nep-mac New Economics Papers
on Macroeconomics
Issue of 2007‒05‒19
fifty-five papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Money-based interest rate rules: lessons from German data By Gerberding, Christina; Seitz, Franz; Worms, Andreas
  2. Should Central Banks Adjust Their Target Horizons in Response to House-Price Bubbles? By Meenakshi Basant Roi; Rhys R. Mendes
  3. The Role of the Real Interest Rate in US Macroeconomic History By Ernst Juerg Weber
  4. On the Determinacy of Monetary Policy under Expectational Error By Chadha, J.S.; Corrado, L.
  5. Fear of Floating and Social Welfare By Tambakis, D.N.
  6. Monetary Policy Rules in Theory and in Practice: Evidence from the UK and the US By Páez-Farrell, Juan
  7. The Maastricht Inflation Criterion: "Saints" and "Sinners" By Ales Bulir; Jaromir Hurnik
  8. Seigniorage By Buiter, Willem H.
  9. Impulse or Propagation? How the Tides turned in Business Cycle Theory By Jan Reijnders
  10. Robust Taylor rules in an open economy with heterogeneous expectations and least squares learning By Bask, Mikael; Selander, Carina
  11. Learning Stability for Monetary Policy Rules in a Two-Country Model By Wang, Q.
  12. The NOK/euro exhange rate after inflation targeting: The interest rate rules By Roger Bjørnstad and Eilev S. Jansen
  13. Welfare-maximizing monetary policy under parameter uncertainty By Rochelle M. Edge; Thomas Laubach; John C. Williams
  14. Economic Liberalization and the Causal Relations among Money, Income, and Prices: The Case of Pakistan By Husain, Fazal; Rashid, Abdul
  15. Hidden Economies and the Socially Optimal Fiscal-Tax to Liquidity-Tax Ratio By Ercolani, Marco G.
  16. The monetary transmission mechanism in Pakistan: a sectoral analysis By Alam, Tasneem; Waheed, Muhammad
  17. Foreign Exchange Intervention and the Political Business Cycle : A Panel Data Analysis By Axel Dreher; Roland Vaubel
  18. The stabilizing role of government size By Javier Andrés; Rafael Doménech; Antonio Fatás
  19. Evaluating Inflation Targeting Using a Macroeconometric Model By Fair, Ray C.
  20. When Do Firms Adjust Prices? Evidence from Micro Panel Data By Sarah M. Rupprecht
  21. An Idealized View of Financial Intermediation By Sissoko, Carolyn
  22. Debt and Interest Rates: The U.S. and the Euro Area By Chinn, Menzie; Frankel, Jeffrey
  23. Micro Foundations of Price-Setting Behaviour: Evidence from Canadian Firms By Daniel de Munnik; Kuan Xu
  24. Monetary Policy Analysis with Potentially Misspecified Models By Marco Del Negro; Frank Schorfheide
  25. Dynamic News Effects in High Frequency Euro Exchange Rate Returns and Volatility By Evans, Kevin; Speight, Alan
  26. Macro Economic Uncertainty of 1990s and Volatility at Karachi Stock Exchange By Mamoon, Dawood
  28. Financial Frictions, Investment and Tobin's q By Guido Lorenzoni; Karl Walentin
  29. How Much Does the UK Invest in Intangible Assets? By Haskel, Jonathan; Marrano, Mauro Giorgio
  30. Do fiscal rules cause budgetary outcomes? By Signe Krogstrup; Sébastien Wälti
  31. Long Run Macroeconomic Relations in the Global Economy By Dees, Stephane; Holly, Sean; Pesaran, M. Hashem; Smith, L. Vanessa
  32. Information Criteria for Impulse Response Function Matching Estimation of DSGE Models By Hall, Alastair; Inoue, Atsushi; Nason M, James; Rossi, Barbara
  33. Americans Do I.T. Better: US Multinationals and the Productivity Miracle By Bloom, Nicholas; Sadun, Raffaella; Van Reenen, John
  34. Fiscal Situation and Stabilization Fund of Buenos Aires City: evolution and forecast By Uña, Gerardo; Bertello, Nicolas
  35. On Econometric Analysis of Structural Systems with Permanent and Transitory Shocks and Exogenous Variables By Pagan, A.; Pesaran, M.H.
  36. Economic policies coordination: Simulations in CFA countries By DRAMANI, Latif
  37. Fiscal Implications of Personal Tax Adjustments in the Czech Republic By Alena Bicakova; Jiri Slacalek; Michal Slavik
  38. Employment Protection Legislation and Wages By Marco Leonardi; Giovanni Pica
  39. Changes in Predictive Ability with Mixed Frequency Data By Ana Beatriz Galvão
  40. Plutocratic and Democratic Consumer Price Indexes: an Estimation of a Democratic Index for Italy 1995-2005 By Francesco CHELLI; Elvio MATTIOLI
  41. Taking a DSGE Model to the Data Meaningfully By Juselius, Katarina; Franchi, Massimo
  42. Employment Protection, Product Market Regulation and Firm Selection By Winfried Koeniger; Julien Prat
  43. Multi country model in CFA zone By DRAMANI, Latif
  44. Moral hazard and bail-out in fiscal federations: evidence for the German Länder By Heppke-Falk, Kirsten H.; Wolff, Guntram B.
  45. CMS swaps in separable one-factor Gaussian LLM and HJM model By HENRARD, Marc
  46. The EU Budget Dispute - A Blessing in Disguise? By Ondrej Schneider
  47. The Performance of Foreign Firms and the Macroeconomic Impact of FDI By Kyoji Fukao
  48. Intertemporal Consumption Choices, Transaction Costs and Limited Participation in Financial Markets: Reconciling Data and Theory. By Orazio P. Attanasio; Monica Paiella
  49. Audit Coordinates in Financial-Banking Marketing - Evidence from Romania By Dura, Codruta; Driga, Imola
  50. Once Again: Ten years after the Asian Crisis By Beja, Jr., Edsel
  51. Structural Change under New Labour By Coutts, K.; Glyn, A.; Rowthorn, B.
  52. La monnaie comme projet politique : restauration monétaire et currency board en Lituanie, 1988-1994 By Jérôme Blanc
  53. Variable Retirement and the Effects of Social Insurance on Savings, Wealth, and Welfare By Bruce, Neil; Turnovsky, Stephen J.
  54. Effet peso : présentation théorique et application à la politique monétaire By Nicolas Million
  55. E-commerce settles for established payment systems: Limited market potential for innovative payment systems By Heng, Stefan

  1. By: Gerberding, Christina; Seitz, Franz; Worms, Andreas
    Abstract: The paper derives the monetary policy reaction function implied by money growth targeting. It consists of an interest rate response to deviations of the inflation rate from target, to the change in the output gap, to money demand shocks and to the lagged interest rate. In the second part, it is shown that this type of inertial interest rate rule characterises the Bundesbank’s monetary policy from 1979 to 1998 quite well. This result is robust to the use of real-time or ex post data and to the consideration of serially correlated errors. The main lesson is that, in addition to anchoring long-term inflation expectations, monetary targeting introduces inertia and history-dependence into the monetary policy rule. This is advantageous when private agents have forward-looking expectations and when the level of the output gap is subject to persistent measurement errors.
