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on Macroeconomics |
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Issue of 2006‒06‒24
85 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | Eva Ortega; Nooman Rebei |
| Abstract: | The authors analyze the welfare implications of simple monetary policy rules in the context of an estimated model of a small open economy for Canada with traded and non-traded goods, and with sticky prices and wages. They find statistically significant heterogeneity in the degree of price rigidity across sectors. They also find welfare gains in targeting only the non-traded-goods inflation, since prices are found to be more sticky in this production sector, but those gains come at the cost of substantially increased aggregate volatility. The authors look for the welfare-maximizing specification of an interest rate reaction function that allows for a specific price-level target. They find, however, that, overall, the higher welfare is achieved, given the estimated model for the Canadian economy, with a strict inflation-targeting rule where the central bank reacts to the next period's expected deviation from the inflation target and does not target the output gap. |
| Keywords: | Economic models; Exchange rates; Inflation targets |
| JEL: | E31 E32 E52 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:06-12&r=mac |
| By: | George W. Evans (University of Oregon Economics Department); Bruce McGough (Oregon State University) |
| Abstract: | We consider optimal monetary policy in New Keynesian models with inertia. First order conditions, which we call the MJB-alternative, are found to improve upon the timeless perspective. The MJB-alternative is shown to be the best possible in the sense that it minimizes policymakers' unconditional expected loss, and further, it is numerically found to offer significant improvement over the timeless perspective. Implementation of the MJB-alternative is considered via construction of interest-rate rules that are consistent with its associated unique equilibrium. Following Evans and Honkapohja (2004), an expectations based rule is derived that always yields a determinate model and an E-stable equilibrium. Further, the "policy manifold" of all interest-rate rules consistent with the MJB-alternative is classified, and open regions of this manifold are shown to correspond to indeterminate models and unstable equilibria. |
| Keywords: | Monetary Policy, Taylor Rules, Indeterminacy, E-stability |
| JEL: | E52 E32 D83 D84 |
| Date: | 2006–06–03 |
| URL: | http://d.repec.org/n?u=RePEc:ore:uoecwp:2006-5&r=mac |
| By: | Marc-André Gosselin; René Lalonde |
| Abstract: | The analysis and forecasting of developments in the U.S. economy have always played a critical role in the formulation of Canadian economic and financial policy. Thus, the Bank places considerable importance on generating internal forecasts of U.S. economic activity as an input to the Canadian projection. Over the past year, Bank staff have been using a new macroeconometric model, MUSE (Model of the U.S. Economy). The model is a system of estimated equations that describe, in a stock-flow framework, the interactions among the principal macroeconomic variables, such as gross domestic product (GDP), inflation, interest rates, and the exchange rate. The stock-flow equilibrium is fully described in MUSE. In steady state, the model defines specific values for all stocks, including capital stock, government debt, financial wealth, and net foreign assets. In MUSE, most behavioural equations are governed by a polynomial adjustment cost (PAC) structure. This approach is widely used in the U.S. Federal Reserve Board's FRB/US model. By allowing for lags in the dynamic equations in the context of forward-looking rational expectations, the PAC approach strikes a balance between theoretical structure and forecasting accuracy. MUSE, therefore, makes an explicit distinction between dynamic movements caused by changes in expectations and those caused by adjustment costs. Moreover, GDP is decomposed into household expenditures, business investment, government spending, exports, and imports. Hence, MUSE can be used to predict the consequences of a wide variety of shocks to the U.S. economy. |
| Keywords: | Economic models; Business fluctuations and cycles |
| JEL: | E37 C53 E17 E27 F17 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocatr:96&r=mac |
| By: | Petra Geraats (Faculty of Economics, University of Cambridge, Cambridge) |
| Abstract: | Despite the recent trend towards greater transparency of monetary policy, in many respects mystique still prevails in central bank speak. This paper shows that the resulting perception of ambiguity could be desirable. Under the plausible assumption of imperfect common knowledge about the degree of central bank transparency, economic outcomes are affected by both the actual and perceived degree of transparency. It is shown that actual transparency is beneficial while it may be useful to create the perception of opacity. The optimal communication strategy for the central bank is to provide clarity about the inflation target and to communicate information about the output target and supply shocks with perceived ambiguity. In this respect, the central bank benefits from sustaining transparency misperceptions, which helps to explain the mystique of central bank speak. |
| Keywords: | Transparency, monetary policy, communication |
| JEL: | E52 E58 D82 |
| Date: | 2006–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:onb:oenbwp:123&r=mac |
| By: | John Bluedorn; Christopher Bowdler |
| Abstract: | We characterize the channels by which a failure to distinguish intended/unintended and anticipated/unanticipated monetary policy may lead to attenuation bias in monetary policy`s open economy effects. Using a U.S. monetary policy measure which isolates the intended and unanticipated component of federal funds rate changes, we quantify the magnitude of the attenuation bias for the exchange rate and foreign variables, finding it to be substantial. The exchange rate appreciation following a monetary contraction is up to 4 times larger than a recursively-identified VAR estimate. There is stronger evidence of foreign interest rate pass-through. The expenditure-reducing effects of a U.S. monetary policy contraction dominate any expenditure-switching effects, leading to a positive conditional correlation of international outputs and prices. |
| Keywords: | Open economy monetary policy identification, Exchange rate adjustment, Interest rate pass-through |
| JEL: | E52 F31 F41 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:265&r=mac |
| By: | Tatiana Damjanovic; Vladislav Damjanovic; Charles Nolan |
| Abstract: | We develop a simple and intuitive procedure to derive analytically the unconditionally optimal (UO) policy in a general linear-quadratic setup, a perspective stressed by Taylor (1979) and Whiteman (1986). We compare the UO perspective on optimal monetary policy with the timeless perspective and policy based on minimizing conditional discounted losses. We use our approach in simple backward and forward-looking models and conclude that the UO perspective is worthy of renewed interest. |
| Keywords: | Time consistency, unconditional expectation, timeless perspective, optimal policy. |
| JEL: | E20 E32 F32 F41 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmawp:0606&r=mac |
| By: | René Lalonde; Nicolas Parent |
| Abstract: | In the United States, the Federal Reserve has a dual mandate of promoting stable inflation and maximum employment. Since the Fed directly controls only one instrument-the federal funds rate-the authors argue that the Fed's priorities continuously alternate between inflation and economic activity. In this paper, the authors assume that the effective weights put by the Fed on different indicators vary over time. To test this assumption, they estimate a monetary policy priority index by adding non-linear endogenous weights to a conventional Taylor-type rule. |
| Keywords: | Monetary policy framework; Monetary policy implementation; Econometric and statistical methods |
| JEL: | C22 C52 E52 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:06-11&r=mac |
| By: | Greg Hannsgen |
| Abstract: | The Gibson paradox, long observed by economists and named by John Maynard Keynes (1936), is a positive relationship between the interest rate and the price level. This paper explains the relationship by means of interest-rate, cost-push inflation. In the model, spending is driven in part by changes in the rate of interest, and the central bank sets the interest rate using a policy rule based on the levels of output and inflation. The model shows that the cost-push effect of inflation, long known as GibsonÕs paradox, intensifies destabilizing forces and can be involved in the generation of cycles. |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_448&r=mac |
| By: | Ali Dib; Mohamed Gammoudi; Kevin Moran |
| Abstract: | The authors document the out-of-sample forecasting accuracy of the New Keynesian model for Canada. They estimate their variant of the model on a series of rolling subsamples, computing out-of-sample forecasts one to eight quarters ahead at each step. They compare these forecasts with those arising from simple vector autoregression (VAR) models, using econometric tests of forecasting accuracy. Their results show that the forecasting accuracy of the New Keynesian model compares favourably with that of the benchmarks, particularly as the forecasting horizon increases. These results suggest that the model could become a useful forecasting tool for Canadian time series. The authors invoke the principle of parsimony to explain their findings. |
| Keywords: | Business fluctuations and cycles; Economic models; Econometric and statistical methods |
| JEL: | E32 E37 C12 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:06-4&r=mac |
| By: | FÈVE, Patrick; GUAY, Alain |
| JEL: | C32 E32 |
| Date: | 2006–02 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:5360&r=mac |
| By: | Marek Jarocinski (Universitat Pompeu Fabra, Barcelona and CASE - Center for Social and Economic Research, Warsaw) |
