclical; unemployment rate is countercyclical; firm size distributions are skewed but depart from log-normality; firm growth distributions are tent-shaped.
    Keywords: Evolutionary Dynamics, Agent-Based Computational Economics, Animal Spirits, Lumpy Investment, Output Fluctuations, Endogenous Business Cycles.
  39. By: Andreas Pollak (University of Freiburg)
    Abstract: The framework of a general equilibrium heterogeneous agent model is used to study the optimal design of an unemployment insurance (UI) scheme and the voting behaviour on unemployment policy reforms. In a first step, the optimal defined benefit and defined replacement ratio UI systems are obtained in simulations. Then, the question whether switching to such an optimal system from the status quo would be approved by a majority of the voters is explored. Finally, the transitional dynamics following a policy change are analysed. Accounting for this transition has an important influence on the voting outcome.
    Keywords: insurance, heterogeneous agents, job search, voting, human capital
    JEL: C61 D58 D78 E24 E61 J64 J65
    Date: 2005–05–12
  40. By: Alexander Harin (Modern Humanitarian Academy)
    Abstract: Arrangements (agreements, contracts, regulations, bargains, etc.) are widespread economic events and are the fundamental concept of the economic theory. Infringements (breaches, modifications, deviations, changes, etc.) of arrangements are common and have a significant importance for the economic theory. For many years now the arrangement infringements have lacked appropriate attention in the economic theory. This fact caused a number of theoretical and practical problems. In order to solve them a new approach is proposed, which considers the possibility of arrangement infringements. This article gives a simple example and a new result of the approach application.
    Keywords: risk investment insurance
    JEL: D8 D81 C D E
    Date: 2005–05–10
  41. By: Daniel Levy (Emory University)
    Abstract: This paper makes three contributions: First, I construct annual time series of gross domestic investment and national saving in the U.S. for the 1897–1949 period using historical component series. I compare the qualitative and quantitative properties of the newly constructed series with the properties of four existing alternative series constructed by the Bureau of Economic Analysis, Commerce Department, Kuznets, and Kendrick. Second, I combine the newly constructed data with the Bureau of Economic Analysis’ 1929–89 period data, and the resulting time series are used to re-examine and document the long-run bivariate relationship between the time series of investment and saving. Third, I also examine the short-run as well as the cyclical relationships between the time series of investment and saving. The results reported in this paper indicate that there is a strong long-run and cyclical relationship between investment and saving, and this relationship seems to be independent of the time period considered. Furthermore, I find that during the postwar period the investment-saving comovement is strong and significant also in the short run. However, this is not true during the prewar period. Quantitatively, I find that the investment-saving relationship is stronger during the postwar period than the prewar period. Feldstein and his coauthors have argued that the high investment-saving correlation reflects imperfect capital mobility. This view, however, is hard to reconcile with the finding that the correlation increased during a period in which it is largely believed that capital markets have become more open and integrated. I conclude, therefore, that long-term capital mobility tests based on investment- saving correlation analysis are not likely to provide an accurate measure of capital mobility.
    Keywords: Investment-Saving Correlation, Investment-Saving Comovement, Feldstein-Horioka Puzzle, Capital Mobility, Short-Run Capital Mobility, Long-Run Capital Mobility, Business Cycle, Cointegration, Unit Root, Stationary Series, Frequency Domain Analysis, Spectral Analysis, Zero- Frequency, Coherence, Gain, Phase, Newly Constructed Time Series, Historical Time Series, Cyclical, Intertemporal Budget Constraint
    JEL: F21 F32 F41 E21 E22
    Date: 2005–05–12
  42. By: Naveen Srinivasan (Cardiff Business School); Vidya Mahambare (Cardiff Business School); M Ramachandran (Institute for Social & Economic Change)
    Abstract: This paper examines how the Bank of England conducts monetary policy in practice and assesses whether the pursued policy is consistent with its mandate. Our empirical results using quarterly as well as monthly ex post (or model generated) forecast suggest that monetary policy in the UK can be characterised by a nonlinear policy reaction function. Specifically, the Bank has tended to adjust its policy instrument when model generated inflation forecast is above its inflation target, but the response has been much less vigorous when it has been below the target. These results are however, not robust to the use of the Bank’s own ex ante forecasts which we argue is a better way of assessing its objectives. Overall this paper has sought to demonstrate that the way to identify and indeed to quantify the policy authorities’ objectives is to examine their ex ante forecasts.
