|
on Macroeconomics |
|
Issue of 2006‒01‒29
forty-two papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | Yashiv, Eran |
| Abstract: | This paper surveys the use of search and matching models in macroeconomics. It outlines the standard model, discusses its extensions, presents alternative formulations, considers the empirical evidence, and studies applications to macroeconomic questions such as business cycles, growth, and policy. Particular attention is given to the ability of the model to account for labour market dynamics and for cyclical fluctuations in aggregate economic activity |
| Keywords: | business cycles; growth; macroeconomics; matching; policy; search; worker flows |
| JEL: | E24 E32 E52 J23 J31 J41 J63 J64 J65 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5459&r=mac |
| By: | Luca Gambetti; Evi Pappa; Fabio Canova |
| Abstract: | We examine the dynamics of US output and inflation using a structural time varying coefficient VAR. We show that there are changes in the volatility of both variables and in the persistence of inflation. Technology shocks explain changes in output volatility, while a combination of technology, demand and monetary shocks explain variations in the persistence and volatility of inflation. We detect changes over time in the transmission of technology shocks and in the variance of technology and of monetary policy shocks. Hours and labor productivity always increase in response to technology shocks. |
| Keywords: | Variability, Persistence, Transmission, Structural time varying VARs |
| JEL: | C11 E12 E32 E62 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:921&r=mac |
| By: | Boivin, Jean; Giannoni, Marc |
| Abstract: | We investigate the implications of changes in the structure of the US economy for monetary policy effectiveness. Estimating a VAR over the pre- and post-1980 periods, we provide evidence of a reduced effect of monetary policy shocks in the latter period. We estimate a structural model that replicates well the economy's response in both periods, and perform counterfactual experiments to determine the source of the change in the monetary transmission mechanism and in the economy's volatility. We find that by responding more strongly to inflation expectations, monetary policy has stabilized the economy more effectively in the post-1980 period. |
| Keywords: | dynamic general equilibrium model; habit formation; indeterminacy; minimum distance estimation; transmission of monetary policy; vector autoregression |
| JEL: | C32 E3 E52 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5463&r=mac |
| By: | Burkhard Heer; Bernd Süssmuth |
| Abstract: | We find that inflation did not unanimously decrease savings in the US during the postwar period. This result is puzzling as it contradicts the implications of most monetary general equilibrium models. |
| Keywords: | inflation, savings, nominal interest taxation |
| JEL: | E21 E65 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1645&r=mac |
| By: | Aleksander Berentsen; Christopher Waller |
| Abstract: | We construct a dynamic stochastic general equilibrium model to study optimal monetary stabilization policy. Prices are fully flexible and money is essential for trade. Our main result is that if the central bank pursues a long-run price path, thereby controlling inflation expectations, it can improve welfare by stabilizing short-run aggregate shocks. The optimal policy involves smoothing nominal interest rates which effectively smooths consumption across states. Failure to follow a long-run price path makes any stabilization attempt ineffective. |
| JEL: | E40 E50 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1638&r=mac |
| By: | Fabio Canova |
| Abstract: | This paper investigates the relationship between monetary policy and the changes experienced by the US economy using a small scale New-Keynesian model. The model is estimated with Bayesian techniques and the stability of policy parameter estimates and of the transmission of policy shocks examined. The model fits well the data and produces forecasts comparable or superior to those of alternative specifications. The parameters of the policy rule, the variance and the transmission of policy shocks have been remarkably stable. The parameters of the Phillips curve and of the Euler equations are varying. |
| Keywords: | New Keynesian model, Bayesian methods, Monetary policy, Great Inflation |
| JEL: | E52 E47 C53 |
| Date: | 2004–03 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:919&r=mac |
| By: | Canova, Fabio; Gambetti, Luca |
| Abstract: | This paper investigates the relationship between monetary policy and the changes experienced by the US economy using a small scale New Keynesian model. The model is estimated with Bayesian techniques and the stability of policy parameter estimates and of the transmission of policy shocks examined. The model fits well the data and produces forecasts comparable or superior to those of alternative specifications. The parameters of the policy rule, the variance and the transmission of policy shocks have been remarkably stable. The parameters of the Phillips curve and of the Euler equations are varying. |