| Abstract: | This paper compares responses to monetary shocks in the EMU countries (in the pre-EMU sample) and in the New Member States (NMS) from Central Europe. The small-sample problem, especially acute for the NMS, is mitigated by using a Bayesian estimation procedure which combines information across countries. A novel identification scheme for small open economies is used. The estimated responses are quite similar across regions, but there is some evidence of more lagged, but ultimately stronger price responses in the NMS economies. This contradicts the common belief that monetary policy is less effective in post-transition economies, because of their lower financial development. NMS also have a probably lower sacrifice ratio, which is consistent with the predictions of both the imperfect information model of Lucas (1973) and the New-Keynesian model of Ball et al. (1988). |
| Keywords: | monetary policy transmission, Structural VAR, Bayesian estimation, exchangeable prior |
| JEL: | C11 C15 C33 E40 E52 |
| Date: | 2006–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:onb:oenbwp:124&r=mac |
| By: | Richhild Moessner |
| Abstract: | The existence of and uncertainty about structural change in the economy are important features facing policymakers. This paper considers the implications for policy design of uncertainty about structural change, modelling the time variation in parameters of forward-looking models as Markov processes. We extend an algorithm of Backus and Driffill for optimal discretionary policy in rational expectations models to the case with Markov switching in model parameters. As an illustration, we apply our method to determine the optimal monetary policy solution in the presence of structural changes in intrinsic output persistence, within a hybrid New Keynesian model estimated for the euro area. We find that the coefficients of the optimal policy rule are state-dependent, and depend non-linearly on the transition probabilities between states with different values of intrinsic output persistence. |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:299&r=mac |
| By: | Paul D. Gilbert; Erik Meijer |
| Abstract: | The authors introduce new measures of important underlying macroeconomic phenomena that affect the financial side of the economy. These measures are calculated using the time-series factor analysis (TSFA) methodology introduced in Gilbert and Meijer (2005). The measures appear to be both more interesting and more robust to the effects of financial innovations than traditional aggregates. The general ideas set out in Gilbert and Pichette (2003) are pursued, but the improved estimation methods of TSFA are used. Furthermore, four credit aggregates are added to the components of the monetary aggregates, resulting in the possibility of extracting more common factors. |
| Keywords: | Credit and credit aggregates; Monetary aggregates; Econometric and statistical methods |
| JEL: | E51 C43 C82 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:06-3&r=mac |
| By: | Andrew P Blake; Fabrizio Zampolli |
| Abstract: | In this paper we consider the optimal control problem of models with Markov regime shifts and forward-looking agents. These models are very general and flexible tools for modelling model uncertainty. An algorithm is devised to compute the solution of a linear rational expectations model with random parameters or regime shifts. This algorithm can also be applied in the optimisation of any arbitrary instrument rule. A second algorithm computes the time-consistent policy and the resulting Nash-Stackelberg equilibrium. Similar methods can be easily employed to compute the optimal policy under commitment. Furthermore, the algorithms can also handle the case in which the policymaker and the private sector hold different beliefs. We apply these methods to compute the optimal (non-linear) monetary policy in a small open economy subject to random structural breaks in some of its key parameters. |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:298&r=mac |
| By: | Tracy Chan; Ramdane Djoudad; Jackson Loi |
| Abstract: | Financial innovations and the removal of the reserve requirements in the early 1990s have made the distinction between demand and notice deposits arbitrary. This classification issue has affected those narrow monetary aggregates (gross and net M1) that rely on a proper distinction for their definition, and may have eroded their value as indicators. The authors examine whether the indicator properties of various narrow aggregates for the growth of real output have changed over time. They find evidence of a regime shift in the relationship between real and narrow monetary aggregates and the growth of real output, which seems to have occurred in 1992. More specifically, their results show that real M1+, the definition of which is not based on the distinction between demand and notice deposits, has become a more useful indicator in predicting the growth of real output over the more recent period. |
| Keywords: | Monetary aggregates |
| JEL: | E40 E42 E50 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:06-6&r=mac |
| By: | Aloisio Pessoa de Araújo (EPGE/FGV); Mario R. Páscoa; Juan Pablo Torres-Martínez |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:fgv:epgewp:614&r=mac |
| By: | Lynda Khalaf; Maral Kichian |
| Abstract: | The authors address empirically the implications of structural breaks in the variance-covariance matrix of inflation and import prices for changes in pass-through. They define pass-through within a correlated vector autoregression (VAR) framework as the response of domestic inflation to an impulse in import price inflation. This approach allows them to examine changes in both the amount and the duration of pass-through. |
| Keywords: | Econometric and statistical methods |
| JEL: | F40 F31 C52 E31 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:06-2&r=mac |
| By: | Guerrero, Carlos (Tecnológico de Monterrey, Campus Ciudad de México); Osorio, Paulina; Tiol, Arianna |
| Keywords: | Phillips curve, Mexico, curva de Phillips |
| JEL: | C2 E24 E12 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:ega:docume:200603&r=mac |
| By: | Gonzalo Llosa (Central Bank of Peru); Shirley Miller (Central Bank of Peru) |
| Abstract: | Uno de los elementos claves para el régimen de metas de inflación es la correcta identificación de las presiones inflacionarias y deflacionarias a través de la brecha producto. En este trabajo brindamos una estimación de la brecha producto para la economía peruana utilizando un modelo multivariado de componentes no observados (MUC), el cual se basa en una relación explícita de corto plazo entre la inflación y la brecha producto (Curva de Phillips) y restricciones estructurales sobre la dinámica del producto. Los resultados muestran que el estimado MUC de la brecha producto es menos sensible al problema de fin de muestra y exhibe una dinámica más cercana al proceso de inflación que las brechas estimadas a partir de metodologías estándares. |
| Keywords: | Brecha producto, Inflación, Modelo de componentes no observados |
| JEL: | E32 E31 C51 C52 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:rbp:wpaper:2005-0041&r=mac |
| By: | Nadja Kamhi |
| Abstract: | Operational events in the Large Value Transfer System (LVTS) almost always result in a disturbance of the regular flow of payments. The author explores the link between payment flows and the overnight interest rate. She also explores the way that payments system frictions affect the overnight interest rate. Payments system frictions arise because LVTS participants lack full information on their own payment flows and those of others. This uncertainty diminishes as the final end-of-day settlement nears. By borrowing earlier in the day in the overnight market, however, participants can insure against being short at the final end-of-day settlement. The author first develops a general framework describing the role that payment flows and payments system frictions have on the overnight rate and then empirically tests the implications of this model. She finds that LVTS payment flows are an important determinant of pressure on the overnight interest rate. |
| Keywords: | Payment, clearing, and settlement systems; Monetary policy implementation |
| JEL: | E5 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:06-15&r=mac |
| By: | Pedro Cavalcanti Gomes Ferreira (EPGE/FGV); Carlos Hamilton Vasconcelos Araújo (Banco Central do Brasil) |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:fgv:epgewp:613&r=mac |
| By: | Zagaglia, Paolo (Dept. of Economics, Stockholm University) |
| Abstract: | Yes, but only at short horizons from 1 to 3 quarters over the full post-World War II sample. The predictive relation between the yield spread and the output gap is characterized by parameter instability. Differently from the predictive models of the yield spread for output growth, structural instability is not due to a loss of predictive ability after 1985. Rather, the predictive relation estimated on post-1985 data holds for a range of horizons larger than for pre-1985 data. I also show that the information on current monetary policy is statistically irrelevant for the prediction of the output gap over the post-1985 subsample. |
| Keywords: | output gap; yield spread; predictability |
| JEL: | E27 E43 |
| Date: | 2006–05–08 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sunrpe:2006_0005&r=mac |
| By: | Urban Jermann; Vincenzo Quadrini |
| Abstract: | The volatility of US business cycle has declined during the last two decades. During the same period the financial structure of firms has become more volatile. In this paper we develop a model in which financial factors play a key role in generating economic fluctuations. Innovations in financial markets allow for greater financial flexibility and generate a lower volatility of output together with a higher volatile in the financial structure of firms. |
| JEL: | E3 G1 G3 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12308&r=mac |
| By: | Mustafa Caglayan and Feng Jiang |
