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on Macroeconomics |
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Issue of 2006‒08‒05
126 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | Christoffel, Kai; Linzert, Tobias |
| Abstract: | In this paper we incorporate a labor market with matching frictions and wage rigidities into the New Keynesian business cycle model. In particular, we analyze the effect of a monetary policy shock and investigate how labor market frictions affect the transmission process of monetary policy. The model allows real wage rigidities to interact with adjustments in employment and hours affecting inflation dynamics via marginal costs. We find that the response of unemployment and inflation to an interest rate innovation depends on the degree of wage rigidity. Generally, more rigid wages translate into more persistent movements of aggregate inflation. Moreover, the impact of a monetary policy shock on unemployment and inflation depends also on labor market fundamentals such as bargaining power and the flows in and out of employment. |
| Keywords: | Monetary Policy, Matching Models, Labor Market Search, Inflation Persistence, Real Wage Rigidity |
| JEL: | E31 E32 E52 J64 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:4248&r=mac |
| By: | Hofmann, Boris |
| Abstract: | This paper assesses the performance of monetary indicators in predicting euro area HICP inflation out-of-sample over the period since the start of EMU considering a wide range of forecasting models, including standard bivariate forecasting models, factor models, simple combination forecasts as well as trivariate two-pillar Phillips Curve type forecasting models. The results suggest that monetary indicators are still useful indicators for inflation in the euro area, but that a thorough and broad based monetary analysis is needed to extract the information content of monetary developments for future inflation. |
| Keywords: | euro area, inflation, leading indicators, money |
| JEL: | C32 E31 E40 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:4469&r=mac |
| By: | Marvin Goodfriend; Eswar Prasad |
| Abstract: | As China's economy becomes more market based and continues its rapid integration into the global economy, having an independent and effective monetary policy regime oriented to domestic objectives will become increasingly important. Employing modern principles of monetary policy in light of the current state of China's financial institutions, we motivate and present a package of proposals to guide the operation of a new monetary policy regime. Specifically, we recommend an explicit low long-run inflation objective, operational independence for the People's Bank of China (PBC) with formal strategic guidance from the government, and a minimal set of financial sector reforms (to make the Chinese banking system robust against interest rate fluctuations). We argue that anchoring monetary policy with an explicit inflation objective would be the most reliable way for the PBC to tie down inflation expectations, and thereby enable monetary policy to make the best contribution to macroeconomic and financial stability, as well as economic growth. The management and monitoring of money (and credit) growth by the PBC would continue to play a useful role in the stabilization of inflation, but a money target would not constitute a good stand-alone nominal anchor. |
| Keywords: | Monetary policy , China , Flexible exchange rates , Inflation targeting , Financial sector , Bank reforms , Central bank policy , Central bank role , Money supply , Financial systems , Transition economies , |
| Date: | 2006–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/111&r=mac |
| By: | Iris Claus; Aaron Gill; Boram Lee; Nathan McLellan (The Treasury) |
| Abstract: | This paper examines the effects of fiscal policy, measured by changes in government spending and net tax (government tax revenue less transfer payments), on New Zealand GDP. The framework of analysis is a structural vector autoregression (VAR) model of the New Zealand economy, employing and extending estimation techniques used by Blanchard and Perotti (2002). This model is then used to examine the dynamic effects of changes in government spending, taxes and transfers on GDP and the contributions of discretionary fiscal policy to New Zealand business cycles. |
| Keywords: | Fiscal policy, business cycle fluctuations, vector autoregression |
| JEL: | C32 E32 E62 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:nzt:nztwps:06/08&r=mac |
| By: | Christoffel, Kai Philipp; Küster, Keith; Linzert, Tobias |
| Abstract: | We focus on a quantitative assessment of rigid labor markets in an environment of stable monetary policy. We ask how wages and labor market shocks feed into the inflation process and derive monetary policy implications. Towards that aim, we structurally model matching frictions and rigid wages in line with an optimizing rationale in a New Keynesian closed economy DSGE model. We estimate the model using Bayesian techniques for German data from the late 1970s to present. Given the pre-euro heterogeneity in wage bargaining we take this as the first-best approximation at hand for modelling monetary policy in the presence of labor market frictions in the current European regime. In our framework, we find that labor market structure is of prime importance for the evolution of the business cycle, and for monetary policy in particular. Yet shocks originating in the labor market itself may contain only limited information for the conduct of stabilization policy. |
| Keywords: | Labor market, wage rigidity, bargaining, Bayesian estimation |
| JEL: | C11 E32 E52 J64 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:4356&r=mac |
| By: | Ulrich Fritsche (Department for Economics and Politics, University of Hamburg); Jan Gottschalk (International Monetary Fund) |
| Abstract: | New-Keynesian macroeconomic models typically assume that any long-run trade-off between inflation and unemployment is ruled out. While this appears to be a reasonable characterization of the US economy, it is less clear that the natural rate hypothesis necessarily holds in a European country like Germany where hysteretic effects may invalidate it. Inspired by the framework developed by Farmer (2000) and Beyer and Farmer (2002), we investigate the long-run relationships between the interest rate, unemployment and inflation in West Germany from the early 1960s up to 2004 using a multivariate co-integration analysis technique. The results point to a structural break in the late 1970s. In the later time period we find for west Germany data a strong negative correlation between the trend components of inflation and unemployment. We show that this finding contradicts the natural rate hypothesis, introduce a version of the New Keynesian model which allows for some hysteresis and compare the effectiveness of monetary policy in these two models. In general, a policy rule with an aggressive response to a rise in unemployment performs better in a model with hysteretic characteristics than in a model without. |
| Keywords: | Cointegration, Vector error Correction Model, Unemployment, Phillips Curve, Hysteresis |
| JEL: | B22 C32 E24 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:hep:macppr:2006&r=mac |
| By: | Nautz, Dieter; Scharff, Juliane |
| Abstract: | In recent macroeconomic theory, relative price variability (RPV) generates the central distortions of inflation. This paper provides first evidence on the empirical relation between inflation and RPV in the euro area focusing on threshold effects of inflation. We find that expected inflation significantly increases RPV if inflation is either very low (below -1.38% p.a.) or very high (above 5.94% p.a.). In the intermediate regime, however, expected inflation has no distorting effects which supports price stability as an outcome of optimal monetary policy. |
| Keywords: | Inflation, Relative Price Variability, Panel Threshold Models |
| JEL: | C23 E31 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:4250&r=mac |
| By: | Roland Straub; Gert Peersman |
| Abstract: | In recent years, New Keynesian dynamic stochastic general equilibrium (NK DSGE) models have become increasingly popular in the academic literature and in policy analysis. However, the success of these models in reproducing the dynamic behavior of an economy following structural shocks is still disputed. This paper attempts to shed light on this issue. We use a VAR with sign restrictions that are robust to model and parameter uncertainty to estimate the effects of monetary policy, preference, government spending, investment, price markup, technology, and labor supply shocks on macroeconomic variables in the United States and the euro area. In contrast to the NK DSGE models, the empirical results indicate that technology shocks have a positive effect on hours worked, and investment and preference shocks have a positive impact on consumption and investment, respectively. While the former is in line with the predictions of Real Business Cycle models, the latter indicates the relevance of accelerator effects, as described by earlier Keynesian models. We also show that NK DSGE models might overemphasize the contribution of cost-push shocks to business cycle fluctuations while, at the same time, underestimating the importance of other shocks such as changes to technology and investment adjustment costs. |
| Date: | 2006–06–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/135&r=mac |
| By: | Clausen, Volker; Wohltmann, Hans-Werner |
| Abstract: | This paper analyzes the dynamic effects of anticipated monetary and fis- cal policies in a large monetary union, which is characterized by asym- metric interest rate transmission. We explicitly solve the asymmetric three-country model using the decomposition methods of Aoki (1981) and Fukuda (1993). Anticipated monetary and fiscal expansions lead to negative international spillovers and to intertemporal reversals in the re- lative effectiveness of policy on member country outputs. Intertemporal international coordination of monetary policies between Euroland and the US is able to stabilize the output adjustment processes induced by an anticipated unilateral fiscal expansion. |
| Keywords: | Monetary Union, Fiscal Policy, Monetary Policy, Policy Coordination |
| JEL: | E58 F41 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:3835&r=mac |
| By: | Michael T. Gapen; Ralph Chami; Thomas F. Cosimano |
| Abstract: | This paper uses a stochastic dynamic general equilibrium model to investigate the influence of countercyclical remittances on the conduct of fiscal and monetary policy and trace their effects on real and nominal variables in a business cycle setting. We show that remittances raise disposable income and consumption, and insure against income shocks, thereby raising household welfare. However, remittances increase the correlation between labor and output, thereby producing a more volatile business cycle and increasing output and labor market risk. Optimal monetary policy in the presence of remittances deviates from the Friedman rule, highlighting the need for independent government policy instruments. |
| Date: | 2006–03–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/61&r=mac |
| By: | Greiber, Claus; Lemke, Wolfgang |
| Abstract: | In this study we construct a measure of macroeconomic uncertainty from several observable economic indicators for the euro area. Indicator variables are based on nancial market data, such as medium-term returns, loss and volatility measures but also come from surveys that capture business and consumer sentiment. From these we estimate the path of underlying macroeconomic uncertainty using an unobserved components model. Employing cointegration analysis it is demonstrated that the extracted measures of uncertainty help to explain the increase in euro area M3 over the period 2001 to 2004. Similar evidence can be found for US monetary aggregates. |
| Keywords: | Money demand, Macroeconomic Uncertainty, Excess Liquidity |
| JEL: | E41 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:4220&r=mac |
| By: | Eric Parrado; Turgut Kisinbay; Rodolfo Maino; Jorge Iván Canales Kriljenko |
| Abstract: | How should a central bank organize itself to produce the best possible inflation forecast? This paper discusses elements for building a comprehensive platform for an inflation forecasting framework. It describes the exercise of forecasting inflation as a production process, which induces a strict discipline concerning data management, information gathering, the use of a suitable statistical apparatus, and the exercise of sound communication strategies to reinforce reputation and credibility. It becomes critical how a central bank organizes itself to produce relevant macroeconomic forecasts, with special consideration to product design, the essential requirements needed in the forecasting process, and key related organizational issues. In addition, the paper proposes to factor into the process the authorities' policy responses to previous inflation forecasts in order to be consistent with the spirit of the inflation targeting framework. |
| Keywords: | Inflation , Central bank organization , Inflation targeting , Monetary policy , Central bank policy , Data collection , Data analysis , Forecasting models , |
| Date: | 2006–05–19 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/122&r=mac |
| By: | Ravi Balakrishnan; Sam Ouliaris |
| Abstract: | This paper aims to improve the understanding of U.S. inflation dynamics by separating out structural from cyclical effects using frequency domain techniques. Most empirical studies of inflation dynamics do not distinguish between secular and cyclical movements, and we show that such a distinction is critical. In particular, we study traditional Phillips curve (TPC) and new Keynesian Phillips curve (NKPC) models of inflation, and conclude that the long-run secular decline in inflation cannot be explained in terms of changes in external trade and global factor markets. These variables tend to impact inflation primarily over the business cycle. We infer that the secular decline in inflation may well reflect improved monetary policy credibility and, thus, maintaining low inflation in the long run is closely linked to anchored inflation expectations. |
| Date: | 2006–07–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/159&r=mac |
| By: | Agnes Benassy-Quere |
| Abstract: | In this paper, a simple, two-country, static model is developed in order to analyze short-run fiscal spillovers in a monetary union, depending on (i) the way fiscal policy is implemented (expenditures versus net taxes), (ii) the strength of the supply-side channel of tax policies compared to the demand-side channel, and (iii) the extent of central bank accommodation. It is shown that both a spending expansion and a tax cut produce positive spillovers on foreign output provided the central bank accommodates the shock, except if tax cuts have large supply-side effects. If the central bank does not accommodate the shock, the spillovers of a fiscal expansion are generally negative. However fiscal spillovers can be positive in the case of a tax cut because induced disinflation reduces or even reverses the reaction of the central bank. Due to financial liberalization, it is possible that demand-side channels of fiscal policy have become less powerful compared to supply-side channels. To the extent that interest-rate variations are smooth, this could reduce the positive spillover of a spending expansion while turning the spillover of a tax cut into the negative territory. |
| Keywords: | Fiscal policy; theoretical model; spillovers; monetary union; short run; tax and budget policy; models; monetary block |
| JEL: | E61 E62 F41 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2006-13&r=mac |
| By: | Mohsin S. Khan; Axel Schimmelpfennig |
| Abstract: | This paper examines the relative importance of monetary factors and structuralist supply-side factors for inflation in Pakistan. A stylized inflation model is specified that includes standard monetary variables (money supply, credit to the private sector), the exchange rate, as well as the wheat support price as a supply-side factor that has received considerable attention in Pakistan. The model is estimated for the period January 1998 to June 2005 on a monthly basis. The results indicate that monetary factors have played a dominant role in recent inflation, affecting inflation with a lag of about one year. Changes in the wheat support price influence inflation in the short run, but not in the long run. Furthermore, the wheat support price matters only over the medium term if accommodated by monetary policy. |
