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on Macroeconomics |
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Issue of 2005‒09‒11
63 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | Sanjay K. Chugh |
| Abstract: | We determine the optimal degree of price inflation volatility when nominal wages are sticky and the government uses state-contingent inflation to finance government spending. We address this question in a well-understood Ramsey model of fiscal and monetary policy, in which the benevolent planner has access to labor income taxes, nominal riskless debt, and money creation. One main result is that sticky wages alone make price stability optimal in the face of government spending shocks, to a degree quantitatively similar as sticky prices alone. With productivity shocks also present, optimal inflation volatility is higher, but still dampened relative to the fully-flexible economy. Key for our results is an equilibrium restriction between nominal price inflation and nominal wage inflation that holds trivially in a Ramsey model featuring only sticky prices. We also show that the nominal interest rate can be used to indirectly tax the rents of monopolistic labor suppliers. Interestingly, a necessary condition for the ability to use the nominal interest rate for this purpose is positive producer profits. Taken together, our results uncover features of Ramsey fiscal and monetary policy in the presence of labor market imperfections that are widely-believed to be important. |
| Keywords: | Inflation (Finance) - Mathematical models ; Monetary policy - Mathematical models ; Fiscal policy - Mathematical models |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:834&r=mac |
| By: | Fiona Atkins (School of Economics, Mathematics & Statistics, Birkbeck College) |
| Abstract: | This paper estimates the money demand function for Jamaica using a Structural co-integrating VAR. This approach provides estimates of the long run structural relations and also reveals the complex short run feedbacks of monetary policy on key macro variables. In recent years Jamaican governments have adopted an inflation targeting framework for policy and have moved towards reliance on interest rates rather than direct money control as the primary instrument. This policy presumes that monetary transmission runs from the interest rate to directly affect the level of output which then feeds into the inflation process. However, in an economy with limited financial sector development interest rate transmission may be more circumspect, having a strong direct affect on money demand which then influences aggregate demand and output and hence inflation. These feedbacks are investigated within the error correction model.. Stability of Money demand is vital for predictable policy, and is investigated using CUSUM tests for parameter stability. The Jamaican financial sector suffered a major crisis in the mid 1990’s, the paper considers whether the stability of money demand was compromised. It is argued that the finding of stable money demand suggests that the specific policy responses may have successfully bolstered confidence and prevented financial implosion. |
| Keywords: | Caribbean, Jamaica, money demand |
| JEL: | C51 C52 E41 E52 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkefp:0512&r=mac |
| By: | Marvin Goodfriend; Robert King |
| Abstract: | Using a simple modern macroeconomic model, we argue that the real effects of the Volcker disinflation in the early 1980s were mainly due to imperfect credibility, evident in volatility and stubbornness of long-term interest rates. Studying recently released transcripts of the Federal Open Market Committee, we find -- to our surprise -- that Volcker and other FOMC members also regarded long-term interest rates as key indicators of inflation expectations and of their disinflationary policy's credibility. We also consider the interplay of monetary targets, operating procedures, and credibility during the Volcker disinflation. |
| JEL: | E3 E4 E5 N1 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11562&r=mac |
| By: | Jordi Galí; J. David López-Salido; Javier Vallés |
| Abstract: | Recent evidence suggests that consumption rises in response to an increase in government spending. That finding cannot be easily reconciled with existing optimizing business cycle models. We extend the standard new Keynesian model to allow for the presence of rule-of-thumb consumers. We show how the interaction of the latter with sticky prices and deficit financing can account for the existing evidence on the effects of government spending. |
| JEL: | E32 E62 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11578&r=mac |
| By: | Janko Gorter |
| Abstract: | This paper assesses the empirical performance of the forward-looking new Keynesian Phillips curve (NKPC) in France, Germany and Italy for the period 1991.3-2004.4. Instead of imposing rational expectations, I use direct measures of inflation expectations constructed from Consensus Economics survey data. Dependent on the real marginal costs measure, I obtain significant and plausible estimates for the quarterly discount factor and the price rigidity parameter. When analyzing the role of lagged inflation, I find that only in France lagged inflation does not have explanatory power beyond predicting expected inflation. This suggests that only in France the standard forward-looking NKPC effectively captures quarterly inflation dynamics. |
| Keywords: | Inflation; Phillips Curve; Subjective Expectations |
| JEL: | E31 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:049&r=mac |
| By: | Jerome Creel (Observatoire Français des Conjonctures Économiques); Paola Monperrus-Veroni (Observatoire Français des Conjonctures Économiques); Francesco Saraceno (Observatoire Français des Conjonctures Économiques) |
| Abstract: | We estimate a SVAR model of the French economy. The econometric method originates in Blanchard and Perotti [Quarterly Journal of Economics, 2002] but owes also extensively to the fiscal theory of the price level (FTPL) that investigates the interactions between government surplus, debt accumulation and price dynamics. We have the objective, on the one hand, of assessing the effects of fiscal and monetary policy shocks on the economy; and, on the other, of studying the strategic interactions between fiscal and monetary authorities. As a consequence, the theoretical restrictions to identify our model are derived from a FTPL framework. Our estimations reveal so-called Keynesian features of fiscal and monetary shocks; meanwhile, they are consistent with the prediction of the FTPL as regards price dynamics. Although the first part of our findings agrees with most of the recent literature on the subject, the non-rejection of the FTPL is an originality. |
| Keywords: | Fiscal policy, Monetary policy, Fiscal theory of the price level, Structural VAR, France |
| JEL: | C32 E60 E63 H60 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:0512&r=mac |
| By: | Rangan Gupta (University of Connecticut and University of Pretoria) |
| Abstract: | The paper analyzes the effects of financial liberalization on inflation. We develop a monetary and endogenous growth, dynamic general equilibrium model of a small open semi-industrialized economy, with financial intermediaries subjected to obligatory "high" reserve ratio, serving as the source of financial repression. When calibrated to four Southern European semi-industrialized countries, namely Greece, Italy, Spain and Portugal, that typically had high reserve requirements, the model indicates a positive inflation-financial repression relationship irrespective of the the specification of preferences. But the strength of the relationship obtained from the model is found to be much smaller in size than the corresponding empirical estimates. |
| Keywords: | Inflation; Financial Markets and the Macroeconomy |
| JEL: | E31 E44 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2005-32&r=mac |
| By: | Thórarinn G. Pétursson |
| Abstract: | An increasing number of countries have adopted inflation targeting since New Zealand first adopted this framework in early 1990. Currently there are 21 countries using inflation targeting in every continent of the world. This paper discusses the economic effects of inflation targeting. The main conclusion is that inflation targeting has largely been a success. The new framework has made central banks, which previously lacked credibility, able to change the way they do monetary policy towards what is commonly considered best practice. In many respects they have even been leading in creating a new benchmark for how to formulate monetary policy. |
| Date: | 2004–06 |
| URL: | http://d.repec.org/n?u=RePEc:ice:wpaper:wp23_thorarinn&r=mac |
