nep-mac New Economics Papers
on Macroeconomics
Issue of 2005‒05‒29
twenty papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  2. Disaggregated Productivity Growth and Technological Progress in the interpretation of Spanish Economic Growth, 1958-1975 By Mª Teresa Sanchis Llopis
  3. Identifying and Forecasting the Turning Points of the Belgian Business Cycle with Regime-Switching and Logit Models By Vincent, BODART; Konstantin, KHOLODILIN; Fati, SHADMAN-MEHTA
  4. Natural volatility, welfare and taxation By Olaf, POSCH; Klaus, WAELDE
  5. Air pollution and the macroeconomy across European countries By Francisco Alvarez; Gustavo A. Marrero; Luis A. Puch
  6. When and how to create a job: The survival of new jobs in Austrian firms By René Böheim; Alfred Stiglbauer; Rudolf Winter-Ebmer
  7. Shock Identification of Macroeconomic Forecasts based on Daily Panels By Marlene Amstad; Andreas Fischer
  8. Welfare and Distribution Effects of Bank Secrecy Laws By Frode Brevik; Manfred Gärtner
  9. The Structure and Equilibrium Conditions of a Generalized Economic Canopy: A Note By V. Heinrich S. Amavilah
  10. Pautas cíclicas en el desempleo europeo By Raquel Llorente Heras
  11. Ndervaresia e politikes monetare dhe fiskale dhe koordinimi konsekuent i tyre By Florije Govori
  12. The Logarithm Model of Development Power: A Tool to Analyze the Motivity of Economic Growth By Feng Dai; Hui Liu; Zifu Qin
  13. The Construction and Related Industries in a Changing Socio-Economic Environment: The case of Hong Kong„X By Charles Ka Yui Leung; Kelvin S. Wong
  14. Making The Pact More Flexible: Can It Lead to Less Flexible Fiscal Policies? By Michal Mackiewicz
  15. Consumption Externalities, Production Externalities and Efficient Capital Accumulation under Time Non-separable Preferences By Stephen J Turnovsky; Goncalo Monteiro
  16. Is Bank Portfolio Riskiness Procyclical? Evidence from Italy using a Vector Autoregression By Juri Marcucci; Mario Quagliariello
  17. Noname – A new quarterly model for Belgium By Philippe Jeanfils; Koen Burggraeve
  18. The Role of Preconceived Ideas in Macroeconomic Policy: Japan's Experiences in the Two Deflationary Periods By Koichi Hamada; Asahi Noguchi
  19. The Food Problem and the Evolution of International Income Levels By Douglas Gollin; Stephen L. Parente; Richard Rogerson
  20. Do non-financial firms react to monetary policy actions as banks do? By Santiago Carbó Valverde; Rafael López del Paso

  1. By: Rafael Repullo (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: This paper studies the strategic interaction between a bank whose deposits are randomly withdrawn, and a lender of last resort (LLR) that bases its decision on supervisory information on the quality of the bank's assets. The bank is subject to a capital requirement and chooses the liquidity buffer that it wants to hold and the risk of its loan portfolio. The equilibrium choice of risk is shown to be decreasing in the capital requirement, and increasing in the interest rate charged by the LLR. Moreover, when the LLR does not charge penalty rates, the bank chooses the same level of risk and a smaller liquidity buffer than in the absence of a LLR. Thus, in contrast with the general view, the existence of a LLR does not increase the incentives to take risk, while penalty rates do.
    Keywords: Central bank, lender of last resort, penalty rates, moral hazard, bank supervision, capital requirements, deposit insurance.
    JEL: E58 G21 G28
    Date: 2005–02
  2. By: Mª Teresa Sanchis Llopis
    Abstract: Spanish economic records in terms of GDP growth and convergence to European levels in the sixties, provide an excellent opportunity to look at a central question underlying in the interpretation of any process of economic growth. The relevance of industrial specific technological progress is confronted to a general and multifaceted productivity change coming from a variety of sectors and causes. This paper exploits sectoral growth accounting methodology in two different ways in order to answer this crucial question revisited recently by historiography with reference to British Industrial Revolution and to Information and Telecommunications Technologies. First, we calculate TFP growth following the Kendrick approach (1961) and using four input-output tables corresponding to 1958, 1962, 1970 and 1975 disaggregated at 25 productive branches. And Second, we examine the impact of electricity and electric machinery and equipment as a General Purpose Technology (GPT) in Spanish economic growth.