| Keywords: | Bayesian methods; great inflation; monetary policy; New Keynesian model |
| JEL: | C53 E47 E52 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5467&r=mac |
| By: | Schmitt-Grohé, Stephanie; Uribe, Martín |
| Abstract: | This paper characterizes Ramsey-optimal monetary policy in a medium-scale macroeconomic model that has been estimated to fit well postwar US business cycles. We find that mild deflation is Ramsey optimal in the long run. However, the optimal inflation rate appears to be highly sensitive to the assumed degree of price stickiness. Within the window of available estimates of price stickiness (between 2 and 5 quarters) the optimal rate of inflation ranges from -4.2 percent per year (close to the Friedman rule) to -0.4 percent per year (close to price stability). This sensitivity disappears when one assumes that lump-sum taxes are unavailable and fiscal instruments take the form of distortionary income taxes. In this case, mild deflation emerges as a robust Ramsey prediction. In light of the finding that the Ramsey optimal inflation rate is negative, it is puzzling that most inflation-targeting countries pursue positive inflation goals. We show that the zero bound on the nominal interest rate, which is often cited as a rationale for setting positive inflation targets, is of no quantitative relevance in the present model. Finally, the paper characterizes operational interest-rate feedback rules that best implement Ramsey-optimal stabilization policy. We find that the optimal interest-rate rule is active in price and wage inflation, mute in output growth, and moderately inertial. |
| Keywords: | interest rate rules; nominal rigidities; Ramsey policy; real rigidities |
| JEL: | E52 E61 E63 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5424&r=mac |
| By: | Konstantinos Angelopoulos; Apostolis Philippopoulos; Vanghelis Vassilatos |
| Abstract: | This paper incorporates an uncoordinated struggle for extra fiscal favors into an otherwise standard Dynamic Stochastic General Equilibrium model. This reflects the popular belief that interest groups compete for privileged transfers and tax treatment at the expense of the general public interest, and so the aggregate economy stagnates. The model is calibrated to the euro area over the period 1980-2003. Our results show that rent-seeking competition can contribute to explaining the European macroeconomic experience. We also get quantitative evidence of the fraction of collected tax revenues grabbed by rent seekers. |
| Keywords: | rent seeking, fiscal policy, real business cycles |
| JEL: | E32 E62 H23 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1644&r=mac |
| By: | Fabio Canova; Luca Gambetti |
| Abstract: | This paper investigates the relationship between time variations in output and inflation dynamics and monetary policy in the US. There are changes in the structural coefficients and in the variance of the structural shocks. The policy rules in the 1970s and 1990s are similar as is the transmission of policy disturbances. Inflation persistence is only partly a monetary phenomena. Variations in the systematic component of policy have limited effects on the dynamics of output and inflation. Results are robust to alterations in the auxiliary assumptions. |
| Keywords: | Monetary policy, Inflation persistence, Transmission of shocks, Time varying coefficients structural VARs |
| JEL: | E52 E47 C53 |
| Date: | 2003–05 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:918&r=mac |
| By: | Canova, Fabio; Gambetti, Luca |
| Abstract: | This paper investigates the relationship between time variations in output and inflation dynamics and monetary policy in the US. There are changes in the structural coefficients and in the variance of the structural shocks. The policy rules in the 1970s and 1990s are similar as is the transmission of policy disturbances. Inflation persistence is only partly a monetary phenomena. Variations in the systematic component of policy have limited effects on the dynamics of output and inflation. Results are robust to alterations in the auxiliary assumptions. |
| Keywords: | inflation persistence; monetary policy; structural VARs; time varying coefficients; transmission of shocks |
| JEL: | C53 E47 E52 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5457&r=mac |
| By: | Kirsanova, Tatiana; Stehn, Sven Jari; Vines, David |
