|
on Macroeconomics |
|
Issue of 2007‒08‒27
74 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | Michael Woodford |
| Abstract: | I consider some of the leading arguments for assigning an important role to tracking the growth of monetary aggregates when making decisions about monetary policy. First, I consider whether ignoring money means returning to the conceptual framework that allowed the high inflation of the 1970s. Second, I consider whether models of inflation determination with no role for money are incomplete, or inconsistent with elementary economic principles. Third, I consider the implications for monetary policy strategy of the empirical evidence for a long-run relationship between money growth and inflation. And fourth, I consider reasons why a monetary policy strategy based solely on short-run inflation forecasts derived from a Phillips curve may not be a reliable way of controlling inflation. I argue that none of these considerations provides a compelling reason to assign a prominent role to monetary aggregates in the conduct of monetary policy. |
| JEL: | E52 E58 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13325&r=mac |
| By: | Luca Benati (European Central Bank, Kaiserstraße 29, 60311 Frankfurt, Germany.); Giovanni Vitale (European Central Bank, Kaiserstraße 29, 60311 Frankfurt, Germany.) |
| Abstract: | We jointly estimate the natural rate of interest, the natural rate of unemployment, expected inflation, and potential output for the Euro area, the United States, Sweden, Australia, and the United Kingdom. Particular attention is paid to time-variation in (i) the data-generation process for inflation, which we capture via a time-varying parameters specification for the Phillips curve portion of the model; and (ii) the volatilities of disturbances to inflation and cyclical (log) output, which we capture via break tests. Time-variation in the natural rate of interest is estimated to have been comparatively large for the United States, and especially for the Euro area, and smaller for Australia and the United Kingdom. Overall, natural rate estimates are characterised by a significant extent of uncertainty. JEL Classification: E31, E32, E52. |
| Keywords: | monetary policy, natural rate of interest, time-varying parameters; Monte Carlo integration, median-unbiased estimation, endogenous break tests, bootstrapping. |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20070797&r=mac |
| By: | Marco Flavio da Cunha Resende (Cedeplar-UFMG); Fabiana Lima (PUC-SP) |
| Abstract: | In this paper two hypotheses about the relationship between monetary policy and investment in the context of the inflation target system were tested. One of these hypotheses is based on the idea of neutrality of money, and the other hypothesis is based on the reject of that idea. An investment equation for the Brazilian economy was estimated (1848-2005), and a proxy for current expectations about monetary policy was adopted as one of the independent variables of the equation. Structural break tests for the equation were conduced by the assumption of changes on the coefficients of the equation after the inflation target system implementation. Another equation using piece-wise dummy variable was estimated. The results highlight that a negative correlation between current expectation of restrictive monetary policy and current investment rose after the inflation target system implementation. |
| Keywords: | inflation target; monetary policy; investment |
| JEL: | E12 E13 E22 E52 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:cdp:texdis:td316&r=mac |
| By: | Sauer, Stephan |
| Abstract: | This paper provides a framework to analyse emergency liquidity assistance of central banks on financial markets in response to aggregate and idiosyncratic liquidity shocks. The model combines the microeconomic view of liquidity as the ability to sell assets quickly and at low costs and the macroeconomic view of liquidity as a medium of exchange that influences the aggregate price level of goods. The central bank faces a trade-off between limiting the negative output effects of dramatic asset price declines and more inflation. Furthermore, the anticipation of central bank intervention causes a moral hazard effect with investors. This gives rise to the possibility of an optimal monetary policy under commitment. |
| Keywords: | Liquidity shocks; Financial crises; Liquidity provision principle; Greenspan put; Optimal monetary policy intervention |
| JEL: | E58 E44 G18 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:2012&r=mac |
| By: | Stan du Plessis (Department of Economics, Stellenbosch University); Ben Smit (Bureau of Economic Research, Stellenbosch University); Federico Sturzenegger (Kennedy School of Government, Harvard University) |
| Abstract: | This paper uses an SVAR approach to discuss the cyclicality of fiscal and monetary policy in South Africa since 1994. There is substantial South African literature on this topic, but much disagreement remains. Though not undisputed, there is growing consensus that monetary policy has contributed to the remarkable stabilisation of the South African economy over this period. The evaluation of the role of fiscal policy in stabilisation has been less favourable and there is little evidence that a countercyclical fiscal stance was a priority over this period. This paper considers these issues in an empirical framework that addresses some of the shortcomings in the literature. Specifically, it constructs a structural model in contrast with the reduced form models typically used in the South African literature, incorporates the dynamic interaction between monetary and fiscal shocks on the demand side and supply shocks on the other, and avoids controversy over ‘neutral’ base years and the size of fiscal elasticities. The model confirms the consensus on monetary policy, finding it to have been largely countercyclical since 1994. On fiscal policy, this paper finds evidence of pro-cyclicality, especially in the more recent period, though the policy simulations suggest that the pro-cyclicality of fiscal policy has had little destabilising impact on real output. |
| Keywords: | Stabilisation policy, Monetary policy, Inflation targeting, Fiscal policy, Pro-cyclical policy |
| JEL: | E32 E63 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:sza:wpaper:wpapers43&r=mac |
| By: | Jonathan Chiu |
| Abstract: | This paper studies the effects of monetary policy in an inventory theoretic model of money demand. In this model, agents keep inventories of money, despite the fact that money is dominated in rate of return by interest bearing assets, because they must pay a fixed cost to transfer funds between the asset market and the goods market. Unlike the exogenous segmentation models in the literature, the timings of money transfers are endogenous. By allowing agents to choose the timings of money transfers, the model endogenizes the degree of market segmentation as well as the magnitude of liquidity effects, price sluggishness and variability of velocity. First, I show that the endogenous segmentation model can generate the positive long run relationship between money growth and velocity in the data which the exogenous segmentation model fails to capture. Second, I show that the short run effects of money shocks in an exogenous segmentation model (such as the linear inflation response to money shock, the liquidity effect and the sluggish price adjustment) are not robust. In an endogenous segmentation model, the equilibrium response to money shocks is non-linear and non-monotonic. Moreover, for large money shocks, there is no liquidity effect and no sluggish price adjustment. |
| Keywords: | Transmission of monetary policy; Monetary policy framework |
| JEL: | E31 E41 E50 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:07-46&r=mac |
| By: | Michael Woodford |
