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on Macroeconomics |
|
Issue of 2005‒06‒27
forty-six papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | Paul de Grauwe; Gunther Schnabl |
| Keywords: | Euro; EMU; EU-East-Central Europe; enlargement |
| Date: | 2004–10–15 |
| URL: | http://d.repec.org/n?u=RePEc:erp:euirsc:p0137&r=mac |
| By: | Eva Ferreira (Universidad del País Vasco); María Isabel Martínez (Universidad de Murcia); Eliseo Navarro (Universidad de Castilla La Mancha) |
| Keywords: | Economic Sentiment Indicator, yield spreads, consumer confidence expected real activi |
| JEL: | G12 E43 |
| Date: | 2005–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:ehu:dfaeii:200511&r=mac |
| By: | Daniel Ottens; Edwin Lambregts |
| Abstract: | This paper investigates whether credit booms are an important warning signal for banking crises in Asian and Latin American emerging market economies. Based on a signalling leading indicator model, the results suggest that credit booms are indeed a prelude for banking crises, especially in Latin America. To minimise a policymaker's loss- function, it is optimal to take precautionary actions in the event credit growth rises substantially above its trend. |
| Keywords: | emerging markets; credit booms and banking crises |
| JEL: | E44 G10 G21 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:046&r=mac |
| By: | Roy Bahl (Andrew Young School of Policy Studies); Eunice Heredia-Ortiz (Andrew Young School of Policy Studies); Jorge Martinez-Vazquez (Andrew Young School of Policy Studies); Mark Rider (Andrew Young School of Policy Studies) |
| Abstract: | India is a Union of 28 States, two Union Territories with legislatures, and five Union Territories without legislatures. The 7th Schedule of India’s Constitution provides for a separate State List, which enumerates exclusive legislative and executive authority that lies with state governments. The State List entrusts major responsibilities in the areas of human and physical development to the states. These responsibilities require major expenditures by the states, but the tax revenue sources assigned to the states, although they have not been fully used, are not sufficient to meet these expenditure responsibilities. The resulting fiscal imbalances of the states is addressed through a complex system of intergovernmental transfers in various forms and through several other channels, including borrowings. Over the years, in practice, the States of India have sought to finance their increasing needs for expenditures through different forms of transfers from the Union Government and loans, rather than by raising additional tax revenues and/or charging for services delivered. This has resulted in the states running large revenue and fiscal deficits and accumulating potentially unsustainable debt burdens. In this process, most states have compromised budgetary discipline, resorted to off-budget forms of borrowings, and accumulated large contingent liabilities, with the attendant risks of default. The lack of fiscal discipline among the states is symptomatic of a flawed intergovernmental fiscal system. In addition to the lack of aggregate fiscal discipline, the level and quality of services delivered by the states are well below where they ought to be with the money actually spent. There is much evidence of inefficient service delivery. For example, many states have high rates of illiteracy, particularly among women, and high infant and maternal mortality rates. In addition, the quality of economic services provided by the states, particularly electricity and transportation, is poor. |
| Keywords: | india,intergovernmetnal, fiscal transfers, government expenditures |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper05141&r=mac |
| By: | Esteban Gómez; Diego Vásquez; Camilo Zea |
| Abstract: | Derivatives are contingent claims that complete financial markets. Their use allow agents and firms to ameliorate the impact over con- sumption, production and investment given a change in relative prices induced by an active monetary policy. In this sense, derivatives gene- rate in some cases a loss in the effectiveness of the traditional monetary transmission channels in the short run, and in others, they promote an increase in the speed of transmission itself. Using an investment model, the impact of the use of interest rate and exchange rate derivatives in the dilution of colombian monetary channels is verified. Empirical exercises suggest that monetary policy has lost effectiveness in the short run.In spite of the surprise this result may offer given the relative im- matureness of domestic derivative markets, the marginal effect of these instruments appears to be significant, in the face of local financial mar- kets' imperfections. In addition, not only the hedge directly taken by firms with access to this instruments matter; there could be hedging spill-overs whenever commercial banks use derivatives, which allow for a more stable and cheap credit supply for firms with no access to those markets. The natural recommendation deriving from this conclusion suggests an urgent analysis of the derivatives impact over the speed of monetary transmission in Colombia. |
| Keywords: | Derivatives; Monetary Policy Transmission Channels;Investment |
| JEL: | E22 E52 G11 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:334&r=mac |
| By: | Michael Creel |