    JEL: E52 E58
    Date: 2005–05–09
  43. By: Aykut Kibritcioglu (Ankara University)
    Abstract: In Turkey, the financial sector is traditionally dominated by banking activities, and the banking sector experienced several systemic crises since late 1970s. This paper reviews and summarizes the major banking sector problems in the country. It also outlines the latest regulations and reform attempts in Turkey, with particular reference to Turkey's future EU membership.
    Keywords: Banking sector, financial fragility, banking crises, banking regulations, Turkey
    JEL: E44 G21
    Date: 2005–05–11
  44. By: Shantanu Dutta (University of Southern California); Mark Bergen (University of Minnesota); Daniel Levy (Emory University); Robert Venable (Robert W. Baird, Co.)
    Abstract: We use a unique store-level data set to directly measure menu costs and to study the price change process at a large U.S. drugstore chain. We compare and contrast the magnitude of these measures with similar measures from 4 large U.S. supermarket chains. We find that (1) the actual magnitude of menu costs as a share of revenues, (2) menu costs per price change, (3) the frequent use of promotional pricing, and (4) the use of weekly pricing rules, are similar across both retail formats. Given that the main common features of these two types of retail formats are that (i) they both use posted prices, and (ii) both are multiproduct retailers selling a large number of products, our findings suggest that the magnitude of the menu cost components we measure, and the price change practices we document, may be generalizable across retail formats with these two features.
    Keywords: Menu Cost, Posted Prices, Multiproduct Retailer, Price Rigidity, Sticky Prices, Cost of Price Adjustment, Time Dependent Pricing
    JEL: E31 E12
    Date: 2005–05–12
  45. By: Hokky Situngkir (Bandung Fe Institute); Yohanes Surya (Surya Research International)
    Abstract: We analyze the evolving price °uctuations by using ultrametric distance of minimally spanning ¯nancial tree of stocks traded in Jakarta Stock Exchange 2000-2004. Ultrametricity is derived from transformation of correlation coe±cients into the distances among stocks. Our analysis evaluates the performance of ups and downs of stock prices and discovers the evolution towards the ¯nancial and economic stabilization in Indonesia. This is partly recognized by mapping the hierarchical trees upon the realization of liquid and illiquid stocks. We remind that the methodology is useful in two terms: the evaluation of spectral market movements and intuitively understanding for portfolio management purposes.
    Keywords: ultrametricity, minimum spanning tree, liquidity, Jakarta Stock Exchange.
    JEL: E
    Date: 2005–05–12
  46. By: Luc Aucremanne (National Bank of Belgium, Research Department); Martine Druant (National Bank of Belgium, Research Department)
    Abstract: This paper reports the results of an ad hoc survey on price-setting behaviour conducted in February 2004 among 2,000 Belgian firms. The reported results clearly deviate from a situation of perfect competition and show that firms have some market power. Pricing-to-market is applied by a majority of industrial firms. Prices are rather sticky. The average duration between two consecutive price reviews is 10 months, whereas it amounts to 13 months between two consecutive price changes. Most firms adopt time-dependent price-reviewing under normal circumstances. However, when specific events occur, the majority will adopt a state-dependent behaviour. Evidence is found in favour of both nominal (mainly implicit and explicit contracts) and real rigidities (including flat marginal costs and counter-cyclical movements in desired mark-ups). The survey results point to a non-negligible degree of non-optimal price-setting.