| Abstract: | It has recently become popular to argue that globalization has had or will soon have dramatic consequences for the nature of the monetary transmission mechanism, and it is sometimes suggested that this could threaten the ability of national central banks to control inflation within their borders, at least in the absence of coordination of policy with other central banks. In this paper, I consider three possible mechanisms through which it might be feared that globalization can undermine the ability of monetary policy to control inflation: by making liquidity premia a function of "global liquidity" rather than the supply of liquidity by a national central bank alone; by making real interest rates dependent on the global balance between saving and investment rather than the balance in one country alone; or by making inflationary pressure a function of "global slack" rather than a domestic output gap alone. These three fears relate to potential changes in the form of the three structural equations of a basic model of the monetary transmission mechanism: the LM equation, the IS equation, and the AS equation respectively. I review the consequences of global integration of financial markets, final goods markets, and factor markets for the form of each of these parts of the monetary transmission mechanism, and find that globalization, even of a much more thorough sort than has yet occurred, is unlikely to weaken the ability of national central banks to control the dynamics of inflation. |
| JEL: | E31 E52 F41 F42 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13329&r=mac |
| By: | Afonso, António |
| Abstract: | Expansionary fiscal contractions were first illustrated by several fiscal episodes that occurred in Europe during the 1980s. This paper suggests a simple analytical textbook model that encompasses both Keynesian and non-Keynesian effects of fiscal policy. In such a context, the possibility of expansionary fiscal contractions is linked to the responsiveness of the risk premium of domestic interest rates to the budgetary position of the government and to the existence of credit-rationed consumers. |
| Keywords: | fiscal policy; expansionary fiscal contractions; non-Keynesian effects |
| JEL: | E62 E21 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:4593&r=mac |
| By: | Yifan Hu; Timothy Kam |
| Abstract: | We construct a monetary model where government bonds also provide liquidity service. Liquid government bonds create an endogenous interest-rate spread; affect equilibrium allocations and inflation by altering the Ramsey planner’s sequence of implementability and sticky-price constraints. The trade-off confronting a planner in a sticky-price world, shown in recent literature, between using inflation surprise and labor-income tax is modified by the existence of the liquid bond. We find that the more sticky prices become, the more the planner stabilizes prices and also creates less distortionary and less volatile income taxes by taxing the liquidity service of bonds in order to replicate ex post real state-contingent debt. |
| JEL: | E42 E52 E63 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:acb:cbeeco:2006-472&r=mac |
| By: | Peter McAdam (European Central Bank, Kaiserstraße 29, 60311 Frankfurt, Germany.); Alpo Willman (European Central Bank, Kaiserstraße 29, 60311 Frankfurt, Germany.) |
| Abstract: | We implement a tractable state-dependent Calvo price-setting signal dependent on inflation and aggregate competitiveness. This allows us to derive a New Keynesian Phillips Curve (NKPC) expressed in terms of the actual levels of variables - rather than in-deviation from “steady state” form - and thus a specification which is not regime-dependent. A consequence of our approach is that ex-ante all firms face the same optimization problem. This state-dependent NKPC nests the conventional hybrid NKPC form as a special case. Finally, we demonstrate the usefulness of our approach by, first, analyzing the persistence and variability of inflation shocks under different inflation regimes and then comparing our state-dependent and timedependent NKPCs on US data. JEL Classification: E31, E32. |
| Keywords: | Calvo Price Staggering, New Keynesian Phillips Curves, State-Dependency, Firm-Level Optimization, Regime Dependency. |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20070806&r=mac |
| By: | Yuwen Dai |
| Abstract: | In this paper, we investigate the relationship between Chinese macroeconomic policy and economic growth, and examine how the choice of macroeconomic regime affects economic performance in China. An open-economy model is developed for this purpose. It is a three-sector “almost small" open-economy macroeconomic model, with asset markets and forward-looking agents. This open-economy model is then adopted to analyse the implications of both domestic and external growth shocks to the Chinese economy under two alternative macroeconomic policy regimes. These policy regimes have two extreme assumptions on the exchange rate, with differing degrees of financial capital mobility. The simulation results show that greater flexibility in the exchange rate regime allows the central bank to conduct independent monetary policy in the Chinese economy, the benefit from which increases as financial capital becomes more internationally mobile. Most growth shocks cause an expansion in the real GDP level, and there is a deflation in the price level and depreciation in the real exchange rate when the economy operates a floating exchange rate regime with high financial capital mobility. Overall, the expansionary effects in this macroeconomic environment will be beneficial to the Chinese economy. |
| Keywords: | Macroeconomics, Economic Growth, Monetary Policy, Exchange Rate, Capital Mobility, Chinese Economy, Computable General Equilibrium (CGE) Modelling |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c012_015&r=mac |
| By: | Timothy Kam; Kirdan Lees; Philip Liu |
| Abstract: | We estimate underlying macroeconomic policy objectives of three of the earliest explicit inflation targeters - Australia, Canada and New Zealand - within the context of a small open economy DSGE model. We assume central banks set policy optimally, such that we can reverse engineer policy objectives from observed time series data. We find that none of the central banks show a concern for stabilizing the real exchange rate. All three central banks share a concern for minimizing the volatility in the change in the nominal interest rate. The Reserve Bank of Australia places the most weight on minimizing the deviation of output from trend. Joint tests of the posterior distributions of these policy preference parameters suggest that the central banks are very similar in their overall objective. |
| JEL: | C51 E52 F41 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:acb:cbeeco:2006-473&r=mac |
| By: | Ricardo Llaudes (European Central Bank, Kaiserstraße 29, 60311 Frankfurt, Germany.) |
| Abstract: | This paper studies the effects and the transmission mechanism of unexpected monetary policy shocks in an open economy setting within the context of a VAR framework. It considers an economy with two sectors, a tradable sector and a non-tradable sector. For a given country, economic sectors are defined according to the proportion of output that is exported to other countries. This paper departs from the standard literature in that it tries to isolate the differential effects that monetary policy shocks may have on these two distinct sectors of the economy. The results show that the behavior of these two sectors varies whithin a country, with the tradable sector showing a higher degree of responsiveness to policy shocks than the non-tradable. This result is robust across the different countries in the sample and for a synthetic aggregate. The evidence presented gives an indication that industrial structure may be an important component for the analysis of monetary policy. JEL Classification: C32, E52, F31, F42. |
| Keywords: | Monetary shock, small open economy, structural VAR. |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20070799&r=mac |
| By: | Athanasios Orphanides; John C. Williams |