| Abstract: | This paper studies the interactions of fiscal and monetary policy when they stabilise a single economy against shocks in a dynamic setting. We assume that fiscal and monetary policies both stabilise the economy only by causing changes to aggregate demand. Our findings are as follows. If the both policymakers are benevolent, then the best outcome is achieved when the fiscal authority allows monetary policy to perform nearly all of the burden of stabilising the economy. If the monetary authorities are benevolent, but the fiscal authorities have distorted objectives, then a Nash equilibrium will result in large welfare losses: unilateral efforts by each authority to stabilise the economy will result in a rapid accumulation of public debt. However, if the monetary authorities are benevolent and the fiscal authorities have distorted objectives, but there is a regime of fiscal leadership, then the outcome will be very nearly as good as it is in the regime in which both policymakers are benevolent. |
| Keywords: | fiscal policy; macroeconomic stabilisation; monetary policy |
| JEL: | E52 E61 E63 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5464&r=mac |
| By: | Fabio Canova; Carlo Favero |
| Abstract: | We examine monetary policy in the Euro area from both theoretical and empirical perspectives. We discuss what theory tells us the strategy of Central banks should be and contrasts it with the one employed by the ECB. We review accomplishments (and failures) of monetary policy in the Euro area and suggest changes that would increase the correlation between words and actions; streamline the understanding that markets have of the policy process; and anchor expectation formation more strongly. We examine the transmission of monetary policy shocks in the Euro area and in some potential member countries and try to infer the likely effects occurring when Turkey joins the EU first and the Euro area later. Much of the analysis here warns against having too high expectations of the economic gains that membership to the EU and Euro club will produce. |
| Keywords: | Pillars, Communication, Transmission, EU newcomers |
| JEL: | C11 E12 E32 E62 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:922&r=mac |
| By: | Fabio Canova; Evi Pappa |
| Abstract: | We study whether and how fiscal restrictions alter the business cycle features of macrovariables for a sample of 48 US states. We also examine the ”typical” transmission properties of fiscal disturbances and the implied fiscal rules of states with different fiscal restrictions. Fiscal constraints are characterized with a number of indicators. There are similarities in second moments of macrovariables and in the transmission properties of fiscal shocks across states with different fiscal constraints. The cyclical response of expenditure differs in size and sometimes in sign, but heterogeneity within groups makes point estimates statistically insignificant. Creative budget accounting is responsible for the pattern. Implications for the design of fiscal rules and the reform of the Stability and Growth Pact are discussed. |
| Keywords: | Budget restrictions, Fiscal policy transmission, Policy Rules, Dynamic Panels |
| JEL: | E3 E5 H7 |
| Date: | 2004–03 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:926&r=mac |
| By: | Ryan R. Brady (United States Naval Academy) |
| Abstract: | Liquidity-constrained households who borrow heavily on credit cards may be an important propagation source for the transmission of monetary policy, through rising interest rates or through credit channels. However, credit card use also suggests that households are more liquid, which may dampen the propagation of monetary policy. In this paper I estimate non-linear impulse response functions for credit card data from 1990 to 2003 to monetary policy shocks. The data suggests that, 1) households in the aggregate are not liquidity-constrained, and 2) credit cards slow the propagation of monetary policy. |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:usn:usnawp:12&r=mac |
| By: | Fabio Canova |
| Abstract: | I study whether and how US shocks are transmitted to eight Latin American countries. US shocks are identified using sign restrictions and treated as exogenous with respect to Latin American economies. Posterior estimates for individual and average effects are constructed. US monetary shocks produce significant fluctuations in Latin America, but real demand and supply shocks do not. Floaters and currency boarders display similar output but different inflation and interest rate responses. The financial channel plays a crucial role in the transmission. US disturbances explain important portions of the variability of Latin American macrovariables, producing continental cyclical fluctuations and, in two episodes, destabilizing nominal exchange rate effects. Policy implications are discussed. |
| Keywords: | Shocks, inflation |
| Date: | 2003–05 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:925&r=mac |
| By: | Fabio Canova; Evi Pappa |