| Abstract: | The parameterized expectations algorithm (PEA) involves a long simulation and a nonlinear least squares (NLS) fit, both embedded in a loop. Both steps are natural candidates for parallelization. This note shows that parallelization can lead to important speedups for the PEA. I provide example code for a simple model that can serve as a template for parallelization of more interesting models, as well as a download link for an image of a bootable CD that allows creation of a cluster and execution of the example code in minutes, with no need to install any software. |
| Keywords: | parameterized expectations, parallel computing |
| JEL: | E27 C63 C88 |
| Date: | 2005–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:aub:autbar:651.05&r=mac |
| By: | Ramón María-Dolores (Universidad de Murcia); Jésus Vazquez (Universidad del País Vasco) |
| Keywords: | Indirect inference, NKM model, Taylor rule, optimal policy |
| JEL: | C32 E30 E52 |
| Date: | 2005–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:ehu:dfaeii:200513&r=mac |
| By: | Peter C.B. Phillips (Cowles Foundation, Yale University); Jun Yu |
| Abstract: | This paper motivates and introduces a two-stage method for estimating diffusion processes based on discretely sampled observations. In the first stage we make use of the feasible central limit theory for realized volatility, as recently developed in Barndorff-Nielsen and Shephard (2002), to provide a regression model for estimating the parameters in the diffusion function. In the second stage the in-fill likelihood function is derived by means of the Girsanov theorem and then used to estimate the parameters in the drift function. Consistency and asymptotic distribution theory for these estimates are established in various contexts. The finite sample performance of the proposed method is compared with that of the approximate maximum likelihood method of Ait-Sahalia (2002). |
| Keywords: | Maximum likelihood, Girsnov theorem, Discrete sampling, Continuous record, Realized volatility |
| JEL: | C13 C22 E43 G13 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1523&r=mac |
| By: | Ray C. Fair (Cowles Foundation, Yale University) |
| Abstract: | Ragnar Frisch proposed in 1936 a procedure for estimating natural variable values by modifying what are now called structural macroeconometric models. This paper shows that Frisch’s procedure can be used to illuminate natural concepts using today’s models. The procedure also forces one to be precise regarding the assumptions used in moving from a short-run model to a medium-run or long-run model. |
| Keywords: | Natural concepts, Equilibrium |
| JEL: | E00 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1525&r=mac |
| By: | Carlos Arango A.; Martha Misas; Enrique López |
| Abstract: | La economía subterránea (ES), definida ampliamente como aquella asociada con actividades al margen del código legal de un país, es de particular relevancia en Colombia debido al alcance que tiene la economía del narcotráfico y la economía informal evasora de la legislación fiscal y laboral. Esto es particularmente relevante no solo para el Banco Central, pues la ES tiene una ingerencia directa en la demanda de efectivo, sino también por sus implicaciones fiscales e institucionales. En este trabajo se hace una revisión crítica del estado del arte en la estimación de la ES representado en los modelos estructurales: "multiple indicators multiple causes" (MIMIC) y "dynamic multiple indicators multiple causes" (DYMIMIC). En particular, se documenta el posible sesgo de variable omitida que estos pueden presentar en su estimación y las ventajas que pueden tener representaciones más generales del tipo estado-espacio estimadas mediante filtro de Kalman. Este último enfoque es aplicado al caso colombiano donde se parte de una función de demanda de efectivo y se estima la dinámica y tamaño de la ES en el período 1976-2003. Debido a los limitados grados de libertad, se calcularon intervalos de confianza implementando "bootstrapping" para establecer la significancia de las distintas "causas" de la ES. |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:335&r=mac |
| By: | Jorge Toro; Juan Manuel Julio |
| Abstract: | En este trabajo se hace una evaluación de la efectividad de la intervención discrecional utilizando una base de datos única que contiene información de alta frecuencia sobre el comportamiento intradía de la tasa de cambio, y de la intervención del Banco de la República. Se estima un modelo ARCH para los retornos (variaciones) de la tasa de cambio en intervalos de diez minutos. Se encuentra que la intervención obtiene el efecto deseado (un incremento permanente en la tasa de devaluación) sólo si se emite una señal creíble y no ambigua, acompañada de montos de intervención significativos. Adicionalmente, se obtiene que el diferencial entre la tasa de interés interna y externa es un determinante fundamental del retorno promedio. El conflicto entre el esquema de inflación objetivo y la intervención cambiaria ha debilitado la credibilidad de los agentes sobre la efectividad de la intervención, lo que se ha reflejado en un incremento de la volatilidad de los retornos. Los resultados econométricos son consistentes con la transmisión de los efectos a través del canal de Microestructura, y de la debilidad del canal de señales. |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:336&r=mac |
| By: | Juan José Echavarría; Diego Vásquez; Mauricio Villamizar |