| Abstract: | In this paper, given recent theoretical developments that inflation can exhibit long memory properties due to the output growth process, we propose a new class of bivariate processes to simultaneously investigate the dual long memory properties in the mean and the conditional variance of inflation and output growth series. We estimate the model using monthly UK data and document the presence of dual long memory properties in both series. Then, using the conditional variances generated from our bivariate model, we employ Granger causality tests to scrutinize the linkages between the means and the volatilities of inflation and output growth. |
| JEL: | C32 E31 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2006_8&r=mac |
| By: | Gino Cateau |
| Abstract: | How can policy-makers avoid large policy errors when they are uncertain about the true model of the economy? The author discusses some recent approaches that can be used for that purpose under two alternative scenarios: (i) the policy-maker has one reference model for choosing policy but cannot take a stand as to how that model is misspecified, and (ii) the policy-maker, being uncertain about the economy's true structure, entertains multiple distinct models of the economy. The author shows how these approaches can be implemented in practice using as benchmark models simplified versions of Fuhrer and Moore (1995) and Christiano, Eichenbaum, and Evans (2005). |
| Keywords: | Uncertainty and monetary policy |
| JEL: | E5 E58 D8 D81 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:06-13&r=mac |
| By: | Christopher M. Cornell; Raphael H. Solomon |
| Abstract: | Suppose that the dynamics of the macroeconomy were given by (partly) random fluctuations between two equilibria: "good" and "bad." One would interpret currency crises (or recessions) as a shift from the good equilibrium to the bad. In this paper, the authors specify a dynamic investment-savings-aggregate-supply (IS-AS) model, determine its closed-form solution, and examine numerically its comparative statics. The authors estimate the model via maximum likelihood, using data for Argentina, Canada, and Turkey. Since the data show no support for the multiple-equilibrium explanation of fluctuations, the authors cast doubt on the third-generation models of currency crisis. |
| Keywords: | Uncertainty and monetary policy |
| JEL: | C62 E59 F41 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:06-5&r=mac |
| By: | Gregory de Walque (National Bank of Belgium, Research Department); Frank Smets (ECB, CEPR and University of Ghent); Raf Wouters (National Bank of Belgium, Research Department) |
| Abstract: | This paper compares the Calvo model with a Taylor contracting model in the context of the Smets-Wouters (2003) Dynamic Stochastic General Equilibrium (DSGE) model. In the Taylor price setting model, we introduce firm-specific production factors and discuss how this assumption can help to reduce the estimated nominal price stickiness. Furthermore, we show that a Taylor contracting model with firm-specific capital and sticky wage and with a relatively short price contract length of four quarters is able to outperform, in terms of empirical fit, the standard Calvo model with homogeneous production factors and high nominal price stickiness. In order to obtain this result, we need very large real rigidities either in the form of a huge (constant) elasticity of substitution between goods or in the form of an elasticity of substitution that is endogenous and very sensitive to the relative price. |
| Keywords: | Inflation persistence, DSGE models |
| JEL: | E1 E3 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbb:reswpp:200606-1&r=mac |
| By: | Bruce T. Grimm (Bureau of Economic Analysis) |
| Abstract: | The paper looks at the 10 recessions since World War II, and compares them to both monthly and quarterly indicators of general economic activity. It finds that four monthly measures emphasized by the NBER’s dating committee do not fully agree with the official peak and trough months, but that—as a group—they are in good agreement. Likewise, quarterly estimates of both real GDP and real GDI do not fully agree with all peak and trough quarters, or with each other. Nevertheless, together they are in general agreement with the official peaks and troughs. |
| JEL: | E60 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:bea:wpaper:0024&r=mac |
| By: | Filippo Occhino (Department of Economics, Rutgers University, New Brunswick.); Kim Oosterlinck (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels.); Eugène N. White (Department of Economics, Rutgers University, New Brunswick.) |
| Abstract: | The occupation payments made by France to Nazi Germany between 1940 and 1944 represent one of the largest recorded international transfers and contributed significantly to financing the overall German war effort. Using a neoclassical growth model that incorporates essential features of the occupied economy and the postwar stabilization, we assess the welfare costs of French policies that funded payments to Germany. Occupation payments required a 16 percent reduction of consumption for twenty years, with the draft of labor to Germany and wage and price controls adding substantially to this burden. Vichy’s postwar debt overhang would have demanded large budget surpluses; but inflation, which erupted after Liberation, reduced the debt well below its steady state level and redistributed the adjustment costs. The Marshall Plan played only a minor direct role, and international credits helped to substantially lower the nation’s burden. |
| Keywords: | World War Two, France, Macroeconomy, Economic History, Exploitation. |
| JEL: | E1 E6 N1 N4 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:06-012&r=mac |
| By: | C. Sardoni |
| Abstract: | Some have argued that a significant decrease in the demand for money, due to financial innovations, could imply that central banks are unable to implement effective monetary policies. This paper argues that central banks are always able to influence the economyÕs interest rates, because their liability is the economyÕs unit of account. In this sense, central banks Òrule the roost.Ó In the 1930s, starting from KeynesÕs ideas and referring to money in general, Kaldor had followed a similar line of analysis. In principle, a new unit of account could displace conventional money and, hence, central banks. But this process meets relevant obstacles, which essentially derive from the externalities and network effects that characterize money. Money is a Òsocial relation.Ó Money and central banks are the outcome of complex social and economic processes. Their displacement will occur through equally complex processes, rather than through mere innovation. |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_457&r=mac |
| By: | Sebastian Edwards (University of California, Los Angeles and National Bureau of Economic Research) |
| Abstract: | During the last few years there has been a renewed analysis in currency unions as a form of monetary arrangement. This new interest has been largely triggered by the Euro experience. Scholars and policy makers have asked about the optimal number of currencies in the world economy. They have analyzed whether different countries satisfy the traditional “optimal currency area” criteria. These include: (a) the synchronization of the business cycle; (b) the degree of factor mobility; and (c) the extent of trade and financial integration. In this paper I analyze the desirability of a monetary union from a Latin American perspective. First, I review the existing literature on the subject. Second, I use a large data set to analyze the evidence on economic performance in currency union countries. I investigate these countries’ performance on four dimensions: (a) whether countries without a national currency have a lower occurrence of “sudden stop” episodes; (b) whether they have a lower occurrence of “current account reversal” episodes; (c) what is their ability to absorb international terms of trade shocks; and (d) what is their ability to absorb “sudden stops” and “current account reversals” shocks. I find that belonging to a currency union does not lower the probability of facing a sudden stop or a current account reversal. I also find that external shocks are amplified in currency union countries. The degree of amplification is particularly large when compared to flexible exchange rate countries. |
| Date: | 2006–05–06 |
| URL: | http://d.repec.org/n?u=RePEc:onb:oenbwp:126&r=mac |
| By: | Paul Castillo (Central bank of Peru); Carlos Montoro (Central bank of Peru); Vicente Tuesta (Central bank of Peru) |
| Abstract: | Con la adopción del esquema de Metas Explicitas de Inflación por un gran grupo de bancos centrales, la estimación de una métrica de la posición de la política monetaria se ha convertido en un tema de interés permanente para académicos, analistas económicos y para los propios bancos centrales. Al respecto, la brecha entre la tasa de interés de corto plazo, que sirve de instrumento de política monetaria y la Tasa Natural de Interés estimada (TNI) -definida esta última como aquella tasa de interés real consistente con la estabilidad de precios en ausencia de fricciones nominales-, se utiliza como indicador de la posición de la política monetaria. En este documento se estima la TNI para la economía peruana. Para ello se implementa la metodología basada en la aplicación del Filtro de Kalman a un modelo semi-estructural de economía abierta y pequeña con data para el Perú correspondiente al periodo 1994-2005. Los resultados muestran una reducción persistente de la TNI en el Perú a partir de 1999, asociada a una mejora de los términos de intercambio y a una reducción de las tasas de interés internacional. Asimismo, la estimación muestra que el impulso monetario habría sido positivo entre 1994 y 1997, negativo entre 1998 y el 2001, y ligeramente positivo para el periodo 2002-2005. Finalmente, el ejercicio de descomposición de varianza de la fluctuación del indicador de la posición de la política monetaria indica que el 24 por ciento de las fluctuaciones en ésta, se explicarían por variaciones en la TNI. Así, de no considerarse una TNI cambiante en el tiempo, la medición de la posición de política monetaria sería menos precisa. |