| Date: | 2006–03–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/60&r=mac |
| By: | Paustian, Matthias |
| Abstract: | What is the role of contracting schemes for the welfare costs of nominal rigidities over the business cycle? We examine 4 different modeling schemes of nominal rigidities that all have the same average duration of contracts. We find that Calvo (1983) wage and price contracts may deliver welfare costs that are 3-4 times higher than Taylor (1980) contracts. However, that result is sensitive to the monetary policy rule. We discuss the implications of modeling capital mobility and of adopting the Mankiw and Reis (2002) sticky information scheme for the welfare costs of nominal rigidities. |
| Keywords: | welfare, Calvo, Taylor, sticky information, costs of nominal rigidities |
| JEL: | E32 E52 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:4216&r=mac |
| By: | Aleksander Berentsen and Cyril Monet |
| Abstract: | This paper studies the theoretical properties of a channel system of interestrate control in a dynamic general equilibrium model. Agents are subject to liquidity shocks which can be partially insured in a secured money market, or at a standing facility operated by the central bank. We show that it is optimal to have a strictly positive interest rate corridor and that a shift of the corridor affects the money market rate one for one. Moreover, the central bank can tighten its policy without changing its policy rate by simply increasing the corridor symmetrically around the policy rate. |
| Keywords: | Monetary Policy, Interest Rates, Search |
| JEL: | E40 E50 D83 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:zur:iewwpx:295&r=mac |
| By: | Wohltmann, Hans-Werner |
| Abstract: | In diesem Beitrag werden die intertemporalen Wirkungen von antizipierten geld- und fiskalpolitischen Maßnahmen im Rahmen eines asymmetrischen Drei-Länder-Modells vom Mundell-Fleming-Phillips-Typ mit rationalen Preis- und Wechselkursänderungserwartungen charakterisiert. Zwei der drei großen offenen Volkswirtschaften bilden dabei eine Währungsunion, die durch eine gemeinsame Zentralbank, eine Einheitswährung und einen gemeinsamen flexiblen Wechselkurs gegenüber dem Drittland gekennzeichnet ist. Im Unterschied zur bestehenden Literatur zur Theorie einer Währungsunion und zur Theorie der internationalen Politiktransmission sind die beiden Mitgliedsländer der Union nicht vollkommen symmetrisch, sondern weisen sowohl auf der Nachfrageseite als auch auf der Angebotsseite jeweils eine Asymmetrie auf. Dennoch ist es möglich, das dynamische asymmetrische Drei-Länder-Modell mit Hilfe der für vollkommen symmetrische Länder entwickelten Dekompositionsmethode von Fukuda (1993) analytisch zu lösen. This paper analyzes the international transmission of anticipated monetary and fiscal policy in the framework of an asymmetric dynamic three-country model with monetary union. The monetary union consists of two large member countries with an asymmetric macroeconomic structure both on the demand and supply side. The paper explicitly solves the asymmetric macroeconomic model using a generalization of the well-known decomposition method of Aoki (1981) to the three-country case. It is shown that the inter- national transmission both of an anticipated unilateral increase in the growth rate of the union money stock and in government expenditure is negative over a large period of time. Within the monetary union intertemporal reversals in the relative effectiveness of policy on member country outputs occur. It is further shown that an international coordination of monetary policy is able to stabilize the output development in the three countries induced by unilateral fiscal policy expansion. |
| Keywords: | Monetary Union, Monetary Policy, Fiscal Policy, Policy Coordination |
| JEL: | E58 F41 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:3836&r=mac |
| By: | Michael Lamla (Department of Management, Technology and Economics, ETH Zurich (Swiss Federal Institute of Technology), Switzerland); Sarah M. Rupprecht (Swiss Institute for Business Cycle Research (KOF), Swiss Federal Institute of Technology Zurich (ETH)) |
| Abstract: | This paper analyzes European financial markets’ comprehension and interpretation of ECB communication signals. By applying a novel indicator developed by Berger et al. (2006), that quantifies the contents of the ECB’s introductory statements, we find that communication affects the term structure of interest rates in the medium run over a horizon between five months to one year. Our results suggest that financial market agents expect the ECB to prepare them for a change in interest rates well in advance. However, judging upon the dynamics of the response, the exact timing of a decision is less foreseeable. Disentangling the effects of ECB statements on prices, the real and the monetary sector, we provide evidence that especially the ECB’s interpretation and forecasts of price developments represent important news to financial market agents. |
| Keywords: | Central Bank Communication, Expectations, Term Structure of Interest Rates, Yield Curve, ECB. |
| JEL: | E43 E44 E58 |
| Date: | 2006–04 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:06-135&r=mac |
| By: | Hamburg, Britta; Hoffmann, Mathias; Keller, Joachim |
| Abstract: | This paper studies the long-run relationship between consumption, asset wealth and income — the consumption-wealth ratio — in Germany, based on data from 1980 to 2003. Earlier papers for the Anglo-Saxon economies have documented that departures of these three variables from their common trend signal future changes in asset prices. We find that for Germany they predict changes in income — the consumption wealth ratio predicts business cycles, not stock market cycles. Asset price changes are found to have virtually no effect on German consumption, both in the short as well as in the long-run. Conversely, German asset prices are predictable from the U.S. consumption-wealth ratio. We offer an explanation of these findings that emphasizes structural differences between the bank-based German financial system and the rather market-based Anglo-American system: stock ownership by private households is much less widespread in Germany than in the Anglo-Saxon economies and the share of publicly traded equity in household wealth is much smaller in Germany than in the U.S., the UK or Australia. |
| Keywords: | Wealth Effect on Consumption, Business Cycles, Monetary Policy Transmission, Financial Systems, Asset Price Predictability |
| JEL: | E21 E32 E44 G12 G20 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:3375&r=mac |
| By: | Tillmann, Peter |
| Abstract: | The canonical New Keynesian model specifies inflation as the present-value of future real marginal cost. This paper tests this New Keynesian Phillips Curve and exploits projections of future real marginal cost generated by VAR models to assess the model’s ability to match the behavior of actual inflation. In accordance to the literature, the model fits Euro data well at first sight. However, analyses of this kind disregard the considerable degree of uncertainty surrounding VAR forecasts. A set of bias-corrected bootstrapped confidence bands reveals that this result is consistent with both a well fitting and a completely failing model. Allowing for inflation inertia through backward-looking indexation narrows confidence bands around measures of the model’s fit but, still, cannot generate sufficiently precise estimates. Hence, we cannot say whether the model fits or fails. |
| Keywords: | New Keynesian Phillips Curve, present-value model, marginal cost, VAR, bootstrap |
| JEL: | E31 E32 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:2938&r=mac |
| By: | Wohltmann, Hans-Werner; Winkler, Roland |
| Abstract: | The paper analyzes the impacts of anticipated and unanticipated monetary policies on two large open economies that are dependent upon raw materials imports from a small third country. The analysis is based on asymmetric behavior on the supply side of both economies and an endogenous commod- ity pricing equation of Phillips' curve type. It is shown that an increase in the growth rate of domestic money supply is not neutral in the long run but induces contractionary output effects in both economies. The paper also dis- cusses the impacts of monetary policy rules that either reduce the in°ationary or contractionary output effects of commodity price shocks. |
| Keywords: | Monetary Policy, Oil Price Shocks, International Policy Coordination |
| JEL: | E63 F42 Q43 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:3834&r=mac |
| By: | Nautz, Dieter; Offermanns, Christian J. |
| Abstract: | This paper investigates how the dynamic adjustment of the European overnight rate Eonia to the term spread and the ECB’s policy rate has been affected by rate expectations and the operational framework of the ECB. In line with recent evidence found for the US and Japan, the reaction of the Eonia to the term spread is non-symmetric. Moreover, the response of the Eonia to the policy rate depends on both, the repo auction format and the position of the Eonia in the ECB’s interest rate corridor. |
| Keywords: | Monetary Policy Impleme ion, Term Structure of Interest Rates, Nonli Cointegration |
| JEL: | E43 E52 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:4238&r=mac |
| By: | Wohltmann, Hans-Werner; Winkler, Roland |
| Abstract: | The paper analyzes the dynamic effects of anticipated price increases of imported raw materials upon two large open economies. It is assumed that the economies have an asymmetric macroeconomic structure on the supply side and are dependent upon a small third country for oil or raw materials imports. The dynamic behavior of several macroeconomic variables is discussed both under US dollar and Euro-currency denomination. It is shown that with Euro-currency denominated oil the stagnationary effects of oil price increases upon both the domestic and foreign economy are reduced. The paper also discusses several monetary policy responses to oil price shocks. |
| Keywords: | oil price shocks, international policy coordination, currency denomination |
| JEL: | E63 F42 Q43 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:3196&r=mac |
| By: | Philippe D Karam; Douglas Laxton; Andrew Berg |
| Abstract: | This paper provides a how-to guide to model-based forecasting and monetary policy analysis. It describes a simple structural model, along the lines of those in use in a number of central banks. This workhorse model consists of an aggregate demand (or IS) curve, a price-setting (or Phillips) curve, a version of the uncovered interest parity condition, and a monetary policy reaction function. The paper discusses how to parameterize the model and use it for forecasting and policy analysis, illustrating with an application to Canada. It also introduces a set of useful software tools for conducting a model-consistent forecast. |
| Keywords: | Monetary policy , Canada , United States , Monetary aggregates , Forecasting models , Economic models , |
| Date: | 2006–04–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/81&r=mac |
| By: | Markku Lanne; Helmut Lütkepohl |
| Abstract: | A central issue of monetary policy analysis is the specification of monetary policy shocks. In a structural vector autoregressive setting there has been some controversy about which restrictions to use for identifying the shocks because standard theories do not provide enough information to fully identify monetary policy shocks. In fact, to compare different theories it would even be desirable to have over-identifying restrictions which would make statistical tests of different theories possible. It is pointed out that some progress towards overidentifying monetary policy shocks can be made by using specific data properties. In particular, it is shown that changes in the volatility of the shocks can be used for identification. Based on monthly US data from 1965-1996 different theories are tested and it is found that associating monetary policy shocks with shocks to nonborrowed reserves leads to a particularly strong rejection of the model whereas assuming that the Fed accommodates demand shocks to total reserves cannot be rejected. |
| Keywords: | monetary policy, structural vector autoregressive analysis, vector autoregressive process, impulse responses |
| JEL: | C32 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1744&r=mac |
| By: | Erkki Koskela; Mikko Puhakka |
| Abstract: | We investigate dynamics in an overlapping generations economy with Stone-Geary preferences. We show that a steady state exists, and furthermore and importantly, that there can be a multitude of two cycles even though intertemporal elasticity of substitution in consumption exceeds unity. |
| Keywords: | Stone-Geary preferences, overlapping generations economy, cycles and indeterminacy |
| JEL: | E21 E32 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1737&r=mac |
| By: | Magnus Saxegaard |
| Abstract: | This paper examines the pattern of excess liquidity in sub-Saharan Africa and its consequences for the effectiveness of monetary policy. The paper argues that understanding the consequences of excess liquidity requires quantifying the extent to which commercial bank holdings of excess liquidity exceed levels required for precautionary purposes. It proposes a methodology for measuring this quantity and uses it to estimate a nonlinear structural VAR model for the CEMAC region, Nigeria and Uganda. The study suggests that excess liquidity weakens the monetary policy transmission mechanism and thus the ability of monetary authorities to influence demand conditions in the economy. |
| Keywords: | Excess liquidity , Sub-Saharan Africa , Central African Economic and Monetary Community , Nigeria , Uganda , Monetary policy , Money supply , Credit , Economic models , |
| Date: | 2006–05–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/115&r=mac |
| By: | Eickmeier, Sandra; Breitung, Jörg |
| Abstract: | A high degree of cyclical synchronization between central and east European countries (CEECs) and the euro area is generally seen as a prerequisite for successful EMU enlargement. This paper investigates comovements between CEECs and the euro area. We first establish stylized facts on economic linkages using dynamic correlation and cohesion measures. By means of a large-scale dynamic factor model, we then identify the main structural common euro-area shocks and investigate their transmission to the CEECs in comparison to the current EMU members. We finally carry out a counterfactual experiment which allows us to assess the costs and benefits of accession to EMU for individual CEECs in terms of economic volatilities and the implications of enlargement for synchronization. Overall, our results are mixed. Dynamic business cycle and inflation correlations between CEECs and the euro area are, on average, lower than between individual EMU members and the euro area, but they are higher than for some small peripheral EMU countries. This is confirmed by our other measure, variance shares of output and inflation explained by common euro-area factors. The proliferation of euro-area shocks to the CEECs does not differ significantly from the propagation to EMU countries in most cases. Based on our counterfactual experiment, we do not find significant stabilizing or destabilizing effects through a common monetary policy and fixed exchange rates. We also find that business cycle synchronization between CEECs and between most CEECs and the euro area will increase. There seems to be considerable heterogeneity across CEECs, implying that for some countries, accession to EMU would be more costly than for others. According to our analysis and based on our measures, Poland, Slovenia, Hungary and Estonia are more suitable EMU candidates than other countries. |
| Keywords: | Dynamic factor models, international business cycles, EMU e gement, counterfactual experiment |
| JEL: | C32 C50 E5 F02 F41 F42 F47 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:3379&r=mac |
| By: | Leith, Campbell; von Thadden, Leopold |