| By: | Rangan Gupta (University of Connecticut and University of Pretoria) |
| Abstract: | The paper analyzes the effects of financial liberalization on inflation. We develop a monetary and endogenous growth, dynamic general equilibrium model with financial intermediaries subjected to obligatory "high" cash reserves requirement, serving as the source of financial repression. When calibrated to four Southern European semi-industrialized countries, namely Greece, Italy, Spain and Portugal, that typically had high reserve requirements, the model indicates a positive inflation-financial repression relationship irrespective of the the specification of preferences. But the strength of the relationship obtained from the model is found to be much smaller in size than the corresponding empirical estimates. |
| Keywords: | Inflation; Financial Markets and the Macroeconomy |
| JEL: | E31 E44 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2005-31&r=mac |
| By: | Joerg Scheibe; David Vines |
| Abstract: | This paper models Chinese inflation using an output gap Phillips curve. Inflation modelling for the world's sixth largest economy is a still under-researched topic. We estimate a partially forward-looking Phillips curve as well as traditional backward-looking Phillips curves. Using quarterly data from 1988 to 2002, we estimate a vertical long-run Phillips curve for China and show that the output gap, the exchange rate, and inflation expectations play important roles in explaining inflation. We adjust for structural change in the economy where possible and estimate regressions for rolling sample windows in order to test for and uncover gradual structural change. We evaluate a number of alternative output gap estimates and find that output gaps which are derived from prodcution function estimations for the Chinese economy are of more use in estimating a Phillips curve than output gaps derived from simple statistical trends. Partially forward-looking Phillips curves provide a better fit than backward-looking ones. The identification of a non-increasing exchange rate effect on inlation during a period of large import growth hints at increased pricing to market behaviour by importers. This result is relevant to policies regarding possible exchange rate liberalisation in China. |
| JEL: | E12 E31 E32 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2005-02&r=mac |
| By: | Zsolt Darvas; Andrew K. Rose; György Szapáry |
| Abstract: | Using a panel of 21 OECD countries and 40 years of annual data, we find that countries with similar government budget positions tend to have business cycles that fluctuate more closely. That is, fiscal convergence (in the form of persistently similar ratios of government surplus/deficit to GDP) is systematically associated with more synchronized business cycles. We also find evidence that reduced fiscal deficits increase business cycle synchronization. The Maastricht “convergence criteria,” used to determine eligibility for EMU, encouraged fiscal convergence and deficit reduction. They may thus have indirectly moved Europe closer to an optimum currency area, by reducing countries’ abilities to create idiosyncratic fiscal shocks. Our empirical results are economically and statistically significant, and robust. |
| JEL: | F42 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11580&r=mac |
| By: | Claudia M. Buch; Kai Carstensen; Andrea Schertler |
| Abstract: | Changes in foreign asset holdings are one channel through which agents adjust to macroeconomic shocks. In this paper, we test whether foreign bank assets change as a result of domestic and foreign macroeconomic shocks. We frame our empirical analysis in a standard new open economy macro model in which financial markets are imperfectly integrated. We test the implications of this model using dynamic panel models for changes in foreign bank assets. We find evidence that nominal interest rate differentials and inflation differentials drive changes in foreign bank assets permanently, while growth rate differentials and exchange rates have only a temporary effect. |
| Keywords: | international banking, macroeconomic shocks |
| JEL: | F3 F41 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1254&r=mac |
| By: | Michael D. Bordo; Angela Redish |
| Abstract: | On the seventieth birthday of the Bank of Canada, we evaluate the Bank's contribution to monetary policy in an international context. We focus on: the reasons for the establishment of the central bank in 1935, its unique record of floating in a sea of fixed currencies under Bretton Woods; its experience with the Great Inflation and monetarism; its pioneering adoption of inflation targeting; and recent innovations in the payments and the phasing out of reserve requirements. |
| JEL: | E58 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11586&r=mac |
| By: | Jean-Marie Dufour; Lynda Khalaf; Maral Kichian |
| Abstract: | In this paper, we use identification-robust methods to assess the empirical adequacy of a New Keynesian Phillips Curve (NKPC) equation. We focus on the Gali and Gertler’s (1999) specification, on both U.S. and Canadian data. Two variants of the model are studied: one based on a rationalexpectations assumption, and a modification to the latter which consists in using survey data on inflation expectations. The results based on these two specifications exhibit sharp differences concerning: (i) identification difficulties, (ii) backward-looking behavior, and (ii) the frequency of price adjustments. Overall, we find that there is some support for the hybrid NKPC for the U.S., whereas the model is not suited to Canada. Our findings underscore the need for employing identificationrobust inference methods in the estimation of expectations-based dynamic macroeconomic relations. <P>Dans cet article, nous employons des méthodes robustes aux problèmes d’identification afin d’évaluer la valeur empirique d’une nouvelle équation de courbe de Phillips keynésienne (NKPC). Nous concentrons notre analyse sur la spécification de Gali et Gertler (1999), en considérant des données américaines et canadiennes. Nous étudions deux variantes du modèle : une première fondée sur une hypothèse d’attentes rationnelles et une seconde où les attentes sont mesurées à partir de données d’enquête. Les résultats basés sur ces deux spécifications diffèrent de manière notable sur plusieurs points : (i) les problèmes liés à l’identification, (ii) les comportements rétrospectifs, (iii) la fréquence des ajustements. En fin de compte, nos résultats sont compatibles dans une faible mesure avec un modèle NKPC hybride, tandis que le modèle ne semble pas compatible avec les données canadiennes. Nos résultats soulignent l’importance d’utiliser des méthodes robustes à l’identification dans l’analyse empirique de relations macroéconomiques où interviennent des attentes. |
| Keywords: | identification robust inference, inflation dynamics, macroeconomics, New Keynesian Phillips Curve, optimal instruments, weak instruments, dynamique de l’inflation, inférence robuste à l’identification, instruments faibles, instruments optimaux, macroéconomie, nouvelle courbe de Phillips keynésienne |
| JEL: | C12 C13 C3 C52 E3 E31 E5 |
| Date: | 2005–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2005s-30&r=mac |
| By: | Kris Jacobs; Stéphane Pallage; Michel A. Robe |
| Abstract: | Existing estimates of the welfare cost of business cycles suggest that it is quite low and might well be minuscule. Many of these estimates are based on aggregated U.S. consumption data. Arguably, because markets are incomplete and risk-sharing is imperfect, the welfare costs computed with aggregate consumption data are likely underestimates. Yet, incomplete-market models have not yielded significantly greater cost figures. Previous incomplete-market studies, however, have relied on model-generated consumption series that reflect optimal decsions in models calibrated using individual income data. In this paper, we maintain the assumption of incomplete markets but use observed consumption streams instead. Using state-level retail sales figures, we show that the welfare cost of macroeconomic volatility is in fact very substantial. In one half of the U.S. states, the welfare gain from the removal of business cycles can in fact exceed the gain from receiving an extra percentage point of consumption growth in perpetuity. In short, our results indicate that macroeconomic volatility has first-order welfare implications. |
| Keywords: | Incomplete markets, consumption volatility, growth, welfare |
| JEL: | E32 E60 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:lacicr:0524&r=mac |
| By: | F. Owen Irvine; Scott Schuh |
