nep-mac New Economics Papers
on Macroeconomics
Issue of 2007‒02‒03
eighteen papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. The UK great stability: a view from the term structure of interest rates By Bianchi, Francesco; Mumtaz, Haroon; Surico, Paolo
  2. Savings and Investment Correlations in Response to Monetary Policy Shocks: New Insights into the Feldstein-Horioka Puzzle? By Caroline Schmidt
  3. Business Cycles and Seasonal Cycles in Bangladesh By Rahman, Pk. Md. Motiur; Yamagata, Tatsufumi
  4. A golden rule for Russia? How a rule-based fiscal policy can allow a smooth adjustment to the new terms of trade By Christian Gianella
  5. Aggregate Shocks or Aggregate Information? Costly Information and Business Cycle Comovement By Laura Veldkamp; Justin Wolfers
  6. Monetary and Exchange Rate Policy in Malaysia before the Asian Crisis By Umezaki, So
  7. Representations and Sunspot Stability By George W. Evans; Bruce McGough
  8. Growth and Welfare Effects of Stabilizing Innovation Cycles By Marta Aloi; Laurence Lasselle
  9. Crowding-out and Crowding-in Effects of Government Bonds Market on Private Sector Investment (Japanese Case Study) By Abdullatif Alani, Emad M.A.
  10. Sources of Investment Inefficiency: The Case of Fixed-Asset Investment in China By Duo Qin; Haiyan Song
  11. When Is a Central Bank Governor Fired? Evidence Based on a New Data Set By Axel Dreher; Jakob de Haan; Jan-Egbert Sturm
  12. Stability and Cycles in a Cobweb Model with Heterogeneous Expectations By Laurence Lasselle; Serge Svizzero; Clem Tisdell
  14. Reputational Risk and Conflicts of Interest in Banking and Finance: The Evidence So Far By Ingo Walter
  15. The impact of political leaders’ profession and education on reforms By Axel Dreher; Michael J. Lamla; Sarah M. Rupprecht; Frank Somogyi
  16. The Allocation of Resources under Uncertainty By Harris Dellas; Ana Fernandes
  17. Overall Specialization and Income: Countries Diversify By Luca De Benedictis; Marco Gallegati; Massimo Tamberi
  18. Does membership on the UN Security Council influence IMF decisions? Evidence from panel data By Axel Dreher; Jan-Egbert Sturm; James Raymond Vreeland

  1. By: Bianchi, Francesco; Mumtaz, Haroon; Surico, Paolo
    Abstract: This paper models the evolution of monetary policy, the term structure of interest rates and the UK economy across policy regimes. We model the interaction between the macroeconomy and the term structure via a time-varying VAR model which is augmented with factors from the yield curve. Our results suggest that the characteristics of the yield curve (e.g. level, slope and curvature) display substantial time variation with the level factor moving closely with measures of inflation expectations. Our estimates indicate a large decline in volatility associated with the yield curve and macroeconomic variables, with the period of stability coinciding with the inflation targeting regime. The link between the macroeconomy and the yield curve has also changed over time with fluctuations in the level factor less important for inflation after 1997. In addition, policy rates appear to have responded more systematically to inflation and unemployment in the current regime and the contribution of the policy shock has been low. Finally, in contrast to a fixed coefficients specification, theoretical yields predicted by our time-varying model are very close to actual data and deviations from the expectations hypothesis have been rare.
    Keywords: FAVAR; Great Stability; Term Structure; Expectation Theory
    JEL: G14 C32 E58 E43
    Date: 2007–01–25
  2. By: Caroline Schmidt (KOF, Swiss Institute of Business Cycle Research, ETH Zurich)
    Abstract: In this paper, it is argued that the observed high positive correlation between national savings and investment which is found in the data can in part be explained by shocks to monetary policy. This hypothesis, which is established by reviewing some empirical .ndings, is tested in a two-country DSGE-model framework in the tradition of the New Open Economy Macroeconomics. The simulation results obtained support the idea that shocks to monetary policy might contribute to the explanation of the Feldstein-Horioka puzzle.