    Keywords: Monetary policy, Taylor rule, money growth targets, history dependence
    JEL: E43 E52 E58
    Date: 2007
  2. By: Meenakshi Basant Roi; Rhys R. Mendes
    Abstract: The authors investigate the implications of house-price bubbles for the optimal inflation-target horizon using a dynamic general-equilibrium model with credit frictions, house-price bubbles, and small open-economy features. They find that, given the distribution of shocks and inflation persistence over the past 25 years, the optimal target horizon for Canada tends to be at the lower end of the six- to eight-quarter range that has characterized the Bank of Canada's policy since the inception of the inflation-targeting regime. The authors' results also suggest that it may be appropriate to take a longer view of the inflation-target horizon when the economy faces a houseprice bubble.
    Keywords: Central bank research; Economic models; Monetary policy framework; Credit and credit aggregates; Inflation targets; Transmission of monetary policy
    JEL: E5 E42 E44 E52 E58 E61
    Date: 2007
  3. By: Ernst Juerg Weber (UWA Business School, The University of Western Australia)
    Abstract: A negative real interest rate has guaranteed macroeconomic equilibrium during every national emergency in the United States since the early 19th century, except the Great Depression in the 1930s when deflation interfered with the interest rate mechanism. During the Great Depression, the interest rate mechanism failed because the zero bound on the nominal interest rate implies that the real interest rate cannot be negative if there is deflation. This points to a monetary explanation of the Great Depression, and it suggests that central banks should suspend monetary policy rules that target inflation if there is an adverse political or economic shock that creates consumer pessimism.
    JEL: D91 E21 E52 G12 N21
    Date: 2007
  4. By: Chadha, J.S.; Corrado, L.
    Abstract: Forward looking agents with expectational errors provide a problem for monetary policy. We show that under such conditions a standard interest rate rule may not achieve determinacy. We suggest a modification to the standard policy rule that guarantees determinacy in this setting, which involves the policy maker co-ordinating inflation dynamics by responding to each of past, current and expected inflation. We show that this solution maps directly into Woodford's (2000) timeless perspective. We trace the responses in an artificial economy and illustrate the extent to which macroeconomic persistence is reduced following the adoption of this rule.
    Keywords: Expectational Errors; Indeterminacy; Monetary Policy Rules.
    JEL: C62 E31 E58
    Date: 2007–05
  5. By: Tambakis, D.N.
    Abstract: This paper studies the welfare implications of financial stability and inflation stabilization as distinct monetary policy objectives. Introducing asymmetric aversion to exchange rate depreciation in the Barro-Gordon model mitigates inflation bias due to credibility problems. The net welfare impact of fear of floating depends on the economy’s recent track record, the credibility of monetary policy, and the central bank’s discount factor. It is shown that fear of floating is more appropriate for financially fragile developing countries with imperfectly credible monetary policy than for advanced economies.
    Keywords: Fear of floating, financial stability, policy credibility, emerging market economies.
    JEL: E52 E58 F33
    Date: 2007–05
  6. By: Páez-Farrell, Juan (Cardiff Business School)
    Abstract: Given the large amount of interaction between research on monetary policy and its practice, this paper examines whether some simple monetary policy rules that have been proposed in the academic literature, part of which has originated from within central banks, provide a reasonable characterisation of actual policy in the UK and the US. The paper finds that the simple rule that describes best actual US monetary policy is a speed limit rule with dynamics, whilst for the UK it is a forward-looking rule. The simpler dynamics in the UK's monetary policy rule are reflective of the lower persistence of inflation as a result of its policy of inflation targeting.
    Date: 2007–05
  7. By: Ales Bulir; Jaromir Hurnik
    Abstract: The Maastricht inflation criterion, designed in the early 1990s to bring “high-inflation†EU countries into line with “low-inflation†countries prior to the introduction of the euro, poses challenges for both new EU member countries and the European Central Bank. While the criterion has positively influenced the public stance toward low inflation, it has biased the choice of the disinflation strategy toward short-run, fiat measures—rather than adopting structural reforms with longer-term benefits—with unpleasant consequences for the efficiency of the eurozone transmission mechanism. The criterion is also unnecessarily tight for new member countries, as it mainly reflects cyclical developments.
    Keywords: ERM2, Maastricht inflation criterion, new EU member countries.
    JEL: E31 E32 E42 F33
    Date: 2006–12
  8. By: Buiter, Willem H.
    Abstract: Governments through the ages have appropriated real resources through the monopoly of the ‘coinage’. In modern fiat money economies, the monopoly of the issue of legal tender is generally assigned to an agency of the state, the Central Bank, which may have varying degrees of operational and target independence from the government of the day. In this paper I analyse four different but related concepts, each of which highlights some aspect of the way in which the state acquires command over real resources through its ability to issue fiat money. They are (1) seigniorage (the change in the monetary base), (2) Central Bank revenue (the interest bill saved by the authorities on the outstanding stock of base money liabilities), (3) the inflation tax (the reduction in the real value of the stock of base money due to inflation and (4) the operating profits of the central bank, or the taxes paid by the Central Bank to the Treasury. To understand the relationship between these four concepts, an explicitly intertemporal approach is required, which focuses on the present discounted value of the current and future resource transfers between the private sector and the state. Furthermore, when the Central Bank is operationally independent, it is essential to decompose the familiar consolidated ‘government budget constraint’ and consolidated ‘government intertemporal budget constraint’ into the separate accounts and budget constraints of the Central Bank and the Treasury. Only by doing this can we appreciate the financial constraints on the Central Bank’s ability to pursue and achieve an inflation target, and the importance of cooperation and coordination between the Treasury and the Central Bank when faced with financial sector crises involving the need for long-term recapitalisation or when confronted with the need to mimick Milton Friedman’s helicopter drop of money in an economy faced with a liquidity trap.
    Keywords: inflation tax, central bank budget constraint, coordination of monetary and fiscal policy
    JEL: E4 E5 E6 H6
    Date: 2007
  9. By: Jan Reijnders
    Abstract: This paper contains a short history of business cycle theory. It is argued that in the course of time the emphasis shifted from a mainly exogenous to a mainly endogenous explanation of the cycle. After the integration of the two approaches in the so-called impulse and propagation theory, the balance kept shifting between an emphasis on endogenous propagation mechanism (Keynesians), the exogenous impulse mechanism (New Classicals) and back again to the propagation mechanism (New Keynesians). The shifts in emphasis in theory are accompanied by changes in the perceived window of opportunity for economic policy.