| Abstract: | This paper develops a small New Keynesian model with capital accumulation and government debt dynamics. The paper discusses the design of simple monetary and fiscal policy rules consistent with determinate equilibrium dynamics in the absence of Ricardian equivalence. Under this assumption, government debt turns into a relevant state variable which needs to be accounted for in the analysis of equilibrium dynamics. The key analytical finding is that without explicit reference to the level of government debt it is not possible to infer how strongly the monetary and fiscal instruments should be used to ensure determinate equilibrium dynamics. Specifically, we identify in our model discontinuities associated with threshold values of steady-state debt, leading to qualitative changes in the local determinacy requirements. These features extend the logic of Leeper (1991) to an environment in which fiscal policy is non-neutral. Naturally, this non-neutrality increases the importance of fiscal aspects for the design of policy rules consistent with determinate dynamics. |
| Keywords: | Monetary policy, Fiscal regimes |
| JEL: | E52 E63 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:4472&r=mac |
| By: | Wohltmann, Hans-Werner; Winkler, Roland |
| Abstract: | The paper analyzes the dynamic effects of anticipated price increases of imported raw materials upon two large open economies. It is assumed that the economies have an asymmetric macroeconomic structure on the supply side and are dependent upon a small third country for oil or raw materials imports. The dynamic behavior of several macroeconomic variables is discussed under alternative scenarios. We first assume that oil is priced in dollars. Thereafter, we investigate the impacts of oil price shocks on the domestic and the foreign economy if oil imports are denominated in terms of domestic currency (Euro) rather than US dollars. It is shown that with domestic- currency denominated oil the stagflationary effects of oil price increases upon both the domestic and foreign economy are reduced. The paper also discusses several monetary policy responses to oil price shocks. |
| Keywords: | oil price shocks, international policy coordination, time inconsistency, currency denomination |
| JEL: | E63 F41 Q43 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:2880&r=mac |
| By: | Philippe D Karam; Douglas Laxton; Andrew Berg |
| Abstract: | This paper motivates and describes an approach to forecasting and monetary policy analysis based on the use of a simple structural macroeconomic model, along the lines of those in use in a number of central banks. It contrasts this approach with financial programming and its emphasis on monetary aggregates, as well as with more econometrically driven analyses. It presents illustrative results from an application to Canada. A companion paper provides a more detailed how-to guide and introduces a set of tools designed to facilitate this approach. |
| Keywords: | Monetary policy , Canada , United States , Monetary aggregates , Forecasting models , Economic models , |
| Date: | 2006–04–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/80&r=mac |
| By: | Mark Crosby; Tim Kam; Kirdan Lees (Reserve Bank of New Zealand) |
| Abstract: | This paper quantifies the costs of mitigating exchange rate volatility within the context of a flexible inflation targeting central bank. Within a standard linearquadratic formulation of inflation targeting, we append a term that penalises deviations in the exchange rate to the central bank’s loss function. For a simple forward-looking New Keynesian model, we show that the central bank can reduce volatility in the exchange rate relatively costlessly by aggressively responding to the real exchange rate. However, when we append correlated shocks – to better match summary statistics of the Australian data – we find that the costs associated with reducing exchange rate volatility are larger: output volatility increases substantially. Finally, we apply our method to a variant of a small backward-looking New Keynesian model of the Australian economy. Under this model, large increases in inflation and output volatility accrue if the central bank attempts to mitigate exchange rate volatility. |
| JEL: | C51 E52 F41 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:nzb:nzbdps:2006/07&r=mac |
| By: | Jorge Roldos |
| Abstract: | This paper studies changes in Canada's monetary policy transmission, associated with the important changes in financial structure experienced in the 1990's, using two methodologies. First, VAR models show a clear break in monetary transmission beginning in 1988, after changes in financial regulation initiated the process of financial disintermediation. Second, estimates of the interest rate elasticity of aggregate demand in IS equations increase in the 1990's, suggesting that the systematic component of monetary policy has become more relevant. The ratio of direct to indirect finance, a measure of disintermediation, contributes to explain changes in the interest rate elasticity, suggesting an increased effectiveness of monetary policy associated with a larger use of market-based sources of finance. |
| Date: | 2006–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/84&r=mac |
| By: | Thierry Tressel; Alessandro Prati |
| Abstract: | This paper studies how macroeconomic policies can help offset two unintended and undesirable features of foreign aid: its volatility and Dutch disease. We present evidence that aid volatility augments trade balance volatility and that foreign aid, with the important exception of years of adverse shocks, depresses exports. We also find that these effects can be mitigated through changes in net domestic assets of the central bank-a variable that reflects both monetary and fiscal policy. To characterize the optimal policy, we develop a general equilibrium model in which the capital account is closed and aid influences productivity growth through positive (public expenditure) and negative (Dutch disease) externalities. In this setting, macroeconomic policies permanently affect real variables and can improve welfare if donors do not distribute foreign aid optimally over time. |
| Keywords: | Development assistance , Monetary policy , Real effective exchange rates , Balance of trade , |
| Date: | 2006–06–21 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/145&r=mac |
| By: | Lavern McFarlane; Wayne Robinson; Goohoon Kwon |
| Abstract: | This paper provides comprehensive empirical evidence that supports the predictions of Sargent and Wallace's (1981) "unpleasant monetarist arithmetic" that an increase in public debt is typically inflationary in countries with large public debt. Drawing on an extensive panel dataset, we find that the relationship holds strongly in indebted developing countries, weakly in other developing countries, but generally not in developed economies. These results are robust to the inclusion of other variables, corrections for endogeneity biases, and relaxation of common-slope restrictions and are invariant over sub-sample periods. We estimate a VAR to trace out the transmission channel and find the impulse responses consistent with the predictions of a forward-looking model of inflation. Wealth effects of public debt could also affect inflation, as posited by the fiscal theory of the price level, but we do not find supportive evidence. The results suggest that the risk of a debt-inflation trap is significant in highly indebted countries, and pure money-based stabilization is unlikely to be effective over the medium term. Our findings stress the importance of institutional and structural factors in the link between fiscal policy and inflation. |
| Keywords: | Public debt , Jamaica , Money supply , Demand for money , Inflation , Fiscal policy , Economic models , |
| Date: | 2006–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/121&r=mac |
| By: | Anthony Annett |
| Abstract: | The Stability and Growth Pact has been a success in numerous EU countries, especially in guiding them toward underlying fiscal balance ahead of population aging. These countries tend to be smaller, subject to greater macroeconomic volatility, and reliant on a form of fiscal governance that emphasizes targets and contracts. Most of the new members share these characteristics. For the countries less compatible with the Pact, domestic governance reforms that increase the reputational costs for noncompliance can be useful complements to the fiscal framework. |
| Keywords: | Fiscal policy , Europe , European Union , Political economy , Budget deficits , |
| Date: | 2006–05–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/116&r=mac |
| By: | Döpke, Jörg; Hartmann, Daniel; Pierdzioch, Christian |
| Abstract: | We compared forecasts of stock market volatility based on real-time and revised macroeconomic data. To this end, we used a new dataset on monthly real-time macroeconomic variables for Germany. The dataset covers the period 1994-2005. We used a statistical, a utility-based, and an options-based criterion to evaluate volatility forecasts. Our main result is that the statistical and economic value of volatility forecasts based on real-time data is comparable to the value of forecasts based on revised macroeconomic data. |
| Keywords: | Forecasting stock market volatility, Real-time macroeconomic data, Evaluation of forecasting accuracy |
| JEL: | C53 E44 G11 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp2:4357&r=mac |
| By: | Álvarez, Luís; Dhyne, Emmanuel; Hoeberichts, Marco; Kwapil, Claudia; Le Bihan, Hervé; Lünnemann, Patrick; Martins, Fernando; Sabbatini, Roberto; Stahl, Harald; Vermeulen, Philip; Vilmunen, Juoko |
| Abstract: | This paper presents original evidence on price setting in the euro area at the individual level. We use micro data on consumer (CPI) and producer (PPI) prices, as well as survey information. Our main findings are: (i) prices in the euro area are sticky and more so than in the US; (ii) there is evidence of heterogeneity and of asymmetries in price setting behaviour; (iii) downward price rigidity is only slightly more marked than upward price rigidity and (iv) implicit or explicit contracts and coordination failure theories are important, whereas menu or information costs are judged much less relevant by firms. |
| Keywords: | Price setting, Price stickiness, Consumer prices, Producer prices, survey data |
| JEL: | C25 D40 E31 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:4239&r=mac |
| By: | Edda Claus; Mardi Dungey; Renee Fry |
| Abstract: | Two impediments to effective monetary policy operation include illiquidity in bond markets and the move towards the zero bound of interest rates. Either or both of these scenarios have been evident in many countries in the last decade, raising the suggestion that alternative means of enacting monetary policy may be required. This paper empirically explores policy options implemented through equity and currency markets that will generate similar inflation responses at a short (2 year) and a long (10 year) time frame as those obtained under current arrangements. The results show that current monetary policy arrangements are least costly in terms of the output loss from achieving lower inflation outcomes. However, if this option ceases to be available the next best alternative is to use the equity market option provided a longer run focus is maintained. Focus on short horizons increases the longer term output costs of the policy in all cases. |
| JEL: | E52 C51 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2006-17&r=mac |
| By: | Balázs Égert; Ronald MacDonald |
| Abstract: | This paper surveys recent advances in the monetary transmission mechanism (MTM). In particular, while laying out the functioning of the separate channels in the MTM, special attention is paid to exploring possible interrelations between different channels through which they may amplify or attenuate each others’ impact on prices and the real economy. We take stock of the empirical findings especially as they relate to countries in Central and Eastern Europe, and compare them to results reported for industrialised countries, especially for the euro area. We highlight potential pitfalls in the literature and assess the relative importance and potential development of the different channels. |
| Keywords: | monetary transmission, transition, Central and Eastern Europe, credit channel, interest rate channel, interest-rate pass-through, exchange rate channel, exchange rate pass-through, asset price channel |
| JEL: | E31 E51 E58 F31 O11 P20 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1739&r=mac |
| By: | Greg Tkacz; Carolyn Wilkins |
| Abstract: | The authors examine whether simple measures of Canadian equity and housing price misalignments contain leading information about output growth and inflation. Previous authors have found that the information content of asset prices in general, and equity and housing prices in particular, are unreliable in that they do not systematically predict future economic activity or inflation. However, earlier studies relied on simple linear relationships that would fail to pick up the potential non-linear effects of asset-price misalignments. The authors' results suggest that housing prices are useful for predicting GDP growth, even within a linear context. Moreover, both stock and housing prices can improve inflation forecasts, especially when using a threshold specification. These improvements in forecast performance are relative to the information contained in Phillips-curve type indicators for inflation and IS-curve type indicators for GDP growth. |
| Keywords: | Inflation and prices; Business fluctuations and cycles |
| JEL: | C53 E4 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:06-25&r=mac |
| By: | Pytlarczyk, Ernest |
| Abstract: | This paper presents an estimated DSGE model for the European Monetary Union. Our approach, contrary to the previous studies, accounts for heterogeneity within the euro area. We advance the empirical literature by estimating an open-economy model with unfiltered data, which is a much more challenging task than a similar exercise done in the closedeconomy framework. In the estimation we utilize disaggregated information, employing single country data, along with the aggregated EMU data by Fagan et. al (2001). We also contribute to the literature by proposing a strategy for consistent estimation of the currency union model, using information available prior to the adoption of the single currency and afterwards. This approach requires the determination of two separate data generating processes - here these are theoretical DSGE models - corresponding to both current and historical monetary regimes. We emphasize the use of regime-switching models in the DSGE framework (in our case the threshold is known exactly and the switch is permanent). The approach is illustrated by developing a simple tworegion DSGE model, with a particular focus on analyzing the German economy within EMU, and its Bayesian estimation on the sample 1980:q1- 2003:q4. Moreover, the paper offers: (i) a robustness check of the estimation results with respect to the alternative data approaches and various restrictions imposed on the model’s structure, (ii) assessments of the relative importance of various shocks and frictions for explaining the model dynamics and (iii) an evaluation of the model’s empirical properties. |
| JEL: | E4 E5 F4 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:4227&r=mac |
| By: | Anton Burger (Research Institute for Regulatory Economics, Vienna University of Economics & B.A.) |
| Abstract: | This paper investigates several possible reasons for the exceptional period of growth in the nineties in the US. These years can be characterised as a case of an expansionary fiscal consolidation as strong growth and structural surpluses were observed. Five different channels the literature suggests for relationships between government spending and consumption are investigated. There are hints that the economy did not work in a Keynesian way but there is no proof of the existence of a Non-Keynesian effect. Expectational effects could not be separated empirically from asset wealth. Whereas standard consumption estimations failed, a model adding a factor containing asset wealth and expectations was finally able to explain consumption from 1996 onwards. This has important implications for policy. Moreover, compositional effects were found to be important. The two main findings of the paper, namely an asset wealth/expectations effect and compositional effects support the interpretation of a positive link between public savings, asset values and growth. |
| JEL: | H30 H31 E60 E62 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp095&r=mac |