    Keywords: Savings Investment Correlations,Monetary Policy Shocks, Feldstein- Horioka Puzzle, Local-currency pricing; Investment Correlations,Monetary Policy Shocks, Feldstein- Horioka Puzzle, Local-currency pricing
    JEL: E2 E52 F32
    Date: 2006–08
  3. By: Rahman, Pk. Md. Motiur; Yamagata, Tatsufumi
    Abstract: The empirical regularities of the Bangladesh business and seasonal cycles are documented in this study. Spectrums, seasonality, volatility, cyclicality, and persistence in the level and variance of macroeconomic variables in Bangladesh are explored using monthly and quarterly macroeconomic series. Most of the features of U.S. and East-Southeast Asian business cycles are common to Bangladeshi business cycles; however, there are some differences. As is seen in the U.S. and European economies, seasonal cycles accentuate the features of business cycles in Bangladesh. To our surprise, the seasonal cycles in Bangladesh embody the features of business cycles in the U.S. and East-Southeast Asian economies more thoroughly than they do the business cycles in Bangladesh.
    Keywords: Business cycles, Seasonal cycles, Bangladesh
    JEL: E32 O53
    Date: 2006–10
  4. By: Christian Gianella
    Abstract: The Russian economy continues to grow strongly, buoyed by rising terms of trade, which, in turn, are supporting a boom in domestic consumption. This paper addresses the challenge that the adjustment to sustained high oil prices poses for macroeconomic management. It first examines the impact of rising terms of trade on the domestic economy, particularly with respect to exchange-rate appreciation, competitiveness and inflation. It then considers the role of monetary and fiscal policies in ensuring a smooth adjustment to the higher terms of trade. The paper argues that fiscal policy should be the primary instrument for tackling this challenge. It therefore focuses on the potential role of a fiscal rule in insulating the economy and the budget from commodity-price fluctuations, and on the management of windfall oil and gas revenues accumulated in the fiscal Stabilisation Fund. <P>Une règle d’or pour la Russie? Comment une politique budgétaire fondée sur des règles peut permettre un ajustement en douceur aux nouveaux termes de l’échange. <BR>L’économie russe continue de croître à un rythme élevé, bénéficiant d’une amélioration prolongée des termes de l’échange qui alimente la forte hausse de la consommation intérieure. Cette étude analyse le défi que l’adaptation à des prix du pétrole durablement élevés suscite en termes de gestion macroéconomique. Il examine d’abord les conséquences de l’augmentation des termes de l’échange sur l’économie nationale, en particulier son impact sur l’appréciation du taux de change, la compétitivité et l’inflation. Il analyse ensuite le rôle que les politiques monétaire et budgétaire peuvent jouer pour garantir un ajustement en douceur à cette augmentation des termes de l’échange. Le chapitre conclut que la politique budgétaire devrait être l’instrument à privilégier pour réaliser cet ajustement. Enfin, l’étude considère le rôle que peuvent potentiellement jouer des règles budgétaires pour mettre l’économie et le budget à l’abri des fluctuations des prix des matières premières, et se concentre sur la gestion des recettes pétrolières et gazières exceptionnelles transférées dans le Fonds de stabilisation.
    Keywords: fiscal policy, politique budgétaire, monetary policy, politique monétaire, Russia, Russie, dutch disease, syndrome néerlandais, macroeconomic management, gestion macroéconomique
    JEL: E52 E63 O23
    Date: 2007–01–15
  5. By: Laura Veldkamp; Justin Wolfers
    Date: 2006
  6. By: Umezaki, So
    Abstract: This paper provides a case study to characterize the monetary policy regime in Malaysia, from a medium- and long-term perspective. Specifically, we ask how the central bank of Malaysia, Bank Negara Malaysia (BNM), has structured its monetary policy regime, and how it has conducted monetary and exchange rate policy under the regime. By conducting three empirical analyses, we characterize the monetary and exchange rate policy regime in Malaysia by three intermediate solutions on three vectors: the degree of autonomy in monetary policy, the degree of variability of the exchange rate, and the degree of capital mobility.