    Keywords: Business Cycles, History of Economic Thought, Economic Policy
    JEL: B22 B23 E12 E13 E32 E63 E65
    Date: 2007–01
  10. By: Bask, Mikael (Bank of Finland Research); Selander, Carina (Umeå University)
    Abstract: The aim of this paper is threefold: (i) to investigate if there is a unique rational expectations equilibrium (REE) in the small open economy in Galí and Monacelli (2005) that is augmented with technical trading in the foreign exchange market; (ii) to investigate if the unique REE is adaptively learnable in a recursive least squares sense; and (iii) to investigate if the unique and adaptively learnable REE is desirable in an inflation rate targeting regime in the sense that a low and not too variable CPI inflation rate in equilibrium is achieved. The monetary authority is using a Taylor rule when setting the nominal interest rate, and we investigate numerically the properties of the model developed. A main conclusion is that the monetary authority should increase (decrease) the interest rate when the CPI inflation rate increases (decreases) and when the currency gets stronger (weaker) to have a desirable rule that is robust with respect to the degree of technical trading in the foreign exchange market. Thus, the value of the currency is a better response variable than the output gap in the most desirable parametrizations of the interest rate rule.
    Keywords: determinacy; foreign exchange; inflation rate targeting regime; interest rate rule; robust monetary policy; technical trading
    JEL: E52 F31
    Date: 2007–05–09
  11. By: Wang, Q.
    Abstract: This work evaluates whether or not the interest rate rules under different exchange rate regimes lead to a REE that is both locally determinate and stable under adaptive learning by private agents. I find that monetary interdependence among countries is crucial for the determinacy and learning stability of the economy in the open economy case, even without the coordination of the policymakers. Under floating exchange rate regime, both countries should follow aggressive interest rate rules simultaneously, in order to obtain determinate and learnable REE. Furthermore, the openness diminishes the regions for the determinate and learnable rules relative to its closed economy counterpart under the .oating regime, while in other exchange rate regime, the additional reaction towards the level or change of nominal exchange rate will enlarge this region.
    Keywords: Adaptive learning, interest rate rules, open economy, exchange rate regime, determinacy, learnability
    JEL: E52 E42 E31 D84 F41 F42
    Date: 2006–12
  12. By: Roger Bjørnstad and Eilev S. Jansen (Statistics Norway)
    Abstract: Norway adopted a flexible inflation target in March 2001 following a long period with exchange rate targeting in various forms. The regime shift reverses the causal ordering between changes in the nominal exchange rate and changes in the interest rate. When the central bank targets the exchange rate, interest rates are rarely changed independently of foreign interest rates and only to counteract large movements in the exchange rate after interventions have failed to stabilise the exchange rate. With inflation targeting the interest rate is used to stabilise the domestic economy and has a strong impact on the exchange rate. The long run (steady state) relationship between the interest rate and the exchange rate is on the other hand not altered by the change in monetary policy regime. This means that the fundamental equilibrating mechanism - that is the PPP condition augmented with a risk premium - remains the same across regimes.
    Keywords: monetary policy regime shift; NOK/euro exchange rate; role of interest rates; equilibrium real exchange rate; purchasing power parity; uncovered interest parity
    JEL: C51 C52 C53 E42 F31
    Date: 2007–05
  13. By: Rochelle M. Edge; Thomas Laubach; John C. Williams
    Abstract: This paper examines welfare-maximizing monetary policy in an estimated micro-founded general equilibrium model of the U.S. economy where the policymaker faces uncertainty about model parameters. Uncertainty about parameters describing preferences and technology implies not only uncertainty about the dynamics of the economy. It also implies uncertainty about the model's utility-based welfare criterion and about the eonomy's natural rate measures of interest and output. We analyze the characteristics and performance of alternative monetary policy rules given the estimated uncertainty regarding parameter estimates. We find that the natural rates of interest and output are imprecisely estimated. We then show that, relative to the case of known parameters, optimal policy under parameter uncertainty responds less to natural-rate terms and more to other variables, such as price and wage inflation and measures of tightness or slack that do not depend on natural rates.
    Keywords: Monetary policy
    Date: 2007
  14. By: Husain, Fazal; Rashid, Abdul
    Abstract: This study re-examines the causal relations between money and the two variables, i.e., income and prices. Using annual data from 1959/60 to 2003/04, examining the stochastic properties of the variables used in the analysis, and taking care of the shifts in the series due to the start of the economic liberalization program in the early 1990s, we investigate the causal relations between real money and real income, between nominal money and nominal income, and between nominal money and prices. The analysis indicates, in general, the long run relationship among money, income, and prices. The analysis further suggests a one way causation from income to money in the long run implying that probably real factors rather than money supply has played a major role in increasing Pakistan’s national income. The study fails to find the active role of money in changing income even after taking care of possible shifts in these variables due to the economic reforms. As Regards the causal relationship between money and prices, the analysis suggests a unidirectional causality from money to prices implying monetary expansion increases inflation in Pakistan.
    Keywords: Money; Income; Prices; Economic Liberalization; Causal Relations; Pakistan
    JEL: E31 E3
    Date: 2006
  15. By: Ercolani, Marco G.
    Abstract: Differential tax analysis is used to show how the socially optimal fiscal-tax to liquidity-tax ratio changes with the relative size of the tax-evading hidden economy. The smaller the relative size of the hidden economy, the larger the optimal fiscal-tax to liquidity-tax ratio. The empirical cross-section and panel evidence supports this theoretical result.
    Keywords: inflation tax, hidden/shadow/underground economy, seigniorage
    JEL: E31 E52 H21 O17
    Date: 2007
  16. By: Alam, Tasneem; Waheed, Muhammad
    Abstract: The present paper takes a first step in investigating the monetary transmission mechanism in Pakistan at a sectoral level. Using quarterly data spanning from 1973:1 to 2003:4, we examine whether monetary policy shocks have different sectoral effects. Taking note of structural transformation of the economy and the monetary and financial reforms during 1990s, we also assess whether the reform process has notable impact on the monetary transmission mechanism. We find evidence supporting sector-specific variation in the real effects of monetary policy. Our results also suggest significant changes in the transmission of monetary shock to real sector of the economy during post-reform period.
    Keywords: Monetary transmission mechanism; VAR; Pakistan; Sectoral analysis
    JEL: C22 E52
    Date: 2006–09
  17. By: Axel Dreher (KOF Swiss Economic Institute, ETH Zurich Switzerland and CESifo, Germany); Roland Vaubel (University of Mannheim, Dept. of Economics, Mannheim, Germany,)
    Abstract: By combining expansionary open market operations with sales of foreign exchange, the central bank can expand the monetary base without depreciating the exchange rate. Thus, if there is a monetary political business cycle, sales of foreign exchange are especially likely before elections. Our panel data analysis for up to 146 countries in 1975-2001 supports this hypothesis. Foreign exchange reserves relative to trend GDP depend negatively on the preelection index. The relationship is significant and robust irrespective of the type of electoral variable, the choice of control variables and the estimation technique.
    Keywords: Foreign exchange interventions, political business cycles
    JEL: F31 E58
    Date: 2007–04
  18. By: Javier Andrés (Universidad de Valencia); Rafael Doménech (Economic Bureau of the Prime Minister, Spain); Antonio Fatás (INSEAD)
    Abstract: This paper presents an analysis of how alternative models of the business cycle can replicate the stylized fact that large governments are associated with less volatile economies. Our analysis shows that adding nominal rigidities and costs of capital adjustment to an otherwise standard RBC model can generate a negative correlation between government size and the volatility of output. However, in the model, we find that the stabilizing effect is only due to a composition effect and it is not present when we look at the volatility of private output. Given that empirically we also observe a negative correlation between government size and the volatility of consumption, we modify the model by introducing rule-of-thumb consumers. In this modified version of our initial model we observe that consumption volatility is also reduced when government size increases in similar way to the observed pattern in OECD economies over the last 45 years.