    Date: 2005–05
  3. By: Vincent, BODART (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics); Konstantin, KHOLODILIN; Fati, SHADMAN-MEHTA (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics)
    Abstract: This paper seeks to elaborate econometric models that can be used to forecast the turning points of the Belgian business cycle. We begin by suggesting three reference cycle, which we hope will fill the void of an official reference chronology for Belgium. We then construct two different types of model to estimate the probabilities of recession : Markov-switching models, and Logit models. We apply each approach to a limited set of data, which are a good representation of the economy, are available early and are subject to only minor revisions. We then select the best performing model for each chronology and type of approach. The out-of-sample results show that the models provide useful indicators of business cycle turning points. They are however far from perfect forecasting tools, especially when it comes to forecasting periods of classical recession.
    Keywords: Refrence chronologies; Markov-Switching and Logit models, forecasting business cycle turning points
    JEL: C5 E32 E37
    Date: 2005–03–15
  4. By: Olaf, POSCH; Klaus, WAELDE
    Abstract: Cyclical components are analytically computed in a theoretical model of stochastic endogenous fluctuations and growth. Volatility is shown to depend on the speed of convergence of the cyclical component, the expected length of a cycle and on the attitude of the slump. Taxes affect these channels and can therefore explain cross-country differences and breaks over time in volatility. With exogenous sources of fluctuations, a special case of our model, decentralized factor allocation is efficient. With endogenous fluctuations and growth decentralized factor allocation is inefficient and (time invariant) taxes can (de-) stabilize the economy. No unambiguous link exists between volatility and welfare.
    Keywords: Endogenous fluctuations and growth; welfare analysis; taxation; stochastic continuous time model; Poisson uncertainty
    JEL: C65 E32 E62 H3 O33
    Date: 2005–03–15
  5. By: Francisco Alvarez; Gustavo A. Marrero; Luis A. Puch
    Abstract: This paper analyzes the role of macroeconomic performance in shaping the evolution of air pollutants in a panel of European countries from 1990 to 2000. The analysis is addressed in connection with EU environmental regulation. We start by documenting the patterns of cross-country differences among different pollutants. We then interpret these differences within a neoclassical growth model with pollution. Three main pieces of evidence are presented. First, we analyze the existence of convergence of pollution levels within European economies. Second, we rank countries according to its performance in terms of emissions and growth. Third, we evaluate the evolution of emissions in terms of the targets signed for 2010.
  6. By: René Böheim (Department of Economics, Johannes Kepler University Linz, Austria); Alfred Stiglbauer (Oesterreichische Nationalbank); Rudolf Winter-Ebmer (Department of Economics, Johannes Kepler University Linz, Austria)
    Abstract: While the volatility of job creations has been studied extensively, the survival chances of new jobs are less researched. The question when and how to expand a firm is of importance, both from the firm’s and from a macro perspective. Adjustment cost theories and arguments about option values of investment in firm expansion make predictions about the timing, sequencing and form of firm expansions. When we analyze 21 years of job creation in Austria, we find that the survival of new jobs (and of new firms) depends upon the state of the business cycle at the time of job creation, on the number of jobs created, and on firm age. Jobs in new firms last longer than new jobs in continuing firms.
    Keywords: job creation; business cycle; reallocation; persistence
    JEL: J23 J63 E24 E32
    Date: 2005–05
  7. By: Marlene Amstad (Swiss National Bank); Andreas Fischer (Swiss National Bank)
    Abstract: This paper proposes a new procedure for shock identification of macroeconomic forecasts based on factor analysis. Our identification scheme for information shocks relies on data reduction techniques for daily panels and the recognition that macroeconomic releases exhibit a high level of clustering. A large number of data releases on a single day is of considerable practical interest not only for the estimation but also for the identification of the factor model. The clustering of cross-sectional information facilitates the interpretation of the forecast innovations as real or as nominal information shocks. An empirical application is provided for Swiss inflation. We show that (i) the monetary policy shocks generate an asymmetric response to inflation, (ii) the pass-through for consumer price index inflation is weak, and (iii) that the information shocks to inflation are not synchronized.