| By: | Kerstin Bernoth; Guntram B. Wolff |
| Abstract: | We investigate the effects of official fiscal data and creative accounting signals on interest rate spreads between bond yields in the European Union. Our model predicts that risk premia contained in government bond spreads should increase in both the official fiscal position and the expected “creative” part of fiscal policy. The relative importance of these two signals depends on the transparency of the country. Greater transparency reduces risk premia. The empirical results confirm the hypotheses. Creative accounting increases the spread. The increase of the risk premium is stronger if financial markets are unsure about the true extent of creative accounting. Fiscal transparency reduces risk premia. |
| Keywords: | risk premia, government bond yields, creative accounting, stock-flow adjustments, gimmickry, transparency |
| JEL: | E43 E62 F34 G12 H60 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1732&r=mac |
| By: | Marco Del Negro; Frank Schorfheide |
| Abstract: | The paper proposes a novel method for conducting policy analysis with potentially misspecified dynamic stochastic general equilibrium (DSGE) models and applies it to a New Keynesian DSGE model along the lines of Christiano, Eichenbaum, and Evans (JPE2005) and Smets and Wouters (JEEA2003). We first quantify the degree of model misspecification and then illustrate its implications for the performance of different interest-rate feedback rules. We find that many of the prescriptions derived from the DSGE model are robust to model misspecification. |
| Keywords: | Monetary policy |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:06-4&r=mac |
| By: | Döpke, Jörg; Hartmann, Daniel; Pierdzioch, Christian |
| Abstract: | We report results on the ex ante predictability of monthly excess stock returns in Germany using real-time and revised macroeconomic data. Our real-time macroeconomic data cover the period 1994-2005. We report three results. 1) Real-time macroeconomic data did not contribute much to ex ante stock-return predictability. 2) The performance of an investor who had to rely on noisy real-time macroeconomic data would have been comparable to the performance of an investor who had access to revised macroeconomic data. 3) In real time, it is important for an investor to know which real-time variable to use for predicting stock returns. |
| Keywords: | Ex ante predictability of stock returns, real-time macroeconomic data, performance of investment strategies, Germany |
| JEL: | C53 E44 G11 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:4247&r=mac |
| By: | Chin Nam Low; Heather Anderson; Ralph Snyder |
| Abstract: | This paper considers Beveridge-Nelson decomposition in a context where the permanent and transitory components both follow a Markov switching process. Our approach insorporates Markov switching into a single source of error state-space framework, allowing business cycle asymmetries and regime switches in the long-run multiplier. |
| JEL: | C22 C51 E32 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:pas:camaaa:2006-18&r=mac |
| By: | Ellen R. McGrattan |
| Abstract: | A central debate in applied macroeconomics is whether statistical tools that use minimal identifying assumptions are useful for isolating promising models within a broad class. In this paper, I compare three statistical models—a vector autoregressive moving average (VARMA) model, an unrestricted state space model, and a restricted state space model—that are all consistent with the same prototype business cycle model. The business cycle model is a prototype in the sense that many models, with various frictions and shocks, are observationally equivalent to it. The statistical models I consider differ in the amount of a priori theory that is imposed, with VARMAs imposing minimal assumptions and restricted state space models imposing the maximal. The objective is to determine if it is possible to successfully uncover statistics of interest for business cycle theorists with sample sizes used in practice and only minimal identifying assumptions imposed. I find that the identifying assumptions of VARMAs and unrestricted state space models are too minimal: The range of estimates are so large as to be uninformative for most statistics that business cycle researchers need to distinguish alternative theories. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmwp:643&r=mac |
| By: | Döpke, Jörg; Dovern, Jonas; Fritsche, Ulrich; Slacalek, Jirka |
| Abstract: | This paper investigates the relevance of the sticky information model of Mankiw and Reis (2002) and Carroll (2003) for four major European economies (France, Germany, Italy and the United Kingdom). As opposed to the benchmark rational expectation models, households in the sticky information environment update their expectations sporadically rather than instantaneously owing to the costs of acquiring and processing information. We estimate two alternative parametrizations of the sticky information model which differ in the stationarity assumptions about the underlying series. Using survey data on households’ and experts’ inflation expectations, we find that the model adequately captures the dynamics of household inflation expectations. Both parametrizations imply comparable speeds of information updating for the European households as was previously found in the US, on average roughly once a year. |
| Keywords: | Inflation, expectations, sticky information, inflation persistence |
| JEL: | E31 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:4231&r=mac |
| By: | Hoffmann, Johannes; Kurz-Kim, Jeong-Ryeol |
| Abstract: | We analyse the adjustment of retail and services prices in a period of low inflation, using a set of individual price data from the German Consumer Price Index which covers the years 1998 to 2003. We strong find evidence of time- and state-dependent price adjustment. Most importantly, the differences in “unconditional” sectoral price flexibility are found to be linked to input price volatility. |
| Keywords: | price rigidity, price flexibility, Consumer Price Index, Germany |
| JEL: | D43 E31 L11 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:4355&r=mac |
| By: | Nkunde Mwase |
| Abstract: | The paper examines the effect of exchange rate changes on consumer prices in Tanzania using structural vector autoregression (VAR) models. Using a data set covering the period 1990-2005, we find that the exchange rate pass-through to inflation declined in the late 1990s despite the depreciation of the currency. This could be partly attributed to the macroeconomic and structural reforms that were implemented during this period. The decline in the pass-through does not necessarily imply that exchange rate fluctuations are less significant in explaining macroeconomic fluctuations. The recent increase in the share of imports in the economy suggests that the pass-through could rise over the medium term. The findings imply that the authorities should remain vigilant in assessing the potential impact of foreign prices on the dynamics of inflation in Tanzania. In this regard, the authorities should seek to maintain low and stable inflation and continue the ongoing structural reforms designed to improve efficiency and increase competition. |
| Date: | 2006–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/150&r=mac |
| By: | Heid, Frank |
| Abstract: | Capital requirements play a key role in the supervision and regulation of banks. The Basel Committee on Banking Supervision is now changing the current framework by introducing risk-sensitive capital charges. There have been concerns that this will unduly increase volatility in the banks’ capital. Furthermore, when the credit supply is rationed, capital requirements may exacerbate an economic downturn. We examine the problem of cyclicality in a macroeconomic model which explicitly takes regulatory constraints into account. We find that the capital buffer which banks hold on top of the required minimum plays a crucial role in mitigating the volatility in capital requirements. Therefore, despite the fact that capital charges may vary significantly over time, the effects on the macroeconomy will be moderate. |
| Keywords: | minimum capital requirements, regulatory capital, economic capital, capital buffer, pro-cyclicality, business cycle, bank lending channel |
| JEL: | E32 E44 G21 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp2:4261&r=mac |
| By: | Bernoth, Kerstin; Wolff, Guntram B. |
| Abstract: | We investigate the effects of official fiscal data and creative accounting signals on interest rate spreads between bond yields in the European Union. Our model predicts that risk premia contained in government bond spreads should increase in both, the official fiscal position and the expected ”creative” part of fiscal policy. The relative importance of these two signals depends on the transparency of the country. Greater transparency reduces risk premia. The empirical results confirm the hypotheses. Creative accounting increases the spread. The increase of the risk premium is stronger if financial markets are unsure about the true extent of creative accounting. Fiscal transparency reduces risk premia. Instrumental variable regressions confirm these results by addressing potential reverse causality problems and measurement bias. |
| Keywords: | Risk premia, government bond yields, creative accounting, stock-flow adjustments, gimmickry, transparency |
| JEL: | E43 E62 F34 G12 H6 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:4470&r=mac |
| By: | Masanao Aoki |
| URL: | http://d.repec.org/n?u=RePEc:cla:uclaol:391&r=mac |
| By: | Nautz, Dieter; Ruth, Karsten |
| Abstract: | Although stable money demand functions are crucial for the monetary model of the exchange rate, empirical research on exchange rates and money demand is more or less disconnected. This paper tries to fill the gap for the Euro/Dollar exchange rate. We investigate whether monetary disequilibria provided by the empirical literature on U.S. and European money demand functions contain useful information about exchange rate movements. Our results suggest that the empirical performance of the monetary exchange rate model improves when insights from the money demand literature are explicitly taken into account. |
| Keywords: | Euro/Dollar Exchange Rate, Monetary Model, Money Demand Functions |
| JEL: | E41 F31 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:3377&r=mac |
| By: | Andrea Vaona; Stefano Schiavo |
| Abstract: | In this paper we adopt both a nonparametric and a semi-parametric IV estimator to show that the relationship between inflation and output growth is non-linear and that there exists a threshold level below which inflation has no effects on growth. |
| Keywords: | Inflation, Growth |
| JEL: | E31 O49 C14 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1286&r=mac |
| By: | Wolfram Berger; Helmut Wagner |
| Abstract: | This paper studies the optimal design of monetary policy in an optimizing two-country sticky price model. We suppose that the production sequence of final consumption goods stretches across both countries and is associated with vertical trade. Prices of final consumption goods are sticky in the consumer's currency. Pursuing an inward-looking policy, as suggested in recent work, is not optimal in this set-up. We also ask which simple, i.e. non-optimal, targeting rule best supports the welfare maximizing policy. The results hinge critically on the degree of price flexibility and the relative importance of cost-push and productivity shocks. In many cases, a strict targeting of price indices like producer or consumer price indices is dominated by rules that allow for some fluctuations in prices such as nominal income or monetary targeting. |
| Date: | 2006–07–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/164&r=mac |
| By: | Hamid Faruqee; Natalia T. Tamirisa |
| Abstract: | This paper simulates the macroeconomic effects of population aging in a dynamic overlapping generations model of a small open economy. The model is calibrated to data for the Czech Republic, where population aging is proceeding at a pace comparable to that in other advanced countries in Europe. Simulations show that population aging is likely to slow economic growth and improvements in living standards. Although reforms to raise labor force participation and productivity growth can mitigate these adverse effects, they are unlikely to eliminate the need for fiscal reforms. The budget will come under pressure from rising age-related expenditures, and consolidation will be needed to preserve debt sustainability. |
| Date: | 2006–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/95&r=mac |
| By: | Döpke, Jörg; Funke, Michael; Holly, Sean; Weber, Sebastian |
| Abstract: | We establish some stylised facts for Germany’s business cycle at the level of the firm. Based on longitudinal firm-level data from the Bundesbank’s balance sheet statistic covering, on average, 55,000 firms per year from 1971 to 1998, we analyse the reallocation across individual producers and, in turn, the connection of this reallocation to aggregate business cycles. The empirical results indicate a pronounced heterogeneity of real sale changes across firms. Moreover, the distribution of growth rates of firm’s real sales is influenced by business cycle conditions. In particular, the cross-section skewness of real sales changes is strongly counter-cyclical. The results confirm most of the findings for the UK and the US by Higson et al. (2002, 2004) and are, therefore, robust stylised facts of the business cycle. |
| Keywords: | business cycles, cross-sectional moments, firm growth |
| JEL: | D21 D92 E32 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:4217&r=mac |
| By: | Eric Parrado; Rodolfo Maino; Leonardo Leiderman |
| Abstract: | The shift to inflation targeting has contributed to the relatively low inflation observed in some emerging market economies although, as noted by many economists, the preconditions required for a successful implementation were not in place. The existence of managed exchange rate regimes, a narrow base of domestic nominal financial assets, the lack of market instruments to hedge exchange rate risks, together with fear of floating and dollarization, have been stressed as factors that might weaken the efficacy of monetary policy. By examining various aspects of monetary transmission and policy formulation in two highly dollarized economies (Peru and Bolivia) vis-à-vis two economies with low levels of dollarization (Chile and Colombia), we found that, while dollarization imposes differences in both the transmission capacity of monetary policy and its impact on real and financial sectors, it does not preclude the use of inflation targeting as a policy regime. |
| Date: | 2006–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/157&r=mac |
| By: | Ansgar Belke (University of Hohenheim, Department of Economics, Stuttgart, Germany); Frank Baumgärtner (University of Hohenheim, Department of Economics, Stuttgart, Germany); Friedrich G. Schneider (Department of Economics, Johannes Kepler University Linz, Austria); Ralph Setzer (Deutsche Bundesbank, Department of Economics, Frankfurt, Germany) |
| Abstract: | This paper empirically investigates the differences in the motives of raising privatisation proceeds for a panel of EU countries from 1990 to 2000. More specifically, we test whether privatisations can be mainly interpreted (a) as ingredients of a larger reform package of economic liberalisation in formerly overregulated economies, (b) as a reaction to an increasing macroeconomic problem pressure and (c) as a means to foster growth and increase tax income and relax the fiscal stance with an eye on the demands by integration of economic and financial markets. Whereas we are able to corroborate claim (a) only partly, we gain consistent evidence in favour of claims (b) and (c). |
| Keywords: | European Union; panel analysis; partisan theory; privatisation proceeds; state-owned enterprises |
| JEL: | H42 E62 L33 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:jku:econwp:2006_06&r=mac |
| By: | Noureddine Krichene |
| Abstract: | This paper examines the relationship between monetary policy and oil prices within a world oil demand and supply model. Low price and high income elasticities of demand and rigid supply explain high price volatilities and producers' market power. Exchange and interest rates do influence oil market equilibrium. The relationship between oil prices and interest rates is a two-way relationship that depends on the type of oil shock. During a supply shock, rising oil prices caused interest rates to increase; whereas during a demand shock, falling interest rates caused oil prices to rise. Record low interest rates led to high oil price volatility in 2005. Data shows that world economic growth and price stability require stable oil markets and therefore more prudent monetary policies. |