| Abstract: | We examine the performance and robustness properties of monetary policy rules in an estimated macroeconomic model in which the economy undergoes structural change and where private agents and the central bank possess imperfect knowledge about the true structure of the economy. Policymakers follow an interest rate rule aiming to maintain price stability and to minimize fluctuations of unemployment around its natural rate but are uncertain about the economy's natural rates of interest and unemployment and how private agents form expectations. In particular, we consider two models of expectations formation: rational expectations and learning. We show that in this environment the ability to stabilize the real side of the economy is significantly reduced relative to an economy under rational expectations with perfect knowledge. Furthermore, policies that would be optimal under perfect knowledge can perform very poorly if knowledge is imperfect. Efficient policies that take account of private learning and misperceptions of natural rates call for greater policy inertia, a more aggressive response to inflation, and a smaller response to the perceived unemployment gap than would be optimal if everyone had perfect knowledge of the economy. We show that such policies are quite robust to potential misspecification of private sector learning and the magnitude of variation in natural rates. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2007-33&r=mac |
| By: | Michael Bordo; Ali Dib; Lawrence Schembri |
| Abstract: | This paper revisits Canada's pioneering experience with floating exchange rate over the period 1950–1962. It examines whether the floating rate was the best option for Canada in the 1950s by developing and estimating a New Keynesian small open economy model of the Canadian economy. The model is then used to conduct a counterfactual analysis of the impact of different monetary policies and exchange rate regimes. The main finding indicates that the flexible exchange rate helped reduce the volatility of key macroeconomic variables. The Canadian monetary authorities, however, clearly did not understand all of the implications of conducting monetary policy under a flexible exchange rate and a high degree of capital mobility. The paper confirms that monetary policy was more volatile in the post-1957 period and Canada's macroeconomic performance suffered as a result. |
| Keywords: | Exchange rates; Economic models |
| JEL: | E32 E37 F31 F32 N1 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:07-45&r=mac |
| By: | Matthieu Darracq Pariès (European Central Bank, Kaiserstraße 29, 60311 Frankfurt, Germany.); Stéphane Adjemian (CEPREMAP & GAINS, Université du Maine, Avenue Olivier Messiaen, 72085 Le Mans Cedex 9, France.); Stéphane Moyen (Centre d‘Études des Politiques Économiques (EPEE), Université d‘Évry Val d‘Essonne, 4, bld Francois Mitterand, 91025 Évry Cedex, France.) |
| Abstract: | The objective of this paper is to examine the main features of optimal monetary policy within a micro-founded macroeconometric framework. First, using Bayesian techniques, we estimate a medium scale closed economy DSGE for the euro area. Then, we study the properties of the Ramsey allocation through impulse response, variance decomposition and counterfactual analysis. In particular, we show that, controlling for the zero lower bound constraint, does not seem to limit the stabilization properties of optimal monetary policy. We also present simple monetary policy rules which can "approximate" and implement the Ramsey allocation reasonably well. Such optimal simple operational rules seem to react specifically to nominal wage inflation. Overall, the Ramsey policy together with its simple rule approximations seem to deliver consistent policy messages and may constitute some useful normative benchmarks within medium to large scale estimated DSGE framework. However, this normative analysis based on estimated models reinforces the need to improve the economic micro-foundation and the econometric identification of the structural disturbances. JEL Classification: E4, E5. |
| Keywords: | DSGE models, Monetary policy, Bayesian estimation, Welfare calculations. |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20070803&r=mac |
| By: | Marco J. Lombardi (University of Pisa, Lungarno Pacinotti 43, 56126 Pisa, Italy.); Silvia Sgherri (De Nederlandsche Bank and International Monetary Fund, Postbus 98, 1000 AB Amsterdam, Netherlands.) |
| Abstract: | Following the 2000 stockmarket crash, have US interest rates been held "too low" in relation to their natural level? Most likely, yes. Using a structural neo-Keynesian model, this paper attempts a real-time evaluation of the US monetary policy stance while ensuring consistency between the specification of price adjustments and the evolution of the economy under flexible prices. To do this, the model's likelihood function is evaluated using a Sequential Monte Carlo algorithm providing inference about the time-varying distribution of structural parameters and unobservable, nonstationary state variables. Tracking down the evolution of underlying stochastic processes in real time is found crucial (i) to explain postwar Fed's policy and (ii) to replicate salient features of the data. JEL Classification: E43, C11, C15. |
| Keywords: | Natural Interest Rate; DSGE Models; Bayesian Analysis; Particle Filters. |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20070794&r=mac |
| By: | Luca Benati (European Central Bank, Kaiserstraße 29, 60311 Frankfurt, Germany.); Charles Goodhart (London School of Economics and Political Science, Room R414, Houghton Street, London WC2A 2AE, United Kingdom.) |
| Abstract: | We use Bayesian time-varying parameters VARs with stochastic volatility to investigate changes in the marginal predictive content of the yield spread for output growth in the United States and the United Kingdom, since the Gold Standard era, and in the Eurozone, Canada, and Australia over the post-WWII period. Overall, our evidence does not provide much support for either of the two dominant explanations why the yield spread may contain predictive power for output growth, the monetary policy-based one, and Harvey’s (1988) ‘real yield curve’ one. Instead, we offer a new conjecture. Journal of Economic Dynamics and Control, forthcoming. JEL Classification: E42, E43, E47. |
| Keywords: | Bayesian VARs, stochastic volatility, time-varying parameters, medianunbiased estimation, Monte Carlo integration. |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20070802&r=mac |
| By: | Robert Amano; Kevin Moran; Stephen Murchison; Andrew Rennison |
| Abstract: | This paper studies the steady-state costs of inflation in a general-equilibrium model with real per capita output growth and staggered nominal price and wage contracts. Our analysis shows that trend inflation has important effects on the economy when combined with nominal contracts and real output growth. Steady-state output and welfare losses are quantitatively important even for low values of trend inflation. Further, we show that nominal wage contracting is quantitatively more important than nominal price contracting in generating these losses. This important result does not arise from price dispersion per se but from an effect of nominal output growth on the optimal markup of monopolistically competitive labour suppliers. We also demonstrate that accounting for productivity growth is important for calculating the welfare costs of inflation. Indeed, the presence of two percent productivity growth increases the welfare costs of inflation in our benchmark specification by a factor of four relative to the no-growth case. |
| Keywords: | Inflation, costs and benefits, wage and price rigidities |
| JEL: | E0 E5 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:lacicr:0720&r=mac |
| By: | Roland Straub (European Central Bank, Kaiserstraße 29, 60311 Frankfurt, Germany.); Ivan Tchakarov (International Monetary Fund (IMF) Asia and Pacific Department, 700 19th Street NW, Washington, DC 20431, USA.) |
| Abstract: | Despite intense calls for safeguarding public investment in Europe, public investment expenditure, when measured in relation to GDP, has steadily fallen in the last three decades, evoking fears that economic activity may be correspondingly negatively affected. At the same time, however, public consumption in the EU-12 countries has trended up. In this paper, we provide a macroeconomic assessment of the observed change in the composition of public spending in the euro area in a medium-scale two-country dynamic stochastic general equilibrium (DSGE) model. First, we analyze the channels through which, both temporary and permanent public investment shocks generate larger fiscal multipliers than exogenous increases in public consumption. Furthermore, we quantify the negative impact of a change in fiscal stance, characterized by a permanent rise in public consumption and a permanent fall in public investment, keeping thereby the overall level of public spending constant. The key message of the paper is that calls for reversing the observed trend in the composition of public spending are well justified. JEL Classification: F41, F42. |