    Keywords: government size, output volatility, automatic stabilizers
    JEL: E32 E52 E63
    Date: 2007–05
  19. By: Fair, Ray C.
    Abstract: This paper uses a structurally estimated macroeconometric model, denoted the MC model, to evaluate inflation targeting in the United States. Various interest rate rules are tried with differing weights on inflation and output, and various optimal control problems are solved using differing weights on inflation and output targets. Price-level targeting is also considered. The results show that 1) there are output costs to inflation targeting, especially for price shocks, 2) price-level targeting is dominated by inflation targeting, 3) the estimated interest rate rule of the Fed (in Table 4) is consistent with the Fed placing equal weights on inflation and unemployment in a loss function, 4) the estimated interest rate rule does a fairly good job at lowering variability, and 5) considerable economic variability is left after the Fed has done its best. Overall, the results suggest that the Fed should continue to behave as it has in the past.
    Keywords: inflation targeting, interest rate rules, optimal control
    JEL: E52
    Date: 2007
  20. By: Sarah M. Rupprecht (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: This paper analyzes the price setting behavior of firms using data from a large panel of quarterly firm surveys from 1984 to 2006. These data allow to track changes in firms’ prices, their price expectations and several other firm-specific developments such as changes in costs for input products and capacity utilization rates. The analysis shows that state dependent pricing is clearly important and that variables measuring the current situation of the firm add a lot to the explanatory power of a price adjustment probability model, compared to purely time dependent features. Although the rate of inflation is a significant explanatory variable, the inclusion of macroeconomic variables adds only marginally to the explanatory power of the model with the firm specific variables. Furthermore, when taking into account sticky plan models by excluding possibly predetermined price changes, the importance of state dependent factors becomes even larger. The data also display features that suggest that sticky information plays a role for price setting.
    Keywords: Price setting behavior, time dependent pricing, state dependent pricing, sticky prices, sticky plans, sticky information
    JEL: E31 E32 E50
    Date: 2007–04
  21. By: Sissoko, Carolyn
    Abstract: Using the monetary model developed in Sissoko (2007), where the general equilibrium assumption that every agent buys and sells simultaneously is relaxed, we observe that in this environment fiat money can implement a Pareto optimum only if taxes are type-specific. We then consider intermediated money by assuming that financial intermediaries whose liabilities circulate as money have an important identifying characteristic: they are widely viewed as default-free. The paper demonstrates that default-free intermediaries who issue credit lines to consumers can resolve the monetary problem and make it possible for the economy to reach a Pareto optimum. We argue that our idealized concept of financial intermediation is a starting point for studying the monetary use of credit.
    Keywords: Fiat Money, Cash-in-advance, Financial Intermediation
    JEL: E5 G2
    Date: 2007
  22. By: Chinn, Menzie; Frankel, Jeffrey
    Abstract: We find that real interest rates paid on government debt depend significantly upon current and expected future levels of debt, in Europe as in the US. But this result only emerges when we condition on foreign interest rates, illustrating financial international integration. The previously strong effect of debt on US interest rates has been diluted by the addition of 2004-2006 data to the sample, perhaps reflecting the effect of massive purchases of US securities by foreign central banks. Another finding is that the asymmetry in the effect of US interest rates on European interest rates has not disappeared with the coming of European Economic and Monetary Union in 1999, as one might have thought.
    Keywords: interest rates, inflation, debt, financial integration
    JEL: E43 E58 F41
    Date: 2007
  23. By: Daniel de Munnik; Kuan Xu
    Abstract: How do firms adjust prices in the marketplace? Do they tend to adjust prices infrequently in response to changes in market conditions? If so, why? These remain key questions in macroeconomics, particularly for central banks that work to keep inflation low and stable. The authors use the Bank of Canada's 2002-03 price-setting survey data to investigate Canadian firms' price-setting behaviour; they also analyze the micro foundations for the firms' pricing behaviour using count data and probit models. The authors find that, all else being equal, firms tend to adjust prices more frequently if they are state-dependent price-setters, operate in the trade sector, or have large variable costs or more direct competitors. There are various sticky-price theories; in the Bank's price-setting survey, the senior management of firms were read a simple statement in non-technical language that paraphrased each sticky-price theory, and were then asked whether the statement applied to their firm. The most frequently recognized sticky-price theories are customer relations, cost-based pricing, and coordination failure. The authors' analysis indicates that if firms recognize coordination failure on price increases, sticky information, menu costs, factor stability, or customer relations as being important, they tend to adjust prices less frequently. The authors also find that the patterns discernible within firms' recognition of stickyprice theories are strongly associated with firms' micro foundations.
    Keywords: Inflation and prices; Transmission of monetary policy
    JEL: D40 E30 L11
    Date: 2007
  24. By: Marco Del Negro; Frank Schorfheide
    Abstract: Policy analysis with potentially misspecified dynamic stochastic general equilibrium (DSGE) models faces two challenges: estimation of parameters that are relevant for policy trade-offs and treatment of estimated deviations from the cross-equation restrictions. This paper develops and explores policy analysis approaches that are either based on a generalized shock structure for the DSGE model or the explicit modelling of deviations from cross-equation restrictions. Using post-1982 U.S. data we first quantify the degree of misspecification in a state-of-the-art DSGE model and then document the performance of different interest-rate feedback rules. We find that many of the policy prescriptions derived from the benchmark DSGE model are robust to the various treatments of misspecifications considered in this paper, but that quantitatively the cost of deviating from such prescriptions varies substantially.
    JEL: C32 E52
    Date: 2007–05
  25. By: Evans, Kevin (Cardiff Business School); Speight, Alan
    Abstract: Investigation of the dynamic, short-run response of exchange rate returns to the information surprise of macroeconomic announcements reveals that US macroeconomic news generates far more dramatic responses in exchange rate returns and returns volatility than news on the macroeconomic performance of other countries. Eurozone, German, French and Japanese news have very little impact. However, some UK announcements are important for the EUR-GBP rate. The reaction of exchange rate returns to news is very quick and occurs within the first five minutes of the release with very little reaction in the following fifteen minutes, thus enabling us to characterise such reactions as conditional mean return jumps. These jumps show that exchange rates are strongly linked to fundamentals in the five-minute intervals immediately following the data release. Interestingly, despite causing large responses in returns volatility, the large jumps in returns following interest rate decisions do not appear to be correlated with the informational innovation surrounding their announcement.
