nep-mac New Economics Papers
on Macroeconomics
Issue of 2005‒08‒03
eight papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Money and Prices in Estonia By Aurelijus Dabušinskas
  2. Early-warning tools to forecast General Government deficit in the euro area: the role of intra-annual fiscal Indicators By Javier J. Pérez
  3. Capital humano: uma nova proxy para incluir aspectos qualitativos By Luciano Nakabashi; Lízia de Figueiredo
  4. Bidding and Performance in Repo Auctions: Evidence from ECB Open Market Operations By Kjell G. Nyborg; Ulrich Bindseil; Ilya A. Strebulaev
  5. Institutions and Growth Volatility By Nejat Anbarci; Jonathan Hill; Hasan Kirmanoglu
  6. Modern Business Cycle Analysis By Jeremy Greenwood
  7. Do we really know how inflation targeters set interest rates? By Marcela Meirelles-Aurelio
  8. Some Welfare Implications of Optimal Stabilization Policy in an Economy with Capital and Sticky Prices By Tatiana Damjanovic; Charles Nolan

  1. By: Aurelijus Dabušinskas (Bank of Estonia)
    Abstract: This paper examines the relationship between money and prices in Estonia in the period 1997Q1-2003Q3. The concept of a price (or real money) gap suggested by the P-star theory is applied to investigate whether information about the current money stock can be used to explain and/or predict GDP deflator inflation over the sample period. The results show that the money gap measure dominates the output gap as an explanatory variable for inflation in the short run. However, the money gap does not seem to be a proper indicator for predicting inflation over longer horizons, say, 12 months ahead. There are some signs that the output gap is becoming a better indicator of future inflation over time, but more data are needed to confirm this hypothesis.
    Keywords: P-star, inflation, money demand
    JEL: E31 E41
  2. By: Javier J. Pérez (Centro de Estudios Andaluces)
    Abstract: In this paper I evaluate the usefulness of a set of fiscal indicators as early-warning-signal tools for annual General Government Net Lending developments for some EMU countries (Belgium, Germany, Spain, France, Italy, The Netherlands, Ireland, Austria, Finland) and an EMU aggregate. The indicators are mainly based on monthly and quarterly public accounts' figures. I illustrate how the dynamics of the indicators show a remarkable performance when anticipating general government accounts' movements, both in qualitative and in quantitative terms.
    Keywords: Leading indicators; Fiscal forecasting and monitoring; General Government Deficit; European Monetary Union
    JEL: C53 E6 H6
    Date: 2005
  3. By: Luciano Nakabashi (Cedeplar-UFMG); Lízia de Figueiredo (Cedeplar-UFMG)
    Abstract: The role of human capital on the development process has been recognized as a crucial element by many researchers. Nevertheless, many empirical results have showed no correlation between human capital and income per capita level or between human capital and growth rates. It is argued that the interaction between the two variables is more complicated than predicted by endogenous model of growth as the one developed by Lucas-Uzawa. Other problem that is usually mentioned is the proxy´s lack of quality because it does not take into account the disparities in the educational system when different nations are compared. The main goal of this paper is to employ a proxy for human capital that tries to take into account this characteristic and compare with Mankiw, Romer and Weil 1992’s results.
    Keywords: Human capital, empirical results, new proxy
    JEL: C21 E10 I20 O11 O41 O50
    Date: 2005–06
  4. By: Kjell G. Nyborg (UCLA Anderson School of Management); Ulrich Bindseil (European Central Bank); Ilya A. Strebulaev (Stanford University, Graduate School of Business)
    Abstract: Repo auctions are used to inject central bank funds against collateral into the banking sector. The ECB uses standard discriminatory auctions and hundreds of banks participate. The amount auctioned over the monthly reserve maintenance period is in principle exactly what banks collectively need to fulfil reserve requirements. We study bidder-level data and find: (i) Bidder behavior is different from what is documented for treasury auctions. Private information and the winner’s curse seem to be relatively unimportant. (ii) Underpricing is positively related to the difference between the interbank rate and the auction minimum bid rate, with the latter appearing to be a binding constraint. (iii) Bidders are more aggressive when the imbalance of awards in the previous auction is larger. (iv) Large bidders do better than small bidders. Some of our findings suggests that bidders are concerned with the loser’s nightmare and have limited amounts of the cheapest eligible collateral.
    Keywords: Repo auctions, Multiunit auctions, Reserve requirements, Loser’s nightmare, Money markets, Central bank, Collateral, Open market operations
    JEL: G21 G12 D44 E43 E50
    Date: 2005–07
  5. By: Nejat Anbarci (Department of Economics, Florida International University); Jonathan Hill (Department of Economics, Florida International University); Hasan Kirmanoglu (Department of Economics, Bilkin University)
    Abstract: Growth volatility is a major factor that retards growth. Recent studies that link democracy and volatility can not account for a link between democracy and investment volatility. Here, instead, we focus on a specific channel that links individualistism and low volatility. Unlike an individualistic society, in a collectivistic society agents choose to invest together or choose not to invest together. We construct a two-equation system of investment and income growth volatility. We find individualism significantly directly and indirectly influences volatility negatively. We also find that, unlike individualism, democracy’s influence on investment depends on the measure of democracy and econometric specification used.
    Keywords: Growth volatility, investment volatility, democracy, individualism/collectivism
    JEL: E32 O10 P16
    Date: 2005–06
  6. By: Jeremy Greenwood (University of Rochester)
    Abstract: A discussion of the importance for economics of Kydland and Prescott's (1982) classic "Time to Build and Aggregate Fluctuations". A report submitted to The Royal Swedish Academy of Sciences in support of the The Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel for Finn E. Kydland and Edward C. Prescott.
    Keywords: Kydland and Prescott (1982), Business Cycle Analysis, Quantitative Theory, Nobel Prize in Economics
    JEL: B22 C68 E13 E32
    Date: 2005–07
  7. By: Marcela Meirelles-Aurelio
    Abstract: In inflation targeting (IT) regimes, the Monetary Authority announces an explicit objective, the target for inflation. However, other objectives that possibly conflict with the inflation goal are present, such as keeping output close to its potential level and the stability of financial markets. This multiplicity of objectives has spurred a debate on whether inflation targeting really provides a transparent framework for monetary policy. This question is addressed in this paper, focusing on the experience of six countries that adopted IT. The empirical investigation is based on a variety of data sets (including real time data and Central Bank's forecasts), as well as on alternative forward-looking reaction functions. The main finding is that, if transparency is interpreted as the short run predictability of policy actions, consistent with the announced inflation goal, then most of the IT regimes here examined are remarkably transparent. However, this is not necessarily true if a more broad interpretation of transparency is required. The data also reveals a certain degree of heterogeneity across countries and time, and therefore recommends caution with respect to general statements regarding the properties of IT regimes.
    Keywords: Monetary policy ; Inflation (Finance)
    Date: 2005
  8. By: Tatiana Damjanovic; Charles Nolan
    Abstract: In this paper we review and extend some of the key lessons that seem to be emerging from the Ramsey-inspired theory of dynamic optimal monetary and fiscal policies. We construct measures of the key distortions in our economy; we label these ‘dynamic wedges’. Inflation, actual or anticipated, distorts these wedges in the present period, it shrinks the tax base and increases the deadlweight loss. We show that, if possible, labour as well as capital ought to be subsidized in steady state. We point to a number of extensions to the Ramsey literature that may help in the formulation of actual policy.
    Keywords: Optimal taxation, aggregative monetary and fiscal policies.
    JEL: E31 E61 E62 H21
    Date: 2005–07

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