| Abstract: | We study whether and how fiscal restrictions alter the business cycle features macrovariables for a sample of 48 US states. We also examine the 'typical' transmission properties of fiscal disturbances and the implied fiscal rules of states with different fiscal restrictions. Fiscal constraints are characterized with a number of indicators. There are similarities in second moments of macrovariables and in the transmission properties of fiscal shocks across states with different fiscal constraints. The cyclical response of expenditure differs in size and sometimes in sign, but heterogeneity within groups makes point estimates statistically insignificant. Creative budget accounting is responsible for the pattern. Implications for the design of fiscal rules and the reform of the Stability and Growth Pact are discussed. |
| Keywords: | Business cycles, excessive debt, fiscal restrictions and US states |
| JEL: | E3 E5 H7 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:928&r=mac |
| By: | Fabio Canova; Evi Pappa |
| Abstract: | We study the effect of regional expenditure and revenue shocks on price differentials for 47 US states and 9 EU countries. We identify shocks using sign restrictions on the dynamics of deficits and output and construct two estimates for structural price differentials dynamics which optimally weight the information contained in the data for all units. Fiscal shocks explain between 14 and 23 percent of the variability of price differentials both in the US and in the EU. On average, expansionary fiscal disturbances produce positive price differential responses while distortionary balance budget shocks produce negative price differential responses. In a number of units, price differential responses to expansionary fiscal shocks are negative. Spillovers and labor supply effects partially explain this pattern while geographical, political, and economic indicators do not. |
| Keywords: | Price differentials, Fiscal policy, Monetary unions, Bayesian methods |
| JEL: | E3 E5 H7 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:923&r=mac |
| By: | Edvard Johansson; Petri Böckerman; Ritva Prättälä; Antti Uutela |
| Keywords: | alcohol mortality, drinking, business cycles |
| JEL: | E32 I12 R11 |
| Date: | 2005–06–17 |
| URL: | http://d.repec.org/n?u=RePEc:rif:dpaper:986&r=mac |
| By: | Bloise, Gaetano; Reichlin, Pietro |
| Abstract: | The fiscal theory of the price level asserts that the price level is determined by the ratio of outstanding public nominal debt into the present value of real primary budget surpluses of the government. We here argue that the logic of the fiscal theory fails when at least part of the public debt takes the form of securities of infinite maturity. Indeed, no equilibrium restriction prevents the occurrence of a speculative bubble on long-term public debt, so as to balance public budget intertemporally in the case of an unexpected increase in the price level. Thus, the price level is indeterminate. |
| Keywords: | fiscal policy; fiscal theory of the price level; indeterminacy; monetary policy; public debt |
| JEL: | E31 E42 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5479&r=mac |
| By: | Hughes Hallett, Andrew; Libich, Jan |
| Abstract: | The paper incorporates three institutional design features into a Kydland-Prescott, Barro-Gordon monetary policy game. It shows that goal-independence and goal-transparency (an explicit inflation target) at the central bank are substitute ‘commitment technologies’ that reduce inflation and build credibility. In addition, goal-transparency is shown to be socially superior as it also lowers public’s monitoring cost. Nevertheless, independent central bankers are less likely to embrace it if they perceive public scrutiny (accountability) as intrusive. Combining these findings implies that both goal-transparency and accountability will be negatively related to goal-independence for which we present empirical support using established indices. Our analysis further suggests that, to avoid an inferior equilibrium with opaque objectives and a ‘democratic deficit’, institutional reforms should follow the Bank of England scenario, in which an explicit inflation target is first legislated and only then instrument (but not goal) independence granted. |
| Keywords: | accountability; central bank independence; inflation targeting; monitoring; transparency |
| JEL: | C72 E52 E61 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5470&r=mac |
| By: | Jesús Rodríguez López (Universidad Pablo de Olavide de Sevilla); José Luis Torres Chacón (Universidad de Málaga) |
| Abstract: | This paper uses a combination of VAR and bootstrapping techniques to analyze whether the exchange rates of some New Member States of the EU have been used as output stabilizers (those of the Czech Republic, Hungary and Poland), during 1993-2004. This question is important because it provides prior insights on the costs and benefits from entering the European Monetary Union (EMU). For these countries, joining the EMU is not optional but mandatory, although there is not a definite deadline. Thereby, if the exchange rate works as a shock absorber, monetary independence could be retained for a longer period. Our main finding is that the exchange rate could be a stabilizing tool in Poland and the Czech Republic, although in Hungary it appears as a propagator of shocks. Also, in these three countries, demand and monetary shocks account for most of the variability in both nominal and real exchange rates. |