| Abstract: | Most of the reduction in GDP volatility since the 1983 is accounted for by a decline in comovement of output among industries that hold inventories. This decline is not simply a passive byproduct of reduced volatility in common factors or shocks. Instead, structural changes occurred in the long-run and dynamic relationships among industries’ sales and inventory investment behavior—especially in the automobile and related industries, which are linked by supply and distribution chains featuring new production and inventory management techniques. Using a HAVAR model (Fratantoni and Schuh 2003) with only two sectors, manufacturing and trade, we discover structural changes that reduced comovement of sales and inventory investment both within and between industries. As a result, the response of aggregate output to all types of shocks is dampened. Structural changes accounted for more than 80 percent of the reduction in output volatility, thus weakening the case for “good luck,” and altered industries’ responses to federal funds rate shocks, thus suggesting the case for “better monetary policy” is complicated by changes in the real side of the economy. |
| Keywords: | Gross domestic product ; Monetary policy ; Inventories |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:05-9&r=mac |
| By: | K. Peren Arin; Faik Koray |
| Abstract: | We investigate the dynamic effects of five different fiscal shocks on the US economy using a structural vector autoregressive (SVAR) model that uses Blanchard-Quah type restrictions. We find that an increase in indirect taxes or in corporate taxes has a contractionary effect on the economy, while an increase in personal taxes in neither contractionary, nor expansionary. These results imply that the Ricardian Equivalance hypothesis holds only for personal taxes. On the spending side, we find that an increase in government wages and salaries has a contractionary effect on the economy, while an increase in defense spending is expansionary. Our results suggest that different fiscal shocks have different and offsetting effects on the economy, and using aggregated data may, therefore, conceal the effects of fiscal policy. |
| JEL: | E62 H20 H30 |
| Date: | 2005–04 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2005-09&r=mac |
| By: | Roel Beetsma; Massimo Giuliodori; Franc Klaassen |
| Abstract: | We explore the international spillovers from fiscal policy shocks via trade in Europe. A fiscal expansion stimulates domestic activity, which leads to more foreign exports and, hence, higher foreign output. To quantify this, we combine a panel VAR model in government spending, net taxes and GDP with a panel trade model. On average, a public spending increase equal to 1% of GDP implies 2.3% more foreign exports over the first two years. The corresponding figure for an equal-size net tax reduction is 0.6%. Both estimates are statistically significant. As far as the effect on foreign activity is concerned, a 1% of GDP spending increase (net tax reduction) in Germany on average raises GDP of trading partners by 0.23% (0.06%) over the first two years. These figures are likely to form lower bounds for the actual effects and suggest that it may be worthwhile to further investigate the benefits from coordinated fiscal expansions (contractions) in response to European-wide cyclical downturns (upswings). |
| Keywords: | Fiscal shocks; trade spillovers; European Union; coordination; impulse responses. |
| JEL: | E62 F41 F42 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:052&r=mac |
| By: | Helmut Franken; Guillermo Le Fort; Eric Parrado |
| Abstract: | In this paper we use a VAR model to analyze the response of the Chilean business cycle to shocks and the capacity of the Chilean economy to withstand them (resilience). Novel features in the analysis include the introduction of an expanded set of variables to capture the impact of external shocks and domestic shocks —including policy variables; the use of an extended sample since the 1950s; and the introduction of block exogeneity to capture the small open economy feature and to better deal with identification issues. Among key results, we find that foreign shocks have been the dominant source of business cycle fluctuations, followed by monetary policy shocks, while fiscal policy shocks explain relatively little; and that despite of the increased synchronization of the domestic business cycle with international conditions, the resilience of the Chilean economy to external shocks has increased during the nineties, with countercyclical policies playing an important role in such a positive developmentCreation-Date:2005-09 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:331&r=mac |
| By: | Jangryoul Kim; Preston Miller |
| Abstract: | This paper is an attempt to determine the relative importance of the efficiency and stability effects of monetary policy. The method is to find the policy that maximizes welfare in a general equilibrium model that generates both effects. It is found that the steady-state inflation rate under the optimal policy is significantly above the rate required for maximal efficiency and significantly below that required for maximal stability. Thus, both effects play important roles in determining the optimal rate of inflation. In addition, it is found that if a typical macroeconomic objective function is maximized as a substitute for welfare-maximization, the resultant policy rule puts too much weight on stability. It generates too much inflation and causes the policy instrument to respond too much to new information. |
| Date: | 2004 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmbp:6-04&r=mac |
| By: | Andrew Ang; Geert Bekaert; Min Wei |
| Abstract: | Surveys do! We examine the forecasting power of four alternative methods of forecasting U.S. inflation out-of-sample: time series ARIMA models; regressions using real activity measures motivated from the Phillips curve; term structure models that include linear, non-linear, and arbitrage-free specifications; and survey-based measures. We also investigate several optimal methods of combining forecasts. Our results show that surveys outperform the other forecasting methods and that the term structure specifications perform relatively poorly. We find little evidence that combining forecasts using means or medians, or using optimal weights with prior information produces superior forecasts to survey information alone. When combining forecasts, the data consistently places the highest weights on survey information. |
| JEL: | E31 E37 E43 E44 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11538&r=mac |
| By: | Paul Cavelaars |
| Abstract: | This paper studies the implications of globalisation for the effectiveness of monetary policy in large open economies, such as the euro area and the United States. The analysis allows for imperfect competition and an endogenous home bias in consumption. I find that globalisation (a reduction in the costs of international trade) causes a monetary expansion to have a larger (smaller) e¤ect on prices (output). To the extent that globalisation also induces stronger competition in the goods market, I find that its impact on the incentive for activist monetary policy is ambiguous. Finally, globalisation reduces the beggary-thy-neighbour effects of monetary policy. |
| Keywords: | trade costs; openness; monetary policy. |
| JEL: | F15 F41 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:048&r=mac |
| By: | Iris Claus |
| Abstract: | This paper assesses the effects of bank leding in a small open economy with a floating exchange rate and sticky prices. A theoretical model with costly financial intermediation is developed for New Zealand. The results show that long-run and business cycle effects of bank lending are small. Whether firms borrow from financial intermediaries or public debt markets is unlikely to affect economic activity. In other words, the financial structure, or degree to which a country's financial system is intermediary based or market based, does not matter. |
| JEL: | E32 E44 E50 F41 |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2005-04&r=mac |
| By: | Qiang Dai; Thomas Philippon |
| Abstract: | Macroeconomists want to understand the effects of fiscal policy on interest rates, while financial economists look for the factors that drive the dynamics of the yield curve. To shed light on both issues, we present an empirical macro-finance model that combines a no-arbitrage affine term structure model with a set of structural restrictions that allow us to identify fiscal policy shocks, and trace the effects of these shocks on the prices of bonds of different maturities. Compared to a standard VAR, this approach has the advantage of incorporating the information embedded in a large cross-section of bond prices. Moreover, the pricing equations provide new ways to assess the model's ability to capture risk preferences and expectations. Our results suggest that (i) government deficits affect long term interest rates: a one percentage point increase in the deficit to GDP ratio, lasting for 3 years, will eventually increase the 10-year rate by 40--50 basis points; (ii) this increase is partly due to higher expected spot rates, and partly due to higher risk premia on long term bonds; and (iii) the fiscal policy shocks account for up to 12% of the variance of forecast errors in bond yields. |