| Keywords: | Public investment, Public consumption, Euro area, DSGE models. |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20070795&r=mac |
| By: | Arief Ramayandi (Department of Economics, Padjadjaran University) |
| Abstract: | Empirical studies on the process of monetary policy making in a number of advanced economies have shown that a simple policy reaction function (PRF) performs well in explaining the setting of monetary policy. This paper examines an application of a simple PRF in an attempt to broaden the understanding of monetary policy making processes in ?ve developing ASEAN countries. As found to be the case in the more advanced economies, a simple PRF is also found to perform well in explaining the setting of monetary policy in these countries. Moreover, the ?ndings uncover the main drivers behind the conduct of monetary policy and provide a relatively consistent explanation about the monetary policy episodes in the sample economies. |
| Keywords: | Monetary policy, policy reaction function, ASEAN |
| JEL: | E50 E52 E43 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:unp:wpaper:200707&r=mac |
| By: | Michael B. Devereux (University of British Columbia); Hans Genberg (Hong Kong Monetary Authority, Hong Kong Institute for Monetary Research) |
| Abstract: | A central aspect of the recent debate on global imbalances and the US current account deficit is the role of the exchange rate peg being followed by China and other Asian economies. While one view has stressed the need for Asian currency appreciation, another focuses on the importance of fiscal adjustment and more generally adjustment in relative savings rates in the US and Asian economies. This paper develops a simple two-region open economy macroeconomic model to analyze the alternative impacts of currency appreciation and fiscal adjustment on the current account. We stress a number of structural features of emerging Asian economies that may make currency appreciation an ineffective means of current account adjustment relative to fiscal policy changes. In addition, we note that there may be a welfare conflict between regions on the best way to achieve adjustment. |
| Keywords: | Current Account, Currency Appreciation |
| JEL: | E52 E58 F41 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:hkm:wpaper:172006&r=mac |
| By: | Hakan Berument; Ebru Yuksel |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:bil:bilpap:0702&r=mac |
| By: | Andrew Atkeson; V. V. Chari; Patrick J. Kehoe |
| Abstract: | The optimal choice of a monetary policy instrument depends on how tight and transparent the available instruments are and on whether policymakers can commit to future policies. Tightness is always desirable; transparency is only if policymakers cannot commit. Interest rates, which can be made endogenously tight, have a natural advantage over money growth and exchange rates, which cannot. As prices, interest and exchange rates are more transparent than money growth. All else equal, the best instrument is interest rates and the next-best, exchange rates. These findings are consistent with the observed instrument choices of developed and less-developed economies. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:394&r=mac |
| By: | Sauer, Stephan |
| Abstract: | Liquidity problems lie at the heart of crises on financial markets as demonstrated in this paper by detailed descriptions of the stock market crash in 1987, the LTCM-crisis in 1998 and the financial market consequences of 11 September 2001. The events also demonstrate that modern central banks, in particular the U.S. Federal Reserve under Alan Greenspan, provided emergency liquidity to limit the negative effects of such crises. However, the anecdotal and empirical evidence from the three crises shows that such emergency liquidity assistance implies risks to goods price stability if it is not focused on the interbank market and quickly sterilised. |
| Keywords: | Liquidity Crises; Financial Stability; Monetary Policy |
| JEL: | E58 E44 G10 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:2011&r=mac |
| By: | Morten O. Ravn; Stephanie Schmitt-Grohé; Martín Uribe |
| Abstract: | Using structural VAR analysis, we document that in a panel of industrialized countries, an increase in government purchases leads to an expansion in output and private consumption, a deterioration in the trade balance, and a depreciation of the real exchange rate (i.e., a decrease in the domestic CPI relative to the exchange-rate adjusted foreign CPI). We propose an explanation for these observed effects based on the deep habit mechanism. We estimate the key parameters of the deep-habit model employing a limited information approach. The predictions of the estimated deep-habit model fit remarkably well the observed responses of output, consumption, the trade balance, and the real exchange rate to an unanticipated government spending shock. In addition, the deep-habit model predicts that in response to an anticipated increase in government spending consumption and wages fail to increase on impact, which is consistent with the empirical evidence stemming from the narrative identification approach. In this way, the deep-habit model reconciles the findings of the SVAR and narrative literatures on the effects of government spending shocks. |
| JEL: | E32 E6 F41 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13328&r=mac |
| By: | Marco Lombardi; Silvia Sgherri |
| Abstract: | Following the 2000 stockmarket crash, have US interest rates been held "too low" in relation to their natural level? Most likely, yes. Using a structural model, this paper attempts a real-time assessment of the US monetary policy while ensuring consistency between the specification of price adjustments and the evolution of the economy under flexible prices. To do this, the model's likelihood function is evaluated using particle filtering, allowing for sequential inference about the time-varying distribution of structural parameters and unobservable, nonstationary state variables. Accounting for real-time expectations and time variation in underlying equilibrium levels is found crucial (i) to explain postwar Fed's policy and (ii) to replicate salient features of the data. |
| Keywords: | Natural Interest Rate; DSGE Models; Bayesian Analysis; Particle Filters |
| JEL: | C33 G3 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:142&r=mac |
| By: | Frank Caliendo (Department of Economics, Colorado State University); Kevin X.D. Huang (Department of Economics, Vanderbilt University) |
| Abstract: | Overconfidence is a widely documented phenomenon. In this paper, we study the implications of consumer overconfidence in a life-cycle consumption/saving model. Our main analytical result is a necessary and sufficient condition under which any degree of overconfidence concerning the mean return on savings can produce a hump in the work-life consumption profile. This condition is almost always met in the data. We show by simulations that overconfidence concerning the variance of the return can have little effect on the long-run average behavior of consumption over the life cycle, and that our basic conclusion is fairly robust with various realistic modifications to the baseline model. We interpret the general applicability of our analytical framework and discuss our numerical results in the light of aggregate consumption data. |
| Keywords: | Overconfidence, consumption, life cycle, time inconsistency, hump shape, elasticity of intertemporal substitution <br><br> |
| JEL: | D91 E21 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:0712&r=mac |