| Keywords: | EMU, exchange rate, Structural VAR, stationary bootstraps |
| JEL: | C31 F31 F33 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:cea:doctra:e2006_02&r=mac |
| By: | Fabio Canova |
| Abstract: | This paper examines the properties of G-7 cycles using a multicountry Bayesian panel VAR model with time variations, unit specific dynamics and cross country interdependences. We demonstrate the presence of a significant world cycle and show that country specific indicators play a much smaller role. We detect differences across business cycle phases but, apart from an increase in synchronicity in the late 1990s, find little evidence of major structural changes. We also find no evidence of the existence of an Euro area specific cycle or of its emergence in the 1990s. |
| Keywords: | Business cycle, G7, indicators, Panel Data, Bayesian methods |
| JEL: | C11 E32 |
| Date: | 2003–02 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:924&r=mac |
| By: | Baltasar Manzano; Carlos de Miguel; José Mª Martín Moreno |
| Abstract: | This paper analyzes the effects of oil price shocks on the business cycle of the EU-15 countries using a standard dynamic general equilibrium model for a small open economy in which oil is included as an imported productive input. The results show that oil shocks can account for a significant percentage of GDP fluctuations in many of those countries. Furthermore, we show that the increases in the relative price of oil had a negative effect on welfare, particularly in southern European countries, which are historically associated with a lax monetary policy during oil crisis. |
| URL: | http://d.repec.org/n?u=RePEc:fda:fdaeee:215&r=mac |
| By: | Petri Böckerman; Edvard Johansson; Satu Helakorpi; Ritva Prättälä; Erkki Vartiainen; Antti Uutela |
| Keywords: | overweight, business cycles, health |
| JEL: | E32 I12 R11 |
| Date: | 2004–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:rif:dpaper:928&r=mac |
| By: | Ceron, Jose A.; Suarez, Javier |
| Abstract: | This paper examines the experience of 14 developed countries for which there are about 30 years of quarterly inflation-adjusted housing price data. Price dynamics is modelled as a combination of a country-specific component and a cyclical component. The cyclical component is a two-state Markov switching process with parameters common to all countries. We find that the latent cyclical variable captures previously undocumented changes in the volatility of real housing price increases. These volatility phases are quite persistent (about six years, on average) and occur with about the same unconditional frequency over time. In line with previous studies, the mean of real housing price increases can be predicted to be larger when lagged values of those increases are large, real GDP growth is high, unemployment falls, and interest rates are low or have declined. Our findings have important implications for risk management in regard to residential property markets. |
| Keywords: | cycles; housing prices; Markov switching; volatility |
| JEL: | E32 G15 R31 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5411&r=mac |
| By: | Tony Cavoli (School of Economics, University of Adelaide, Australia); Ramkishen S. Rajan (School of Public Policy, George Mason University, VA, USA) |
| Abstract: | Since the Asian crisis it has been recognized that exchange rate and monetary policy strategies must involve a “fairly high” element of flexibility rather than a single-minded defense of a particular rate. One way this flexibility might be introduced is by a country adopting an open economy inflation targeting arrangement. This particular policy regime has been officially implemented in several Asian countries in recent years, but the normative implications of inflation targeting appear at times to be at odds with the requirements regarding exchange rate flexibility. This paper presents an analysis of some of the issues relevant to Asian central banks implementing an inflation targeting arrangement with specific focus on the role of the exchange rate. |
| Keywords: | Asia, exchange rate regime, inflation targeting arrangement, fear of floating, monetary policy rule, pass through |
| URL: | http://d.repec.org/n?u=RePEc:sca:scaewp:0603&r=mac |
| By: | Heijdra, Ben J.; Romp, Ward E. (Groningen University) |