| JEL: | E0 G0 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11574&r=mac |
| By: | Andreas Humpe; Peter D. Macmillan |
| Abstract: | The main objective of this paper is to examine whether a standard discounted value model is capable of explaining aggregate long term stock market movements in the US and Japan. An emphasis on the comparison between the relationships between selected macroeconomic variables based on the discounted value model and the stock market will reveal commonalities and differences between the US and Japanese long term stock market movements. Therefore, a cointegration analysis is applied to model the long term relationship between industrial production, the consumer price index, money supply, short as well as long term interest rates and the stock prices in the US and Japan. The results suggest a positive relationship between industrial production, CPI and short rates while the long rates yield a negative coefficient for the US stock market. In Japan, industrial production has a much smaller positive coefficient as in the US while the CPI shows a much higher positive coefficient than in the US. Generally, the results are consistent with the belief that changes in industrial output are likely to affect current and future corporate cash flows and have a positive effect on the stock market. The strong negative relationship between interest rates and the equity market, as suggested by theory, is not clear in the analysed data set. An explanation of the different behaviour of the Japanese stock market, especially in respect to interest rates, industrial output and the consumer price index, might be given by the boom and bust of the domestic real estate market and its potentially massive wealth effects as well as the following bad loan crisis due to a price collapse in housing prices. |
| Keywords: | Stock Market Indices, Cointegration, Interest Rates |
| JEL: | C22 G12 E44 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:san:crieff:0511&r=mac |
| By: | Rasmus Fatum (School of Business, University of Alberta); Michael M. Hutchison (Department of Economics, University of California) |
| Abstract: | This article examines the rationale behind the massive increase in Japanese foreign exchange market intervention operations in 2003-04, and evaluates its effectiveness both in limiting yen exchange rate appreciation and influencing the direction of monetary policy. The two main questions addressed in this study are: Was the intervention effective in slowing exchange rate appreciation compared to a counterfactual case with no intervention? And, has intervention on such a large scale authorized by the Ministry of Finance been able to directly influence liquidity creation or indirectly influence the stance of Bank of Japan policy? |
| Keywords: | foreign exchange intervention; Japanese monetary policy |
| JEL: | E51 E58 F31 |
| Date: | 2004–10 |
| URL: | http://d.repec.org/n?u=RePEc:kud:epruwp:05-05&r=mac |
| By: | Pahlavani, Mosayeb (University of Wollongong); Valadkhani, Abbas (University of Wollongong); Worthington, Andrew (University of Wollongong) |
| Abstract: | This paper employs all quarterly time series currently available to endogenously determine the timing of structural breaks for various monetary aggregates and interest rates in Australia over the last thirty years. The Innovational Outlier model (IO) and the Additive Outlier model (AO) are then used to test for nonstationarity. After accounting for the single most significant structural break, the results from both models clearly indicate that the null of at least one unit root cannot be rejected for almost all series examined. The structural breaks found coincide with important policy changes during the period of financial deregulation starting in the 1980s. |
| Keywords: | Monetary aggregates, interest rates, Innovational Outlier Model, Additive Outlier Model |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:uow:depec1:wp05-02&r=mac |
| By: | Refet S. Gurkaynak |
| Abstract: | Federal funds futures are popular tools for calculating market-based monetary policy surprises. These surprises are usually thought of as the difference between expected and realized federal funds target rates at the current FOMC meeting. This paper demonstrates the use of federal funds futures contracts to measure how FOMC announcements lead to changes in expected interest rates after future FOMC meetings. Using several 'surprises' at different horizons, timing, level, and slope components of unanticipated policy actions are defined. These three components have differing effects on asset prices that are not captured by the contemporaneous surprise measure. |
| Keywords: | Monetary policy ; Federal funds rate ; Federal funds market (United States) |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2005-29&r=mac |
| By: | Rangan Gupta (University of Connecticut and University of Pretoria) |
| Abstract: | The paper analyzes the relationship between the "optimal" degree of tax evasion and policy decisions in a simple overlapping generations framework. The model suggests that the best way to effectively reduce tax evasion is through increases in penalty rates. |
| Keywords: | Underground Economy; Tax evasion; Macroeconomic Policy. |
| JEL: | E63 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2005-34&r=mac |
| By: | Don Harding; Adrian Pagan |
| Abstract: | Many interesting issues are posed by synchronisation of cycles. In this paper we define synchronisation and show how the degree of synchronisation can be measured. We propose heteroscedasticity and serial correlation robust tests of the hypotheses that cycles are either unsynchronised or perfectly synchronised. Tests of synchronisation are performed using data on industrial production, on monthly stock indices and on series that are used to construct the reference cycle for the United States. An algorithm is developed to extract a common cycle. It is used to extract the reference cycle for the United States and common cycles in stock prices and European industrial production. |
| JEL: | C12 C14 C22 C33 E32 |
| Date: | 2004–07 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2004-04&r=mac |
| By: | Hideaki Tanaka (Australia–Japan Research Centre, The Australian National University, Canberra) |
| Abstract: | The 1990s saw an era of fiscal consolidation in industrialised countries, which struggled with fiscal deficits throughout the 1970s and 1980s. Reforms in public expenditure management, typically the introduction of fiscal rules and targets, together with favourable economic growth contributed to a significant improvement in fiscal positions. However, fiscal deficits have been increasing again since the turn of the 21st century in many OECD countries. Interestingly, some countries have been able to maintain fiscal discipline since the achievement of fiscal balance in the latter half of the 1990s. What has caused this difference? This paper derives important lessons for reform in public expenditure management from the experiences of major OECD countries’, including Australia, France, Germany, Japan, the Netherlands, New Zealand, Sweden, the UK and the USA. Essentially, success in maintaining fiscal discipline lies in maintaining a firm political commitment, and strengthening expenditure management that underpins any such commitment, specifically a medium-term fiscal plan in line with fiscal rules and targets in a centralised and transparent manner. Public expenditure management reform is a cornerstone of the restructuring of public sector services, especially in welfare programs aimed at overcoming problems arising from an aging population. |
| Keywords: | fiscal deficit, public expenditure management, OECD, Australia, France, Germany, Japan, Netherlands, New Zealand, Sweden, UK, USA, welfare programs, aging population |
| JEL: | O23 H87 E63 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:eab:financ:613&r=mac |
| By: | Keiichiro Kobayashi; Masaru Inaba |