| Abstract: | La discusión sobre el comportamiento y los determinantes de la tasa de cambio ha resurgido en Colombia a raíz de la revaluación que tuvo lugar en 2004 (cercana a 12%, la mayor en la región) y la que ha tenido lugar en 2005. El sector privado en su conjunto ha manifestado honda preocupación ante lo sucedido, incluso con el apoyo de algunos grupos que podrían beneficiarse transitoriamente con la revaluación. En este trabajo se presenta la evolución de diferentes tasas de cambio, se consideran sus determinantes, con base en los cuales se explica la revaluación de 1991-97 y la posterior devaluación de 1997- 03. Luego de comparar nuestros resultados con los de otros trabajos sobre Colombia, la Sección final discute cuán lejos del equilibrio se encuentra la tasa de cambio actual. Se define la tasa de cambio de equilibrio o de largo plazo como aquella que resulta al remover los elementos especulativos (reflejo de disturbios en los mercados de activos) y cíclicos (dadas las rigideces en precios y salarios). Dicha tasa es compatible con una balanza de pagos sostenible en el largo plazo para un nivel dado de los fundamentos. |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:337&r=mac |
| By: | Juan José Echavarría; María Angélica Arbelaéz |
| Abstract: | Este documento utiliza el modelo sugerido por Bleakley & Cowan (2002) para analizar el impacto de la tasa de cambio real sobre la inversión, las ventas y las utilidades de las empresas colombianas en el período 1994- 2002. Se encuentra un impacto claramente positivo. Tres factores explican la respuesta favorable a la tasa de cambio: la respuesta de los exportadores e importadores es alta y rápida en Colombia (fuertes efectos competitividad); el nivel de deuda externa es mucho menor que en otros países de la región y ha descendido en los últimos años; , y existe un calce entre actividad y deuda (se endeudan más las firmas exportadoras y las multinacionales). El stock de capital inicial se corrige con base en la metodología sugerida por Harberger (1969), y la información sobre deuda externa se mejora sensiblemente al utilizar los información interna del Banco de la República. Se utiliza la técnica econométrica sugerida por Arellano & Bover (1995), apropiada cuando el número de años es corto y la persistencia de la variable dependiente es alta, pero también se reportan los resultados con la metodología sugerida por Arellano & Bond (1991). Los resultados de ambas metodologías resultan consistentes, en parte por que el nivel de persistencia observado para la variable dependiente resulta relativamente baja. |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:338&r=mac |
| By: | Martha Misas; María Teresa Ramírez |
| Abstract: | In this paper, we modeled the Colombian long run economic growth (1925-2003) using a tworegime first order Markov switching model. We found evidence of non-linearity in the annual rate of economic growth. The results show that changes between regimes are sudden and sporadic. The Colombian economy remains in the sustainable growth regime most of the time. The turning points from the Markov switching model capture very well the behavior of real output through time. In fact, they identify the four main depressions of the century. |
| Keywords: | Markov switching regime model, economic growth, fluctuations, Colombia |
| JEL: | O40 C22 E32 N16 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:340&r=mac |
| By: | William Wallace; Tim Oliver |
| Keywords: | international relations |
| Date: | 2004–10–15 |
| URL: | http://d.repec.org/n?u=RePEc:erp:euirsc:p0138&r=mac |
| By: | Hubert Zimmermann |
| Keywords: | Germany; NATO; international relations |
| Date: | 2004–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:erp:euirsc:p0139&r=mac |
| By: | Georges-Henri Soutou |
| Keywords: | France; NATO; international relations |
| Date: | 2004–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:erp:euirsc:p0140&r=mac |
| By: | Patrick Chamorel |
| Keywords: | international relations |
| Date: | 2004–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:erp:euirsc:p0141&r=mac |
| By: | Paolo Guerrieri; Filippo Vergara Caffarelli |
| Keywords: | East-Central Europe; international trade; Mediterranean |
| Date: | 2004–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:erp:euirsc:p0144&r=mac |
| By: | Nathalie Tocci |
| Keywords: | Europeanization |
| Date: | 2004–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:erp:euirsc:p0145&r=mac |
| By: | Michele Ca' Zorzi; Roberto A. De Santis |
| Keywords: | EMU; enlargement; East-Central Europe |
| Date: | 2004–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:erp:euirsc:p0146&r=mac |
| By: | Stijn Smismans |
| Keywords: | governance; constitution building; decentralisation |
| Date: | 2004–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:erp:euirsc:p0147&r=mac |
| By: | Verena Fritz |
| Keywords: | governance; transition processes; post-Communism |
| Date: | 2004–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:erp:euirsc:p0148&r=mac |
| By: | Stephan Stetter |
| Keywords: | Mediterranean; implementation; institutionalism; political science |
| Date: | 2004–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:erp:euirsc:p0149&r=mac |
| By: | Julia Darby; V. Anton Muscatelli; Graeme Roy |