| By: | Michael Sturm (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); François Gurtner (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | Southern and eastern Mediterranean countries have many fiscal challenges in common with other emerging market and mature economies concerning deficit and debt reduction and the maintenance of fiscal discipline. However, most countries in the region also face some specific fiscal issues, such as relatively high public debt, dependence on some form or another of donor dependence or concessional financing, high budgetary exposure to fluctuations in hydrocarbon prices, high defence expenditure and weak tax bases. Against this background, this paper reviews fiscal developments and fiscal policy issues in the ten countries that are participants or observers in the EU’s Barcelona process. The main focus is on the implications of these developments and issues for macroeconomic stability, given that countries in the region have made considerable progress in terms of macroeconomic stabilisation over the last two decades, which is reflected in particular in lower inflation rates. The analysis distinguishes between non-oil-producing and oil-producing countries in the region, as they exhibit different fiscal features and are confronted with different challenges. In the case of non-oil-producing countries, the key challenges stem from high deficits and debt levels, including implicit and contingent liabilities, notwithstanding some progress in fiscal consolidation in most of these countries over the last years. In the case of oil-producing countries, whose fiscal situation has significantly improved in recent years in the wake of high oil prices, the key challenges for fiscal management stem from the heavy reliance on an exhaustible source of revenues and a large exposure to fluctuations in international hydrocarbon prices. A shock originating from – or being transmitted via and exacerbated by – the fiscal sector appears to be the single most important macroeconomic risk in many countries. |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20070069&r=mac |
| By: | Nuno Cassola (European Central Bank, Kaiserstraße 29, 60311 Frankfurt, Germany.); Christian Ewerhart (Institute for Empirical Research in Economics (IEW), University of Zurich, Winterthurerstrasse 30, CH-8006, Zurich, Switzerland.); Claudio Morana (Dipartimento di Scienze Economiche e Metodi Quantitativi, Via Perrone 18, 28100, Novara, Italy.) |
| Abstract: | This paper contributes to the existing literature on central bank repo auctions. It is based on a structural econometric approach, whereby the primitives of bidding behavior (individual bid schedules and bid-shading components) are directly estimated. With the estimated parameters we calibrate a theoretical model in order to illustrate some comparative static results. Overall the results suggest that strategic and optimal behavior is prevalent in ECB tenders. We find evidence of a statistically significant bid-shading component, even though the number of bidders is very large. Bid-shading increases with liquidity uncertainty and decreases with the number of participants. JEL Classification: G21, G12, D44, E43, E50. |
| Keywords: | Repo auctions, monetary policy implementation, primary money market market, multi unit auctions, discriminatory auctions, collateral, central bank, nonparametric estimation. |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20070793&r=mac |
| By: | Taner Yigit; Banu Demir |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:bil:bilpap:0705&r=mac |
| By: | Santiago L.E. Acosta Ormaechea |
| Abstract: | We develop a two-sectors small open economy model with imperfect competition, one-period nominal price rigidities and a financial accelerator mechanism. The latter assumes an asymmetric information problem between lenders and capital good producers (entrepreneurs). Studying the zero-inflation steady state, it is shown that the model with the financial accelerator mechanism nests a fairly standard RBC model; case in which entrepreneurs “disappear" as a differentiated sector from households. It is also explained that credit market imperfections essentially reduce the aggregate supply of capital relative to the RBC case. Turning to the dynamics, we study the effects of an unanticipated and permanent increase in the level of the money supply. In this context the exchange rate jumps immediately to its new steady state level without showing any overshooting process as in Dornbusch (1976). Analysing the case without credit market imperfections but with pre-set prices, it is demonstrated that money is not neutral in the long-run, that capital adds persistence to the initial shock, and that some traditional results of the Mundell-Fleming model still hold. |
| Keywords: | Credit Market Imperfections, Financial Accelerator, Currency Mismatches, Currency Depreciation. |
| JEL: | F3 F4 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c012_035&r=mac |
| By: | Simon Gilchrist; Jae W. Sim |
| Abstract: | This paper uses firm-level panel data to analyze the role of financial factors in determining investment outcomes during the Korean financial crisis. Our identification strategy exploits the presence of foreign-denominated debt to measure shocks to the financial position of firms following the devaluation that occurred during the crisis period. Structural parameter estimates imply that financial factors may account for 50% to 80% of the overall drop in investment observed during this episode. Our estimates also imply that foreign-denominated debt had relatively little effect on aggregate investment spending. Counterfactual experiments suggest sizeable contractions in investment through this mechanism for economies that are more heavily dependent on foreign-denominated debt however. |
| JEL: | E22 E44 F34 G31 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13315&r=mac |
| By: | James B. Ang |
| Abstract: | This paper provides an empirical assessment of the effects of financial sector policies on development of the financial system in Malaysia over the period 1959-2005. The technique of principal component analysis is used to construct a summary measure of interest rate policies in order to account for the joint influence of various interest rate controls imposed on the Malaysian financial system. The results show that economic development, interest rate controls and capital liquidity requirements positively affect the level of financial development. However, higher statutory reserve requirements and the presence of directed credit programs appear to be harmful for development of the Malaysian financial system. The results provide some support to the argument that some form of financial restraints may help promote financial development. |
| Keywords: | Financial development, financial liberalization, Malaysia |
| JEL: | E44 E58 O16 O53 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c012_031&r=mac |
| By: | Taner Yigit |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:bil:bilpap:0706&r=mac |
| By: | Hakan Berument; Yilmaz Akdi; Seyit Mumin Cilasun; Hasan Olgun |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:bil:bilpap:0701&r=mac |
| By: | Francis Covas; Wouter J. Den Haan |
| Abstract: | We document the cyclical behavior of debt, equity, and retained earnings for different firm categories using firm-level Canadian data. There is evidence of both procyclical equity and debt issuance for all firm categories but the timing differs. In particular, there is strong evidence that equity issuance increases in anticipation of an expansion. During this phase, some substitution between debt and equity takes place. After the expansion has reached its peak, equity issuance starts to decrease and during this phase there is strong evidence of procyclical debt issuance and some substitution out of equity seems to take place. Retained earnings is procyclical except for small firms. |
| Keywords: | Business fluctuations and cycles |
| JEL: | E32 G32 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:07-44&r=mac |
| By: | Glenn D. Rudebusch; John C. Williams |
| Abstract: | We show that professional forecasters have essentially no ability to predict future recessions a few quarters ahead. This is particularly puzzling because, for at least the past two decades, researchers have provided much evidence that the yield curve, specifically the spread between long- and short-term interest rates, does contain useful information at that forecast horizon for predicting aggregate economic activity and, especially, for signaling future recessions. We document this puzzle and suggest that forecasters have generally placed too little weight on yield curve information when projecting declines in the aggregate economy. |