| Abstract: | We conducted business cycle accounting (BCA) using the method developed by Chari, Kehoe, and McGrattan (2002a) on data from the 1980s--1990s in Japan and from the interwar period in Japan and the United States. The contribution of this paper is twofold. First, we find that labor wedges may have been a major contributor to the decade-long recession in the 1990s in Japan. We argue that the deterioration of the labor wedge may have been caused by sticky wages and monetary contraction, and it may have been prolonged by the continuation of asset-price declines through binding collateral constraints. Second, we performed an alternative BCA exercise using the capital wedge instead of the investment wedge to check the robustness of BCA implications for financial frictions. The accounting results with the capital wedge imply that financial frictions may have had a large depressive effect during the 1930s in the United States. This implication is the opposite of that from the original BCA findings. |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:05023&r=mac |
| By: | Tsutomu Miyagawa; Yukie Sakuragawa; Miho Takizawa |
| Abstract: | Constructing thirty-seven industries database, we examines whether measured productivity in Japan is procyclical and investigates the sources of that procyclicality using the production function approach employed by Hall (1990) and Basu and Fernald (1995). At the aggregate level, the measured Solow residual shows procyclicality. Large numbers of industries show constant returns to scale. No significant evidence for the presence of thick-market externalities is found. Our results also hold when we consider labor hoarding, part-time employment, and the adjustment cost of investment. The results suggest policies to revitalize the Japanese economy should concentrate on promoting productivity growth. |
| JEL: | E32 E47 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:hst:hstdps:d05-108&r=mac |
| By: | Raghbendra Jha |
| Abstract: | This paper argues that both from an efficiency point of view (maintaining support for an economic reform promising rapid economic growth) and an equity viewpoint (shielding the poor from the worst effects of a downturn) it is important to append a pro-poor fiscal policy to an economic stabilization program. The paper outlines the basic contours of such a strategy and argues that although the fiscal deficit in many developing countries appears to be unsustainable, a policy package involving tax and expenditure reforms when the economy is not in crisis can help reduce the risk from high fiscal deficits. Furthermore, such tax and expenditure reforms can also be fine tuned to help the poor. The paper also discusses policy measures to shield the poor in anticipation of a downturn and also the contours of a pro-ppor fiscal adjustment once it becomes necessary to have macroeconomic adjustment. Given the wide heterogeneity among developing countries, the paper makes policy prescriptions for specific contexts and countries. Finally, the paper considers some policy measures that can be taken at the international level to provide support to developing countries in their efforts to make pro-poor adjustment feasible. |
| Date: | 2004–08 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2004-08&r=mac |
| By: | Hamid Faruqee; Douglas Laxton; Dirk Muir; Paolo Pesenti |
| Abstract: | This paper re-examines the implications, risks, and attendant policies surrounding global rebalancing of current accounts through the lens of a dynamic, multi-region model of the global economy. In the baseline scenario, world macroeconomic imbalances of the early 2000s can be attributed to a combination of six related but distinct tendencies: (i)expansionary U.S. fiscal policy, (ii) declining rate of U.S. private savings, (iii) increased foreign demand for U.S. assets, particularly in Asia, (iv) strong productivity growth in emerging Asia, (v) lagging productivity growth in Japan and the euro area, and (vi) gaining export competitiveness in emerging Asia. The baseline projects stabilizing U.S. public and foreign debt (albeit at higher levels) and a gradual depreciation of the dollar, allowing the U.S. external deficit to gradually move to a sustainable level. An alternative scenario, involving a sudden portfolio reshuffling in the rest of the world, would result in higher U.S. real interest rates, a significantly weaker dollar, with harmful effects on U.S. (and possibly global) growth. More flexible exchange rates in emerging Asia can help reduce variability in both regional output and inflation. Other simulations consider the effects of U.S. fiscal adjustment, as well as growth-enhancing structural reforms in Europe and Japan. |
| JEL: | E66 F32 F47 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11583&r=mac |
| By: | Duo Qin (Queen Mary, University of London); Marie Anne Cagas (Asian Development Bank); Pilipinas Quising (Asian Development Bank); Xin-Hua He (Chinese Academy of Social Sciences) |
| Abstract: | Investment-driven growth has long been regarded as a key development strategy in China. This paper investigates empirically the validity of this view. Post-1990 data analyses and macroeconometric model simulations show that market demand has become a regular force in driving investment since reforms, that non-demand-driven investment growth contributes to increasing capital-output ratio far more than output growth, that government investment exerts a pivotal role in amplifying investment cycles, albeit effective in promoting employment, and that delayed and rising consumption from current investment surge can help sustain the impact of growth even with constant-returns-to-scale in the long-run GDP. |
| Keywords: | Investment, Growth, Impulse response function, Cointegration, Granger non-causality |
| JEL: | E22 E62 R34 O23 P41 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:qmw:qmwecw:wp545&r=mac |
| By: | James B. Ang; Warwick J. McKibbin |
| Abstract: | The objective of this paper is to examine whether financial development leads to economic growth or vice versa in the small open economy of Malaysia. We argue that the results obtained from cross-sectional studies are not able to address this issue satisfactorily and highlight the importance of country specific studies. Using time series data from 1960 to 2001, we conduct cointegration and various causality tests to assess the finance-growth link by taking saving, investment, trade and real interest rate into account. Contrary to the conventional findings, our results support the view that output growth causes financial depth in the long-run. |
| JEL: | E44 O11 O16 O53 |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2005-05&r=mac |
| By: | Gordon D. Menzies; Daniel John Zizzo |
| Abstract: | We propose that the formation of beliefs be treated as statistical hypothesis tests, and we label such beliefs inferential expectations. If a belief is overturned through the build-up of evidence, agents are assumed to switch to the rational expectation. Rational expectations are shown to be a special (limiting) case of inferential expectations, with the test size alpha becoming a metric for rationality. We present the results of an experiment that supports inferential expectations. When inferential expectations are built into a Dornbusch-style model of the exchange rate, regression tests of Uncovered Interest Parity and the rational expectations version of the term structure both display downward bias in the slope coefficient. |
| JEL: | C91 D84 E50 F31 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2005-12&r=mac |
| By: | Akhmedov Akhmed |
| Abstract: | In this project, we propose an alternative explanation of the phenomenon of political business cycles — human capital of government. We propose an illustrative model in the framework of term limits. The predictions of the model will be tested on the basis of fiscal and monthly economic performance data of Russian regions from 1996 to 2003. |
| URL: | http://d.repec.org/n?u=RePEc:eer:wpalle:03-213e&r=mac |
| By: | Stephen H. Shore; Todd Sinai |
| Abstract: | We show that incorporating consumption commitments into a standard model of precautionary saving can complicate the usual relationship between risk and consumption. In particular, we present a model where the presence of plausible adjustment costs can cause a mean-preserving increase in unemployment risk to lead to increased consumption. The predictions of this model are consistent with empirical evidence from dual-earning couples. Couples who share an occupation face increased risk as their unemployment shocks are more highly correlated. Such couples spend more on owner-occupied housing than other couples, spend no more on rent, and are more likely to rent than own. This pattern is strongest when the household faces higher moving costs, or when unemployment insurance provides a less generous safety net. |