| Abstract: | This paper contributes to the established literature on fiscal consolidations (e.g. Alesina and Perotti, 1995, 1997, Alesina et al, 1998) by investigating the distinct behaviour of central and sub-central tiers of government during general government consolidation attempts. In the light of different degrees of decentralisation across OECD countries, and the different responsibilities devolved to sub-central tiers, we believe that this approach offers an illuminating insight into the analysis of fiscal consolidations and their success. We show that the involvement of the sub-central tiers of government is crucial to achieving cuts in expenditure, particularly in relation to the overall size of the government wage bill. In addition, central governments appear to exert a strong influence on the expenditure of subcentral tiers through their grant allocations, and control of these allocations appears to have a considerable impact upon the overall success of consolidation attempts. Finally we demonstrate that there is a skewness in cuts towards sub-central capital expenditure both when central governments cut grant allocations and when sub-central governments engage in lone consolidation attempts. |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2004_2&r=mac |
| By: | Niki Papadopoulou |
| Abstract: | This paper investigates the micro mechanisms by which monetary policy affects and is transmitted through the U.S economy, by developing a unified, dynamic, stochastic, general equilibrium model that nests two classes of models. The first sticky prices and the second limited participation. Limited participation is incorporated by assuming that households’ are faced with quadratic portfolio adjustment costs. Monetary policy is characterized by a generalized Taylor rule with interest rate smoothing. The model is calibrated and investigates whether the unified model performs better in replicating empirical stylized facts, than the models that have only sticky price or limited participation. The unified model replicates the second moments of the data better than the other two types of models. It also improves on the ability of the sticky price model to deliver the hump-shaped response of output and inflation. Moreover, it also delivers on the ability of the limited participation model to replicate the fall in profits and wages, after a contractionary monetary policy. |
| JEL: | E31 E32 E44 E52 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2004_3&r=mac |
| By: | Berg, Lennart (Department of Economics); Berger, Tommy (Institute for Housing and Urban Research) |
| Abstract: | We argue that major changes in economic policy have resulted in a more market driven demand for housing investment in Sweden as a result of changes in policy during the end of the 1980s and beginning of the 1990s. The used investment theory is Tobin’s transparent Q theory. Our results indicate, for the last period of the sample (1993-2003 quarterly data) that a high degree of correlation between the Q ratio and the (logarithm of) two different variables for housing investment exist. An error correction regression model, controlling for structural breaks, indicates also a stable long run relationship could be detected for the logarithm of building starts and the Q ratio between 1993-2003 but not between 1981-1992. |
| Keywords: | Tobin's Q; housing investment; error correction model; structural break |
| JEL: | E22 R21 |
| Date: | 2005–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uunewp:2005_019&r=mac |
| By: | Takatoshi Ito |
| Abstract: | This paper attempts to explain possible reasons and objectives behind the 35 trillion yen (7% of GDP) interventions conducted by the Japanese monetary authorities from January 2003 to March 2004, and to discuss whether the interventions achieved the presumed objectives: making the movement of the yen flexible but orderly, and helping economic recovery. The motivation of starting intervention in January 2003 was to keep the yen from appreciating in the midst of financial and macroeconomic weakness. The economy started to show some strength in the second half of 2003, but interventions continued, with a brief pause in September. Reasons for interventions after September are two-fold. First, the interventions provided opportunities for unsterilized interventions. Second, the monetary authorities were extremely sensitive to speculative activities in the market. |
| Keywords: | Intervention of foreign exchange market, the yen, monetary policy, Japanese economy |
| JEL: | E44 E58 F31 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:hst:hstdps:d05-100&r=mac |
| By: | Koichiro Kamada; Izumi Takagawa |
| Abstract: | In this paper, we construct a macro-econometric model that describes the economic activity in the Asia-Pacific area and provide quantitative insights into the recent policy debates on monetary and currency coordination among the East Asian economies. The model includes a wide variety of monetary and currency policy rules that the East Asian economies adopt and allows for one country's policymaking to have substantial effects on foreign countries. We apply the model to three current policy issues: (1) the desirability of currency basket pegs in East Asia, (2) the anticipated effects of China's currency policy reform, and (3) the non-negativity constraint on Japanese nominal interest rates. The simulation analyses show the external economy effects of policy rules quantitatively and suggest the difficulty of monetary and currency policy coordination among the East Asian economies. |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:hst:hstdps:d05-101&r=mac |