    Keywords: Intraday volatility; macroeconomic announcements; exchange rates
    JEL: G12 E44 E32
    Date: 2006–10
  26. By: Mamoon, Dawood
    Abstract: The paper examines the short to medium term trends and volatility in Karachi Stock Exchange and further explore the nature of relationship between stock market activities and a set of macroeconomic variables in 1990s. The analysis is based on daily and monthly data on general stock price index and trading volume and monthly data on inter bank call rate, wholesale price index, quantum index of manufacturing sector’s output and monetary aggregate M2 and it covers the period January 1992 to June 1999. The paper finds that in 1990s, the stock market at Karachi has become more volatile both on short-term (daily) and medium term (monthly) basis. Furthermore strong volatility inertia was present in stock price index, trading volume, wholesale price index, manufacturing output and money supply. The paper finds that there did not exist any systematic relation of stock price volatility with real or nominal macroeconomic volatility. Likewise, for the sample period, a volatile trading volume was neither due to a volatile stock price nor due to the fluctuations and shocks taking place in the economy. However, there was a negative long run relationship between stock price index and trading volume which suggests that the stock market has grown in size but its performance in terms of price has deteriorated. We also find that the level of real activity as indicated by manufacturing sector’s output responds positively to changes in stock price index. Therefore a poor performance of the stock market was likely to have had played at least some negative effects on the performance of manufacturing sector in the said period.
    Keywords: Time Series Models; Finance; Economic Development
    JEL: C32 G10 E00
    Date: 2007–05
  27. By: Marc Hofstetter
    Abstract: This paper studies the behavior of several macroeconomic variables during disinflationary episodes in Latin-America and the Caribbean (LAC). In particular, it focuses on disinflations from low and moderate peaks for the period 1973-2001. The methodology used for studying the average behavior of macroeconomic variables across disinflations overcomes the traditional problem of scarce long time series (of high frequency data) that has hindered the empirical research of monetary shocks in many LAC countries. Some of the important findings are as follows: (i) while GDP growth slowed down during the disinflations of the 70s and 80s, there is no evidence of this for the 90s; (ii) the trade balance significantly deteriorated during the disinflations; (iii) the nominal devaluation rate slowed down during the episodes; and (iv) the real exchange rate appreciated during the episodes.
    Date: 2007–03–05
  28. By: Guido Lorenzoni; Karl Walentin
    Abstract: We develop a model of investment with financial constraints and use it to investigate the relation between investment and Tobin's q. A firm is financed partly by insiders, who control its assets, and partly by outside investors. When their wealth is scarce, insiders earn a rate of return higher than the market rate of return, i.e., they receive a quasi-rent on invested capital. This rent is priced into the value of the firm, so Tobin's q is driven by two forces: changes in the value of invested capital, and changes in the value of the insiders' future rents per unit of capital. This weakens the correlation between q and investment, relative to the frictionless benchmark. We present a calibrated version of the model, which, due to this effect, generates realistic correlations between investment, q, and cash flow.
    JEL: E22 E30 E44 G30
    Date: 2007–05
  29. By: Haskel, Jonathan; Marrano, Mauro Giorgio
    Abstract: We attempt to replicate for the UK the Corrado, Hulten and Sichel (2005, 2006) work on spending on intangible assets in the US. Their work suggests private sector expenditure (investment) on intangibles is about 13% (11%) of US GDP 1998-2000, with intangible investment about equal to tangible capital investment. Our work, using a similar method, suggests the UK private sector spent, in 2004, about £127bn on intangibles, which is about 11% of UK GDP. The implied investment figure is around £116bn (10% of GDP) which is about equal to UK investment in tangible assets. Of the £127bn expenditure, (in round numbers) about 15% is spent on software, about 10% on scientific R&D, almost 20% on non-scientific R&D (design, product development etc.), about 14% on branding, about 20% on training and the rest on organisational capital.
    Keywords: intangible assets; investment; organisational capital; R&D; training
    JEL: E1 E22 O47
    Date: 2007–05
  30. By: Signe Krogstrup (IUHEI, The Graduate Institute of International Studies, Geneva); Sébastien Wälti
    Abstract: This paper focuses on the observed empirical relationship between fiscal rules and budget deficits, and examines whether this correlation is driven by an omitted variable, namely voter preferences. We make use of two different estimation methods to capture voter preferences in a panel of Swiss sub-federal jurisdictions. First, we include a recently constructed measure of fiscal preferences. Second, we capture preferences through fixed effects with a structural break as women are enfranchised. We find that fiscal rules continue to have a significant impact on real budget balances.
    Keywords: Fiscal policy; fiscal rules; fiscal institutions; budget deficits; fiscal preferences; endogeneity
    JEL: C2 D7 E6 H6
    Date: 2007–05
  31. By: Dees, Stephane; Holly, Sean; Pesaran, M. Hashem; Smith, L. Vanessa
    Abstract: This paper focuses on testing long run macroeconomic relations for interest rates, equity, prices and exchange rates within a model of the global economy. It considers a number of plausible long run relationships suggested by arbitrage in financial and goods markets, and uses the global vector autoregressive (GVAR) model developed in Dees, di Mauro, Pesaran and Smith (2007) to test for long run restrictions in each country/region conditioning on the rest of the world. Bootstrapping is used to compute both the empirical distribution of the impulse responses and the log-likelihood ratio statistic for over-identifying restrictions. The paper also examines the speed with which adjustments to the long run relations take place via the persistence profiles. We find strong evidence in favour of the uncovered interest parity and to a lesser extent the Fisher equation across a number of countries, but our results for the PPP are much weaker. Also as to be expected, the transmission of shocks and subsequent adjustments in financial markets are much faster than those in goods markets.
    Keywords: Global VAR, interdependencies, Fisher relationship, Uncovered Interest Rate Parity, Purchasing Power Parity, persistence profile
    JEL: C32 E17 F47 R11
    Date: 2007
  32. By: Hall, Alastair; Inoue, Atsushi; Nason M, James; Rossi, Barbara
    Abstract: We propose a new Information Criterion for Impulse Response Function Matching estimators of the structural parameters of macroeconomic models. The main advantage of our procedure is that it allows the researcher to select the impulse responses that are most informative about the deep parameters, therefore reducing the bias and improving the efficiency of the estimates of the model's parameters. We show that our method substantially changes key parameter estimates of representative Dynamic Stochastic General Equilibrium models, thus reconciling their empirical results with the existing literature. Our criterion is general enough to apply to impulse responses estimated by VARs, local projections, as well as simulation methods.
    Keywords: impulse responses, matching, information criteria, DSGE models, structural macroeconomic models, estimation
    JEL: C32 E47 C52 C53
    Date: 2007
  33. By: Bloom, Nicholas; Sadun, Raffaella; Van Reenen, John
    Abstract: The US has experienced a sustained increase in productivity growth since the mid-1990s, particularly in sectors that intensively use information technologies (IT). This has not occurred in Europe. If the US “productivity miracle” is due to a natural advantage of being located in the US then we would not expect to see any evidence of it for US establishments located abroad. This paper shows in fact that US multinationals operating in the UK do have higher productivity than non-US multinationals in the UK, and this is primarily due to the higher productivity of their IT. Furthermore, establishments that are taken over by US multinationals increase the productivity of their IT, whereas observationally identical establishments taken over by non-US multinationals do not. One explanation for these patterns is that US firms are organized in a way that allows them to use new technologies more efficiently. A model of endogenously chosen organizational form and IT is developed to explain these new micro and macro findings.