| JEL: | E21 R21 D8 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11588&r=mac |
| By: | Warwick J. McKibbin |
| Abstract: | The world is in the midst of a significant demographic transition with important implications for the macroeconomic performance of the global economy. This paper summarizes the key features of the current and projected future demographic change that are likely to have macroeconomic effects. It then develops and applies a new ten regions DSGE model (the MSG3 model) incorporating demographic dynamics, to examine the impacts of projected global demographic change on the world economy from 2005 to 2100. The focus in this paper is on Japan and the effects of demographic change on recent Japanese macroeconomic performance as well as projected performance over the remainder of this century. A distinction is made between the effects on Japan of demographic change that occurs in Japan and the effects on Japan of the equally large demographic changes occurring in the rest of the world. |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2005-13&r=mac |
| By: | Heather M. Anderson; Chin Nam Low; Ralph Snyder |
| Abstract: | A well known property of the Beveridge Nelson decomposition is that the innovations in the permanent and transitory components are perfectly correlated. We use a single source of error state space model to exploit this property and perform a Beveridge Nelson decomposition. The single source of error state space approach to the decomposition is computationally simple and it incorporates the direct estimation of the long-run multiplier. |
| JEL: | C22 C51 E32 |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2005-11&r=mac |
| By: | Rasmus Lentz; Dale T. Mortensen |
| Abstract: | Productivity dispersion across firms is large and persistent, and worker reallocation among firms is an important source of productivity growth. The purpose of the paper is to estimate the structure of an equilibrium model of growth through innovation that explains these facts. The model is a modified version of the Schumpeterian theory of firm evolution and growth developed by Klette and Kortum (2004). The data set is a panel of Danish firms than includes information on value added, employment, and wages. The model's fit is good and the structural parameter estimates have interesting implications for the aggregate growth rate and the contribution of worker reallocation to it. |
| JEL: | E22 E24 J23 J24 L11 L25 O3 O4 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11546&r=mac |
| By: | Midori Wakabayashi; Charles Yuji Horioka |
| Abstract: | In this paper, we use Japanese micro data to examine what characteristics borrowing-constrained households have and whether borrowing constraints have an important influence on household consumption behavior. We identify borrowing-constrained households using three different indicators, some of which are unique to our data source, and find that the characteristics of households that are likely to be borrowing-constrained differ depending on which of the three indicators we use. We also find that changes in current income have a positive and significant impact on changes in consumption in the case of households that are likely to be borrowing-constrained but not in the case of households that are unlikely to be borrowing-constrained. This result suggests that borrowing constraints have an important influence on household consumption behavior and that the presence of borrowing constraints is one explanation for why the life cycle-permanent income hypothesis does not hold in the real world. |
| JEL: | D12 D91 E21 O16 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11560&r=mac |
| By: | Jesus Felipe |
| Abstract: | This comment raises three main issues about He and Qin's (2004)attempt at modeling investment in the PRC. The first is this author's skepticism about the general applicability of the neoclassical model of investment to the PRC. Second, that their model for business investment, based on the neoclassical theory of investment, can be viewed as an approximation to an accounting identity derived by manipulating two other identities, namely, that of the capital share in output, and that of the motion of the capital stock. It is shown that the difference between He and Qin's equation and the identity is simply yhat they use the rental price of capital, while the identity relies on the profit rate. At best, all their analysis would indicate is that rental price of capital and profit rate are different. It is also argued that the empirical results are not clearly related to the supposed theoretical model. Based on this, the conclusion is that the policy implications of He and Qin's alleged model are somewhat dubious. Third, He and Qin's equation for government investment introduces the deviations of output from the long-run trend as an explanatory variable, estimated using an aggregate production function. The problems underlying this latter concept make the estimation of the output trend using this method a questionable exercise. Also, the empirical results suffer from serious problems of interpretation. |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2005-17&r=mac |
| By: | Jesus Felipe; J. S. L. McCombie |
| Abstract: | This paper considers the implications of the conceptual difference between the rental price of capital, embedded in the neoclassical cost identity (output equals the cost of labour plus the cost of capital), and used in growth accounting studies; and the profit rate, which can be derived from the national income and product accounts (NIPA). The neoclassical identity is a "virtual" identity in that it depends on a series of assumptions (constant returns to scale and perfectly competitive factor markets). The income side of the NIPA also provides an accounting identity for output as the sum of the wage bill plus the surplus. This identity, however, is a "real" one, in the sense that it does not depend on any assumptions and thus it holds always. It is shown that because the neoclassical cost identity and the income accounting identity according to the NIPA are formally equivalent expressions, estimations of aggregate production functions and growth accounting studies are tautologies. Likewise, the test of the hypothesis of competitive markets using Hall's (1988) framework gives rise to a null hypothesis that cannot be rejected statistically. |
| JEL: | O47 E22 E25 B41 |
| Date: | 2004–09 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2004-10&r=mac |
| By: | Rasmus Lentz (University of Wisconsin-Madison); Dale T. Mortensen (Northwestern University) |
| Abstract: | Productivity dispersion across firms is large and persistent, and worker reallocation among firms is an important source of productivity growth. The purpose of the paper is to estimate the structure of an equilibrium model of growth through innovation that explains these facts. The model is a modified version of the Schumpeterian theory of firm evolution and growth developed by Klette and Kortum (2004). The data set is a panel of Danish firms than includes information on value added, employment, and wages. The model's fit is good and the structural parameter estimates have interesting implications for the aggregate growth rate and the contribution of worker reallocation to it. |
| Keywords: | labor productivity growth; worker reallocation; firm dynamics; firm panel data estimation |
| JEL: | E22 E24 J23 J24 L11 L25 O3 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuieca:2005_13&r=mac |
| By: | Ross H. McLeod |
| Abstract: | The blanket guarantee introduced in 1998 in response to the emerging banking and economic crisis resulted in $50 billion of losses to the general public. The government has now introduced a law that enables the phasing out of this blanket guarantee, but which also allows for its reinstatement in the event of any threatened collapse of the banking system. Rather than eliminating the possibility of any repetition of the previous banking disaster, the new law effectively mandates an almost identical approach to handling system-wide banking collapses in the future, suggesting that the authorities and their advisers learned very little from the recent bitter experience. It is argued here that the crucial starting point for formulating policy in this field is to correctly specify the exact purpose that government intervention is intended to serve: namely, the avoidance of major macroeconomic disruption as a result of bank failures. |
| Keywords: | banking, bailout, deposit guarantee, deposit insurance, moral hazard |
| JEL: | E42 E44 G21 G28 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:pas:papers:2005-08&r=mac |
| By: | Jorge Hermann; Rómulo Chumacero |