| By: | Masahiro Kawai |
| Abstract: | Japan has experienced a decade-long economic stagnation with a distressed banking sector in the 1990s. The absence of a credit culture to rigorously assess and price credit risks of borrowers, aggravated by weak prudential and supervisory frameworks, in the 1980s, the collapse of the asset price bubble in the early 1990s, and the lack of decisive, comprehensive strategy to address the banking sector problem at an early stage were largely responsible for the emergence of banking sector problems. All of these allowed a systemic banking crisis to emerge in 1997-98 and a large output loss during 1998-2002. The crisis ultimately prompted the government to take a more aggressive policy to tackle the problem. Sufficient progress has been made since then on banking sector stabilization, restructuring, and consolidation. The regulatory and supervisory framework has been strengthened in a way consistent with an increasingly market-oriented, globalized environment. As a result, the worst is over in the Japanese banking system, setting the stage for sustained economic recovery. Though bank capital may still be inadequate, safety nets are in place, the credit allocation has been made more rational. Remaining risks are limited to regional and smaller institutions that are vulnerable to weak, local economic conditions and hikes of the long-term interest rate. |
| Keywords: | Asset price bubble, Japan's "lost decade", systemic banking sector crisis, bank restructuring and consolidation, market-based regulatory and supervisory framework |
| JEL: | E44 E51 G21 G28 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:hst:hstdps:d05-102&r=mac |
| By: | Gary Saxonhouse |
| Abstract: | Many economists dismiss the role of positive supply shocks as a cause of Japan's deflation. Indeed, they attribute the long delay in Japan's recovery to the mistaken view that Japan's deflation reflects an acceleration of technological progress. Whatever the current situation in Japan, however, economic history certainly suggests that technological progress can go hand in hand with general deflation. Conducting a VAR analysis using very detailed information about the components of Japan's consumer price index, this paper finds that short-run shocks to Japan's relative price structure persist in the long run. Given this finding, it is possible to conclude that such shocks are real in origin and reflect technological change. As no effort has yet been completed to show the full extent to which technological change is driving short-run relative price change in Japan compared with other factors, and the full extent to which relative price changes are driving aggregate price change compared with other factors, the policy implications of these findings are unclear. What is clear is that it is a mistake to dismiss out of hand the possibility that technological shocks are playing an important role among other forces in Japan's current deflation. |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:hst:hstdps:d05-104&r=mac |
| By: | Rasmus Fatum; Michael M. Hutchison |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:hst:hstdps:d05-93&r=mac |
| By: | Mitsuhiro Fukao |
| Abstract: | The traditional interest rate policy has lost its potency due to the zero-lower bound of nominal interest rates and the gradual accelerating deflation in Japan. Without stopping deflation, the Japanese government may face a rapid erosion of credit worthiness due to an uncontrolled budget deficit. In order to cope with this unusual situation, a non-traditional monetary policy measure is proposed. A negative nominal interest rate is needed to clear Japanese markets and can be achieved by levying a tax on all the government-guaranteed yen financial assets. This is a modified version of Gesell's stamp duty on currency for actual implementation in the contemporary context. The benefits and side effects of this tax for Japan are analyzed here. |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:hst:hstdps:d05-94&r=mac |
| By: | Wilem H. Buiter |
| Abstract: | Despite the zero lower bound on the short nominal interest rate in Japan having become a binding constraint, conventional monetary policy in Japan, in the form of generalised open market purchases of government securities of all maturities, has never been pushed to the limit where all outstanding government debt and all current and anticipated future government deficits are (or are confidently expected to be) monetised. Open market purchases of private securities can create serious governance problems. Two ways of overcoming the zero lower bound constraint have been proposed. The first is Gesell's carry tax on currency. The second is Eisler's proposal for the unbundling of the medium of exchange/means of payment function and the numeraire function of money through the creation of a parallel virtual currency. This raises the fundamental issue of who chooses or what determines the numeraire used in private wage and price contracts - an issue that is either not addressed in the literature or addressed incorrectly. On balance, Gesell's proposal appears to be the more robust of the two. |
| Keywords: | zero bound, deflation, carry tax on currency, parallel virtual currency |
| JEL: | E31 E42 E52 E58 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:hst:hstdps:d05-96&r=mac |
| By: | Koichi Hamada; Asahi Noguchi |