    Keywords: information technology; multinationals; Productivity
    JEL: E22 O3 O47 O52
    Date: 2007–05
  34. By: Uña, Gerardo; Bertello, Nicolas
    Abstract: After a period of positive fiscal results during years 2003 to 2005, the City of Buenos Aires faces challenges in its fiscal situation as of year 2006, which surely will be reflected in exercise 2007. During the period the 2003- 2005 City accumulated positive financial results near $1,800 million, starts off of which, $418 million, they were destined to the Stabilization Fund created in 2003 by Decree of the Executive authority. The estimations made by the Executive authority on the closing of exercise 2006 at the time of presenting the Project of Budget 2007 show a negative result of -$1,096 million, the contained negative result in Budget 2007 bases similar originally elevated by the Executive to the Legislature, and later modified in the parliamentary approval. As opposed to an electoral year, where the pressures on the public expenditure usually increase, it is precise to strengthening the institutionalization and transparency of the Buenos Aires City Stabilization Fund.
    Keywords: Fiscal Policy-Stabilization Fund-Budget Process-Legislature
    JEL: E62 H72
    Date: 2007–03
  35. By: Pagan, A.; Pesaran, M.H.
    Abstract: This paper considers the implications of the permanent/transitory decomposition of shocks for identification of structural models in the general case where the model might contain more than one permanent structural shock. It provides a simple and intuitive generalization of the in.uential work of Blanchard and Quah (1989), and shows that structural equations for which there are known permanent shocks must have no error correction terms present in them, thereby freeing up the latter to be used as instruments in estimating their parameters. The proposed approach is illustrated by a re-examination of the identification scheme used in a monetary model by Wickens and Motta (2001), and in a well known paper by Gali (1992) which deals with the construction of an IS-LM model with supply-side e¤ects. We show that the latter imposes more short-run restrictions than are needed because of a failure to fully utilize the cointegration information.
    Keywords: Permanent shocks, structural identification, error correction models, IS-LM models.
    JEL: C30 C32 E10
    Date: 2007–01
  36. By: DRAMANI, Latif
    Abstract: Cet article a pour objectif, la quantification de la perte sociale et des pénalités liées au type de régime de coopération dans les pays de la zone CFA. Nous reprenons un modèle de coordination à n pays, élaboré par Patrick Villieu (2000), que nous calibrons par des fonctions de réactions spécifiques estimées sur les pays de la zone UEMOA et CEMAC. Les résultats mettent en évidence, une optimalité du régime de coopération sur le régime de discrétion dans les deux zones. D’autre part corollairement, les pénalités optimales qui permettent d’annuler l’inflation sont plus élevées en zone CEMAC qu’en zone UEMOA.
    Keywords: Coordination économique ; Pénalités optimales ; Fonctions de réactions ; équilibre de Nash ; discrétion ; coopération ; politique monétaire ; politique budgétaire ; policy mix ; théorie des jeux.
    JEL: E52 C71 C72 E58 E17 C70 E1
    Date: 2007–05–14
  37. By: Alena Bicakova; Jiri Slacalek; Michal Slavik
    Abstract: We investigate the fiscal implications of the changes in personal income tax implemented in the Czech Republic in January 2006. In addition to evaluating the direct effect of this tax reform, our analysis takes into account its employment effect on the government budget due to individuals entering or leaving employment. We first estimate the probability of working (labor supply) as a function of the effective net wage and then simulate the impact of the changes in paid taxes and received benefits on employment. We find that a 10 percent rise in the net wage increases the probability of working by 0.55 and 0.18 percentage points for women and men respectively. These estimates suggest that the employment effect is unlikely to substantially alleviate the fall in net budget revenues. We predict that, for the sub-population of prime age employees, net government revenues decline by roughly 8 billion Czech korunas (CZK) as a consequence of the implemented income tax cuts. The employment effect counteracts the decline by only CZK 0.4 billion. The stimulating effect of the tax reform on employment is reduced by the current benefit system: the incentive to work due to the higher after-tax wage is partially offset by the fall in social benefits once people start working.
    Keywords: Fiscal effects, labor supply, personal income tax, tax reforms.
    JEL: E62 J31
    Date: 2006–12
  38. By: Marco Leonardi; Giovanni Pica
    Abstract: In a perfect labor market severance payments can have no real effects as they can be undone by a properly designed labor contract (Lazear 1990). We give empirical content to this proposition by estimating the effects of EPL on entry wages and on the tenure-wage profile in a quasi-experimental setting. We consider a reform that introduced unjust-dismissal costs in Italy for firms below 15 employees, leaving firing costs unchanged for bigger firms. Estimates which account for the endogeneity of the treatment status due to workers and firms sorting around the 15 employees threshold show no effect of the reform on entry wages and a decrease of the returns to tenure by around 20% in the first year and by 8% over the first two years. We interpret these findings as broadly consistent with Lazear’s (1990) prediction that firms make workers prepay the severance cost.
    Keywords: Costs of Unjust Dismissals, Severance Payments, Regression
    JEL: E24 J63 J65
    Date: 2007–03
  39. By: Ana Beatriz Galvão (Queen Mary, University of London)
    Abstract: This paper proposes a new regression model – a smooth transition mixed data sampling (STMIDAS) approach – that captures recurrent changes in the ability of a high frequency variable in predicting a low frequency variable. The STMIDAS regression is employed for testing changes in the ability of financial variables in forecasting US output growth. The estimation of the optimal weights for aggregating weekly data inside the quarter improves the measurement of the predictive ability of the yield curve slope for output growth. Allowing for changes in the impact of the short-rate and the stock returns in future growth is decisive for finding in-sample and out-of-sample evidence of their predictive ability at horizons longer than one year.
    Keywords: Smooth transition, MIDAS, Predictive ability, Asset prices, Output growth
    JEL: C22 C53 E44
    Date: 2007–05
  40. By: Francesco CHELLI (Universita' Politecnica delle Marche, Dipartimento di Economia); Elvio MATTIOLI (Universita' Politecnica delle Marche, Dipartimento di Economia)
    Abstract: The consumer price indexes for the entire country and those for individual households are weighted arithmetic averages of relative prices, and they differ essentially in terms of their weighting systems. Whereas the former use the proportions of total expenditure on goods and services, the latter use the proportions of expenditure by each household. In the usual calculation of the index for the entire country, each household contributes to determining the national index with a weight proportional to its expenditure. In other words, the households that spend more - that is, the wealthier ones - are represented in calculation of the national index to a greater extent, and this explains why the latter is termed the 'plutocratic index'. In contraposition to plutocratic indexes are the 'democratic' ones in which the same weight is assigned to each household.;The paper presents a first estimation of the democratic price indexes for Italy in the period 1995-2002. The results show significant differences between the two calculation methods.