| Abstract: | Este documento muestra un hecho estilizado robusto en la relación entre dinero e inflación en Chile: la inflación precede (estadísticamente) al crecimiento del dinero y no viceversa. Este hallazgo es robusto a la consideración del tipo de política monetaria, período muestral, agregado monetario, consideración de segundos momentos condicionales o la inclusión de metas de inflación. A su vez, se presenta una motivación teórica de porqué la evolución de los agregados monetarios no necesariamente está asociada a la inflación. |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:324&r=mac |
| By: | Sugata Marjit (Department of Economics and Finance, City University of Hong Kong); Amit Biswas (Viswasharati University, india); Hamid Beladi (North Dakota University) |
| Abstract: | Lucas (1976) had argued that interventionist policies macroeconomics may fail because policies themselves affect the optimal behaviour of private agents and hence the associated response parameters. We extend Lucas' arguement and propose that huighly controlled and regulated environment leads to misinterpretation of official statistics and therefore distort policy predictions based on such information. In a way policies will have predicitability in a more open and less regulated environment. |
| Keywords: | Lucas critique, policy distortion, regulation |
| JEL: | E10 K23 K42 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:eab:tradew:609&r=mac |
| By: | Don Harding; Adrian Pagan |
| Abstract: | Conferences that we have recently attended have suggested to us that there is the potential for a great deal of confusion today in cycle research. This is caused by many different interpretations of what is meant by a "cycle" and how one goes about measuring it. In order to bring some order into this literature we feel that it is useful to provide some classification scheme which emphasizes this diversity. In doing so it is hoped that the scheme may foster a better understanding of the many modes of cycle research. In what follows we will be concerned with cycles in economic activity, but it is the case that the principles extend to cycles in any series. Nevertheless, it is useful to be able to concentrate upon a specific example that is probably the object of most cycle research. Our suggested framework involves distinguishing between the following issues: I. What series is it that we are looking for cycles in? II. How do we recognize and measure (describe) a cycle in the series once the previous decision has been made? Section 2 of this paper develops the first of these issues in more detail while section 3 does the same for the second one. Section 4 then comments upon the implications of our classification scheme for cycle research. |
| Date: | 2004–01 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2004-05&r=mac |
| By: | Ignacio Velez-Pareja |
| Abstract: | Usually a great deal of effort is devoted in typical financial textbooks to the mechanics of the calculations of time value of money equivalencies: payments, future values, present values, etc. This is necessary. However little or no effort is devoted to how to arrive at the figures required to calculate the Net Present Value NPV or Internal Rate of Return, IRR. In the paper, pro forma financial statements (Balance Sheet (BS), Income Statement (IS) and Cash Budget (CB) are presented. From the CB, the Free Cash Flow FCF, the Cash Flow to Equity CFE, the Cash Flow to Debt CFD and the Capital Cash Flow are derived. Also, the FCF and the CFE are calculated with the typical approach found in the literature: from the IS and it is specified how to construct them. In doing this, working capital is redefined: the result is that it has to include some items that are not taken into account in the traditional methods. An example is presented to illustrate the procedure to calculate the cash flows. In the Appendixes we show how to arrive to the levered equity and firm value. |
| Keywords: | Free cash flow, cash flow to equity, cash flow to debt, project evaluation, |
| JEL: | D92 E22 E31 G31 |
| Date: | 2005–06–05 |
| URL: | http://d.repec.org/n?u=RePEc:col:000135:001272&r=mac |
| By: | Raghbendra Jha; Ibotomi S. Longjam |
| Abstract: | In an economy undergoing structural reforms the composition of savings goes through considerable change. It is important to understand such changes both for increasing the volume of aggregate savings (to garner resources for higher economic growth) as well as for affecting their composition (towards more productive instruments) through an understanding of inter-asset substitutability. We conduct nonparametric tests to examine whether data on financial savings in India can be rationalized in terms of a utility function of a representative economic agent. The parametric test has the disadvantage that in some cases it is not possible to distinguish between rejections of the functional for from a rejection of weak separability. We establish that data on financial savings in India are consistent with the existence of utility function for a representative individual with a sub-preference where contractual savings (insurance and provident funds) can be separated out. This result would facilitate the construction of a suitable financial aggregate using these assets. |
| JEL: | E21 E41 |
| Date: | 2004–07 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2004-06&r=mac |
| By: | Graham Elliott; Ivana Komunjer; Allan Timmermann |
| Abstract: | Empirical studies using survey data on expectations have frequently observed that forecasts are biased and have concluded that agents are not rational. We establish that existing rationality tests are not robust to even small deviations from symmetric loss and hence have little ability to tell whether the forecaster is irrational or the loss function is asymmetric. We quantify the exact trade-off between forecast inefficiency and asymmetric loss leading to identical outcomes of standard rationality tests and explore new and more general methods for testing forecast rationality jointly with flexible families of loss functions that embed quadratic loss as a special case. An empirical application to survey data on forecasts of nominal output growth demonstrates the empirical significance of our results and finds that rejections of rationality may largely have been driven by the assumption of symmetric loss. |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2005-14&r=mac |
| By: | Rasmus Fatum (School of Business, University of Alberta) |
| Abstract: | This paper analyzes the effects of official, daily Bank of Canada intervention in the CAD/USD exchange rate market over the January 1995 to September 1998 period. Using an event study methodology and different criteria for effectiveness, movements in the CAD/USD exchange rate over the 1 through 10 days surrounding intervention events are investigated. It is shown that Bank of Canada intervention was systematically associated with both a change in the direction and a smoothing of the CAD/USD exchange rate. Bank of Canada intervention did not, however, succeed in reducing the volatility of the CAD/USD exchange rate. Additionally, the paper introduces the issue of currency co-movements to the intervention literature. It is shown that the effects of intervention are weakened when adjusting for general currency co-movements against the USD, suggesting that currency co-movements should be taken into account when addressing the effects of central bank intervention aimed at managing a minor currency vis-à-vis a major currency. |
| Keywords: | foreign exchange intervention; event studies; currency co-movement |
| JEL: | E58 F31 G14 G15 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:kud:epruwp:05-07&r=mac |
| By: | Jesus Felipe |
| Abstract: | This paper shows that unit labor costs (ulcs), the most widely used measure of competitiveness, can be interpreted as the labor share in output multiplied by a price-adjustment factor. This has three main implications. First, ulcs are not just a technical concept since they embody the social relations that affect the distribution of income between the social classes. Secondly, lower ulcs should not necessarily be interpreted as implying that an economy is more competitive, ie, that it will grow faster, and vice versa. In wage-led growth economies, an increase in the wage share leads to an increase in the equilibrium capacity utilization rate, which leads to an increase in the growth rate of the capital stock. Hence it is possible to find that the countries with fast-growing ulcs are the ones registering faster growth in exports or in GDP. Once one analyzes ulcs taking into account their functional distribution dimension, "Kaldor's paradox" ceases to be an anomalous result. Finally, one can define the concept of unit capital cost as a measure of competitiveness and shift the burden of lack of growth or loss of market share to capital. |