| Keywords: | Tasa Natural de Interés, Filtro de Kalman, Política Monetaria, Perú. |
| JEL: | E43 E47 E52 F41 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:rbp:wpaper:2006-003&r=mac |
| By: | Don Harding; Adrian Pagan |
| Abstract: | We describe different ways of measuring the business cycle. Insti- tutions such as the NBER, OECD and IMF do this through locating the turning points in series taken to represent the aggregate level of economic activity. The turning points are determined according to rules that either come from a parametric model or are non-parametric. Once located information can be extracted on cycle characteristics. We also distinguish cases where a single or multiple series are used to represent the level of activity. |
| JEL: | E32 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:mlb:wpaper:966&r=mac |
| By: | L. Randall Wray |
| Abstract: | In the mid to late 1980s, the U.S. economy simultaneously producedÑfor the first time in the postwar periodÑhuge federal budget deficits as well as large current account deficits, together known as the Òtwin deficitsÓ (Blecker 1992; Rock1991). This generated much debate and hand-wringing, most of which focused on supposed Òcrowding-outÓ effects (Wray 1989). Many claimed that the budgetdeficit was soaking up private saving, leaving too little for domestic investment, and that the ÒtwinÓ current account deficit was soaking up foreign saving. The result would be higher interest rates and thus lower economic growth, as domestic spendingÑespecially on business investment and real estate construction was depressed. Further, the government debt and foreign debt would burden future generations of Americans, who would have to make interest payments and eventually retire the debt. The promulgated solution was to promote domestic saving by cutting federal government spending and private consumption (Rock 1991; Council of Economic Advisers 2006). Many pointed to JapanÕs high personal saving rates as a model of the proper way to run an economy. |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:lev:levypn:06-3&r=mac |
| By: | Tim Congdon |
| Abstract: | |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:fmg:fmgsps:sp166&r=mac |
| By: | Guido W. Imbens (Harvard University and NBER); Lisa M. Lynch (Tufts University, NBER and IZA Bonn) |
| Abstract: | Using a Cox proportional hazard model that allows for a flexible time dependence in order to incorporate business cycle effects, we analyze the determinants of reemployment probabilities of young workers in the U.S. from 1978-1989. We find considerable changes in the chances of young workers finding jobs over the business cycle despite the fact that personal characteristics of those starting jobless spells do not vary much over time. Therefore, government programs that target specific demographic groups may change individuals’ positions within the queue of job seekers, but may only have a more limited impact on average re-employment probabilities. Living in an area with high local unemployment reduces re-employment chances as does being in a long spell of nonemployment. However, the damage associated with being in a long spell seems to be reduced somewhat if a worker is unemployed in an area with high overall unemployment. |
| Keywords: | unemployment, duration dependence, business cycle |
| JEL: | E24 E32 J2 J6 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2167&r=mac |
| By: | Adam Copeland; George Hall (Bureau of Economic Analysis) |
| Abstract: | We determine empirically how the Big Three automakers accommodate shocks to demand. They have the capability to change prices, alter labor inputs through temporary layoffs and overtime, or adjust inventories. These adjustments are interrelated, non-convex, and dynamic in nature. Combining weekly plant-level data on production schedules and output with monthly data on sales and transaction prices, we estimate a dynamic profit-maximization model of the firm. Using impulse response functions, we demonstrate that when an automaker is hit with a demand shock, sales respond immediately, prices respond gradually, and production responds only after a delay. The size of the immediate sales response is linear in the size of the shock, but the delayed production response is non-convex in the size of the shock. For sufficiently large shocks the cumulative production response over the product cycle is an order of magnitude larger than the cumulative price response. These results stand in contrast to most formal analysis of the automobile industry, which has focused on production or price adjustment and assumed the other variable was fixed. We examine two recent demand shocks: the Ford Explorer/Firestone tire recall of 2000, and the September 11, 2001 terrorist attacks. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bea:wpaper:0031&r=mac |
| By: | Eric Tymoigne |
| Abstract: | The paper reviews the current literature on the subject in both the New Consensus and the Post Keynesian framework. It shows that both approaches give to central banks a wrong goal (inflation, distribution, curbing speculation, etc.) and a wrong instrument (interest rate rule). The paper claims that central banks should focus their attention on maintaining financial stability and leave other problems to public institutions better suited for this task. In doing so they should develop new tools of intervention and leave policy interest rates unchanged, close to or at zero percent. Central banks have been created to deal with financial matters (government finance and financial stability) and should stick to this. Central banks, then, have a large amount of improvements to make, both as reformers and as guides for the financial community. Their main instrument should be an analysis of the financial fragility of the financial system and of the different economic sectors. In this context, it is shown that the notion of ÒbubbleÓ does not matter for policy purposes, and that the current regulatory system lacks an institution that is able to deal effectively with solvency crisis. |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_456&r=mac |
| By: | Rubens Penha Cysne (EPGE/FGV) |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:fgv:epgewp:612&r=mac |
| By: | Hans Genberg (Executive Director (Research), Hong Kong Monetary Authority) |
| Abstract: | Financial integration in Ease Asia is actively being pursued and will in due course lead to substantial mobility of capital between economies in the region. Plans for monetary cooperation as a prelude to monetary integration and ultimately monetary unification are also proposed. These plans often suggest that central banks should adopt some form of common exchange rate policy in the transition period towards full monetary union. This paper argues that this is a dangerous path in the context of highly integrated financial markets. An alternative approach is proposed where independent central banks coordinate their monetary policies through the adoption of common objectives and by building an appropriate institutional framework. When this coordination process has progressed to the point where interest rate developments are similar across the region, and if in the meantime the required institutional infrastructure has been build, the next step towards monetary unification can be taken among those central banks that so desire. The claim is that this transition path is likely to be robust and will limit the risk of currency crises. |
| Date: | 2006–05–05 |
| URL: | http://d.repec.org/n?u=RePEc:onb:oenbwp:122&r=mac |
| By: | Alexander Ueberfeldt |
| Abstract: | From 1870 to 2000, the workweek length of employed persons decreased by 41 per cent in industrialized countries. The employment rate, employment per working age person, displays large movements but no clear secular pattern. This motivated the question: What accounts for the large decrease in the workweek length and developments in the employment rate over the past 130 years? The answer is given in a dynamic general-equilibrium model with supervisory and production workers. Over time, both types of workers become more productive. In a calibrated version of the model, productivity gains of supervisors account for a large fraction of the decline in the workweek length in Japan, the United Kingdom, and the United States. The model, augmented to include taxes, government spending, and technological progress, captures the movement in the employment rates of the three countries. |
| Keywords: | Economic models; Labour markets; Productivity |
| JEL: | E13 E24 O11 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:06-18&r=mac |
| By: | Stephan Klasen (Universität Göttingen) |
| Abstract: | In this paper, we analyze the potential and limitations of macroeconomic policy to affect propoor growth in Bolivia. After discussing the possibility to use macro policy to affect pro-poor growth in general, I then turn to the case of Bolivia, a highly dualistic small open economy that undertook significant macroeconomic and structural reforms in the 1990s. We show that the growth these reforms generated was generally pro-poor in the 1990s but was not enough to achieve significant poverty reduction due to high levels of initial inequality. It also made the country more vulnerable to external shocks which forced the economy into an anti-poor contraction after 1998. Using a dynamic CGE model we demonstrate that there are only limited options for pro-poor macro policy which is particularly due to the low domestic savings rate and the high rate of dollarization of the economy. Consequently, in order to increase the options for pro-poor macro policy, the large inequality, the high dualism, the low savings rate, and high dollarization of the economy need to be addressed. |
| Keywords: | Pro-Poor Growth, Bolivia, CGE model, dollarization |
| JEL: | O1 I32 C68 |
| Date: | 2006–06–08 |
| URL: | http://d.repec.org/n?u=RePEc:got:iaidps:143&r=mac |
| By: | Richard N. Cooper (Paper 1) (Harvard University); Michael Bordo (Paper 2) (Economics Department, Rutgers University and Harvard University); Harold James (Paper 2) (History Department and Woodrow Wilson School, Princeton University) |