| Keywords: | Oil prices , Interest rates , Exchange rates , Monetary policy , Oil crisis , |
| Date: | 2006–03–21 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/62&r=mac |
| By: | Kremer, Jana; Braz, Cláudia Rodrigues; Brosens, Teunis; Langenus, Geert; Momigliano, Sandro; Spolander, Mikko |
| Abstract: | In this paper, we present a disaggregated framework for the analysis of past and projected structural developments in the most relevant revenue and expenditure categories and the fiscal balance. The framework, in particular, distinguishes between the effects of discretionary fiscal policy and of macroeconomic and other developments and is sufficiently standardised to be used in multi-country studies. Here, it is applied to Belgium, Finland, Germany, Italy, the Netherlands and Portugal over the period 1998 to 2004. During this period the structural primary balance ratio clearly worsened in all countries except Finland. In Belgium, Italy and the Netherlands, both revenue and expenditure contributed to the deterioration of the structural primary balance. In Germany the large deterioration in revenue was partially offset by the decline in the structural primary expenditure ratio, while the opposite was true for Portugal. The analysis highlights the various factors that contributed to these developments. |
| Keywords: | Structural budget balance, fiscal forecasting and monitoring, fiscal indicators |
| JEL: | E69 H20 H50 H60 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:4242&r=mac |
| By: | Werner Schule; Luc Everaert |
| Abstract: | Using the IMF's Global Economic Model, calibrated to the European Union, the effects of reform in product and labor markets are quantified for both a large and a small euro area economy. When markups in these markets are reduced, there are sizable long-term gains in output and employment. Most of these gains accrue to the reforming country regardless of whether reform takes place elsewhere; conversely, spillovers of reform elsewhere are limited. Labor and services market reforms have transitional costs as they induce a temporary decline in consumption, but raising competition in goods markets can mitigate some of these costs. Thus, coordinating the timing of reforms across markets is beneficial, and the more so the more open the reforming economy. In addition, synchronizing structural reforms across large countries of the euro area could eliminate transition costs. Increased supply would allow monetary policy to ease without jeopardizing price stability objectives, though in practice uncertainty may prevent full accommodation. |
| Date: | 2006–06–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/137&r=mac |
| By: | Charalambos G. Tsangarides; Mahvash Saeed Qureshi |
| Abstract: | Applying techniques of clustering analysis to a set of variables suggested by the convergence criteria and the theory of optimal currency areas, this paper looks for country homogeneities to assess membership in the existing and proposed monetary unions of the broader west African region. Our analysis reveals considerable dissimilarities in the economic characteristics of the countries in west and central Africa. In particular, the West African Monetary Zone (WAMZ) countries do not form a cluster with the West Africa Economic and Monetary Union (WAEMU) countries; and, within the WAMZ, there is a significant lack of homogeneity. Furthermore, when west and central African countries are considered together, we find significant heterogeneities within the CFA franc zone, and some interesting similarities between the Economic and Monetary Community of Central Africa (CEMAC) and WAMZ countries. Overall, our findings raise some questions about the geographical boundaries of several existing and proposed monetary unions. |
| Keywords: | Monetary unions , Africa , West African Economic and Monetary Union , Central African Economic and Monetary Community , Data analysis , |
| Date: | 2006–04–14 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/90&r=mac |
| By: | Stahl, Harald |
| Abstract: | Price setting in German metal-working industries is analysed using a monthly panel of individual price data for more than 2,000 plants covering the period from 1980 to 2001. Motivated by several models in the literature, a duration model is estimated. Price changes can be explained by a combination of state-dependence and time-dependence but time-dependence clearly dominates. Time-dependence is strongest if a price increase follows a price increase. This is typically the case during the observed period. A price increase is most likely to follow a price increase after 1, 4, 5, 8, 9, … quarters. This time-dependent effect is so strong and cost and price increases are so weak in the observed period that adjustment occurs before the sticky price sufficiently deviates from the flexible price, as traditional menu cost models assume. State-dependence seems to be most relevant in periods with decreasing demand. Then prices are reduced and the time between two price reductions only rarely exceeds four months. |
| Keywords: | price rigidity, duratio alysis, business survey data |
| JEL: | D43 E31 L11 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:4219&r=mac |
| By: | Buch, Claudia M.; Lipponer, Alexander |
| Abstract: | Globalization has effected business cycle developments in OECD countries and has increased activities of firms across national borders. This paper analyzes whether these two developments are linked. We use a new firm-level dataset on the foreign activities of German firms to test whether foreign activities are affected by business cycle developments. We aggregate the data by the sector of the reporting firm, the sector of the foreign affiliate, and the host country. Data are annual and cover the period 1989-2002. We find that German outward FDI increases in response to positive cyclical developments abroad and in response to a real depreciation of the domestic currency. |
| Keywords: | Business cycles, multinational activity, FDI |
| JEL: | E3 F23 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:3369&r=mac |
| By: | Engelbert Stockhammer (Institute for Public Economics, Monetary and Fiscal Policy, Vienna University of Economics & B.A.) |
| Abstract: | The NAIRU theory has become the mainstream theory in explaining unemployment in Europe and is often used to justify demands for a cutback of the welfare state, reducing unemployment benefits, reducing minimum wages, decentralizing collective bargaining etc. Close inspection reveals that it nonetheless shares some arguments with Post Keynesian and even Marxist theory. The paper proposes an underdetermined, encompassing NAIRU model, which is consistent with several theoretical tradtions. Depending on the closure with respect to demand formation and determination of the NAIRU itself, the model allows for New Keynesian, Post Keynesian and Marxist results. |
| JEL: | B50 E12 E24 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp096&r=mac |
| By: | Bertrand Candelon (University of Maastricht - Department of Economics); Gianluca Cubadda (University of Rome II - Department of Financial and Quantitative Economics) |
| Abstract: | This paper contributes to the econometric literature on structural breaks by proposing a test for parameter stability in VAR models at a particular frequency w, where w [0, p]. When a dynamic model is affected by a structural break, the new tests allow for detecting which frequencies of the data are responsible for parameter instability. If the model is locally stable at the frequencies of interest, the whole sample size can be then exploited despite the presence of a break. Two empirical examples illustrate that local stability can concern only the lower frequencies (change in the U.S. monetary policy in the early 80'(s) or higher frequencies (decrease in the postwar U.S. productivity). |
| Keywords: | Structural breaks, spectral analysis, productivity slowdown, yield curve |
| JEL: | C32 E43 |
| Date: | 2006–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:82&r=mac |
| By: | Reto Foellmi and Joseph Zweimüller |
| Abstract: | We introduce non-homothetic preferences into a general equilibrium model of monopolistic competition and explore the impact of income inequality on the medium-run macroeconomic equilibrium. We find that (i) a sufficiently high extent of inequality divides the economy into mass consumption sectors (where firms charge low prices and hire many workers) and exclusive sectors (where firms charge high prices and hire few workers). (ii) High inequality may lead to a situation of underemployment and that underemployment could be ”Keynesian” in the sense that it cannot be cured by downward-flexible real wages. (iii) A redistribution of income from rich to poor (by means of progressive taxation) leads to higher employment and such a redistribution is Pareto-improving. (iv) An exogenous increase in (minimum) real wages have a cost effect (that lets firms reduce their employment) and a purchasing power effect (that creates an incentive for mass production and raises aggregate employment) with ambiguous net effects. (v) The economy may feature multiple equilibria where full-employment and unemployment equilibria co-exist. |
| Keywords: | Income distribution, monopolistic competition, mark-ups, exclusion |
| JEL: | E25 D30 D42 L16 E24 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:zur:iewwpx:296&r=mac |
| By: | Herwartz, Helmut; Reimers, Hans-Eggert |
| Abstract: | In this paper we follow an empirical approach to examine the implications of the Fisher hypothesis, namely cointegration linking interest rates and inflation, and stationarity of the real interest rate implying in turn homogeneity of the potential equilibrium relation. The considered sample is an unbalanced panel and comprises monthly time series data from more than 100 economies covering at most a period of about 45 years. In total more than 31000 observations enter our empirical analysis. From cross sectional error correction and dynamic OLS regressions we find that the presumed dynamic relation is hardly homogeneous over the cross section. Therefore, building on cross sectional parameter homogeneity nonstationary panel data models are provided merely as a complement to cross section specific analyses. Apart from standard between regressions we exploit the cross section dimension to infer on parameter homogeneity over particular economic states. For this purpose we rely on semiparametric implementations of so-called functional coefficient models. The latter are suitable to relate key model parameters on economic states, as e.g. periods of higher vs. lower inflation or inflation risk. From the latter approach we find that time or state invariance of key model parameters is not supported empirically. Moreover the evidence in favor of cointegration is weak over periods of high inflation. The Fisher coefficient turns out to be remarkably stable and is, over most considered states, significantly less than unity. |
| Keywords: | Fisher hypothesis, Panel cointegratio alysis, Functional coefficient models |
| JEL: | C32 C33 E40 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:4136&r=mac |
| By: | Knetsch, Thomas A. |
| Abstract: | The paper presents empirical work on short-run and long-run comovement between the German, French and Italian aggregates of private consumption, business investment, exports, imports, GDP, and changes in inventories. In country-specific data sets, cointegration analyses are carried out both to identify long-run economic relationships and to remove the trend components from the nonstationary series. Analytically, this is done by reparametrizing the vector error correction model in its common trends representation. The resulting (Beveridge-Nelson) trend and cycle components as well as the series of changes in inventories are analyzed with a focus on synchronicity. To measure crosscountry comovement at different frequencies, "cohesion", a summary statistic developed by Croux et al. [2001], is applied. Sampling variability and parameter uncertainty are captured by bootstrapped confidence intervals. |
| Keywords: | cointegration, trend-cycle decomposition, cohesion, bootstrap |
| JEL: | C32 E32 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:4233&r=mac |
| By: | Antonio Diez de los Rios |
| Abstract: | The author proposes an arbitrage-free model of the joint behaviour of interest and exchange rates whose exchange rate forecasts outperform those produced by a random-walk model, a vector autoregression on the forward premiums and the rate of depreciation, and the standard forward premium regression. In addition, the model is able to reproduce the forward premium puzzle. |
| Keywords: | Exchange rates; Interest rates; Econometric and statistical methods |
| JEL: | E43 F31 G12 G15 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:06-27&r=mac |
| By: | Ettore Kovarich; Russell C. Krueger |
| Abstract: | Looking ahead to the creation of a Gulf Cooperation Council (GCC) Currency Union in 2010, the paper covers some implications for the statistical programs of the GCC countries. Despite uncertainty over the structure of the proposed union, the paper envisions several types of mutually reinforcing statistics-convergence criteria, statistics on the core policy variables and instruments, additional macroeconomic data, specialized statistics related to the economic and institutional conditions within the union, and public information. Major changes to national statistical programs are needed that should begin soon. |
| Keywords: | Statistics , Monetary unions , Cooperation Council for the Arab States of the Gulf , |
| Date: | 2006–06–14 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/141&r=mac |
| By: | Olaf Posch; Klaus Wälde |
| Abstract: | Cyclical components are analytically computed in a theoretical model of stochastic endogenous fluctuations and growth. Volatility is shown to depend on the speed of convergence of the cyclical component, the expected length of a cycle and on the altitude of the slump. Taxes affect these channels and can therefore explain cross-country differences and breaks over time in volatility. With exogenous sources of fluctuations, a special case of our model, decentralized factor allocation is efficient. With endogenous fluctuations and growth, decentralized factor allocation is inefficient and (time-invariant) taxes can (de-) stabilize the economy. No unambiguous link exists between volatility and welfare. |
| Keywords: | endogenous fluctuations and growth, welfare analysis, taxation, stochastic continuous time model, poisson uncertainty |
| JEL: | C65 E32 E62 H30 O33 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1748&r=mac |
| By: | Dennis P. J. Botman; Manmohan S. Kumar |
| Abstract: | We explore the underlying determinants of the macroeconomic effects of fiscal policy and tax and social security reform using the Global Fiscal Model (GFM). We show that the planning horizon of consumers, access to financial markets, and the elasticity of labor supply, as well as the characteristics of utility and production functions, and the degree of competition are all critical for determining the impact of fiscal policy. Four topical fiscal policy issues, for a representative large and small economy, are examined: the effects of changes in government debt; higher government spending; tax reform; and privatization of retirement savings. |
| Keywords: | Fiscal policy , Public debt , Government expenditures , Tax reforms , Social security , Privatization , Economic models , |
| Date: | 2006–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/72&r=mac |
| By: | David Hauner; Manmohan S. Kumar |
| Abstract: | This paper explores the determinants of long-term government bond yields in the Group of Seven (G-7) economies and analyzes the factors that could explain the conundrum of very low rates in the face of a variety of adverse factors in recent years. In particular, the paper focuses on the deteriorating fiscal position in the G-7 economies and enquires which factors could have offset their impact on long-term interest rates, and how sustainable they are likely to be. A model of interest rate determination is elaborated and estimated for the G-7, with explicit emphasis on capital flows and public savings. The results suggest a high likelihood of a substantial impact of the weaker budgetary positions in the G-7 on global interest rates when the offsetting unprecedented capital flows slow down. |