| Abstract: | In this paper we construct an overlapping generations model for the small open economy incorporating a realistic description of the mortality process. With agedependent mortality, the typical life-cycle pattern of consumption and saving results from the maximizing behaviour of individual households. Our ?Blanchard-Yaari-Modigliani?model is used to analytically study a number of typical shocks affecting the small open economy, namely a balanced-budget public spending shock, a temporary Ricardian tax cut, and an interest rate shock. The demographic details matter a lot?both the impulse-response functions and the welfare profiles (associated with the different shocks) are critically affected by them. These demographic details furthermore do not wash out in the aggregate. The model is flexible and can be applied to a wide variety of theoretical and policy issues. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:rugsom:05c04&r=mac |
| By: | Aloisio Araujo; Mário R. Páscoa; Juan Pablo Torres-Martínez |
| Date: | 2006–01–24 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levarc:122247000000001055&r=mac |
| By: | Gürkaynak, Refet.S.; Wolfers, Justin |
| Abstract: | September 2002, a new market in 'Economic Derivatives' was launched allowing traders to take positions on future values of several macroeconomic data releases. We provide an initial analysis of the prices of these options. We find that market-based measures of expectations are similar to survey-based forecasts although the market-based measures somewhat more accurately predict financial market responses to surprises in data. These markets also provide implied probabilities of the full range of specific outcomes, allowing us to measure uncertainty, assess its driving forces, and compare this measure of uncertainty with the dispersion of point-estimates among individual forecasters (a measure of disagreement). We also assess the accuracy of market-generated probability density forecasts. A consistent theme is that few of the behavioural anomalies present in surveys of professional forecasts survive in equilibrium, and that these markets are remarkably well calibrated. Finally we assess the role of risk, finding little evidence that risk-aversion drives a wedge between market prices and probabilities in this market. |
| Keywords: | density forecasts; disagreement; economic derivatives; expectations; forecasting; macroeconomic surveys; prediction markets; surveys; uncertainty |
| JEL: | C5 C82 D8 E3 G14 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5466&r=mac |
| By: | Coricelli, Fabrizio; Horváth, Roman |
| Abstract: | The paper provides an empirical analysis of price setting behaviour in Slovakia, using large micro-level dataset covering about 57% of Slovak CPI for the period 1997-2001. The novelty of the paper is the analysis of a country characterized by nearly double-digit inflation and undergoing massive changes in market structure during the process of transition and accession to the EU. Several empirical findings stand out. Similarly to results on advanced market economies, we find that price changes are infrequent and sizeable. Moreover, the relationship between frequency and size of price changes is highly non-linear. Product-specific inflation is typically highly persistent. We find that market structure is an important determinant of pricing behaviour. The dispersion of prices is higher while persistence is lower in the non-tradable sectors, suggesting that higher competition in goods markets is not conducive to lower persistence. An important implication is that increasing market competition brought about by entry in the EU will not necessarily lead to lower persistence. By contrast, the increasing share of services in consumption will reduce persistence. Our results, together with the finding that the frequency of price changes depends negatively on the price dispersion and positively on the individual inflation, seems consistent with predictions of Calvo’s staggered price model. |
| Keywords: | inflation; inflation persistence; price dispersion; price stickiness; staggered price models |
| JEL: | D40 E31 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5445&r=mac |
| By: | Jyrki Lessig |
| Keywords: | business cycles, economic history, economic integration, gold Standard, optimal currency area, Sweden |
| Date: | 2005–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:rif:dpaper:975&r=mac |
| By: | Yu-Fu Chen; Michael Funke; Kadri Männasoo |
| Abstract: | Banking reform has proved to be one of the most problematic elements of economic transition in central and Eastern Europe. Therefore the paper considers the development of the Estonian banking sector and derives individual banks´ fragility scores during transition. To this end we use option-based tools and equity prices to estimate distance-to-default measures of banks´ distress probabilities. Overall, the results suggest that market indicators are moderately useful for anticipating future financial distress and rating changes in transition economies. The implication for an effective supervisory framework is to use a plurality of risk scores when assessing bank vulnerability. |