    Date: 2005–02
  8. By: Frode Brevik; Manfred Gärtner
    Abstract: We analyze an overlapping-generations world comprising two groups of small countries whose preferences for public spending differ. Key steady-state effects from introducing bank secrecy and a withholding tax in countries with low government spending are: a reduction of global capital and income, a shift of wealth towards bank-secrecy countries, and falling consumption, welfare and government spending despite rising tax rates in the rest of the world. Qualitative results are robust to changes in tax-payer honesty, the Leviathan effect (permitting governments to drive public spending higher than citizens prefer), and the fraction of withholding taxes repatriated to countries of residence.
    JEL: E2 E62 F42 H2
    Date: 2005–03
  9. By: V. Heinrich S. Amavilah (REEPS & Glendale College)
    Abstract: This note draws upon ecological models to describe the structure and equilibrium conditions of a generalized economic canopy consisting of three interactive economies assumed to be in competitive epiphytic, parasitic, and host relationships to each other. The maintained hypothesis is that generally (a) parasites are a drag on their hosts, (b) epiphytes interfere with normal functioning of both parasites and hosts, and (c) hosts must support their own performance as well as the survival of epiphytes and parasites. The results show that hosts must perform twice as better to support the other competitors, and question the notion that individual economies fend for themselves. The challenge is firmly grounded in ample real-life evidence; for example, primary sectors have historically supported economic growth of nations, especially in the early stages of development. In some cases, primary sectors transform themselves and other sectors, as in the lumber industry giving birth to Nokia, and thereby transforming both Finland and the world. In other cases the emergence of tertiary sectors consisting mainly of governments (parasites) has diminished the performance of other sectors and along with them economic growth. The world may be flatter today than it was even a decade ago, but how economies perform remain constrained and/or promoted by individual intra-actions as well as by the interactive dynamics between and among economies.
    Keywords: structure economic canopy, specific competition, equilibrium conditions
    JEL: D23 C62 P47 D74 Q19 E21 Z00
    Date: 2005–05–21
  10. By: Raquel Llorente Heras (Institute Universitary of Economic & Social Analysis SERVILAB - University of Alcala - Spain)
    Abstract: A través del estudio de la dispersión entre las diferentes tasas de desempleo, el artículo comienza confirmando que existe un leve pero cierto proceso de convergencia. A partir de este punto se pretende cuantificar en que medida la evolución cíclica del desempleo dentro de cada uno de los países miembros de la UE esta contribuyendo a dicho proceso. Es decir, se trata de ver si se puede aproximar un proceso de acercamiento o no entre los ciclos del desempleo europeos. Si los ciclos europeos fueran próximos implicaría cierta aproximación a la existencia de un mercado de trabajo único donde se puedan desarrollar políticas laborales comunes y similares a todos los países miembros. Por otra parte, si todos los países europeos estuvieran dominados por el mismo ciclo la existencia de shock asimétricos sería más difícil de producirse. La estructura del artículo sigue el siguiente esquema. En primer lugar, se desarrolla un análisis de cointegración para conocer cuál es la evolución tendencial del desempleo. Posteriormente, a través del desarrollo del filtro de Hodrick y Prescott (1977) se analiza cuál es la evolución cíclica del desempleo. Y por último, se calculan una serie de funciones impulso-respuesta en un intento por descubrir la existencia de un comportamiento similar a nivel europeo ante un mismo shock en el desempleo.