    Keywords: consumer price indexes, inflation, plutocratic and democratic indexes, price policy
    JEL: C43 E31 E64
    Date: 2007–05
  41. By: Juselius, Katarina; Franchi, Massimo
    Abstract: All economists say that they want to take their model to the data. But with incomplete and highly imperfect data, doing so is difficult and requires carefully matching the assumptions of the model with the statistical properties of the data. The cointegrated VAR (CVAR) offers a way of doing so. In this paper we outline a method for translating the assumptions underlying a DSGE model into a set of testable assumptions on a cointegrated VAR model and illustrate the ideas with the RBC model in Ireland (2004). Accounting for unit roots (near unit roots) in the model is shown to provide a powerful robustification of the statistical and economic inference about persistent and less persistent movements in the data. We propose that all basic assumptions underlying the theory model should be formulated as a set of testable hypotheses on the long-run structure of a CVAR model, a so called ‘theory consistent hypothetical scenario’. The advantage of such a scenario is that if forces us to formulate all testable implications of the basic hypotheses underlying a theory model. We demonstrate that most assumptions underlying the DSGE model and, hence, the RBC model are rejected when properly tested. Leaving the RBC model aside, we then report a structured CVAR analysis that summarizes the main features of the data in terms of long-run relations and common stochastic trends. We argue that structuring the data in this way offers a number of ‘sophisticated’ stylized facts that a theory model has to replicate in order to claim empirical relevance.
    Keywords: DSGE, RBC, cointegrated VAR
    JEL: C32 C52 E32
    Date: 2007
  42. By: Winfried Koeniger; Julien Prat
    Abstract: Why are firm and job turnover rates so similar across OECD countries? We argue that this may be due to the joint regulation of product and labor markets. For our analysis, we build a stochastic equilibrium model with search frictions and heterogeneous multiple-worker firms. This allows us to distinguish firm entry and exit from hiring and firing in a model with equilibrium unemployment. We show that firing costs, sunk entry costs and bureaucratic flow costs have countervailing effects on firm and job turnover as different types of firms select to operate in the market.
    Keywords: Firing Cost, Product Market Regulation, Firm Selection, Firm Turnover, Job Turnover, Unemployment
    JEL: E24 J63 J64 J65
    Date: 2007–01
  43. By: DRAMANI, Latif
    Abstract: La disponibilité d’un modèle de simulation est d’un grand secours pour le décideur public car un tel outil remplit des fonctions aussi importantes que celles de support à la définition des programmes économiques et financiers, d’instrument de dialogue avec les partenaires au développement, de monitoring des politiques économiques et sociales. Dans cette étude, l’accent est mis sur la mise en place d’un modèle multi pays, qui prend en compte les spécificités de l’Etat, et celles de la banque centrale. Le but principal étant de mettre en évidence les interactions entre les politiques budgétaires et monétaires.
    Keywords: VAR; SVAR; Kalman Filter; MCM
    JEL: E50 E52 E58
    Date: 2007–05–11
  44. By: Heppke-Falk, Kirsten H.; Wolff, Guntram B.
    Abstract: We identify investor moral hazard in the German fiscal federation. Our identification strategy is based on a variable, which was used by the German Federal Constitutional Court as an indicator to determine eligibility of two German states (Länder) to a bail-out, the interest payments-to-revenue ratio. While risk premia measured in the German sub-national bond market react significantly to the relative debt level of a state (Land), we also find that a larger interest payments-to-revenue ratio counter-intuitively lowers risk premia significantly. Furthermore, with increasing values the risk premia decrease more strongly. This is evidence of investor moral hazard, because a larger indicator value increases the likelihood of receiving a bail-out payment. Quantitatively, the effects are, however, quite small. Our findings are robust to a variety of sample changes. In addition, we provide a case study of the recent Federal Constitutional Court ruling on the Land Berlin, which had filed for additional federal funds. The negative response of the court did not lead to a change in financial markets’ bail-out expectations. In sum, our results indicate significant investor moral hazard in the sub-national German bond market.
    Keywords: moral hazard, bail-out, sovereign bond spreads, fiscal federalism, Germany
    JEL: E62 F34 G14 G15 H6 H7
    Date: 2007
  45. By: HENRARD, Marc
    Abstract: An approximation approach to Constant Maturity Swaps (CMS) pricing in the separable one-factor Gaussian LLM and HJM models is presented. The approximation used is a Taylor expansion on the swap rate as a function of a random variable which is intuitively similar to a (short) rate. This approach is different from the standard approach in CMS where the discounting is written as a function of the swap rate. The approximation is very efficient.
    Keywords: CMS swap; LLM model; HJM model; one factor; approximation
    JEL: G13 C63 E43
    Date: 2007–05–08
  46. By: Ondrej Schneider
    Abstract: This paper analyses the European budget and the net position of the ten new member states. We argue that the EU budget should be reconsidered, as the Union has expanded to 25 member states and has become more heterogeneous. We demonstrate how the ten new members fared with respect to the budgetary plans outlined in the budget proposal approved at the 2002 summit at Copenhagen. We show that, in 2004, the new member states failed to qualify for the whole planned budget within the agricultural policy and the structural funds. On the other hand, they qualified for more than planned from a set of internal policy programmes and also from compensation transfers. We discuss the financial outlook for 2007–2013 and its recent developments. We argue that for the EU budget to support economic growth, the priorities must be re-oriented towards potentially productive spending programmes, and spending on oldfashioned programmes, such as the Common Agricultural Policy, should be scaled down or possibly re-nationalised. We show, however, that it is exactly these programmes that remained unchanged in the final negotiations for the 2007–2013 perspective. A simple economic growth model illustrates that the current EU budget setting is, at best, neutral with respect to the EUwide long-term growth potential and may actually hamper growth in the majority of the EU countries if the distortionary nature of taxation is taken into account.
    Keywords: Budget, European Union, growth.
    JEL: E6 H77
    Date: 2006–12
  47. By: Kyoji Fukao
    Abstract: In this paper, I examine the macroeconomic impact of inward FDI in Japan. From a general equilibrium point of view of the macroeconomy, probably the most important host country benefit of inward FDI is improvements in productivity caused by the inflow of managerial resources. In the first part of this paper, which is largely based on the results of Fukao, Ito and Kwon (2005), I review the evidence suggesting that inward FDI raises the average total factor productivity of firms in Japan. In the second part, using a general equilibrium model of an open macroeconomy, I simulate the macroeconomic impact of an increase in the inward FDI stock. The results suggest that if Prime Minister Abefs goal on inward FDI, which is to increase the inward FDI stock to 5 percent of GDP by the end of 2010 is achieved, this will help to raise Japanfs GDP by 0.226 percent and real wage rates by 0.156 percent. Dividend payments abroad by foreign-owned firms and the fall in Japanfs foreign investment income caused by the inflow of capital (or the decline in capital outflows), will make the increase in Japanfs GNP (which includes net foreign investment income) smaller than the increase in GDP. The increase in GNP will be 0.125 percent of GDP.
    Date: 2007–05
  48. By: Orazio P. Attanasio (University College London); Monica Paiella (Bank of Italy)
    Abstract: This paper builds a unifying framework based on the theory of intertemporal consumption choices that brings together the limited participation-based explanation of the C-CAPM poor empirical performance and the transaction costs-based explanation of incomplete portfolios. Using the implications of the consumption model and observed household consumption and portfolio choices, we identify the preference parameters of interest and a lower bound for the costs rationalizing non-participation in financial markets Assuming isoelastic preferences, we estimate the coefficient of relative risk aversion at 1.7 and a cost bound of 0.4 percent of non-durable consumption. Our estimate of the preference parameter is theoretically plausible and the bound sufficiently small to be likely to be exceeded by the actual total (observable and unobservable) costs of participating in financial markets.