| Keywords: | Economic forecasting ; Recessions |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2007-16&r=mac |
| By: | William Scarth |
| Abstract: | The aging population has raised at least two concerns about tax policy. First, taxes will need to be increased to cover higher public-pension and medical-care expenses when baby boomers have retired. Second, taxes can be cut in the meantime, as the government realizes the "fiscal dividend" that accompanies its debt reduction program (that has been motivated by the aging population development). This paper uses a simple endogenous growth analysis to examine these issues. It is assumed that sales tax increases are infeasible on political grounds. Two conclusions emerge: the income tax rate levied on domestic residents should be cut during the debt-reduction period, and the tax rate on foreigners whose capital is operating in Canada should be increased later on when the bulk of the baby boomers have retired. |
| Keywords: | fiscal policy, endogenous growth, open economy |
| JEL: | E10 E60 F43 H30 O40 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:mcm:sedapp:214&r=mac |
| By: | Cornelißen, Thomas; Hübler, Olaf; Schneck, Stefan |
| Abstract: | This paper analyses cyclical effects on job-to-job mobility using German data. The focus lies on the influence of the regional unemployment rate and the regional growth of the GDP. Job-to-job transitions are fragmented into external and internal movements. The innovation is to describe mobility using background information why the moves occur because the available empirical labour market literature is in deficit with analyzing the motive why these transitions occur with respect to the business cycle. External movements can be introduced by quits or forced by layoffs, the end of the contract, or other reasons such as bankruptcy of a firm. Internal transitions are classified as promotions and transfers. Our estimates show that job-to-job mobility is strongly affected by the business cycle. External movements are more likely in times of growing GDP and less probable when the unemployment rate increases. For internal transitions our results suggest that Eastern and Western Germany's workers differ in their mobility properties along the business cycle. |
| Keywords: | job-to-job mobility, internal and external moves, promotions, quits, lay-off, business cycle |
| JEL: | E32 J62 J63 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:han:dpaper:dp-371&r=mac |
| By: | David Laibson; Andrea Repetto; Jeremy Tobacman |
| Abstract: | Intertemporal preferences are difficult to measure. We estimate time preferences using a structural buffer stock consumption model and the Method of Simulated Moments. The model includes stochastic labor income, liquidity constraints, child and adult dependents, liquid and illiquid assets, revolving credit, retirement, and discount functions that allow short-run and long-run discount rates to differ. Data on retirement wealth accumulation, credit card borrowing, and consumption-income comovement identify the model. Our benchmark estimates imply a 40% short-term annualized discount rate and a 4.3% long-term annualized discount rate. Almost all specifications reject the restriction to a constant discount rate. Our quantitative results are sensitive to assumptions about the return on illiquid assets and the coefficient of relative risk aversion. When we jointly estimate the coefficient of relative risk aversion and the discount function, the short-term discount rate is 15% and the long-term discount rate is 3.8%. |
| JEL: | D91 E21 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13314&r=mac |
| By: | Syed Adnan Haider Ali Shah Bukhari, Adnan; Liaqat Ali, Liaqat; Mahpara Sadaqat, Mahpara |
| Abstract: | Although the investment–growth relationship in the NIEs has been studied rather extensively, the casual connection between public capital and economic growth has not yet been fully explored. This paper makes a novel attempt to study the interactions among these macroeconomic variables with the help of 1971-2000 heterogeneous dynamic panel data from Korea, Singapore, and Taiwan. The premise of this study is that public spending may contribute to economic growth in different ways. We explore this using a variety of econometric techniques. The analysis suggests that both public and private investment and public consumption have a long-term dynamic impact on economic growth in all the countries of our sample and in a panel of sample countries. The pair-wise analysis shows bidirectional causality between public investment and economic growth, and the homogeneous non-causality hypothesis suggests that non-causality results are completely homogeneous in a small sample of these mentioned countries. |
| Keywords: | Public investment; economic growth; panel unit root test; panel data |
| JEL: | E62 C32 H54 |
| Date: | 2006–11–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:4539&r=mac |
| By: | Bilin Neyapti; Nida Cakir |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:bil:bilpap:0708&r=mac |
| By: | Raven E. Saks; Abigail Wozniak |
| Abstract: | This paper establishes the cyclical properties of a novel measure of worker reallocation: long-distance migration rates within the U.S. This internal migration offers a bird's eye view of worker reallocation in the economy, as long-distance migrants often change jobs or employment status. We examine gross migration patterns during the entire postwar era using historical reports of the Current Population Survey, and supplement this analysis with statistics compiled by the Internal Revenue Service on inter-state and inter-metropolitan population flows since 1975. We find that internal migration within the U.S. is strongly procyclical, even after accounting for variation in relative local economic conditions. This procyclicality is common across most major demographic and labor force groups, although it is strongest for younger workers. Our findings suggest that cyclical fluctuations in internal migration are driven by economy-wide changes in the net cost to worker reallocation with a major role for the job finding rate of young workers. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2007-32&r=mac |
| By: | Rajagopal (Tecnológico de Monterrey, Campus Ciudad de México) |
| Abstract: | In the pre-reforms period the trade policy in Latin America had involved very high levels of protection and government intervention. The recent trade liberalization policies of the Latin American countries have sought to reverse the protectionist policies and open the scope for foreign direct investment and joint ventures in the public and private sector industries. This paper discusses the impact of trade openness policy on tariff structure, export competitiveness, inflation and economic growth of Latin American countries. The relationship between the trade openness and general price level as an indicator of inflation and robustness of this relationship has been explored in the study. |
| Keywords: | Trade openness, export competitiveness, institutional reforms, economic growth, trade blocs, trade agreements, neo-regionalism, inflationary trend, foreign investment, and economic welfare |
| JEL: | C21 C33 C51 E31 F13 F F43 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:ega:wpaper:200705&r=mac |
| By: | John Weeks (Professor Emeritus, School of Oriental and African Studies, University of London); Shruti Patel (Centre for Development Policy & Research School of Oriental & African Studies, University of London) |
| Abstract: | . |
| Keywords: | Training, Modules, Research Programme, Economic Policies, MDGs, Poverty |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:ipc:pubipc:861497&r=mac |
| By: | Fritz Breuss (WIFO) |