    Keywords: desempleo, ciclos, cointegración, UE,
    JEL: E32 J64
    Date: 2005–05–25
  11. By: Florije Govori
    Keywords: Politika monetare dhe fiskale e qendrueshme
    JEL: E
    Date: 2005–05–23
  12. By: Feng Dai (Zhengzhou Information Engineering University); Hui Liu (Zhengzhou Information Engineering University); Zifu Qin (Zhengzhou Information Engineering University)
    Abstract: After the discussions to exponential and power model [F. Dai, 2005], this paper points out there are three kinds of basic modes in the macroeconomic process, i.e., the exponential, power and logarithm mode, and discusses the logarithm model of Development Power (DP). By the analysis on logarithm model of DP, we will see the reasons, of which there are anomaly cycles in economic process, are just the alternate motion of DP accumulating and releasing. And that is also the reasons that there are the economic fluctuations in production markets. The logarithm model of DP can also describe the different characters of DP motion at the different stage, and indicates in analytic way that the diffusion of DP and the diversifications of economic productivity also might occur after an economic recession. The empirical researches are done about the conclusions in this paper, and the results express that the logarithm model is better than the power model and exponential model of DP in many cases. These three models of DP can not be replaced one another.
    Keywords: Development Power (DP); Partial Distribution; logarithm model; macroeconomic analysis
    JEL: E
    Date: 2005–05–24
  13. By: Charles Ka Yui Leung (Dept of Economics, Chinese University of Hong Kong, Hong Kong); Kelvin S. Wong (Dept of Real Estate and Construction, University of Hong Kong, Hong Kong)
    Abstract: Hong Kong is well known for its "housing market bubble". Both theoretical and empirical studies point to the supply side being the "root of all evil". This paper takes a preliminary step in understanding the supply side of the Hong Kong market by investigating the construction and related industries. After taking into consideration of the unusual public expenditure, the construction industry seems to be "normal" in international standard. Its relationship with the aggregate economy is also examined. Directions for future research are also suggested.
    Keywords: housing, construction, government policy, employment, investment
    JEL: E0 E3 R0
    Date: 2004–10
  14. By: Michal Mackiewicz
    Abstract: One of the most often discussed features of the Stability and Growth Pact is the rigidity of its 3% deficit rule. In the recent time several reform proposals aim at alleviating the rule in order to allow more room for the automatic stabilizers to operate. As the 3% limit became in the recent years the only binding (at least partially) rule of the Pact’s framework, such a reform is likely to cause even further deterioration of the member countries’ fiscal balances. The empirical evidence presented in the paper shows that in the past lowering the structural budget surplus had a strong negative impact on a degree of anti-cyclical fiscal stabilization. This, in turn, suggests that the Pact’s reform, through higher structural deficits, is likely to decrease, rather then increase, the scope of anti-cyclical fiscal actions undertaken by the EMU member countries.
    Keywords: fiscal policy, stabilization policy, fiscal rules, Stability and Growth Pact
    JEL: E60 E63
    Date: 2005–05–25
  15. By: Stephen J Turnovsky; Goncalo Monteiro
    Abstract: We examine the effects of both consumption and production externalities on capital accumulation and economic performance under time non-separable preferences and a non-scale production technology. We show that a consumption externality in isolation has long-run distortionary effects if and only if labour is supplied elastically. With fixed labour supply, it has only transitional distortionary effects, though it may generate long-run distortions through its interaction with the production externality. Production externalities always generate long-run distortions, irrespective of labour supply. The optimal taxation to correct for the distortions is characterized. Further quantitative insights are obtained by supplementing the theoretical analysis with numerical simulations based on the calibration of a plausible macroeconomic growth model.
    Keywords: Time non-separable preferences; consumption and production externalities; capital accumulation; optimal tax policy
    JEL: D91 E21 O40
  16. By: Juri Marcucci; Mario Quagliariello
    Abstract: This study analyzes the cyclical behaviour of the default rates of Italian bank borrowers over the last two decades. A vector autoregression (VAR) modelling technique is employed to assess the extent to which macroeconomic shocks affect the banking sector (first round effect). The VAR also helps to disentangle the feedback effects from the financial system to the real side of the economy. We find evidence of the first round effect and some support for the feedback effect which operates via the bank capital channel.