    Keywords: Monetary policy, Exchange rate, Capital control, Malaysia, Foreign exchange, Capital market
    JEL: E42 E58 F41
    Date: 2006–12
  7. By: George W. Evans (University of Oregon Economics Department); Bruce McGough (Oregon State University)
    Abstract: By endowing his agents with simple forecasting models, or representations, Woodford (1990) found that finite state Markov sunspot equilibria may be stable under learning. We show that common factor representations generalize to all sunspot equilibria the representations used by Woodford (1990). We find that if finite state Markov sunspots are stable under learning then all sunspots are stable under learning, provided common factor representations are used.
    Keywords: E52, E32, D83, D84
    JEL: E52 E32 D83 D84
    Date: 2007–01–01
  8. By: Marta Aloi; Laurence Lasselle
    Abstract: We consider a simple model of innovation where equilibrium cycles may arise and show that, whenever actual capital accumulation falls below its balanced growth path, subsidizing innovators by taxing consumers has stabilizing effects, promotes sustained growth and increases welfare. Further, if the steady state is unstable under laissez faire, the introduction of the subsidy can make the steady state stable. Such a policy has beneficial effects as it fosters output growth along the transitional adjustment path, and increases the welfare of current and future generations.
    Keywords: Growth, endogenous cycles, stabilization, innovation, subsidy, welfare.
    JEL: E62 H32 O41
    Date: 2007–01
  9. By: Abdullatif Alani, Emad M.A.
    Abstract: This paper reviews the relationship between public sector investment and private sector investment through government expenditures financed by government bonds in the Japanese economy. This study hypothesizes that deficit financing by bond issues does not crowd out private sector investment, and this finance method may crowd in. Thus the government increases bond issues and sells them in the domestic and international financial markets. This method does not affect interest rates because they are insensitive to government expenditures and they depend on interest rates levels in the international financial market more than in the domestic financial market because of globalization and integration among financial markets.
    Keywords: Government debt, Budget deficit, Government bonds, Crowding out/crowding in, Japan, National debt, Private sector
    JEL: E43 E44 E62
    Date: 2006–10
  10. By: Duo Qin (Queen Mary, University of London); Haiyan Song (Hong Kong Polytechnic University)
    Abstract: This study attempts to measure the inefficiency associated with aggregate investment in a transitional economy. The inefficiency is decomposed into allocative and production inefficiency based on standard production theory. Allocative inefficiency is measured by disequilibrium investment demand. Institutional factors are then taken into consideration as possible explanatory variables of the disequilibrium. The resulting model is applied to Chinese provincial panel data. The main findings are: Chinese investment demand is strongly receptive to expansionary fiscal policies and inter-provincial network effects; and although there are signs of increasing allocative efficiency, the tendency of over-investment remains, even with improvements in production efficiency.
    Keywords: Over-investment, Efficiency, Disequilibrium, Soft-budget constraint
    JEL: E22 E62 H74 P3 C23
    Date: 2007–01
  11. By: Axel Dreher (Department of Management, Technology, and Economics, ETH Zurich); Jakob de Haan (University of Groningen, The Netherlands and CESifo, Munich, Germany); Jan-Egbert Sturm (Department of Management, Technology, and Economics, ETH Zurich)
    Abstract: This paper uses a new data set on the term in office of central bank governors in 137 countries covering the period 1970-2004 to estimate a model for the chance that a central bank governor is replaced. We formulate a number of hypotheses based on the literature on the determinants of central bank independence that are tested using conditional logit models and the Extreme Bounds Analysis. We conclude that, apart from the share of the current term in office elapsed, high levels of political and regime instability, the occurrence of elections, and high inflation increase the probability of a turnover.
    Keywords: central bank governors, central bank independence
    JEL: E5
    Date: 2006–07
  12. By: Laurence Lasselle; Serge Svizzero; Clem Tisdell
    Abstract: We investigate the dynamics of a cobweb model with heterogeneous beliefs, generalizing the example of Brock and Hommes (1997). We examine situations where the agents form expectations by using either rational expectations, or a type of adaptive expectations with limited memory defined from the last two prices. We specify conditions that generate cycles. These conditions depend on a set of factors that includes the intensity of switching between beliefs and the adaption parameter. We show that both Flip bifurcation and Neimark-Sacker bifurcation can occur as primary bifurcation when the steady state is unstable.