| Keywords: | Interest rates , Fiscal policy , Foreign exchange reserves , Reserves , Group of Seven , Capital flows , Public sector savings , Economic models , |
| Date: | 2006–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/112&r=mac |
| By: | Nienke Oomes; Oksana Dynnikova |
| Abstract: | This paper estimates the output gap in Russia using a utilization-adjusted production function approach, which we argue is preferable to traditional output gap methods. The approach amounts to (1) using available surveys to estimate the "natural rates" of capacity and labor utilization above which inflation begins to accelerate; (2) estimating a production function with utilization-adjusted capital and labor inputs; and (3) defining potential output as the level of output obtained when both capital and labor are at their estimated natural rates. The results suggest that the output gap in Russia was negative between 1999 and 2003, but may have recently become positive, thus contributing to inflationary pressures. |
| Keywords: | Inflation , Russian Federation , Labor mobility , Labor markets , |
| Date: | 2006–03–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/68&r=mac |
| By: | Herwartz, Helmut; Xu, Fang |
| Abstract: | The low capital mobility among OECD countries, signalled by a high saving-investment (SI) relation and known as the Feldstein-Horioka puzzle, has triggered a lively discussion in the empirical literature. In this paper, we compare between, pooled, time and country dependent specifications of the SI relation via cross-validation criteria. It is found that the country dependent model is best performing among the four. Secondly, error correction models are uniformly outperformed by static panel models. Thirdly, via scatter diagrams of cross section specific estimates we observe a different time evolution of SI relations for developed and developing economies. |
| Keywords: | Saving-investment relation, Feldstein-Horioka puzzle, model comparison |
| JEL: | C33 E21 E22 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:4350&r=mac |
| By: | Guglielmo Maria Caporale; Luis A. Gil-Alana |
| Abstract: | In this paper we use a general procedure to detect structural breaks at unknown points in time which allows for different orders of integration and deterministic components in each subsample (see Gil-Alana, 2006). First, we extend it to the non-linear case, and show by means of Monte Carlo experiments that the procedure performs well in a non-linear environment. Second, we apply it to test for breaks in the unemployment rate in the US, the UK and Japan. Our results shed some light on the empirical relevance of alternative unemployment theories for these countries. Specifically, a structuralist interpretation appears more appropriate for the US and Japan, whilst a hysteresis model accounts better for the UK experience (and also for the Japanese one in the second subsample). We interpret these findings in terms of different labour market features. |
| Keywords: | unemployment, structural breaks, fractional integration |
| JEL: | C32 E32 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1734&r=mac |
| By: | Anoop Singh |
| Abstract: | The recent recovery in Latin America has been impressive but also raises the question whether this represents a fundamental break with the region's history of boom-bust cycles. The paper traces how this history of macroeconomic volatility and financial crisis over the past century has adversely impacted on growth and other development indicators, and the role played by policy instability. The paper then concludes that recent policies in the region offer encouragement that these vulnerabilities are being addressed, but notes that an important agenda still remains to be addressed. |
| Date: | 2006–07–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/166&r=mac |
| By: | Stolz, Stephanie; Wedow, Michael |
| Abstract: | This paper analyzes the effect of the business cycle on the regulatory capital buffer of German savings and cooperative banks in the period 1993–2003. The capital buffer is found to fluctuate anticyclically over the business cycle. The fluctuation is stronger for savings banks than for cooperative banks, as, for savings banks, risk-weighted assets fluctuate more strongly with the business cycle. Further, low-capitalized banks do not catch up with their wellcapitalized peers. The gap between low-capitalized and well capitalized banks even widened over the observation period. Finally, low-capitalized banks do not decrease risk-weighted assets in a business cycle downturn by more than well-capitalized banks. This finding seems to imply that their low capitalization does not force them to retreat from lending. |
| Keywords: | Capital Regulation, Bank Capital, Business Cycle Fluctuations |
| JEL: | G21 G28 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp2:4262&r=mac |
| By: | Stamfort, Stefan |
| Abstract: | This paper discusses various approaches to decompose economic time series into their trend and cyclical components. For over 30 years now, the Deutsche Bundesbank publishes trend-adjusted indicators in its Statistical Supplement 4 entitled “Seasonally Adjusted Business Statistics” which are calculated basically as unweighted moving averages. As alternatives to the Bundesbank’s current approach, the widely used Hodrick-Prescott filter, the extended exponential smoothing filter and the Baxter-King low-pass filter are investigated. All three of the filters are able to clearly separate the trend component from the cyclical component for German economic indicators. The turning points of the growth cycles are largely consistent with the Bundesbank’s current approach. However, the trend deviation level at the end of the series is still subject to noticeable changes. This uncertainty can be quantified with the help of ARIMA forecasts. The choice of filter ultimately depends on the features of the time series to be filtered. Whereas extended exponential smoothing is well suited to I(1) processes, the Hodrick-Prescott filter is preferable for I(2) series. |
| Keywords: | Business cycle, trend, time-series analysis, Hodrick-Prescott |
| JEL: | C22 E32 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:3378&r=mac |
| By: | Bartzsch, Nikolaus; Craig, Ben; Fecht, Falko |
| Abstract: | This paper analyzes the individual bidding behaviour of German banks in the money market auctions conducted by the ECB from the beginning of the third quarter of 2000 to the end of the first quarter of 2001. Our approach takes a variety of characteristics of the individual banks into account. In particular, we consider variable that capture the different use of liquidity and the different attitude towards liquidity risk of the individual banks. It turns out that these characteristics are reflected in the banks' respective bidding behaviour to a large extent. Thus our study contributes to a deeper understanding of the way liquidity risk is managed in the banking sctor. |
| Keywords: | Money Market Auctions, Liquidity Management, Interbank Market |
| JEL: | E51 G21 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp2:4265&r=mac |
| By: | Mick Silver |
| Abstract: | This paper provides an overview of statistical measurement issues relating to alternative measures of core inflation, and the criteria for choosing among them. The approaches to measurement considered include exclusion-based methods, imputation methods, limited influence estimators, reweighting, and economic modeling. Criteria for judging which approach to use include credibility, control, deviations from a smoothed reference series, volatility, predictive ability, causality and cointegration tests, and correlation with money supply. Country practice can differ in how the approaches are implemented and how their appropriateness is assessed. There is little consistency in the results of country studies to readily suggest guidelines on accepted methods. |
| Keywords: | Inflation , Consumer price indexes , Inflation targeting , Economic models , |
| Date: | 2006–04–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/97&r=mac |
| By: | Schumacher, Christian |
| Abstract: | This paper discusses the forecasting performance of alternative factor models based on a large panel of quarterly time series for the german economy. One model extracts factors by static principals components analysis, the other is based on dynamic principal components obtained using frequency domain methods. The third model is based on subspace algorithm for state space models. Out-of-sample forecasts show that the prediction errors of the factor models are generally smaller than the errors of simple autoregressive benchmark models. Among the factors models, either the dynamic principal component model or the subspace factor model rank highest in terms of forecast accuracy in most cases. However, neither of the dynamic factor models can provide better forecasts than the static model over all forecast horizons and different specifications of the simulation design. Therefore, the application of the dynamic factor models seems to provide only small forecasting improvements over the static factor model for forecasting German GDP. |
| Keywords: | Factor models, static and dynamic factors, principal components, forecasting accuracy |
| JEL: | C43 C51 E32 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:4218&r=mac |
| By: | Hyun Park |
| Abstract: | This paper continues the study of optimal fiscal policy in a growing economy by exploring a case in which the government simultaneously provides three main categories of expenditures with distortionary tax finance: public production services, public consumption services, and state-contingent redistributive transfers. The paper shows that in a general equilibrium model with given exogenous fiscal policy, a nonlinear relation exists between the suboptimal longrun growth rate in a competitive economy and distortionary tax rates. When fiscal policy is endogenously chosen at a social optimum, the relation between the rate of growth and tax rates is always negative. These two conclusions suggest that the interaction between fiscal policy and growth may be complicated enough that it cannot be captured in a simple linear model using an aggregate measure of fiscal policy. The sources of nonlinearity include expectation and coordination of fiscal policy, impluse response of government policies, and the presence of positive externality due to government spending. |
| Date: | 2006–07–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/165&r=mac |
| By: | Xavier Debrun; Oya Celasun; Jonathan David Ostry |
| Abstract: | This paper proposes a probabilistic approach to public debt sustainability analysis (DSA) using "fan charts." These depict the magnitude of risks-upside and downside-surrounding public debt projections as a result of uncertain economic conditions and policies. We propose a simulation algorithm for the path of public debt under realistic shock configurations, combining pure economic disturbances (to growth, interest rates, and exchange rates), the endogenous policy response to these, and the possible shocks arising from fiscal policy itself. The paper emphasizes the role of fiscal behavior, as well as the structure of disturbances facing the economy and due to fiscal policy, in shaping the risk profile of public debt. Fan charts for debt are derived from the "marriage" between the pattern of shocks on the one hand and the endogenous response of fiscal policy on the other. Applications to Argentina, Brazil, Mexico, South Africa, and Turkey are used to illustrate the approach and its limitations. |
| Keywords: | Public debt , Emerging markets , Debt sustainability analysis , |
| Date: | 2006–03–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/67&r=mac |
| By: | Lilia Maliar (Universidad de Alicante); Serguei Maliar (Universidad de Alicante) |
| Abstract: | We construct a general-equilibrium version of Krusell, Ohanian, Ríos-Rulland Violante’s (2000) model with capital-skill complementarity. To account forgrowth patterns observed in the data, we assume several sources of growthsimultaneously, specifically, exogenous growth of skilled and unskilled labor,equipment-specific technological progress, skilled and unskilled labor-augmentingtechnological progress and Hicks-neutral technological progress. We deriverestrictions that make our model consistent with steady-state growth. A calibratedversion of our model is able to account for the key growth patterns in the U.S. data,including those for capital equipment and structures, skilled and unskilled laborand output, but it fails to explain the long-run behavior of the skill premium. |
| Keywords: | capital-skill complementarity, steady state growth, skill premium, growth model. |
| JEL: | C73 D90 E21 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasad:2006-15&r=mac |
| By: | Blaskowitz, Oliver; Herwartz, Helmut; de Cadenas Santiago, Gonzalo |
| Abstract: | In this study we forecast the term structure of FIBOR/EURIBOR swap rates by means of recursive vector autoregressive (VAR) models. In advance, a principal components analysis (PCA) is adopted to reduce the dimensionality of the term structure. To evaluate ex–ante forecasting performance for particular short, medium and long term rates and for the level, slope and curvature of the swap term structure, we rely on measures of both statistical and economic performance. Whereas the statistical performance is investigated by means of the Henrikkson–Merton statistic, the economic performance is assessed in terms of cash flows implied by alternative trading strategies. Arguing in favor of local homogeneity of term structure dynamics, we propose a data driven, adaptive model selection strategy to “predict the best forecasting model” out of a set of 100 alternative implementations of the PCA/VAR model. This approach is shown to outperform forecasting schemes relying on global homogeneity of the term structure. |
| Keywords: | Principal components, Factor Analysis, Ex–ante forecasting, EURIBOR swap rates, Term structure, Trading strategies |
| JEL: | C32 C53 E43 G29 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:2987&r=mac |
| By: | Pradeep Dubey; John Geanakoplos |
| Date: | 2006–07–29 |
| URL: | http://d.repec.org/n?u=RePEc:cla:levrem:321307000000000261&r=mac |
| By: | Julie L. Hotchkiss; John C. Robertson |
| Abstract: | The purpose of this paper is to explore the microfoundations of the observed asymmetric movement in aggregate unemployment rates. Using U.S. data, we find that individual labor force participation responds asymmetrically to changes in local labor market conditions, consistent with the pattern of movements in the aggregate unemployment rate. Differences in the asymmetry and sensitivity of labor force participation decisions are found across gender, age, and education groups, and these differences are used to anticipate changes in the aggregate movements as population characteristics change over time. |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2006-08&r=mac |
| By: | Luis Catão; G. A. Mackenzie |
| Abstract: | This paper looks at the dramatic decline in global real interest rates in recent years from a historical perspective and examines the various factors that may account for this trend. We show that current levels of real interest rates on long-term bonds in advanced economies are not low by historical standards and that it is the real long bond rates of the early 1980s through much of the 1990s that look anomalous. We also find that current global long-term interest rates are roughly in line with what one would predict given current price-earnings (P/E) ratios and under reasonable assumptions about the equity risk premia and the expected rate of growth of earnings in advanced countries. Finally, we provide econometric evidence that global long-term interest rates are significantly affected by commodity prices, expected productivity growth, and fiscal consolidation in advanced countries. |
| Keywords: | Interest rates , Savings , Investment , Economic models , |
| Date: | 2006–04–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/76&r=mac |
| By: | Eric T. Swanson |