| Keywords: | banking, financial stability, bank fragility, options, Estonia |
| JEL: | E44 E58 G21 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1647&r=mac |
| By: | Bokan, Nikola; Hughes Hallett, Andrew |
| Abstract: | It is widely accepted that in order to improve the economic position of the EU relative to the USA certain structural reforms need to be undertaken, mainly in the labour market. However few EU countries have undertaken such reforms. The reason lies in the fact that those reforms are going to be costly in terms of economic performance, unemployment and hence the cost of financing them - at least in the short term. Blanchard and Giavazzi (2003) develop a model based on imperfect competition in both product and labour markets in order to show the impact of deregulation on the economy. However they do not consider the question of how to finance such reforms or overcome the short run costs, a key consideration if the short run costs are large relative to the long run gains. We extend their model by including the effects of another inevitable source of imperfections: distortionary taxation - not only the most likely candidate for reform, but also the most likely instrument for financing the restructuring process. By extending the model in this way we can establish formally that reforms imply significant short run costs as well as long run gains; that (political opposition apart) the financing of such reforms will be the main stumbling block. We come to a number of conclusions which reverse the Blanchard and Giavazzi results; and find that, in addition, the composition of the reform package matters, as does the distribution of the tax burden. This model therefore supplies new results on the design and sequencing of reforms. |
| Keywords: | short vs. long runs substitutability; structural reform; wage bargains |
| JEL: | E24 H23 J58 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5431&r=mac |
| By: | Kari Alho |
| Date: | 2004–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:rif:dpaper:914&r=mac |
| By: | Collard, Fabrice; Licandro, Omar; Puch, Luis |
| Abstract: | Differential equations with advanced and delayed time arguments may arise in the optimality conditions of simple growth models with delays. Models with delayed adoption of new technologies, habit formation or learning-by-using lie in this category. In this paper we present new insight on the role of advanced time arguments to mitigate the echo effects induced by lag structures. In so doing we use optimal control theory with delays, and we propose a shooting method to deal with leads and lags in the Euler system associated to dynamic general equilibrium models in continuous time. We implement these methods to solve for the short run dynamics of a neoclassical growth model with a simple time-to-build lag. |
| Keywords: | DDEs; delay; shooting method; time-to-build |
| JEL: | C63 E32 O40 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5414&r=mac |
| By: | Fedderke, Johannes W.; Bogetic, Zeljko |
| Abstract: | The authors use a panel-data set for the period 1980-2002 to estimate demand for electricity and telecommunications services and project investment needs in South Africa through 2010 for two growth scenarios. Projections of average annual investment needs in electricity and telecommunications for the current growth scenario (3.6 percent a year) are of the order of 0.2 percent and 0.75 percent of GDP, respectively. An alternative, accelerated growth scenario (6 percent a year) implies approximate doubling of investment needs in these sectors. |
| Keywords: | Economic Theory & Research,Investment and Investment Climate,Banks & Banking Reform,Pro-Poor Growth and Inequality,ICT Policy and Strategies |
| Date: | 2006–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3829&r=mac |
| By: | Fabio Canova; Luca Sala |
| Abstract: | We investigate identifiability issues in DSGE models and their consequences for parameter estimation and model evaluation when the objective function measures the distance between estimated and model impulse responses. We show that observational equivalence, partial and weak identification problems are widespread, that they lead to biased estimates, unreliable t-statistics and may induce investigators to select false models. We examine whether different objective functions affect identification and study how small samples interact with parameters and shock identification. We provide diagnostics and tests to detect identification failures and apply them to a state-of-the-art model. |
| Keywords: | Identification, minimum distance estimators, likelihood function, new keynesian models |
| JEL: | C1 C3 E3 |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:927&r=mac |
| By: | P N Smith; S Sorensen; M R Wickens |