| Abstract: | Paper 1: This paper suggests that some time in the not-too-distant future the governments of the industrialized democracies – concretely, the United States, the European Union, and Japan – should consider establishing a common currency for their collective use. A common currency would credibly eliminate exchange rate uncertainty and exchange rate movements among major currencies, both of which are significant sources of disturbance to important economies. One currency would of course entail one monetary policy for the currency area, and a political mechanism to assure accountability. This proposal is not realistic today, but is set as a vision for the second or third decade into the 21st century. Europeans, in creating EMU, have taken a major step in the direction indicated. Their idea could be taken further. Paper 2: In this paper, we look at the major arguments for monetary simplification and unification before explaining why the nineteenth century utopia is an idea whose time has gone, not come. |
| Date: | 2006–09–06 |
| URL: | http://d.repec.org/n?u=RePEc:onb:oenbwp:127&r=mac |
| By: | Alicia H. Munnell (Center for Retirement Research); Francesca Golub-Sass (Center for Retirement Research); Andrew Varani (Center for Retirement Research) |
| Abstract: | It is crucial that today's workers save for retirement for two reasons. First, Social Security replacement rates will decline due to increases in the Normal Retirement Age, rising premiums for Medicare, more personal income taxation, and potential adjustments to restore financial balance to the system. Second, accumulations in 401(k) plans may well be much lower than people anticipate. As such, personal saving will become increasingly necessary for retirement security. So how much are individuals saving for retirement? The standard measure, the personal saving rate reported in the official U.S. National Income and Product Accounts (NIPA), has fallen dramatically and in 2004 stood at a dismal 1.8 percent of disposable personal income. But is this indicator an accurate measure of saving behavior? The NIPA personal saving rate is a much beleaguered statistic. Economists complain that 1) consumer durables that generate services over an extended period of time (such as automobiles and dishwashers) are treated as consumption rather than investment; and 2) interest income and outlays are not adjusted for inflation. Analysts interested in retirement security bemoan the exclusion of capital gains, because these gains may help finance post-retirement consumption. This study focuses on a new issue — namely, NIPA combines the saving of the working-age population with the dissaving of retirees. This aggregation would not distort trends in saving if retirees were a constant proportion of the population, but with the retirement of the baby boom generation, their ranks will swell. As a result, even if the saving of each age group remains unchanged, the aggregate saving rate will decline. This brief thus attempts to separate the saving out of current income done by the working-age population (those under age 65) from that undertaken by retirees (those 65 and over). The first section describes the NIPA accounts. The second section estimates the share of NIPA personal saving that belongs to those under age 65. The third section broadens the calculation of household saving to include business saving. |
| Keywords: | social security, replacement rates, pension plans, retirement, medicare, 401(k) plans |
| Date: | 2006–06–12 |
| URL: | http://d.repec.org/n?u=RePEc:crr:issbrf:ib34&r=mac |
| By: | Jamie Armour |
| Abstract: | The author provides a statistical evaluation of various measures of core inflation for Canada. The criteria used to evaluate the measures are lack of bias, low variability relative to total CPI inflation, and ability to forecast actual and trend total CPI inflation. The author uses the same methodology as Hogan, Johnson, and Laflèche (2001) and thus provides updated empirical results. The findings are that most traditional measures of core inflation are unbiased and all continue to be less volatile than total inflation. They nevertheless display some volatility and have limited predictive ability. Overall, CPIW seems to have a slight advantage over the other measures, but the differences across measures are not large. (CPIW uses all components of total CPI but adjusts the weight of each component by a factor that is inversely proportional to the component's variability.) Compared with the results of Hogan, Johnson, and Laflèche, CPIW's relative performance has improved. The distribution of price changes for 54 CPI subcomponents is also examined, and substantial increases in both the skewness and kurtosis of this distribution since 1998 are found. |
| Keywords: | Inflation and prices |
| JEL: | E31 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:06-10&r=mac |
| By: | Boriss Siliverstovs; Manh Ha Duong |
| Abstract: | In this study we have addressed the relationship between the stock market, the measure of real economic activity (represented by the real GDP), the economic sentiment indicator, and real interest rate for the five European countries: Germany, France, Italy, the Netherlands, and the UK. We find that even when accounting for expectations, represented by the economic sentiment indicator, the stock market has certain predictive content for the real economic activity. At the same time, the relationship between the economic sentiment indicator and the real activity seems to be more articulated than that between the latter variable and the stock market. We also have shown that the developments in the national stock markets are explained by the common factor shared by all of them. The greater relative importance of the economic sentiment indicator for the real GDP when compared to that of the stock market can be traced to the fact that the real economic activity is still shaped more by the domestic shocks rather than the global ones, i.e. those reflected in the stock market. |
| Keywords: | Stock market, real activity, economic sentiment indicator |
| JEL: | E44 G15 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp599&r=mac |
| By: | Fabrizio Zampolli |
| Abstract: | This paper examines the trade-offs that a central bank faces when the exchange rate can experience sustained deviations from fundamentals and occasionally collapse. The economy is modelled as switching randomly between different regimes according to time-invariant transition probabilities. We compute both the optimal regime-switching control rule for this economy and optimised linear Taylor rules, in the two cases where the transition probabilities are known with certainty and where they are uncertain. The simple algorithms used in the computation are also of independent interest as tools for the study of monetary policy under general forms of (asymmetric) additive and multiplicative uncertainty. An interesting finding is that policies based on robust (minmax) values of the transition probabilities are usually more conservative. |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:297&r=mac |
| By: | Eric Tymoigne |
| Abstract: | This is the first part of a three-part analysis of the Minskyan framework. Via an extensive review of the literature, this paper looks at 12 essential elements necessary to get a good understanding of Minsky's theory, and argues that those elements are central to comprehend how a monetary production economy works. This paper also shows how important these 12 elements are for the modeling of the Minskyan framework, and how the omission of one of them may be detrimental to an understanding of the essential dynamics that Minsky put forward: the Financial Instability Hypothesis. |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_452&r=mac |
| By: | Zagaglia, Paolo (Dept. of Economics, Stockholm University) |
| Abstract: | I apply a multiresolution decomposition to the term spread and real-GDP growth in the U.S. Using the filtered data, I study whether the yield spread helps forecasting output. The results show that the predictive power of the yield spread varies largely across time scales both in-sample and out-of-sample at various forecast horizons. Contrarily to the existing literature, I find evidence of a strikingly negative long-run relationship between the spread and future GDP growth over a frequency that spans from 8 to 16 years per cycle. A linear combination among filtered yield spreads shows a sizable improvement in forecasting out-of-sample. The decomposed series are also used for proposing a solution to the breakdown in the in-sample predictive relationship documented by Dotsey (1998) that occurs after 1985. |
| Keywords: | wavelets; term structure; predictability |
| JEL: | C19 E27 E43 |
| Date: | 2006–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sunrpe:2006_0004&r=mac |
| By: | John Sporing, Jr.; George K. Downey; John R. Kort (Bureau of Economic Analysis) |
| Abstract: | The December 2004 release of the GSP estimates takes BEA’s integration efforts one-step further, an important long-term goal in BEA’s Strategic Plan. Specifically, due to the concurrent release and integration of the annual IO accounts and the GDP-by-industry accounts and the resulting consistency of the estimates, the GSP program is now able to use these consistent and timelier annual IO accounts. This paper presents a new procedure for estimating GSP for most goods-producing industries for years 1998-2002 that integrates the GSP accounts more closely with the annual IO accounts and the GDP-by-industry accounts. |
| JEL: | E60 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:bea:wpaper:0023&r=mac |
| By: | Jean-Pascal Bénassy |
| Abstract: | We show that Keynesian multiplier effects can be obtained in dynamic optimizing models if one combines both price rigidities and a "non Ricardian" framework where, due for example to the birth of new agents, Ricardian equivalence does not hold. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:pse:psecon:2006-15&r=mac |
| By: | Jirka Slacalek |