| Abstract: | This paper demonstrates that sectoral heterogeneity itself--without any additional bells or whistles--has first-order implications for the transmission of aggregate shocks to aggregate variables in an otherwise standard DSGE model. The effects of sectoral heterogeneity on this transmission are decomposed into two channels: a "relative price" channel and a "relative productivity" channel. The relative price channel results from changes in the relative prices of aggregates, such as investment vis-a-vis consumption goods, which occurs in a sectoral model in response to even standard aggregate shocks. The relative productivity channel arises from changes in the distribution of inputs across sectors. We show that, for standard sectoral models, this latter channel is second-order, but becomes first-order if we consider a nontraded input such as capital utilization or introduce a wedge that thwarts the steady-state equalization of marginal products of a traded input across sectors. For reasonable parameterizations, the relative productivity channel causes aggregate productivity to vary procyclically in response to non-technological shocks such as changes in government purchases. |
| Keywords: | Prices ; Productivity ; Econometric models |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2006-20&r=mac |
| By: | Fecht, Falko; Grüner, Hans Peter |
| Abstract: | Recent empirical studies criticize the sluggish financial integration in the euro area and find that only interbank money markets are fully integrated so far. This paper studies the optimal regional and/or sectoral integration of financial systems given that integration is restricted to the interbank market. Based on Allen and Gale (2000)’s seminal analysis of financial contagion we derive the interbank market structure that maximizes consumers’ ex-ante expected utility, i.e. that optimizes the trade-off between the contagion and the diversification effect. We analyze the impact of various structural parameters including the underlying stochastic structure on this trade-off. In addition we derive the efficient design of the interbank market that allows for a cross-regional risk sharing between banks. We also provide a measure for the efficiency losses that result if financial integration is limited to an integration of the interbank market. |
| Keywords: | Interbank Market, Risk Sharing, Financial Co ion, Financial Integration |
| JEL: | D61 E44 G10 G21 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp2:4266&r=mac |
| By: | Noriaki Kinoshita |
| Abstract: | This paper examines the relationship between government debt and long-term interest rates. A dynamic general equilibrium model that incorporates debt nonneutrality is specified and solved, and numerical simulations using the model are undertaken. In addition, empirical evidence using panel data for 19 industrial countries is examined. The estimation provides some evidence supporting the theoretical predictions: the paper finds that the simulated and estimated interest rate effects of government debt tend to be small. However, an increase in government consumption and debt leads to a considerably larger effect. The paper also argues that, although the interest rate effects of pure crowding out may be limited, the economic impact of accumulating government debt cannot be ignored. |
| Keywords: | Debt , Interest rates , |
| Date: | 2006–03–21 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/63&r=mac |
| By: | Ulrich Bartsch |
| Abstract: | In oil-dependent countries, a major issue is how to stabilize fiscal spending when government revenue fluctuates along with the international price of oil. A stabilization fund would allow the government to pull through an oil price trough and absorb windfall revenue when prices are high. This paper focuses on two key issues. First, the paper proposes to base government spending on moving averages of past oil prices that are shown to behave nearly as a random walk. Second, it uses Monte Carlo simulations of a fiscal policy model to look at the probability that a given level of assets in the stabilization fund is exhausted over a certain number of years. The simulations show that with a fiscal policy based on moving averages over three to five years, a stabilization fund of about 75 percent of 2004 oil revenue would be adequate, which, in Nigeria, would equate to US$16-18 billion. |
| Keywords: | Revenues , Nigeria , Oil prices , Government expenditures , |
| Date: | 2006–06–14 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/142&r=mac |
| By: | Marialuz Moreno-Badia |
| Abstract: | This paper provides detailed empirical evidence on the saving behavior of Irish households using micro data from the 1994/95 and 1999/2000 Household Budget Surveys. I employ synthetic cohort techniques to characterize the life cycle profile of saving rates and to examine the response of household saving to house price appreciation. The analysis suggests that households at the peak of their working lives have relatively low savings though there is no evidence of a generational savings gap. Also, despite housing being a major component of Irish households, wealth, there is no strong relationship between savings and housing capital gains. |
| Keywords: | Savings , Ireland , Consumption , Asset prices , |
| Date: | 2006–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/131&r=mac |
| By: | Silvia Sgherri; Tamim Bayoumi |
| Abstract: | We estimate tax multipliers in a "Blanchard-Yaari" consumption model where Ricardian equivalence is broken because the private sector discounts the future at a faster rate than the real rate of interest. The model fits U.S. data since 1955 extremely well-entailing a discount wedge of around 20 percent a year and fiscal multipliers of 0.15-0.4-depending on the permanence of the change in taxes/transfers, and is much superior to one that assumes some consumers are fully Ricardian and others follow simple rules of thumb. The implied high private sector rate of discount has wide implications for policymakers. |
| Date: | 2006–07–13 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/168&r=mac |
| By: | Fecht, Falko; Martin, Antoine |
| Abstract: | Following Diamond (1997) and Fecht (2004) we use a model in which financial market access of households restrains the efficiency of the liquidity insurance that banks' deposit contracts provide to households that are subject to idiosyncratic liquidity shocks. But in contrast to these approaches we assume spacial monopolistic competition among banks. Since monopoly rents are assumed to bring about inefficiencies, improved financial market access that limits monopoly rents also entails a positive effect. But this beneficial effect is only relevant if competition among banks does not sufficiently restrain monopoly rents already. Thus our results suggest that in the bank-dominated financial system of Germany, in which banks intensely compete for households' deposits, improved financial market access might reduce welfare because it only reduces risk sharing. In contrast, in the banking system of the U.S., with less competition for households' deposits, a high level of households' financial market participation might be beneficial. |
| Keywords: | Financial Intermediaries, Risk Sharing, Banking Competition, Comparing Financial Systems |
| JEL: | E44 G10 G21 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp2:4259&r=mac |
| By: | Anastasia Guscina; Olivier Jeanne |
| Abstract: | This paper presents a new database on government debt in 19 emerging market countries since 1980. The data set focuses on the structure of debt in terms of jurisdiction of insurance, maturity, currency composition and indexation. The paper presents stylized facts on debt structures and preliminary evidence on their determinants. We observe substantial crosscountry variation in the structure of domestic debt and find it to be associated with countries' record of monetary stability. |
| Keywords: | Debt management , Public debt , Domestic debt , External debt , Emerging markets , Databases , |
| Date: | 2006–04–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/98&r=mac |
| By: | Andrea Vaona |
| Abstract: | The main purpose of this paper is to merge together two strands of the literature regarding, either directly or indirectly, inflation: the PPP and the Phillips curve ones. In order to accomplish this task, this contribution applies the tools of the Empirical Growth Literature and of Dynamic Panel Data estimation on a sample of 81 Italian provinces from the year 1986 to the year 1998, exploiting cross-sectional variation to avoid to use instruments not directly connected with the inflation generating process. This research strategy allows to conclude that inflation is characterized by a low degree of persistence and by conditional b-convergence across provinces. Its most suitable driving variable is the unemployment rate and there are long-term non neutralities at the regional level. |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1282&r=mac |
| By: | Ebrima Faal |
| Abstract: | This paper has examined Papua New Guinea's historical economic growth patterns through a simple growth accounting framework. The analysis shows that swings in growth are mostly accounted for by a significant slowdown in capital input and lower Total Factor Productivity (TFP) growth. It also suggests that raising real GDP growth will require increases in both investment levels and productivity. With a ratio of investment to GDP of 13 percent during the last decade, significantly higher productivity growth and investment will be needed to sustain GDP growth rates at 5 percent or higher. The historical performance also indicates that, in the absence of structural reforms and strong institutions, higher rates of productivity growth will be hard to achieve. |
| Keywords: | Gross domestic product , Papua New Guinea , Economic growth , Productivity , Investment , Structural adjustment , Business cycles , |
| Date: | 2006–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/113&r=mac |
| By: | Øystein Thøgersen |
| Abstract: | A pay-as-you-go (paygo) pension program may provide intergenerational pooling of risks to individuals’ labor and capital income over the life cycle. By means of a model that provides illuminating closed form solutions, we demonstrate that the magnitude of the optimal paygo program and the nature of the underlying risk sharing effects are very sensitive to the chosen combination of risk concepts and stochastic specification of long run aggregate wage income growth. In an additive way we distinguish between the pooling of wage and capital risks within periods and two different intertemporal risk sharing mechanisms. For realistic parameter values, the magnitude of the optimal paygo program is largest when wage shocks are not permanent and individuals in any generation are considered from a pre-birth perspective, i.e. a “rawlsian risk sharing” perspective is adopted. |
| Keywords: | social security, risk sharing, portfolio choice, persistence in income shocks |
| JEL: | D91 E32 G11 H55 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1759&r=mac |
| By: | Kenneth Kletzer |
| Abstract: | This paper considers the consequences of international financial market integration for national fiscal and monetary policies that derive from the absence of an international sovereign authority to define and enforce contractual obligations across borders. The sovereign immunity of national governments serves as a fundamental constraint on international finance and is used to derive intertemporal budget constraints for sovereign nations and their governments. It is shown that the appropriate debt limit for a country allows for state-contingent repayment. With noncontingent debt instruments, debt renegotiation occurs in equilibrium with positive probability. A model of tax smoothing is adopted to show how information imperfections lead to conventional bond contracts that are renegotiated when a critical level of indebtedness is reached. Renegotiation is interpreted in terms of nominal and real denominated bonds, and implications are drawn about the intertemporal borrowing constraint for monetary policies, the accumulation of reserve assets, and current account sustainability. |
| Date: | 2006–04–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/79&r=mac |
| By: | Robert A. Hart (University of Stirling and IZA Bonn) |
| Abstract: | This paper investigates the relative cyclical behavior of the pay of piece workers and hourly paid workers. It uses a unique data set of blue-collar workers in British engineering between 1926 and 1966. The statistics are obtained from the payrolls of firms belonging to the Engineering Employers Federation (EEF). Roughly, the EEF accounted for one-third of the total engineering workforce. The data consist of cell averages delineated by 15 occupations in 29 engineering districts. Via a firm-union bargaining modelling structure, the question is examined as to likely earnings responses to price shocks under the two payment systems. The empirical work entails testing for cyclical differences in the two payments methods Insights are gained from distinguishing between the relatively tight post-war and slack prewar labor markets. |
| Keywords: | piece work pay, hourly pay, business cycle |
| JEL: | E32 J31 J33 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2210&r=mac |
| By: | Åsa Johansson |
| Abstract: | The centralised wage agreements have helped to contain inflation. There is evidence that wage increases were more moderate when a central agreement was concluded than in periods when no central agreement was reached. Nevertheless, there is also evidence that centralised wage setting has had some drawbacks in terms of reducing employment among low-skilled and younger workers because of high minimum wage floors. In the current wage setting system there are components that allow for greater relative wage flexibility. These should be used more extensively. The role of the government in future agreements should be to encourage greater relative wage flexibility within the current bargaining framework. This paper relates to the 2006 Economic Survey of Finland (www.oecd.org/eco/surveys/finland). <P>Fixation des salaires en Finlande : Accroître la flexibilité dans les accords salariaux centralisés <BR>Les accords salariaux centralisés ont aidé à maîtriser l?inflation. On peut constater que les hausses de salaires ont été plus modérées lorsqu?il y avait accord centralisé que dans les périodes où on n?y était pas parvenu. Néanmoins, on constate aussi que la détermination centralisée des salaires a pour inconvénient, du fait du niveau élevé du salaire minimum, de réduire l?emploi chez les personnes peu qualifiées et les jeunes. Le système actuellement en vigueur comporte des éléments qui permettraient une plus grande souplesse salariale relative. Il faudrait les faire jouer davantage. Le rôle du gouvernement dans les accords futurs devrait être d?encourager une plus grande souplesse salariale relative à l?intérieur du système actuel de négociation. Ce document de travail se rapporte à l?Étude économique de la Finlande 2006. (www.oecd.org/eco/etudes/finlande). |
| JEL: | E24 J23 J3 J50 J52 |
| Date: | 2006–07–24 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:503-en&r=mac |
| By: | Ben J. Heijdra; Ward E. Romp |
| Abstract: | We construct an overlapping generations model for the small open economy which incorporates a realistic description of the mortality process. Agents engage in educational activities at the start of life and thus create human capital to be used later on in life for production purposes. Depending on the strength of the intergenerational externality in the human capital production function, the model gives rise to exogenous or endogenous growth. The effects of demographic shocks and fiscal stimuli on the growth path are derived, both at impact, during transition, and in the long run. |
| Keywords: | demography, education, human capital, economic growth, fertility rate, ageing, overlapping generations, small open economy |
| JEL: | D91 E10 F41 J11 O40 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1740&r=mac |
| By: | Stahl, Harald |
| Abstract: | This paper presents new evidence on the formation of producer prices based on a onetime survey that was conducted on a sample of 1200 German firms in manufacturing in June 2004. Most of the firms have price-setting power and apply mark-up pricing. Indexation is negligible. Fixed nominal contracts are the most important reason for postponing a price adjustment. The second most likely reason is coordination failure, which causes more upward than downward stickiness. For every second firm both reasons are important. Firms can be assigned to four different groups according to an increasing complexity of reasons of price stickiness. |