    Keywords: Bounded rationality, Cobweb model, Flip bifurcation, Neimark-Sacker bifurcation.
    JEL: C62 D84 E30
    Date: 2007–01
  13. By: Gordon Menzies; Daniel Zizzo
    Abstract: We present a macroeconomic market experiment on the financial determination of exchange rates, and consider whether the assumption that belief formation be treated as a classical hypothesis test, which we label inferential expectations, can explain the effect of uncertainty on exchange rates. In a non-stochastic environment, exchange rates closely follow standard predictions. In our stochastic environment, inferential expectations with a low test size alpha (conservative inferential expectations) predict exchange rates better than rational expectations in ten sessions out of twelve. Belief conservatism appears magnified rather than diminished at the market level, and the degree of belief conservatism seems connected to the failure of uncovered interest rate parity regressions.
    JEL: C91 D84 E50 F31
    Date: 2006–12
  14. By: Ingo Walter
    Date: 2006
  15. By: Axel Dreher (Department of Management, Technology, and Economics, ETH Zurich); Michael J. Lamla (Department of Management, Technology, and Economics, ETH Zurich); Sarah M. Rupprecht (Department of Management, Technology, and Economics, ETH Zurich); Frank Somogyi (Department of Management, Technology, and Economics, ETH Zurich)
    Abstract: This paper analyzes whether the educational and professional background of a head of government matters for the implementation of market-liberalizing reforms. Employing panel data over the period 1970-2002, we present empirical evidence based on a novel data set covering profession and education of more than 500 political leaders from 73 countries. Our results show that entrepreneurs, professional scientists, and trained economists are significantly more reform oriented. Contrary, union executives tend to impede reforms. We also highlight interactions between profession and education with time in office and the political leaning of the ruling party.
    Keywords: Reforms, Economic Policy, Economic Freedom, Interest Groups, Lobbying
    JEL: D72 E61 H11
    Date: 2006–09
  16. By: Harris Dellas; Ana Fernandes
    Abstract: We study the effects of uncertainty on the allocation of resources in the standard, static, general equilibrium, two-sector, two-factor model. The elasticity of substitution in production vs that in consumption plays a key role in determining whether uncertainty attracts or repels resources. Risk aversion matters, but to a smaller extent, while factor endowments and factor intensities play a more limited role.
    Keywords: Uncertainty; general equilibrium; two-sector model
    JEL: E2 D5 D8
    Date: 2006–12
  17. By: Luca De Benedictis (DIEF - University of Macerata - Italy); Marco Gallegati (DEA - Università Politecnica delle Marche - Italy); Massimo Tamberi (DEA - Università Politecnica delle Marche - Italy)
    Abstract: This paper gives evidence to a stylized fact often disregarded in international trade empirics: countries' diversification. In the last fifteen years, the growth of world trade coexisted with the tendency of countries to reduce the specialization of their export composition along the development path. On average, countries do not specialize, they diversify. Our semiparametric empirical analysis shows how this result is robust to the use of different statistical indexes used to measure trade specialization to the level of sectoral aggregation and to the level of smoothing in the nonparametric term associated to income per capita. Using a General Additive Model (GAM) with country-specific fixed-effect, we show that, controlling for countries heterogeneity, sectoral export diversification increases with income.
    Keywords: International Trade, Specialization, Development, Generalized Additive Models
    JEL: C14 E32 F10
  18. By: Axel Dreher (Department of Management, Technology, and Economics, ETH Zurich); Jan-Egbert Sturm (Department of Management, Technology, and Economics, ETH Zurich); James Raymond Vreeland (Yale University, Department of Political Science, USA)
    Abstract: We investigate whether temporary members of the UN Security Council receive favorable treatment from the IMF, using panel data for 191 countries over the period 1951 to 2004. Our results indicate a robust positive relationship between temporary UN Security Council membership and participation in IMF programs, even after accounting for economic and political factors, as well as regional and country effects, and duration dependence. There is also evidence that UNSC membership reduces the number of conditions included in IMF programs. The size of the loan, however, is not affected by UNSC membership.
    Keywords: IMF, UN Security Council, Voting, Aid
    JEL: E5
    Date: 2006–09

This nep-mac issue is ©2007 by Soumitra K Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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