| Abstract: | Germany and Austria, neighbours of different size and with the same language, still have close economic bonds, but the combined effect of Austria joining the EU, the eastern opening and the EU's enlargement has made Austria grow increasingly separate from Germany. Since the early 1990s, Austria's economic growth rate has been surpassing the German equivalent by ½ percentage point per year. The reasons for this are manifold, but appear to be chiefly in the burden attending German reunification. Also, the German business sector seems to have been less able than its Austrian counterpart to tap the new opportunities springing from Europe's progressing integration (internal market and currency union) and the EU's enlargement. Already the eastern opening opened up a new "window of opportunity" for Austria which the economy made full use of. In part, the asymmetric architecture of EMU's macropolicy (excessive real interest rates, fiscal rules of the stability and growth pact) appears to pose greater problems for Germany than for Austria. Lastly, the negative structural effects of globalisation (outsourcing, etc.) may have been a reason for Germany's weak growth. However, since the globalisation effect also applies to Austria, the growth gap between the two countries cannot be explained by this hypothesis. |
| Keywords: | Deutschland, Österreich, Wirtschaftsvergleich, Globalisierung |
| Date: | 2006–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:wfo:wpaper:y:2006:i:280&r=mac |
| By: | Rod Tyers; Jane Golley; Bu Yongxiang; Ian Bain |
| Abstract: | The recent influx of financial capital to China implies expectations of continued real appreciation and, indeed, rapid expansion had previously led to real appreciations elsewhere in East Asia. In a world of open economies and differentiated traded goods, however, development-related productivity and endowment growth shocks tend to cause real depreciations, the principal exception being the Balassa case where non-traded service sectors are large and productivity shocks are restricted to traded sectors. China is a special case amongst developing countries in that its labour force is likely to decline in future and this will place upward pressure on real wages and its real exchange rate. This paper assesses the magnitudes of the various links between China’s growth performance and its real exchange rate using an adaptation of the GTAP-Dynamic global economic model in which a full demographic sub-model is incorporated. A baseline “business as usual” simulation is constructed to 2030, wherein China’s growth rate slows considerably due to ageing and slower labour force growth. Comparator simulations are then constructed for cases in which fertility policy is changed, sectoral factor productivity is higher and financial reform reduces the investment interest premium. China’s real exchange rate realignments are examined in each case, the results suggesting the current appreciating trend may be temporary, with depreciating forces appearing to dominate in the long term. |
| JEL: | C53 C68 E27 F21 F43 F47 J11 O11 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:acb:cbeeco:2006-476&r=mac |
| By: | Ryo Arawatari (Graduate School of Economics, Osaka University); Tetsuo Ono (Graduate School of Economics, Osaka University) |
| Abstract: | This paper focuses on how education costs affect the political determination of public policy via individual decision-making. The paper extends the model in Hassler, Storesletten, and Zilibotti (2007, Journal of Economic Theory; henceforth HSZ) by generalizing the cost function of education and considers several cases, along with HSZ as a special case. In cases where education cost is high, the characterization of political equilibrium is similar to HSZ. In cases where education cost is low, the characterization is entirely different from HSZ: namely, a political equilibrium exists where (i) the rich are always politically decisive and (ii) the equilibrium outcome is unique. |
| Keywords: | Markov perfect equilibrium; Dynamic political economy; Public policy; Education cost |
| JEL: | D72 D78 E62 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:0731&r=mac |
| By: | Kokko , Ari (European Institute of Japanese Studies); Mitlid, Kerstin (Central Bank of Sweden); Wallgren, Arvid (Center for Business and Policy Studies) |
| Abstract: | The main macroeconomic challenges at the early stages of Vietnam¡¯s economic reforms were related to stability and growth. The main achievements of Doi Moi are also related to the success in meeting these two challenges: Vietnam has managed to combine high growth with reasonable price stability since the early 1990s. However, meeting these challenges has become more difficult over time as new challenges have emerged. In the mid-1990s, economic structure and external balance entered the policy debate. In the late 1990s, the Asian crisis created further problems. In recent years, issues related to social and regional development gaps and investment quality have become important policy objectives. At the same time, it is clear that the instruments for economic policy making have changed. While the challenges of the early 1990s could be handled with various direct interventions like credit ceilings and quantitative trade restrictions, indirect instruments for macroeconomic management are gradually becoming more important. For instance, the choice of exchange rate regime is becoming much more important than in the past. This paper summarizes Vietnam¡¯s macroeconomic development, and illustrates some of the alternative approaches to macroeconomic management in an increasingly internationalized and deregulated environment by recounting some experiences from Swedish macroeconomic management during the past three decades. |
| Keywords: | Vietnam; internationalization; macroeconomic management; growth; stability |
| JEL: | E60 F40 O11 |
| Date: | 2007–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:eijswp:0237&r=mac |
| By: | Ronny Nilsson |
| Abstract: | The OECD developed a System of Composite Leading Indicators (CLIs) for its Member Countries in the early 1980?s based on the ?growth cycle? approach and up to 2006 the Organisation compiled composite leading indicators for 23 of the 30 Member countries. Country coverage has now been expanded to include recently new OECD member countries (Korea, New Zealand1, Czech Republic, Hungary, Poland and Slovak Republic) and the major six OECD non-member economies (Brazil, China, India, Indonesia, Russian Federation and South Africa) monitored by the organization in the OECD System of Composite Leading Indicators. The expansion of the OECD System of Composite Leading Indicators to include the new CLIs for the six recently new OECD member countries has implications for the calculation of the OECD total area and the OECD Europe area aggregates. In addition, the inclusion of the new CLIs for all of above twelve countries opens the possibility to calculate new area aggregates such as Major Asian economies, Eastern Europe including or excluding the Russian Federation and a World proxy to give information on the overall global development. The importance of such new regional or area aggregates is of course very much dependent on the existence of different cyclical patterns between these new aggregates and the established ones. However, the calculation of a World proxy aggregate is important in itself in so far that it will represent global development better than the OECD total area aggregate. <BR>L'OCDE a développé un système d'indicateurs composites avancés (CLIs) pour ses pays membres au début des années 80 basé sur l'approche du cycle de croissance. Jusqu'en 2006, l'Organisation a compilé ces indicateurs composites avancés pour 23 de ses 30 pays membres. La couverture géographique s?est agrandie et tient compte maintenant des pays nouvellement membres de l'Organisation (la Corée, la Nouvelle Zélande, la République tchèque, la Hongrie, la Pologne et la République slovaque). Les six principales économies non membres de l'OCDE (le Brésil, la Chine, l'Inde, l'Indonésie, la Fédération de Russie et l'Afrique du Sud) ont été également introduites dans le système des indicateurs composites avancés de l'OCDE. L'ouverture des six nouveaux pays membres au système des indicateurs composites avancés de l'OCDE a eu des implications quant au calcul des agrégats de la zone OCDE total et de la zone OCDE Europe. De plus, l'inclusion de ces indicateurs composites avancés pour les 12 nouveaux pays su mentionnés ouvre la possibilité au calcul de nouveaux agrégats tels que l'Asie des 5 grands, l?Europe de l'Est avec ou sans la Fédération de Russie et une zone monde approximatif qui donnerait une information sur le développement global total. L'importance de tels nouveaux agrégats régionaux ou totaux dépend beaucoup de l'existence de schémas cycliques différents entre ces nouveaux agrégats et ceux déjà établis. Cependant, le calcul d'un agrégat monde approximatif est très important en soit car il représentera mieux le développement global que ne le faisait l'agrégat de la zone OCDE total. |