    Keywords: price-setting behaviour, price rigidity, nominal rigidity, real rigidity, survey, time-dependent pricing, state-dependent pricing, pricing-to-market
    JEL: D40 E31 L11
    Date: 2005–03
  47. By: Luc Aucremanne (National Bank of Belgium, Research Department); Emmanuel Dhyne (National Bank of Belgium, Research Department)
    Abstract: Using Logistic Normal regressions, we model the price-setting behaviour for a large sample of Belgian consumer prices over the January 1989 - January 2001 period. Our results indicate that time-dependent features are very important, particularly an infinite mixture of Calvo pricing rules and truncation at specific horizons. Truncation is mainly a characteristic of pricing in the service sector where it mostly takes the form of annual Taylor contracts typically renewed at the end of December. Several other variables, including some that can be considered as state variables, are also found to be statistically significant. This is particularly so for accumulated sectoral inflation since the last price change. Once heterogeneity and the role of accumulated inflation are acknowledged, hazard functions become mildly upward-sloping, even in a low inflation regime. The contribution of the state-dependent variables to the pseudo-R² of our equations is, however, not particularly important.
    Keywords: consumer prices, time-dependent pricing, state-dependent pricing, Calvo model, Truncated Calvo model, Taylor contracts
    JEL: C23 C25 D40 E31
    Date: 2005–04
  48. By: Ronald J. Balvers (Division of Economics and Finance, West Virginia University); Dayong Huang (Division of Economics and Finance, West Virginia University)
    Abstract: This paper considers asset pricing from the production side. It differs from earlier approaches to production-based asset pricing in that the pricing kernel is derived by replacing the marginal rate of intertemporal substitution with an amended version of the marginal rate of intertemporal transformation in a complete markets economy. Relying on a general version of the traditional Real Business Cycle macro model we find that the variables determining the mean returns of all financial assets are the productivity shock as the sole factor together with the capital stock and lagged Solow residual (productivity level) as conditioning variables. Standard GMM estimation finds that our model improves on the complementary consumption-based and market-based approaches and is competitive with the Fama-French three-factor model. The model explains the size premium from differences in the unconditional sensitivity to productivity shocks—small firms are more sensitive to productivity shocks—and explains the value premium from differences in the conditional sensitivity to productivity shocks—growth stocks are more sensitive to productivity shocks in good states when the risk premium is low.
    Keywords: Cross-Sectional Asset Pricing; Productivity; Macro Factors; Production-Based Asset Pricing
    JEL: G12 E44
  49. By: Alain Chateauneuf (CERMSEM); Ghizlane Lakhnati (CERMSEM); Eric Langlais (GAME)
    Abstract: In this paper, we deal with the basic two-period consumption saving problem where the first and second period consumption utility, respectively v is assumed to be concave as usually. Considering the usual assumption of identify of u and v, we show that prudence is fully characterized by the convexity of u' in the EU model. More interesting we prove that for the RDEU model, prudence is fully characterized by the convexity of u' and strong pesimism. The paper ends by showing that for a strong risk averse RDEU decision maker, strict pessimism allows local weak prudence, whatever the sign of u.
    Keywords: EU model, RDEU model, strong risk aversion, pessimism, prudence and local weak prudence
    JEL: D80 E21
    Date: 2005–04
  50. By: Thomas Seegmuller (EUREQua)
    Abstract: The overlapping generations model, like the one studied by Reichlin (1986) or Cazzavillan (2001), can be interpreted as an optimal growth economy where consumption is totally constrained by capital income. In this paper, we analyze steady states and dynamic properties of an extended version of such framework by considering that only a share of consumption expenditures is constrained by capital income. We notably establish that the steady state is not necessarily unique. Moreover, in contrast to the intuition, consumer welfare can increase at a steady state following a raise of the share of consumption constrained by capital income, i.e. the market imperfection. Concerning dynamics, we show that endogenous fluctuations (indeterminacy and cycles) can emerge depending on two parameters : the elasticity of intertemporal substitution in consumption and the elasticity of capital-labor substitution. Such fluctuations appear when these two parameters take values in accordance with empirical studies and without introducing increasing returns or imperfect competition.