| 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 has prolonged the stagnation of the Japanese economy since the 1990s. While the current framework of political economy is based on the self-interest 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, as dominant forces influencing economic policy making. |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:hst:hstdps:d05-97&r=mac |
| By: | Masahiro Hori; Satoshi Shimizutani |
| Abstract: | The Japanese economy has experienced price deflation since the mid-1990s. Despite the importance of overcoming deflation, there has been little recent research on price expectations in Japan. This paper takes advantage of an original and rich quarterly household-level data set from the gKokumin Seikatsu Monitorsh to estimate average price expectations, examine the factors that affect price expectations, and examine how changes in price expectations have affected household consumption. Our estimates indicate that average price expectations ranged from minus 0.2 to zero percent in 2001 and 2002. However, there was an increase to 1 percent in the first quarter of 2003, followed by a decline to 0.2 percent in the second quarter, and a steady increase toward 0.8 percent by the first quarter of 2004. Price expectations depend on current price movements and lagged expectations. A series of quantitative easing monetary policies were not very effective in changing the price expectations, since the policy announcements caused revision of price expectations only for a small portion, i.e., 5-10% of people surveyed. The jump observed in the first quarter of 2003 was a reaction to the outbreak of the Iraq war. Our study also confirms that deflationary expectations discourage household consumption, mainly durable consumption, by delaying the timing of purchases, suggesting that the deflationary expectations should be upwardly revised to restore a vital Japanese economy. |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:hst:hstdps:d05-98&r=mac |
| By: | Toshihiro Ihori; Atsushi Nakamoto |
| Abstract: | This paper investigates the macroeconomic effects of fiscal policy and the fiscal reconstruction movement in Japan. We first summarize Japan's fiscal policy in recent years and discuss advantages and disadvantages of government deficits. Next, we investigate the macroeconomic effects of Japanese fiscal policy and evaluate the plausibility of non-Keynesian effects. We also analyze the possibility of the crowding-in effect of fiscal policy and investigate the spillover effects of deregulation. Finally, we discuss political constraints in the fiscal reconstruction attempts and propose some measures for successful fiscal reforms in the near future. |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:hst:hstdps:d05-99&r=mac |
| By: | DUFOUR, Jean-Marie; JOUINI, Tarek |
| Abstract: | Statistical tests in vector autoregressive (VAR) models are typically based on large-sample approximations, involving the use of asymptotic distributions or bootstrap techniques. After documenting that such methods can be very misleading even with fairly large samples, especially when the number of lags or the number of equations is not small, we propose a general simulation-based technique that allows one to control completely the level of tests in parametric VAR models. In particular, we show that maximized Monte Carlo tests [Dufour (2002)] can provide provably exact tests for such models, whether they are stationary or integrated. Applications to order selection and causality testing are considered as special cases. The technique developed is applied to quarterly and monthly VAR models of the U.S. economy, comprising income, money, interest rates and prices, over the period 1965-1996. |
| Keywords: | Vector autoregression ; VAR ; exact test ; Monte Carlo test ; maximized Monte Carlo test ; bootstra; Granger causality ; order selection ; nonstationary model ; macroeconomics ; money and income ; interest rate ; inflation |
| JEL: | C32 C12 C15 E4 E5 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:mtl:montde:2005-12&r=mac |
| By: | Stephanie Schmitt-Grohe; Martin Uribe |
| Abstract: | In this paper, we study Ramsey-optimal fiscal and monetary policy in a medium-scale model of the U.S.\ business cycle. The model features a rich array of real and nominal rigidities that have been identified in the recent empirical literature as salient in explaining observed aggregate fluctuations. The main result of the paper is that price stability appears to be a central goal of optimal monetary policy. The optimal rate of inflation under an income tax regime is half a percent per year with a volatility of 1.1 percent. This result is surprising given that the model features a number of frictions that in isolation would call for a volatile rate of inflation---particularly nonstate-contingent nominal public debt, no lump-sum taxes, and sticky wages. Under an income-tax regime, the optimal income tax rate is quite stable, with a mean of 30 percent and a standard deviation of 1.1 percent. Simple monetary and fiscal rules are shown to implement a competitive equilibrium that mimics well the one induced by the Ramsey policy. When the fiscal authority is allowed to tax capital and labor income at different rates, optimal fiscal policy is characterized by a large and volatile subsidy on capital. |
| JEL: | E52 E61 E63 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11417&r=mac |
| By: | Marcelle Chauvet; James D. Hamilton |