| Abstract: | This paper presents a detailed investigation of the wealth effect for 16 industrial countries using the recently proposed technique that exploits the sluggishness of consumption growth. I argue that, compared to the widespread cointegration-based methodology, the approach I apply has better theoretical foundations and is more immune to parameter instability. Empirically, this new technique implies smaller magnitude of the wealth effect in the G-8 countries and larger size of the income effect. I also document that the wealth effect tends to be larger in countries with more developed financial markets and has decreased substantially in the last twenty years. |
| Keywords: | Wealth effect, income effect, consumption dynamics, sticky information |
| JEL: | E21 E32 C22 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp596&r=mac |
| By: | Dierk Herzer (Ibero-Amerika Institut der Universität Göttingen, Johann Wolfgang Goethe-Universität, Frankfurt/M.); Rainer Klump (Johann Wolfgang Goethe-Universität Frankfurt/Main) |
| Abstract: | We examine the impact of government transfers and the business cycle on poverty in the United States in the context of a poverty function that includes the official poverty rate, three types of government transfers, real wages, the number of female-headed families, and a business cycle variable. Using cointegration techniques, we find ─ contrary to most previous studies ─ that government transfer programs play an important poverty-reducing role. In addition, the findings suggest that the business cycle is one of the key variables in explaining poverty in the US. Furthermore, the empirical results show that the size and composition of public transfer payments change over the business cycle. We also find poverty to have a significant effect on government transfers, the business cycle, and the structure of households. |
| Date: | 2006–06–08 |
| URL: | http://d.repec.org/n?u=RePEc:got:iaidps:141&r=mac |
| By: | Otmar Issing (European Central Bank) |
| Date: | 2006–04–26 |
| URL: | http://d.repec.org/n?u=RePEc:onb:oenbwp:120&r=mac |
| By: | Robert Lavigne |
| Abstract: | The author empirically assesses the effects of institutional and political factors on the need and willingness of governments to make large fiscal adjustments. In contrast to earlier studies, which consider the role of political economy determinants only during periods of fiscal consolidation, the author expands the field of analysis by examining periods when governments should be making fiscal efforts but fail to do so (or do not try), as well as periods when no adjustment is required. To analyze this greater range of fiscal situations, a multinomial logit framework is applied to a panel of 61 advanced and developing countries, generating a sample size significantly larger than previous work. A key finding is that the political economy factors favouring the maintenance of sensible fiscal policies are different from those that increase the probability of achieving an exceptional adjustment. For instance, the results for developing countries indicate that sound economic institutions help governments avoid dire fiscal situations; however, those countries that actually succeed in making lasting adjustments in the face of a serious need tend to have weak institutions. There is also some evidence that high levels of transfers and subsidies diminish the probability of successful adjustment in developing countries, and that legislative majorities improve the odds. In advanced countries, strong democratic institutions appear to increase the likelihood of avoiding situations of fiscal distress. |
| Keywords: | Fiscal policy; Econometric and statistical methods; Development economics; International topics |
| JEL: | E62 O17 O19 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:06-1&r=mac |
| By: | Mario Mesía (Central Bank of Peru); Eduardo Costa (Central Bank of Peru); Oscar Graham (Central Bank of Peru); Robert Soto (Central Bank of Peru); Alejandro Rabanal (Central Bank of Peru) |
| Abstract: | This paper evaluates from a microeconomic perspective the lending cost determinants in the Peruvian banking system in the June 2004-December 2005 period. The evaluation considers the credit market segments identified in a prior study (published in 2002). Furthermore, it reviews the progress occurred in the financial system infrastructure –asymmetric information, credit risk assessing technologies, competitive structure, and credit guarantees performance– in the aforementioned period. The paper also contains a set of “study cases” that contributes to a better understanding of the credit market dynamics. We found evidence that supports the presence of a higher level of competition in every market segment, especially for that of corporate borrowers. Finally, the paper suggests a set of policies to further reduce the cost of credit. |
| Keywords: | Interest Rate, Credit Cost |
| JEL: | E31 E37 E47 C11 C53 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:rbp:wpaper:2006-004&r=mac |
| By: | Dennis Fixler (Bureau of Economic Analysis) |
| JEL: | E60 |
| Date: | 2004–10 |
| URL: | http://d.repec.org/n?u=RePEc:bea:papers:0027&r=mac |
| By: | Jean-Thomas Bernard; Lynda Khalaf; Maral Kichian; Sebastien McMahon |
| Abstract: | Fluctuations in the prices of various natural resource products are of concern in both policy and business circles; hence, it is important to develop accurate price forecasts. Structural models provide valuable insights into the causes of price movements, but they are not necessarily the best suited for forecasting given the multiplicity of known and unknown factors that affect supply and demand conditions in these markets. Parsimonious representations of price processes often prove more useful for forecasting purposes. Central questions in such stochastic models often revolve around the time-varying trend, the stochastic convenience yield and volatility, and mean reversion. The authors seek to assess and compare alternative approaches to modelling these effects, focusing on forecast performance. Three econometric specifications are considered that cover the most up-to-date models in the recent literature on commodity prices: (i) random-walk models with autoregressive conditional heteroscedasticity (ARCH) or generalized ARCH (GARCH) effects, and with normal or student-t innovations, (ii) Poisson-based jump-diffusion models with ARCH or GARCH effects, and with normal or student-t innovations, and (iii) meanreverting models that allow for uncertainty in equilibrium price. |
| Keywords: | Econometric and statistical methods |
| JEL: | C52 C53 E37 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:06-14&r=mac |
| By: | Albert M. Teplin; Charles Ian Mead; Brent R. Moulton; Rochelle Antoniewicz; Susan Hume McIntosh; Michael G. Palumbo; Genevieve Solomon (Bureau of Economic Analysis) |
| Abstract: | This paper presents integrated macroeconomic accounts for the United States for the period 1985 to 2002 and discusses issues related to their construction and use. Specifically, it focuses on tying together the national income and product accounts (NIPAs) and international transaction accounts (ITA) published by the Bureau of Economic Analysis and the flow of funds accounts (FFA) published by the Federal Reserve Board. The paper provides integrated accounts for seven sectors: households and nonprofit organizations serving households, nonfinancial non-corporate businesses, nonfinancial corporate businesses, financial businesses, federal government, state and local governments, and the rest of the world. Each sector table has a full complement of accounts: current accounts (production and income accounts), accumulation accounts (capital account, financial account, and other changes in volume account), revaluation account, and balance sheet account. As a result, the sector statements trace the factors leading to changes in sector net worth. Relative to current publications of the two agencies, the tables go quite a bit further toward providing for the United States the sequence of accounts suggested in the System of National Accounts 1993 (SNA93), the recognized international standard. The tables use official data as of June 10, 2004; however, a few series have been created by the authors, and they are unofficial preliminary estimates at this time. |
| JEL: | E60 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:bea:papers:0025&r=mac |
| By: | Jeremy J. Nalewaik (Bureau of Economic Analysis) |
| Abstract: | This paper studies the preliminary estimates of state wage and salary growth produced by the U.S. Bureau of Economic Analysis (BEA), investigating whether they may be improved using basic efficiency tests. State wage and salary growth can be thought of as the sum of two components, an aggregate component equal to the currently prevailing national growth rate, and a state specific component, which we call the idiosyncratic variation in the estimates. BEA currently uses extrapolation techniques to compute the idiosyncratic component of the preliminary estimates, and this paper demonstrates some limitations to this approach. While revisions to BEA's preliminary numbers are currently predictable, some simple regression-based generalizations of the extrapolation approach can reduce this predictability, cutting down mean squared and mean absolute revisions. While these reductions in revisions are not large, we can reject at conventional significance levels the hypothesis that they are equal to zero. |
| JEL: | E60 |
| Date: | 2004–11 |
| URL: | http://d.repec.org/n?u=RePEc:bea:wpaper:0018&r=mac |
| By: | Francis X. Diebold (Department of Economics, University of Pennsylvania); Lei Ji (Department of Economics, University of Pennsylvania); Canlin Li (Graduate School of Management, University of California) |