    Keywords: Finance constraint, steady states, indeterminacy, endogenous cycles
    JEL: C62 D91 E32
    Date: 2005–04
  51. By: Rafel Gerke (Ehemalig Institut für Volkswirtschaftslehre (Department of Economics), Technische Universität Darmstadt (Darmstadt University of Technology)); Jens Rubart (Institut für Volkswirtschaftslehre (Department of Economics), Technische Universität Darmstadt (Darmstadt University of Technology))
    Abstract: The question of the main determinants of persistent responses due to nominal shocks captures, at least since Chari et al. (2000), a major part of the recent macroeconomic debate. However, the question whether sticky wages and/or sticky prices are sufficient for persistent reactions of key economic variables remains open. In the present model we allow for nominal rigidities due to Taylor- like wage setting as well as price adjustment costs. However, as our analysis illustrates, smoothing marginal costs seems crucial to derive a contract multiplier, wage staggering alone is not sufficient. Without considering a more specific analysis of factor market frictions, we enforce a point made by Erceg (1997) by analyzing the structure of money demand. In particular, we analyze a `standard' consumption based money demand function by varying the interest rate elasticity of money demand as well as the steady state rate of money holdings. Our results show that the persistency of the output/price dynamics can be affected crucially by the form of the implicit money demand function. In particular, it is shown that staggered wage contracts have to be accompanied by a sufficiently low interest rate elasticity, otherwise the model fails to reproduce reasonable responses of real variables
    Keywords: Monetary Policy Shocks, Sticky Prices, Staggered Wages, Money Demand
    JEL: E32 E41
    Date: 2005–02
  52. By: Andreas Röthig (Institut für Volkswirtschaftslehre (Department of Economics), Technische Universität Darmstadt (Darmstadt University of Technology)); Willi Semmler (Institut für Volkswirtschaftslehre (Department of Economics), Universität Bielefeld (University of Bielefeld)); Peter Flaschel (Institut für Volkswirtschaftslehre (Department of Economics), Universität Bielefeld (University of Bielefeld))
    Abstract: We examine the impact of corporate currency hedging on economic stability by introducing hedging activity in a Mundell-Fleming-Tobin framework for analyzing currency and financial crises. The ratio between hedged and unhedged firms is modelled depending on firm size as well as hedging costs. The results indicate that, with an increasing fraction of hedged firms in an economy, the magnitude of a crisis decreases and from a specific hedging level onwards currency crises are ruled out. In order to improve corporate risk management access to hedging instruments should be made possible and hedging costs should be reduced.
    Keywords: Mundell-Fleming-Tobin model, currency crises, currency hedging, hedg- ing costs
    JEL: E32 E44 F31 F41
    Date: 2005–04
  53. By: Manjira Datta (W. P. Carey School of Business Department of Economics); Leonard Mirman (University of Virginia)
    Abstract: We introduce the possibility of trade in dynamic models with externalities and evaluate the consequences on the capital accumulation process, the market-clearing prices and policy making. We consider mixed economies characterized by a blend of strategic and nonstrategic sectors. An equilibrium exists in the bilateral monopoly game because the strategic planner incorporates the future utility of the country and the presence of a nonstrategic sector in its decision making. Capital externality is one source of interdependence. Equilibrium price, a function of both outputs, is another. Policy coordination is advantageous only when preferences are dissimilar and an externality is present.
    JEL: C73 D90 E61
  54. By: Manjira Datta (W. P. Carey School of Business Department of Economics); Leonard Mirman (University of Virginia); Kevin Reffett (W. P. Carey School of Business Department of Economics)
    Abstract: In this paper, we provide a set of sufficient conditions under which recursive competitive equilibrium exist and are unique for a large class of distorted dynamic equilibrium models with capital and elastic labor supply. We develop a monotone map approach to the problem. The class of economies for which we are able to obtain our existence result is apparently considerably larger than those considered in previous work. Additionally unlike previous work, we are able to also prove that this equilibrium is unique. We conclude by applying the new results to some important examples of monetary economies often used in applied work.