| JEL: | E25 F02 O47 O53 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2005-06&r=mac |
| By: | Rangan Gupta (University of Connecticut and University of Pretoria) |
| Abstract: | Using a pure-exchange overlapping generations model, characterized with tax evasion and information asymmetry between the government (the social planner) and the financial intermediaries, we try and seek for the optimal tax and seigniorage plans, derived from the welfare maximizing objective of the social planner. We show that irrespective of whether the economy is characterized by tax evasion, or asymmetric information, a benevolent social planner, maximizing welfare and simultaneously financing the budget constraint, should optimally rely on explicit rather than implicit taxation. |
| Keywords: | Tax evasion; Information Asymmetry in Financial Markets |
| JEL: | E63 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2005-33&r=mac |
| By: | Ibsen, Rikke (Department of Economics, Aarhus School of Business); Westergaard-Nielsen, Niels (Department of Economics, Aarhus School of Business) |
| Abstract: | Job creation and destruction should be considered as key success or failure criteria of the economic policy. Job creation and destruction are both effects of economic policy, the degree of out- and in-sourcing, and the ability to create new ideas that can be transformed into jobs. Job creation and destruction are results of businesses attempting to maximize their economic outcome. One of the costs of this process is that employees have to move from destroyed jobs to created jobs. The development of this process probably depends on labor protection laws, habits, the educational system, and the whole UI-system. A flexible labor market ensures that scarce labor resources are used where they are most in demand. Thus, labor turnover is an essential factor in a well-functioning economy. <p> This paper uses employer-employee data from the Danish registers of persons and workplaces to show where jobs have been destroyed and where they have been created over the last couple of business cycles. Jobs are in general destroyed and created simultaneously within each industry, but at the same time a major restructuring has taken place, so that jobs have been lost in Textile and Clothing, Manufacturing and the other “old industries”, while jobs have been created in Trade and Service industries. Out-sourcing has been one of the causes. This restructuring has caused a tremendous pressure on workers and their ability to find employment in expanding sectors. The paper shows how this has been accomplished. Especially, the paper shows what has happened to employees involved. Have they become unemployed, employed in the welfare sector or where? |
| Keywords: | job creation and job destruction; turnover of personnel; duration of unemployment; and impact of business cycles |
| JEL: | J63 M51 O51 |
| Date: | 2005–09–02 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:aareco:2005_004&r=mac |
| By: | Lars E.O. Svensson |
| Abstract: | The main result of Morris and Shin (2002) (restated in papers by Amato, Morris, and Shin (2002) and Amato and Shin (2003) and commented upon by Economist (2004)) has been presented and interpreted as an anti-transparency result: more public information can be bad. However, some scrutiny of the result shows that it is actually pro transparency: except in very special circumstances, more public information is good. Furthermore, for a conservative benchmark of equal precision in public and private information, social welfare is higher than in a situation without public information. |
| JEL: | D82 D83 E52 E58 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11537&r=mac |
| By: | Simi Kedia; Thomas Philippon |
| Abstract: | We argue that earnings management and fraudulent accounting have important economic consequences. In a model where the costs of earnings management are endogenous, we show that in equilibrium, bad managers hire and invest too much in order to pool with the good managers. This behavior distorts the allocation of economic resources among firms. We test the predictions of the model using new historical and firm-level data. First, we show that periods of high stock market valuations are systematically followed by large increases in reported frauds. We then show that during periods of suspicious accounting, firms hire and invest excessively, while insiders exercise options and sell stocks. When the misreporting is detected, firms shed labor and capital and productivity improves. In the aggregate, our model seems able to account for periods of jobless and investment-less growth. |
| JEL: | E0 G3 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11573&r=mac |
| By: | Nicholas Sim (Boston College); Kong-Weng Ho (National University of Singapore) |
| Abstract: | Most existing evidences for indeterminacy are obtained from analyzing models that do not consider trade. This paper considers an extension of Nishimura and Shimomura (Journal of Economic Theory, 2002) Heckscher-Ohlin framework by removing sector-specific externalities in one country while maintaining all other assumptions previously made by the authors. We show that even though indeterminacy arises under autarky, it can be eliminated when trade takes place with another country exhibiting saddle-path stability. Consequently, support for indeterminacy from calibrating an autarkic framework should be treated with some degree of caution. |
| Keywords: | E32, F00, F11, F43 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:nus:nusewp:wp0507&r=mac |
| By: | Lucia Foster; John Haltiwanger; Chad Syverson |
| Abstract: | There is considerable evidence that producer-level churning contributes substantially to aggregate (industry) productivity growth, as more productive businesses displace less productive ones. However, this research has been limited by the fact that producer-level prices are typically unobserved; thus within-industry price differences are embodied in productivity measures. If prices reflect idiosyncratic demand or market power shifts, high "productivity" businesses may not be particularly efficient, and the literature's findings might be better interpreted as evidence of entering businesses displacing less profitable, but not necessarily less productive, exiting businesses. In this paper, we investigate the nature of selection and productivity growth using data from industries where we observe producer-level quantities and prices separately. We show there are important differences between revenue and physical productivity. A key dissimilarity is that physical productivity is inversely correlated with plant-level prices while revenue productivity is positively correlated with prices. This implies that previous work linking (revenue-based) productivity to survival has confounded the separate and opposing effects of technical efficiency and demand on survival, understating the true impacts of both. We further show that young producers charge lower prices than incumbents, and as such the literature understates the productivity advantage of new producers and the contribution of entry to aggregate productivity growth. |
| JEL: | E2 L1 L6 O4 |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11555&r=mac |
| By: | Orla Doyle (University College Dublin); Patrick Paul Walsh (Trinity College Dublin and IZA Bonn) |
| Abstract: | Many theoretical models of transition are driven by the assumption that economic decision making is subject to political constraints. In this paper we empirically test whether the winners and losers of economic reform determined voting behaviour in the first five national elections in the Czech Republic. We propose that voters, taking stock of endowments from the planning era, could predict whether they would become "winners" or "losers" of transition. Using survey data we measure the percentage of individuals by region who were "afraid" and "not afraid" of economic reform in 1990. We define the former as potential "winners" who should vote for pro-reform parties, while latter are potential "losers" who should support leftwing parties. Using national election results and regional economic indicators, we demonstrate that there is persistence in support for pro-reform and communist parties driven by prospective voting based on initial conditions in 1990. As a result, we show that regional unemployment rates in 2002 are good predictors of regional voting patterns in 1990. |
| Keywords: | political constraints, prospective economic voting, initial conditions |
| JEL: | D72 E24 E61 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp1719&r=mac |