    Keywords: First-round effect; procyclicality; feedback effects; VAR; banks; default rate
    JEL: C32 E30 E32 E44 G28
  17. By: Philippe Jeanfils (National Bank of Belgium, Research Department); Koen Burggraeve (National Bank of Belgium, Research Department)
    Abstract: This paper gives an overview of the present version of the quarterly model for the Belgian economy built at the National Bank of Belgium (NBB). This model can provide quantitative input into the policy analysis and projection processes within a framework that has explicit micro-foundations and expectations. This new version is also compatible with the ESA95 national accounts. This model called Noname is relatively compact. The intertemporal optimisation problem of households and firms is subject to polynomial adjustment costs, which yields richer dynamic specifications than the more usual quadratic cost function. Other characteristics are: pricing-to-market and hence flexible mark-ups and incomplete pass-through, a CES production function with an elasticity of substitution between capital and labour below one, time-dependent wage contracting à la Dotsey, King and Wollman. Most of the equations taken individually have acceptable statistical properties and diagnostic simulations suggest that the impulse responses of the model to exogenous shocks are reasonable. Its structure allows simulations to be conducted under the assumption of rational expectations as well as under alternative expectations formations.
    Keywords: Econometric modelling, Pricing-to-market, CES production function, Wage bargaining, Polynomial adjustment costs, Rational expectations.
    JEL: C5 E2 E3 F41
    Date: 2005–05
  18. By: Koichi Hamada (Economic Growth Center, Yale University); Asahi Noguchi (Senshu University)
    Abstract: This paper examines the role of misleading economic ideas that most likely promoted the economic disasters of the two deflationary periods in Japanese economic history. Misleading ideas deepened the depression during the interwar years, and erroneous thinking prolonged the stagnation of the Japanese economy since the 1990s. While the current framework of political economy is based on the self-interests of political agents as well as of voters, we highlight the role of ideas in policy making, in particular, in the field of macro-economy where the incidence of a particular policy is not clear to the public. Using two significant examples, this paper illustrates the role of preconceived ideas, in contrast to economic interests, that dominantly influenced economic policy making.
    Keywords: Preconceived ideas, perception on economic mechanism, vested interests, great depression, deflation in contemporary Japan
    JEL: B2 F4 N2
    Date: 2005–03
  19. By: Douglas Gollin (Yale University and Williams College); Stephen L. Parente (University of Illinois); Richard Rogerson (Arizona State University)
    Abstract: This paper examines the effect of agricultural development on a country's overall development and growth experience. In most poor countries, large fractions of land, labor, and other productive resources are devoted to producing food for subsistence needs. This "food problem" can delay a country's industrial development for a long period of time, causing its per capita income to fall far behind the world leader. Once industrialization begins, this trend is reversed. The extent to which a country catches up to the leader depends primarily on factors that affect productivity in non- agricultural activities: agricultural productivity is thus largely irrelevant in the very long run. But in the short run, a country that experiences large improvements in agricultural productivity (due to, say, a Green Revolution) will experience a rapid increase in its income relative to the leaders.
    Keywords: Agriculture, Economic Growth, Subsistence, Food Problem, Agricultural Technology, Long-run Growth
    JEL: E13 O40 O41 Q10
    Date: 2004–12
  20. By: Santiago Carbó Valverde (Department of Economic Theory and Economic History, University of Granada); Rafael López del Paso (Department of Economic Theory and Economic History, University of Granada)
    Abstract: The theory of the bank lending channel indicates that financial institutions with larger size, higher capitalisation and higher liquidity present a greater capacity to maintain their levels of credit supply in a situation of monetary contraction. However, there is a paucity of (European) studies that analyse the bank lending channel from the non-financial firms’ perspective. This paper analyzes the impact of monetary policy actions on a large sample of Spanish firms. The empirical evidence for Spain shows that the impact of size, solvency and liquidity are similar for banks and non-financial firms.
    Keywords: monetary policy transmission, bank lending channel, liquidity, non-financial firms, banks.
    JEL: E51 G21 D21
    Date: 2005–05–22

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