    JEL: C62 D51 D90 E10
  55. By: Timothy Cogley (W. P. Carey School of Business Department of Economics); Thomas Sargent (Stanford University and Hoover Institution)
    Abstract: This paper uses a nonlinear stochastic model to describe inflation-unemployment dynamics in the U.S. after World War II. The model is a vector autoregression with coefficients that are random walks with innovations that are arbitrarily correlated with each other and with innovations to the observables. The model enables us to detect features that have been emphasized in theoretical analyses of inflation-unemployment dynamics. Those analyses involve coefficient drift in essential ways.
  56. By: Manuel Santos (W. P. Carey School of Business Department of Economics); Salvador Ortigueira (Cornell University)
    Abstract: In this paper we are concerned with the equilibrium dynamics of a two-sector model of endogenous growth with distortionary taxes. We show that for certain parameters values and tax schemes every equilibrium orbit--except the steady state solution--is non-interior; i.e., there are times in which one of the sectors is inactive. This analysis confirms that in multisector models the set of easily checkable, universal conditions that can guarantee the interiority of equilibrium solutions is rather limited.
    JEL: D90 E22
  57. By: Lutz Hendricks (W. P. Carey School of Business Department of Economics)
    Abstract: This paper studies quantitative importance of accidental versus intended bequests. Bequests are decomposed into accidental and intended components by comparing the implications of a standard life-cycle model under alternative assumptions about bequest motives. The main finding is that accidental bequests account for at least half, and perhaps for all of observed bequests. The paper then examines how assumptions about bequest motives affect the effects of income tax changes. In contrast to previous research, I find that bequest motives are not important for the analysis of capital income taxation. The effects of labor income taxes are reduced by altruistic bequests, but the role played by bequests is much weaker than suggested by previous models.
    JEL: D64 D91 E21
  58. By: Andrea Beltratti; Claudio Morana (SEMEQ Department - Faculty of Economics - University of Eastern Piedmont)
    Abstract: In the paper we study the relationship between macroeconomic and stock market volatility, using S&P500 data for the period 1970- 2001. We find evidence of both long memory and structural change in volatility and a twofold linkage between stock market and macroeconomic volatility. In terms of the break processes, our results show that there are frequent cases where the break in the volatility of stock returns is associated within few months with breaks in the volatility of the Federal funds rate and M1 growth. After accounting for the structural breaks, there remain interesting relations among the breakfree series. Fractional cointegration analysis points to the existence of three long-run relationships linking stock market, money growth, inflation, the Federal funds rate, and output growth volatility, and two common long memory factors mainly associated with output and inflation volatility. We find that stock market volatility dynamics, both persistent and non persistent, are associated in a causal way with macroeoconomic volatility shocks, particularly to output growth volatility. The stock market idiosyncratic shock, which accounts for the bulk of the overall dynamics, also affects macroeconomic volatility. Yet the evidence suggests that the causality direction is stronger from macroeconomic to stock market volatility than the other way around.
    JEL: C32 F30 G10
    Date: 2004–05
  59. By: Claudio Morana (SEMEQ Department - Faculty of Economics - University of Eastern Piedmont)
    Abstract: In the paper we propose a new methodological approach to core in- flation estimation, based on a frequency domain principal components estimator, suited to estimate systems of fractionally cointegrated processes. The proposed core inflation measure is the scaled common persistent factor in inflation and excess nominal money growth and bears the interpretation of monetary inflation. The proposed measure is characterised by all the properties that an “ideal” core inflation process should show, providing also a superior forecasting performance relative to other available measures.
    Keywords: long memory, common factors, fractional cointegration, Markov switching, core inflation, euro area.
    JEL: C22 E31 E52
    Date: 2004–02

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