| Abstract: | This paper discusses formal quantitative algorithms that can be used to identify business cycle turning points. An intuitive, graphical derivation of these algorithms is presented along with a description of how they can be implemented making very minimal distributional assumptions. We also provide the intuition and detailed description of these algorithms for both simple parametric univariate inference as well as latent-variable multiple-indicator inference using a state-space Markov-switching approach. We illustrate the promise of this approach by reconstructing the inferences that would have been generated if parameters had to be estimated and inferences drawn based on data as they were originally released at each historical date. Waiting until one extra quarter of GDP growth is reported or one extra month of the monthly indicators released before making a call of a business cycle turning point helps reduce the risk of misclassification. We introduce two new measures for dating business cycle turning points, which we call the %u201Cquarterly real-time GDP-based recession probability index%u201D and the %u201Cmonthly real-time multiple-indicator recession probability index%u201D that incorporate these principles. Both indexes perform quite well in simulation with real-time data bases. We also discuss some of the potential complicating factors one might want to consider for such an analysis, such as the reduced volatility of output growth rates since 1984 and the changing cyclical behavior of employment. Although such refinements can improve the inference, we nevertheless find that the simpler specifications perform very well historically and may be more robust for recognizing future business cycle turning points of unknown character. |
| JEL: | E32 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11422&r=mac |
| By: | R. Anton Braun (Faculty of Economics, University of Tokyo); Yuichiro Waki (Graduate School of Economics, University of Tokyo) |
| Abstract: | We develop a quantitative costly price adjustment model with capital formation for the Japanese Economy. The model respects the zero interest rate bound and is calibrated to reproduce the nominal and real facts from the 1990s. We use the model to investigate the properties of alternative monetary policies during this period. The setting of the long-run nominal interest rate in a Taylor rule is much more important for avoiding the zero bound than the setting of the reaction coefficients. A long-run interest rate target of 2.3 percent during the 1990s avoids the zero bound and enhances welfare. |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2005cf343&r=mac |
| By: | Petri Böckerman (Labour Institute for Economic Research); Edvard Johansson (The Research Institute of the Finnish Economy); Ritva Prättälä (National Public Health Institute); Antti Uutela (National Public Health Institute) |
| Abstract: | This paper explores the connection between alcohol mortality, drinking behaviour and macroeconomic fluctuations in Finland by using both aggregate and micro-level data during the past few decades. The results from the aggregate data reveal that an improvement in regional economic conditions measured by the employment-to-population rate produces a decrease in alcohol mortality. However, the great slump of the early 1990s is an exception to this pattern. During that particular episode, alcohol mortality did indeed decline, as there was an unprecedented collapse in economic activity. The results from the micro-data show that an increase in the employment-to-population rate and expansion in regional GDP produces an increase in alcohol consumption while having no effect on the probability of being a drinker. All in all, the Finnish evidence presented does not overwhelmingly support the conclusions reported for the USA, according to which temporary economic slowdowns are good for health. In contrast, at least alcohol mortality seems to increase in those bad times that are not exceptional economic crises like the one experienced in the early 1990s. However, there is evidence that alcohol consumption is strongly procyclical by its nature. This suggests that alcohol consumption and mortality may be delinked in the short-run business cycle context. |
| Keywords: | alcohol mortality, drinking, business cycles |
| JEL: | E32 I12 R11 |
| Date: | 2005–06–17 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwphe:0506002&r=mac |
| By: | Korkut Erturk (University of Utah) |
| Abstract: | Despite his emphasis on the speculative character of investment decisions, Minsky paid little attention to asset price speculation per se, ignoring asset price bubbles and their macroeconomic effects. That is perhaps because his views were formed during the era of financial regulation, when speculation “could do no harm as bubbles on a steady stream of enterprise.” Clearly, times have since changed. Keynes’s old warning that the situation “… is serious when enterprise becomes the bubble on a whirlpool of speculation” has begun to ring true again. To deepen our understanding of financial fragility under present-day conditions, the paper builds on Keynes’s insights in his General Theory on the stock exchange by going back to his Treatise, where asset price expectations and speculation play an integral part in his analysis of the business cycle. More specifically, it develops the macroeconomic implications of some of his arguments that have