| Keywords: | Price rigidity, cluster analysis |
| JEL: | D40 E30 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:4237&r=mac |
| By: | Takeshi Kobayashi; Mark Spiegel; Nobuyoshi Yamori |
| Abstract: | One of the primary motivations offered by the Bank of Japan (BOJ) for its quantitative easing program -- whereby it maintained a current account balance target in excess of required reserves, effectively pegging short-term interest rates at zero -- was to maintain credit extension by the troubled Japanese financial sector. We conduct an event study concerning the anticipated impact of quantitative easing on the Japanese banking sector by examining the impact of the introduction and expansion of the policy on Japanese bank equity values. We find that excess returns of Japanese banks were greater when increases in the BOJ current account balance target were accompanied by “nonstandard” expansionary policies, such as raising the ceiling on BOJ purchases of longterm Japanese government bonds. We also provide cross-sectional evidence that suggests that the market perceived that the quantitative easing program would disproportionately benefit financially weaker Japanese banks. |
| Keywords: | Monetary policy - Japan ; Bank of Japan ; Banks and banking - Japan |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2006-19&r=mac |
| By: | Fecht, Falko; Huang, Kevin; Martin, Antoine |
| Abstract: | We build a model in which financial intermediaries provide insurance to households against a liquidity shock. Households can also invest directly on a financial market if they pay a cost. In equilibrium, the ability of intermediaries to share risk is constrained by the market. This can be beneficial because intermediaries invest less in the productive technology when they provide more risk-sharing. Our model predicts that bank-oriented economies should grow slower than more market-oriented economies, which is consistent with some recent empirical evidence. We show that the mix of intermediaries and market that maximizes welfare under a given level of financial development depends on economic fundamentals. We also show the optimal mix of two structurally very similar economies can be very different. |
| Keywords: | Financial Intermediaries, Risk Sharing, Finance and Growth, Comparing Financial Systems |
| JEL: | E44 G10 G20 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:2937&r=mac |
| By: | Mercedes Garcia-Escribano; Ehtisham Ahmad |
| Abstract: | There is increasing interest in fiscal decentralization in Peru as a mechanism to generate more involved decision-making at the subnational level. This is tempered with a continuing emphasis on overall fiscal stability. However, considerable work needs to be undertaken to define more clearly expenditure responsibilities and financing mechanisms that increase local accountability. In addition, a more transparent fiscal transfer system is needed, together with clarity in expenditure management at all levels of government. The paper suggests that a substantial work agenda is needed to extend the decentralization process with greater transparency. |
| Keywords: | Fiscal policy , Peru , Intergovernmental fiscal relations , Public finance , Fiscal transparency , |
| Date: | 2006–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/120&r=mac |
| By: | Fuentes, Raúl |
| Abstract: | This paper presents a two-sector small semi-open economy Ramsey growth model involving foreign aid as an input in the production function. An activist government allocates this input endogenously across sectors and optimizes policies in a non-standard way. Once calibrated, mainly on countries exhibiting medium relative prices values, the model reproduces the main stylized facts outlined in the literature and suggests a strategy that could make aid work. |
| Keywords: | Foreig d, Economic development, Economic growth, Quantitative approach |
| JEL: | E62 F35 O11 O23 O41 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:gdec05:3487&r=mac |
| By: | Lemke, Wolfgang; Archontakis, Theofanis |
| Abstract: | Using a stochastic discount factor approach, we derive the exact solution for arbitrage-free bond yields for the case that the short-term interest rate follows a threshold process with the intercept switching endogenously. The yield functions, mapping the one-month rate into n-period yields, respectively. This is in contrast to linear short-rate process which imply an affine yield function. The intervals for which convexity or concavity prevails increase with time to maturity. |
| Keywords: | Threshold process, term structure of interest rates, nonli yield function |
| JEL: | C63 E43 G12 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:4243&r=mac |
| By: | Herwartz, Helmut; Xu, Fang |
| Abstract: | We investigate for 26 OECD economies if their current account imbalances are driven by stochastic trends. Standard ADF results are contrasted with tests accounting for the bounded support of the current account. Neglecting the latter feature might give misleading results in the sense that ADF based conclusions are biased towards the rejection of unit root features. The current account imbalances are found to be bounded nonstationary for most OECD economies. Panel based test statistics confirm the bounded nonstationarity for these series. |
| Keywords: | Current account, bounded unit root tests |
| JEL: | C12 C22 C23 E21 E22 F32 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:4351&r=mac |
| By: | Nauro F. Campos (Brunel University, CEPR and IZA Bonn); Cheng Hsiao (University of Southern California); Jeffrey B. Nugent (University of Southern California) |
| Abstract: | Recent research convincingly shows that crises beget reform. Although the consensus is that economic crises foster macroeconomic stabilization, it is silent on which types of crises cause which types of reform. Is it economic or political crises that are the most important drivers of structural reforms? To answer this question we put forward evidence on trade and labour market liberalization from panel data on more than 100 developed and developing countries from 1950 to 2000. We find important differences in the effects of the two types of crises on the two reforms across regions and even from one measure of crisis to another. Yet, in general, we consistently find that political considerations (political crises as well as political institutions) are more important determinants of these reforms than economic crises. This finding is robust to the inclusion of interdependencies between the two types of crises, feedbacks between the two types of reform, the use of alternative measures of political and economic crises and whether or not the data are pooled across all countries or only across regions. |
| Keywords: | economic reform, economic crisis, political crisis, trade liberalisation, labour market reform |
| JEL: | H11 K20 E32 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2217&r=mac |
| By: | Harry P. Bowen; Haris Munandar; Jean-Marie Viaene |
| Abstract: | This paper considers the distribution of output and productive factors among members of a fully integrated economy (FIE). We demonstrate that each member’s shares of total output and of total factors will be equal. This implies that growth in shares is random. If output and factor shares evolve as reflective geometric Brownian motion, then limiting distribution of these shares will exhibit Zipf’s law. Our empirics support Zipf’s law for U.S. states and for E.U. countries. These findings imply that models characterizing growth of members within an FIE should embody a key assumption: growth process of shares is random and homogeneous. |
| Keywords: | growth, economic integration, factor price equalization, Zipf’s law |
| JEL: | E13 F15 F21 F22 O57 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1743&r=mac |
| By: | Bassanetti, Antonio; Döpke, Jörg; Torrini, Roberto; Zizza, Roberta |
| Abstract: | The paper analyses the recent supply side developments in France, Germany, and Italy by employing a non-parametric approach to estimate potential GDP. The analysis reveals marked heterogeneity among the three countries with regard to the contribution made by labour input. Where similarities can be found, however, are in the slowdown of accumulation activity and in the pronounced worsening of total factor productivity. The paper is rounded out by estimates of some measures of wage pressures and of profitability in order to assess the role played by the movements of relative input prices in the intensity of use of primary factors in the production process. |
| Keywords: | Potential output, growth accounting, productivity, NAIRU, factor shares |
| JEL: | E32 O47 O52 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:4246&r=mac |
| By: | Daria Zakharova; Annalisa Fedelino |
| Abstract: | We survey quantitative fiscal conditionality in selected sub-Saharan African PRGFsupported programs, and assess the conditionality against some possible benchmarks and best practices. While noting many caveats, the paper suggests some possible scope for further attuning of this conditionality to countries' specific macro-fiscal situations. The paper also offers some suggestions on how quantitative fiscal conditionality might be further enhanced. |
| Date: | 2006–05–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/118&r=mac |
| By: | Christopher F. Baum (Boston College); Mustafa Caglayan (University of Glasgow); Oleksandr Talavera (DIW Berlin) |
| Abstract: | We investigate the impact of measures of uncertainty on firms' capital investment behavior using a panel of U.S. firms. Increases in firm-specific and CAPM-based measures have a significant negative impact on investment spending, while market-based uncertainty has a positive impact. |
| Keywords: | capital investment, asymmetric information, financial frictions, uncertainty, CAPM |
| JEL: | E22 D81 C23 |
| Date: | 2006–07–28 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:646&r=mac |
| By: | Helge Berger; Michael Neugart |
| Abstract: | Labor courts play an important role in determining the effective level of labor market regulation in Germany, but their application of law may not be even-handed. Based on a simple theoretical model and a new panel data set, we identify a nomination bias in labor court activity - that is, court activity varies systematically with the political leaning of the government that has appointed judges. In an extension, we find a significant positive relation between labor court activity and unemployment, even after controlling for the endogeneity of court activity. The results have potentially important policy implications regarding the independence of the judiciary and labor market reforms. |
| Keywords: | courts, labor courts, law production, nomination bias, unemployment, regulation, firing costs, Germany |
| JEL: | E24 J53 K31 K41 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1752&r=mac |
| By: | Khoon Lek Goh; Daniel Lawrence (The Treasury) |
| Abstract: | Work on assessing Treasury’s forecasting performance to date has focussed on comparisons against consensus forecasts. This study compares Treasury’s GDP and CPI forecast performance against individual private sector forecasters as well as major public sector institutions such as the IMF, OECD and the Reserve Bank of New Zealand. The head-to-head comparison makes it possible to assess Treasury’s forecasting performance relative to its peers. When compared across all evaluation periods covering 1996-2005, Treasury’s GDP forecast performance was ranked in the middle at seventh out of 16. The large forecast error for the 1998 year had a material impact on Treasury’s overall forecast performance. Treasury’s CPI forecast performance was not as good, placing tenth out of 12. Large forecast errors for the 1998-2000 period accounted for the poor CPI forecast performance. Treasury’s overall forecast performance was better when evaluating only the current year Budget forecasts, placing fourth for GDP and sixth for CPI. This suggests that Treasury is better at forecasting the current year than the year ahead. Consistent with international studies, no single forecaster consistently outperforms the Consensus, with Treasury beating the Mean 30% of the time for GDP and Consensus 33% of the time for CPI. All forecasters find it difficult to pick recessions and turning points. Large forecasting groups generally have a poorer forecasting record on average. |
| Keywords: | Forecast accuracy; New Zealand |
| JEL: | E27 E37 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:nzt:nztwps:06/10&r=mac |
| By: | Osinubi, Tokunbo Simbowale; Gafaar, Oluwatoyin Alade S |
| Abstract: | Recently the depth and severity of extreme poverty in Nigeria has been alarming. And over the years, the government undertook some macroeconomic policies with the aim of reducing, if not totally eradicating poverty. These policies were expected to at least raise the standard of living of Nigerians. The impact of these policies on alleviating poverty has been contentious. Some studies in the past have argued that the poor has benefited more from these policies while some found that there was positive real growth yet poverty and inequality still worsened. This can be traced to the nature of growth pursued and the macroeconomic policies that underline it. This study empirically evaluates macroeconomic policies vis-à-vis pro-poor growth in Nigeria using secondary data covering the period 1960-2000. The study found among others that economic growth in Nigeria has been slightly pro-poor. This implied that growth was actually weakly pro-poor. Also, those that are far below the poverty line have not really been enjoying the benefits of growth. Infact, the benefits getting to them has been decreasing at an increasing rate. More so, economic growth in rural areas will be slightly more pro-poor than in urban areas. Overall, growth in Nigeria is not necessarily always pro-poor. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:gdec05:3497&r=mac |
| By: | Allan Timmermann |
| Abstract: | The World Economic Outlook (WEO) is a key source of forecasts of global economic conditions. It is therefore important to review the performance of these forecasts against both actual outcomes and alternative forecasts. This paper conducts a series of statistical tests to evaluate the quality of the WEO forecasts for a very large cross section of countries, with particular emphasis on the recent recession and recovery. It assesses whether forecasts were unbiased and informationally efficient, and characterizes the process whereby WEO forecasts get revised as the time to the point of the forecast draws closer. Finally, the paper assess whether forecasts can be improved by combining WEO forecasts with the Consensus forecasts. The results suggest that the performance of the WEO forecasts is similar to that of the Consensus forecasts. While WEO forecasts for many variables in many countries meet basic quality standards in some, if not all, dimensions, the paper raises a number of concerns with current forecasting performance. |
| Keywords: | World Economic Outlook , Economic forecasting , Economic conditions , |
| Date: | 2006–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/59&r=mac |
| By: | Lamin Leigh |
| Abstract: | Hong Kong SAR's population is aging rapidly. This paper concludes that, without a change in policies, aging could adversely affect growth and living standards. While higher labor productivity growth and increased migration of younger skilled workers from the Chinese mainland, would attenuate the economic impact of aging, they would not offset it fully. Aging will also put pressure on public finances, particularly as a result of rising health care costs. There is a relatively narrow window of opportunity to implement policies to lessen the impact of aging, given that the demographic effects could start setting in as early as 2015 when the working population's support ratio peaks. In recent years, the Hong Kong SAR authorities have been focusing on policies that could help limit the fiscal impact of aging, including continued expenditure restraint on non-age-sensitive areas, reform of health care financing (including introducing private health insurance system), and tax reforms. |
| Date: | 2006–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/87&r=mac |