| Abstract: | We assess and apply the term-structure model introduced by Nelson and Siegel (1987) and re-interpreted by Diebold and Li (2003) as a modern three-factor model of level, slope and curvature. First, we ask whether the model is a member of the affine class, and we find that it is not. Hence the poor forecasting performance recently documented for affine term structure models in no way implies that our model will forecast poorly, which is consistent with Diebold and Li's (2003) finding that it indeed forecasts quite well. Next, having clarified the relationship between our three-factor model and the affine class, we proceed to assess its adequacy directly, by testing whether its level, slope and curvature factors do indeed capture systematic risk. We find that they do, and that they are therefore priced. Finally, confident in the ability of our three-factor model to capture the pricing relations present in the data, we proceed to explore its efficacy in bond portfolio risk management. Traditional Macaulay duration is appropriate only in a one-factor (level) context; hence we move to a three-factor generalized duration, and we show the superior performance of hedges constructed using it. |
| Keywords: | Term structure; Yield curve; Factor model; Risk Management |
| JEL: | G1 E43 E47 C5 |
| Date: | 2006–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:06-017&r=mac |
| By: | SANTIAGO KRAISELBURD (Instituto de Empresa) |
| Abstract: | Perhaps the two most wildly recognized building blocks of inventory theory are the EOQ and the "newsboy" or "newsvendor" models. Moreover, almost the entire supply chain contract literature was built around the latter. The idea behind this paper is the following: before we can even attempt to generalize insights from the model to other situations, we must understand its limitations when applied to the very apparent reason for its existence: actual newsboys. |
| Keywords: | newsboy, newsvendor |
| URL: | http://d.repec.org/n?u=RePEc:emp:wpaper:wp06-16&r=mac |
| By: | David Rae; Paul van den Noord |
| Abstract: | The Irish housing market is very buoyant. The housing boom is driven by strong economic growth, dynamic demographics and low interest rates. However, large tax advantages and relatively lenient credit policies by banks have also played their part, and prices may have become overvalued. To the extent that high house prices reflect favourable tax treatment, they may lead to economic inefficiencies by drawing excessive resources into residential construction. While a soft landing appears the most likely prospect, a disorderly correction of house prices would pose risks for macroeconomic and possibly financial stability. In this context, one policy lever available to the government would be a phased removal of the tax advantages associated with housing. In addition, banks should remain cautious in their lending and provisioning policies. <P>L’envolée du marché irlandais du logement Le marché de l’immobilier est très dynamique en Irlande. L’essor du logement s’explique par la forte croissance économique, la dynamique démographique et la faiblesse des taux d’intérêt. Cependant, les importants avantages fiscaux et les politiques de crédit relativement libérales des banques ont aussi joué leur rôle et les prix sont désormais peut être surévalués. Dans la mesure où les prix élevés de l’immobilier reflètent un régime fiscal favorable, ils peuvent conduire à des inefficiences économiques en attirant des ressources excessives dans la construction résidentielle. Tandis qu’un atterrissage en douceur apparaît très probable, une correction désordonnée de ces prix ferait peser des risques sur la stabilité macroéconomique, voire financière. Dans ce contexte, un des leviers d’action à la disposition des autorités serait une suppression graduée des avantages fiscaux associés au logement. En outre, les banques devraient être incitées à faire preuve de prudence dans leurs politiques de prêt et de provisionnement. |
| Keywords: | house prices, property tax, housing markets, marché immobilier, residential construction, construction résidentielle, immobilier, taxe foncière |
| JEL: | E2 R21 R31 |
| Date: | 2006–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:492-en&r=mac |
| By: | Boriss Siliverstovs; Konstantin A. Kholodilin |
| Abstract: | This paper suggests a novel approach to pre-selection of the component series of the diffusion index based on their individual forecasting performance. It is shown that this targeted selection allows substantially improving the forecasting ability compared to the diffusion index models that are based on the largest available dataset. |
| Keywords: | Diffusion index, forecasting, optimal subset of data |
| JEL: | E32 C10 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp598&r=mac |
| By: | Stephanie Seguino; Caren A. Grown |
| Abstract: | This paper reviews evidence of the gender effects of globalization in developing economies. It then outlines a set of macroeconomic and trade policies to promote gender equity. The evidence suggests that while liberalization has expanded womenÕs access to employment, the long-term goal of transforming gender inequalities remains unmet and appears unattainable without state intervention in markets. This paper sets forth some general principles that can produce greater gender equality, premised on shifting from economies that are profit led and export oriented to those that are wage led and full-employment oriented. The framework is Kaleckian in its focus on the relationship between the gender distribution of income and macroeconomic outcomes. |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_446&r=mac |
| By: | Christopher M. Meissner; Nienke Oomes |
| Abstract: | Conditional on choosing a pegged exchange rate regime, what determines the currency to which countries peg or “anchor” their exchange rate? This paper aims to answer this question using a panel multinomial logit framework, covering more than 100 countries for the period 1980-1998. We find that trade network externalities are a key determinant of anchor currency choice, implying that there are multiple steady states for the distribution of anchor currencies in the international monetary system. Other factors found to be related to anchor currency choice include the symmetry of output co-movement, the currency denomination of debt, and legal or colonial origins. |
| Keywords: | exchange rate regime; anchor; network externalities; optimal currency area; international currency; de facto |
| JEL: | E42 F02 F33 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:0643&r=mac |
| By: | Abdelaziz Rouabah |
| Abstract: | Cette étude examine la problématique de la sensibilité des soldes intermédiaires du compte de perte et profits des banques luxembourgeoises aux chocs monétaires, financiers et macro-économiques. L'analyse est conduite sur des données en panel et à fréquence trimestrielle couvrant la période 1994-2005. Les résultats des estimations obtenus et les simulations réalisées révèlent que les banques luxembourgeoises sont beaucoup plus sensibles aux variations du produit intérieur brut de la zone euro et aux chocs afférents à l'indice boursier européen DJE Stoxx qu'aux chocs monétaires. L'importance de cette réactivité est à relativiser dans la mesure où elle n'est pas un facteur fondamental de déstabilisation financière du secteur bancaire dans son ensemble. |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:bcl:bclwop:cahier_etude_21&r=mac |
| By: | Jean-Pascal Bénassy |
| Abstract: | We construct in this paper a dynamic general equilibrium model which displays the central features of the IS-LM model, and notably an income multiplier greater than one, so that crowding out does not occur. It appears that the key to this result is the conjunction of two features of our model: price rigidities (as is usually expected), but also a non-Ricardian economy. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:pse:psecon:2006-14&r=mac |
| By: | L. Randall Wray |
| Abstract: | MinskyÕs classification of fragility according to hedge, speculative, and Ponzi positions is well-known. He wrote about fragile positions of individual firms and of the economy as a whole, with the economy transitioning naturally from a robust financial structure (dominated by hedge units) to a fragile structure (dominated by speculative units). In most of MinskyÕs writing, he introduced government through its impact on the private sector with its spending and balance sheet operations as stabilizing forces (although he insisted that stability is ultimately destabilizing). On a few occasions he also analyzed the governmentÕs own balance sheet position. More rarely, Minsky extended his analysis to the open economy, examining the fragility of external debt positions. In these works, he analyzed the United States as the ÒworldÕs bankÓ and discussed the impact of various U.S. balance sheet positions on the rest of the world. This paper will carefully examine MinskyÕs position on these topics, and will offer an extension of MinskyÕs work. It will also examine the ÒsustainabilityÓ of the current Òtwin U.S. deficits.Ó |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_450&r=mac |
| By: | Ralph Kozlow (Bureau of Economic Analysis) |
| JEL: | E60 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:bea:papers:0028&r=mac |
| By: | Ralph Kozlow; Obie G. Whichard (Bureau of Economic Analysis) |
| JEL: | E60 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:bea:papers:0029&r=mac |
| By: | Ann E. Dunbar (Bureau of Economic Analysis) |
| Abstract: | The Bureau of Economic Analysis (BEA) publishes annual estimates of state disposable personal income, the difference between state personal income and state personal current taxes. BEA also publishes annual estimates of personal income for sub-state areas, but BEA does not publish corresponding estimates of disposable personal income (DPI) due to the absence of estimates of taxes. This paper researches practical and conceptual issues in producing sub-state personal current taxes, investigates source data availability, and presents annual estimates of disposable personal income for the 361 metropolitan areas for 2001 and 2002. The methodology relies on sub-state IRS personal tax data and individual state data. Also, preliminary estimates of DPI are presented for the 179 BEA economic areas in appendix B. |
| JEL: | E60 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bea:wpaper:0033&r=mac |
| By: | Carol A. Robbins (Bureau of Economic Analysis) |