    Keywords: limited participation in financial markets, fixed participation costs, Euler equation for consumption.
    JEL: E21 G11 G12
    Date: 2007–04
  49. By: Dura, Codruta; Driga, Imola
    Abstract: The general term of internal audit was established in relation to the financial accounting activity; this notion was gradually replaced by a new approach which expands the sphere of the audit so that the preoccupation for the future is very important for any audit activity. If forming and consolidating a favorable image of the bank among service consumers represents a marketing problem, then solving it requires numerous instruments from the marketing policies; the most important role is attributed to the audit. The final goal of the marketing audit is drawing up a table regarding the performances and the efficiency of the bank, in relation to the risks involved by financial institutions and its operations. In this respect, specialists in banking management have come up with different models of calculations and rating systems in their trials to obtain the most accurate scan of the “state of health” of the banks, and moreover in their trials to identify the institutions which face financial and operational difficulties leading to bankruptcy. The uniform bank rating system is a specific instrument for the supervising activity and has its origins in the USA ; it has later been borrowed by German, Italian, Great Britain authorities, which use influential components in their banking system; later on, their system was adopted by most central banks within the European Union. In Romania, the uniform bank rating system has been implemented by N.B.R. (the National Bank of Romania) since 2000; the specific components that were analyzed are: the capital adequacy (C), the quality of assets (A), the management (M), profitability (P), liquidities (L) and sensitivity (S) starting from the year 2005. For short, this system is called CAMPL. The evaluation of these specific elements represents an important criterion for establishing a compound rating, which means assigning scores to each bank. The compound rating for the banking system is established based on economic – financial indicators and prudence indicators.
    Keywords: marketing audit; uniform bank rating system; the capital adequacy; the quality of assets ; sensitivity to market risk
    JEL: M31 E58 A10
    Date: 2007–04–17
  50. By: Beja, Jr., Edsel
    Abstract: A review of the economic performances of Indonesia, Malaysia, Philippines, South Korea, and Thailand in the past decade reveals that the countries have not fully recouped their losses from the 1997 Asian Crisis. It is important to understand how the crisis has affected these economies to appreciate the importance of dealing with the present challenges. Unless GDP per capita growth is higher than the current trend, the crisis-affected economies will continue to face the economic and social costs. A positive combination of policies is needed: taking up the useful components of the past arrangements and putting in the missing instruments for macroeconomic management and international cooperation.
    Keywords: Asian Crisis; Indonesia; Malaysia; Philippines; South Korea; Thailand
    JEL: B50 E60 E10 N10 O50 F40
    Date: 2007–05–15
  51. By: Coutts, K.; Glyn, A.; Rowthorn, B.
    Abstract: The paper examines specific features of structural change in the UK since 1997, contrasting the decline in industrial jobs with the rise in a variety of service jobs. It examines the proximate causes of structural change, in particular whether the chronically slow growth of manufacturing output in the 1980s has persisted. The implications of this structural change are considered, particularly the effects on the balance of payments and regional employment patterns. The paper suggests that the main impact of government policies on regional employment may have been through the direct and multiplier effects of public expenditure.
    Keywords: structural change; deindustrialisation; balance of payments; regional employment; New Labour economic policies.
    JEL: E6 E65 F32 J6 R10
    Date: 2007–05
  52. By: Jérôme Blanc (LEFI - Laboratoire d'économie de la firme et des institutions - [Université Lumière - Lyon II])
    Abstract: Le point de départ de ce chapitre est une interrogation sur le paradoxe de la mise en œuvre d'un régime de currency board, éliminant en principe toute possibilité de politique monétaire, dans un pays nouvellement indépendant et ayant cherché en particulier à restaurer sa souveraineté monétaire. Il met en lumière les conditions socio-politiques de ces développements monétaires. Il distingue deux temps forts qui se chevauchent : celui de la restauration monétaire (1988- juin 1993) puis celui du projet de currency board (1990- avril 1994). Ces deux projets a priori antinomiques apparaissent en réalité articulés car ils ne procèdent pas des mêmes logiques et de mettent pas en jeu les mêmes formes de la confiance. <br />- La restauration monétaire apparaît comme projet politique dans la mesure où la monnaie à venir est porteuse de valeurs fortes qu'elle est censée valider collectivement. Elle recueille la confiance éthique qui émane de cette aspiration unanime à la restauration d'une monnaie historique. <br />- Le projet de currency board, quant à lui, ne contrevient pas à la restauration monétaire réalisée en juin 1993. Il n'engage pas la dimension éthique de la confiance mais sa dimension hiérarchique. La discipline monétaire et financière qu'il implique ne remet pas en cause la reconnexion opérée par la Lituanie avec son passé ; par certains traits, au contraire, elle l'approfondit. <br />Dans ces deux sens distincts, la monnaie apparaît, en Lituanie, comme projet fondamentalement politique.
    Keywords: Lituanie. Institutions monétaires. Monnaie nationale. Souveraineté. Currency board. Confiance.
    Date: 2007–05–07
  53. By: Bruce, Neil; Turnovsky, Stephen J.
    Abstract: We construct a Blanchard-style overlapping generations model consisting of long-lived individuals who have uninsurable idiosyncratic risk resulting from uncertain retirement periods and medical costs in retirement. Without social insurance, such individuals must save for these eventualities. We examine the impact of pay-as-you-go social insurance policies (public pensions and medicare coverage) on individual and aggregate consumption, saving, and wealth levels as well as wealth distribution. We also derive expressions for optimal (Pareto improving) social insurance policies.
    JEL: D91 E10 J20
    Date: 2007
  54. By: Nicolas Million (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I], Banque de France - [Banque de France])
    Abstract: Cet article traite des implications théoriques liées à la présence d'un effet Peso pour les anticipations. Après avoir présenté l'effet Peso comme la probabilité d'apparition d'un évènement rare mais suffisamment important pour être pris en compte dans les prévisions, nous présentons un modèle permettant d'isoler l'erreur de prévision systématique. La manifestation de cette erreur systématique provient en particulier d'une information imparfaite concernant les états futurs ainsi que pour le régime courant. Cette incertitude du régime courant amène les agents à mettre en oeuvre un processus d'apprentissage du modèle. Dans la dernière partie de cet article, nous précisons comment une banque centrale crédible peut limiter l'apparition d'effets Peso.
    Keywords: Effet Peso, marchés efficients, anticipation rationnelles.
    Date: 2007–05–04
  55. By: Heng, Stefan
    Abstract: Established payment systems play a dominant role also in B2C e-commerce. Innovative payment systems can only be a success here if they pay attention to the particular features of e-commerce, convey the worth of their value-adding unique selling proposition and enjoy the support of established e-shops or financial service providers. However, apart from rare cases the conventional payment systems leave little room for the innovative systems. This holds all the more since the conventional payment systems are responding to the new demands of B2C e-commerce.
    Keywords: Information- and communication technology; ICT; E-Business; E-Commerce; B2C-E-Commerce; Internet; e-payments
    JEL: O33 O14 E42 G29 E51
    Date: 2007–05–14

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