mainly been eclipsed by his GT. These can be summarized in three related propositions: (1) asset price expectations systematically exhibit self-sustained biases in one direction or another over the business cycle; (2) once an asset price bubble emerges no automatic mechanism exists to check the deviation of prices from their true values; and, (3) mean reversion in asset prices over time plays itself out through a rise in inactive money balances in the banking system, which Keynes called the bear position, as more and more people begin to think that asset prices have reached levels that are unreasonable. This early picture of how financial variables interact with output determination over the business cycle is contrasted with Keynes’s better known analysis in the GT, which, it is argued, does not lend itself as readily to analyzing asset price misalignments. |
| Keywords: | asset prices, speculation, business cycle, keynesian theory |
| JEL: | E |
| Date: | 2005–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0506010&r=mac |
| By: | stanley c. w. salvary |
| Abstract: | Co-operation among members of the world community is highly desirable, since it would be a step in the right direction to alleviate some of the world's problems. However, the current discussions on the harmonization of socio-economic systems and the globalization of trade goes beyond mere suggestions to the position that such a development is imminent and highly beneficial to the world community. For many countries being able to trade voluntarily with any country is highly desirable, but having to transform one's way of life to one single mode of operation poses far greater problems than those that currently are being experienced. This paper maintains that institutionalized macroeconomic planning, which can produce positive benefits to any and all societies, is the path that should be followed. |
| Keywords: | globalization of trade, confron tational competition, managed trade, institutionalized macroeconomic planning, national economic policy de cisions. |
| JEL: | E |
| Date: | 2005–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0506011&r=mac |
| By: | Felix Reichling (Stanford University) |
| Abstract: | I investigate to what degree differences in retraining opportunities are responsible for the divergence of unemployment rates between the U.S. and Europe since the early 1980s. I provide some evidence for higher retraining rates in the U.S. as compared to Europe and further show that there is tremendous heterogeneity across OECD countries with respect to retraining. In my model, unemployed workers not only search for jobs but also for suitable retraining programs. I find that when it becomes more difficult to find suitable retraining programs, enrollment rates, productivity and the unemployment rate decline. Furthermore, this paper is the first attempt to investigate the role of retraining in economies that are subject to economic turbulences as described by Ljungqvist and Sargent (1998, 2004). Using a similar parametrization as Ljungqvist and Sargent (2004), I find that the generosity of unemployment benefits, the main driving force in their model, is not an important determinant of unemployment, even during tumultuous economic times, if sufficiently good retraining institutions are available. Economies with more flexible retraining institutions adjust better to economic turbulence, and as a result, feature lower unemployment rates and higher productivity and output. My results suggest that differences in retraining opportunities play an important role in explaining cross-country differences in unemployment rates. |
| Keywords: | Retraining the Unemployed, European Unemployment, Economic Turbulence |
| JEL: | E24 J64 |
| Date: | 2005–06–17 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0506012&r=mac |
| By: | Masahiro Enya (Faculty of Politics, Economics and Law, Osaka International University); Akira Kohsaka (Osaka School of International Public Policy, Osaka University); Mervin Pobre (Osaka School of International Public Policy, Osaka University) |
| Abstract: | In this paper, we explore the issue on credit crunch from a comparative perspective. Utilizing longer time series data, we investigate the existence of credit crunch in selected crisis-hit economies in East Asia over the period 1980-2002. We detected some episodes of credit crunch both before and after the Asian economic crisis. These episodes after the Crisis are somewhat different from those detected by previous studies on the issue. We, then, review the credit-crunch episodes in the broad macroeconomic context in order to assess our results in the longer-run perspective. We are well aware that financial liberalization has changed the financial environments of these countries more or less in due course. Even so, the mixed results we obtained on the existence of credit crunch do not suggest that the impact of the austerity programs on financial intermediation after the Asian Crisis was ambiguous. On the contrary, they implied that the impact of the programs were so severe that credit crunch or supply retrenchment was overwhelmed by a sharp fall in credit demand because of real and expected persistent overall economic depression. |
| Keywords: | human capital; credit crunch, East Asia, Asian Economic Crisis, disequilibrium analysis |
| JEL: | E5 O11 O53 |
| Date: | 2004–03 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:04-04&r=mac |