| Abstract: | This paper translates research and development expenditure data organized based on the Frascati Manual for the U.S. to a measure of gross output consistent with The System of National Accounts 1993. A set of detailed tables translates U.S. survey data on the performance of R&D from the National Science Foundation for 2001. |
| JEL: | E60 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bea:wpaper:0032&r=mac |
| By: | J. Steven Landefeld; Barbara M. Fraumeni; Cindy M. Vojtech (Bureau of Economic Analysis) |
| JEL: | E60 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:bea:papers:0030&r=mac |
| By: | Robert L. Brown; Ann E. Dunbar; Adrienne T. Pilot (Bureau of Economic Analysis) |
| Abstract: | This paper studied the feasibility of reconciling BEA state personal income (SPI) and IRS adjusted gross income (AGI) at the state level. After reviewing data sources from BEA, IRS, and other agencies, it was concluded that it is feasible to prepare accurate reconciliations of state level wages and salaries. Further work is needed to determine the feasibility and value of reconciling BEA SPI and IRS AGI for other components of personal income—such as proprietors’ income, personal current transfer receipts, and dividends, interest, and rent. A limitation in reconciling these other income components is that BEA relies heavily upon IRS data to make its estimates. Thus, only limited insights might be obtained from the reconciliation. |
| JEL: | E60 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bea:wpaper:0034&r=mac |
| By: | J. Bonke; M. Deding; M. Lausten |
| Abstract: | Time and money are basic commodities in the utility function and are substitutes in real terms. To a certain extent, having time and money is a matter of either/or, depending on individual preferences and budget constraints. However, satisfaction with time and satisfaction with money are typically complements, i.e., individuals tend to be equally satisfied with both domains. In this paper, we provide an explanation for this apparent paradox through the analysis of the simultaneous determination of economic satisfaction and leisure satisfaction. We test some hypotheses, including the hypothesis that leisure satisfaction depends on both the quantity and quality of leisure-where quality is proxied by good intensiveness and social intensiveness. Our results show that both the quantity and the quality of leisure are important determinants of leisure satisfaction, and, since having money contributes to the quality of leisure, this explains the empirical findings of the satisfactions being complementary at the same time as the domains are substitutes. Interestingly, gender matters. Intra-household effects and especially individual characteristics are more pronounced for women than for men for both domain satisfactions. Additionally, good intensiveness is more important for men (e.g., housing conditions), whereas social intensiveness is more important for women (e.g., the presence of children and participation in leisure-time activities). |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_451&r=mac |
| By: | Ralph Kozlow (Bureau of Economic Analysis) |
| Abstract: | This paper identifies key questions that are being asked about globalization and MNC’s and then reviews the types of statistics that are required to answer those questions. The paper goes on to assess whether the statistics collected by the Bureau of Economic Analysis are adequate to address those questions. |
| JEL: | E60 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:bea:papers:0031&r=mac |
| By: | Ralph Kozlow (Bureau of Economic Analysis) |
| Abstract: | This note briefly summarizes work conducted in the United States over the past several years to design a report form that collects comprehensive data on U.S. positions and transactions in derivative financial instruments. |
| JEL: | E60 |
| Date: | 2004–10 |
| URL: | http://d.repec.org/n?u=RePEc:bea:papers:0026&r=mac |
| By: | Robert E. Yuskavage; Erich H. Strassner; Gabriel W. Medeiros (Bureau of Economic Analysis) |
| JEL: | E60 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:bea:papers:0032&r=mac |
| By: | Lawrence R. McNeil; Barbara M. Fraumeni (Bureau of Economic Analysis) |
| Abstract: | The Bureau of Economic Analysis (BEA) has initiated a National Science Foundation (NSF) funded project to produce an official BEA/NSF R&D Satellite Account (R&DSA). This paper presents a possible trade-based methodology for estimating cross-border R&D spillovers, which reflects an important component of the overall project because spillovers may be formally integrated into the official BEA/NSF R&DSA. Beginning with Coe and Helpman (1995), we evaluate four methodologies used to estimate the impact of international R&D spillovers on economic growth and select Xu and Wang (1999) as the model most appropriate for calculating net outward spillovers. Based on our calculations, we conclude that including cross-border R&D spillovers would increase 1990 U.S. Gross Domestic Product by 0.33%. |
| JEL: | E60 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:bea:wpaper:0022&r=mac |
| By: | Diego Comin; Bart Hobiijn |
| Abstract: | We develop and estimate a model where technology diffusion depends on the level of productivity embodied in capital and where this is, in turn, determined by two key mechanisms: the rate at which the quality embodied in new technology vintages increases (embodiment) and the gains from varieties induced by the introduction of new vintages (variety). In our model, these two effects are related to technology adoption decisions taken at two different levels. The capital goods suppliers’ decisions of when to adopt a given vintage determines the embodiment margin. The workers’ decisions of which of the adopted vintages to use in production determines the variety margin. Estimation of our model for a sample of 19 technologies, 21 countries, and the period 1870-1998 reveals that embodied productivity growth is large for many of the technologies in our sample. On average, increases in the variety of vintages available is a more important source of growth than the increases in the embodiment margin. There is, however, substantial heterogeneity across technologies. Where adoption lags matter, they are largely determined by lack of educational attainment and lack of trade openness. |
| JEL: | E13 O14 O33 O41 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12314&r=mac |
| By: | Neville Arjani |
| Abstract: | The author explores a fundamental trade-off that occurs between settlement delay and intraday liquidity in the daily operation of large-value payment systems (LVPS), with specific application to Canada's Large Value Transfer System (LVTS). To reduce settlement delay, participants generally must maintain greater intraday liquidity in the system. Intraday liquidity and settlement delay can be costly for LVPS participants, and improvements in the trade-off are desirable. The replacement of standard queuing arrangements with a complex queue-release algorithm represents one such improvement. These algorithms are expected to lower intraday liquidity needs and speed up payments processing in an LVPS. Simulation analysis is used to empirically test this proposition for the case of Canada's LVTS. The analysis is conducted using a payment system simulator developed by the Bank of Finland, called the BoF-PSS2. The author shows that increased use of the LVTS central queue (which contains a complex queue-release algorithm) reduces settlement delay associated with each level of intraday liquidity considered, relative to a standard queuing arrangement. Some important issues emerge from these results. |
| Keywords: | Payment, clearing, and settlement systems |
| JEL: | E47 G21 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:06-20&r=mac |
| By: | Wynne Godley; Gennaro Zezza |
| Abstract: | Many papers published by the Levy Institute during the last few years have emphasized that the U.S. economy has relied too much on the growth of lending to the private sector, most particularly to the personal sector, to offset the negative effect on aggregate demand of the growing current account deficit. Moreover, this growth in lending cannot continue indefinitely. |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:lev:levypn:06-4&r=mac |
| By: | Kari Manninen (Bureau of Economic Analysis) |
| Abstract: | In this paper, the author tests different hedonic and conventional quality adjustment methods in a uniform, but somewhat unconventional, descriptive framework. The main aim is to address questions on hedonic quality adjustment methods and their robustness in index compilation. The author does this by giving an empirical example with digital camera prices. The study shows how conventional quality adjusting methods may be treated parallel with hedonic ones and how these methods may be evaluated similarly with regression based methods. Contrary to structural models that many hedonic quality adjusted price indices are based on, the hedonic models in this paper are all used as forecast models that, the author believes, add to the robustness and practical utility of hedonics as a day-to-day tool for statistical agencies. |
| JEL: | E60 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:bea:wpaper:0020&r=mac |
| By: | Leonard J. Loebach (Bureau of Economic Analysis) |
| Abstract: | In the early 1990's, former BEA Chief Statistician Frank de Leeuw explored the possibility of using project data from F.W. Dodge to estimate hedonic price indexes for nonresidential buildings. He rejected the idea citing the lack of “quality” characteristics in the data and that the results were not much different from the indexes currently in use. This paper re-examines the feasibility of price indexes using the Dodge data set. Using data for a single state, Maryland, price indexes for seven types of nonresidential buildings were estimated and were found to be reasonable. This paper concludes that the use of Dodge data as the basis for price indexes are feasible and worthy of further investigation. |
| JEL: | E60 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:bea:wpaper:0021&r=mac |