| Abstract: | We examine the relation between US stock market returns and the US business cycle for the period 1960 - 2003 using a new methodology that allows us to estimate a time-varying equity premium. We identify two channels in the transmission mechanism. One is through the mean of stock returns via the equity risk premium, and the other is through the volatility of returns. We provide support for previous findings based on simple correlation analysis that the relation is asymmetric with downturns in the business cycle having a greater negative impact on stock returns than the positive effect of upturns. We also obtain a new result, that demand and supply shocks affect stock returns differently. Our model of the relation between returns and their volatility encompasses CAPM, consumption CAPM and Merton's (1973) inter-temporal CAPM. It is implemented using a multi-variate GARCH-in-mean model with an asymmetric time-varying conditional heteroskedasticity and correlation structure. |
| Keywords: | Equity returns, risk premium, asymmetry |
| JEL: | G12 C32 C51 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:06/04&r=mac |
| By: | Meijer, Erik; Gilbert, Paul D. (Groningen University) |
| Abstract: | Time series factor analysis (TSFA) and its associated statistical theory is developed. Unlike dynamic factor analysis (DFA), TSFA obviates the need for explicitly modeling the process dynamics of the underlying phenomena. It also differs from standard factor analysis (FA) in important respects: the factor model has a nontrivial mean structure, the observations are allowed to be dependent over time, and the data does not need to be covariance stationary as long as differenced data satisfies a weak boundedness condition. The effects on the estimation of parameters and prediction of the factors is discussed. The statistical properties of the factor score predictor are studied in a simulation study, both over repeated samples and within a given sample. Some apparent anomalies are found in simulation experiments and explained analytically. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:rugsom:05f10&r=mac |
| By: | Debapriya Bhattacharya; Uttam Kumar Deb |
| Abstract: | External factors such as export, import, remittances and foreign aid have always played important rolesto Bangladesh’s economy, though the relative importance of various external factors has changed over time. This study has analysed the trend, structure and changing features of the external sector of Bangladesh. Based on the past performance and changes in the global economy, the study has projected the growth prospect and likely behaviour of Bangladesh’s external sector under three scenarios: (i) optimistic scenario (8% GDP growth per annum), (ii) business as usual scenario (6% GDP growth per annum), and (iii) base case scenario (4% GDP growth per annum). Under these three scenarios, the study has projected the level of total GDP and per capita GDP of Bangladesh till FY2020. Projections are made about the required level of exports, imports, remittances, foreign aid and foreign investment to attain a consistent GDP growth at the rate of 4%, 6% and 8% up to the year 2020. The paper has also put forward the implications of the findings for policies related to the external sector of Bangladesh. The paper suggests that Bangladesh needs a steady growth based on foreign investment, service income and trade. The report adds that future growth of Bangladesh will depend on promoting export, sustaining remittances, and triggering export. Bangladesh will require a breakthrough in the performance of the external sector. According to the report, the key to the breakthrough lies in effective integration of Bangladesh’s economy with the global economy which will ultimately depend on the ability of political leadership to undertake necessary policy reforms and institution building measures. |
| Keywords: | External Sector,Growth, Bangladesh |
| JEL: | E61 H60 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:pdb:opaper:56&r=mac |
| By: | Danthine, Jean-Pierre; Donaldson, John B; Siconolfi, Paolo |
| Abstract: | In this paper we entertain the hypothesis that observed variations in income shares are the result of changes in the balance of power between workers and capital owners in labour relations. We show that this view implies that income share variations represent a risk factor of first-order importance for the owners of capital and, consequently, are a crucial determinant of the return to equity. When both risks are calibrated to observations, this distribution risk dominates in importance the usual systematic risk for the pricing of assets. We also show that distribution risks may originate in non-traded idiosyncratic income shocks. |
| Keywords: | distribution risk; equity premium; income shares; limited market participation |
| JEL: | E3 G1 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5425&r=mac |