| Date: | 2006–12–11 |
| URL: | http://d.repec.org/n?u=RePEc:oec:stdaaa:2006/5-en&r=mac |
| By: | Rod Tyers; Iain Bain |
| Abstract: | International pressure to revalue China’s currency stems in part from the expectation that rapid economic growth should be associated with a real exchange rate appreciation. This hinges on the Balassa-Samuelson hypothesis under which growth stems from improvements in traded sector productivity that cause wages and non-traded prices to rise. Yet, while evidence on China’s productivity and prices supports this hypothesis, its real exchange rate has as yet shown no long run tendency to appreciate. The use of a global numerical model allows extensions of the hypothesis, including failures of the law of one price for tradable goods, which point to WTO accession trade reforms and China’s high saving rate as key depreciating forces since the late 1990s. The same model is then applied to the implications of premature RMB appreciation. It is shown that, unless this is achieved in association with the repatriation of foreign reserves, which would require thus far unavailable financial depth in the Chinese economy, unilateral RMB appreciation would be destructive of both Chinese and global interests. |
| JEL: | C68 C53 E27 F21 F43 F47 O11 |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:acb:cbeeco:2007-483&r=mac |
| By: | Rod Tyers; Jane Golley; Ian Bain |
| Abstract: | Within the next decade, China’s labour force will begin to contract, while that of India will expand faster than its population. Relative labour abundance will bring higher capital returns and an increasing share of global FDI to India. Yet China may relax its One Child Policy further and India’s fertility could follow the pattern elsewhere in Asia and decline faster than expected. These linkages are explored using a global demographic sub-model that is integrated with an adaptation of the GTAP-Dynamic global economic model in which regional households are disaggregated by age and gender. Even with a two-child-policy, China’s growth is projected to slow in future with India becoming the fastest growing economy in the world on the strength of its continued population expansion. While GDP depends positively on fertility and per capita income negatively in both countries, the price of more GDP growth in terms of lost per capita income is lower in China than in India, a result that depends critically on India’s initially higher fertility, its higher youth dependency and the age-gender pattern of its participation rates. India therefore has considerably more to gain, at least in per capita terms, from further reducing its fertility |
| JEL: | C68 E27 F43 J11 O53 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:acb:cbeeco:2006-477&r=mac |
| By: | Philippe BACCHETTA; Eric VAN WINCOOP |
| Abstract: | Two well-known, but seemingly contradictory, features of exchange rates are that they are close to a random walk while at the same time exchange rate changes are predictable by interest rate differentials. In this paper we investigate whether these two features of the data may in fact be related. In particular, we ask whether the predictability of exchange rates by interest differentials naturally results when participants in the FX market adopt random walk expectations. We find that random walk expectations can explain the forward premium puzzle, but only if FX portfolio positions are revised infrequently. In contrast, with frequent portfolio adjustment and random walk expectations, we find that high interest rate currencies depreciate much more than what UIP would predict. |
| Keywords: | excess returns; incomplete information; predictability |
| JEL: | E4 F3 G1 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:lau:crdeep:07.01&r=mac |
| By: | Kevin X.D. Huang (Department of Economics, Vanderbilt University); Zheng Liu (Department of Economics, Emory University); John Q. Zhu (Department of Economics, Emory University) |
| Abstract: | This paper studies the empirical relevance of temptation and self-control using household-level data from the Consumer Expenditure Survey. We construct an infinite-horizon consumption-savings model that allows, but does not require, temptation and self-control in preferences. To distinguish temptation preferences from others, we exploit individual-level heterogeneities in our data set, and we rely on an implication of the theory that a more tempted individual should be more likely to hold commitment assets. In the presence of temptation, the cross-sectional distribution of the wealth-consumption ratio, in addition to that of consumption growth, becomes a determinant of the asset-pricing kernel, and the importance of this additional pricing factor depends on the strength of temptation. The empirical estimates that we obtain provide statistical evidence supporting the presence of temptation. Based on our estimates, we explore some quantitative implications of this class of preferences for capital accumulation in a neoclassical growth model and the welfare cost of the business cycle. |
| Keywords: | Temptation, self-control, limited participation, growth, welfare <br><br> |
| JEL: | D91 E21 G12 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:0711&r=mac |
| By: | Jeremy Greenwood (University of Pennsylvania); Karen A. Kopecky (The University of Western Ontario) |
| Abstract: | The welfare gain to consumers from the introduction of personal computers is estimated here. A simple model of consumer demand is formulated that uses a slightly modified version of standard preferences. The modification permits marginal utility, and hence total utility, to be finite when the consumption of computers is zero. This implies that the good won't be consumed at a high enough price. It also bounds the consumer surplus derived from the product. The model is calibrated/estimated using standard national income and product account data. The welfare gain from the introduction of personal computers is about 4 percent of consumption expenditure. |
| Keywords: | Computers, Technological Progress, Welfare Gain |
| JEL: | E01 E21 O33 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:eag:rereps:15&r=mac |
| By: | Boyan Jovanovic |
| Abstract: | Aside from the equilibrium that Hotelling (1931) displayed, his model of non-renewable resources also contains a continuum of bubble equilibria. In all the equilibria the price of the resource rises at the rate of interest. In a bubble equilibrium, however, the consumption of the resource peters out, and a positive fraction of the original stock continues to trade forever. And that may well be happening in the market for high-end Bordeaux wines. |
| JEL: | E44 G12 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13320&r=mac |
| By: | Andrés Felipe Giraldo palomino |
| Abstract: | El presente artículo muestra la estimación de la aversión a la inflación y de la aversión a los ciclos por parte del Banco de la República en el periodo 1994-2005, usando una estructura espacio-estado y estimando por el método de Filtro de Kalman. Se concluye que el parámetro de aversión a la inflación cumple el principio de Taylor (toma un valor mayor que uno), lo cual es acorde con los resultados de Bernal (2002) y López (2004). Así mismo, se muestra que el parámetro que mide la aversión a la brecha del producto es no significativo, por lo que se concluye que de acuerdo con la muestra y con la estimación realizada, la única variable a la cual reacciona el banco central es la brecha inflacionaria |
| Date: | 2007–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:col:000108:003947&r=mac |
| By: | Ellis Connolly (Reserve Bank of Australia) |
| Abstract: | Individual pension accounts are growing in importance as a pillar of retirement incomes policy in the developed world. Policy-makers have generally assumed that by introducing pre-funded pension schemes, they can increase household wealth and thereby raise retirement incomes. However, there has been relatively little empirical work to confirm this. This paper focuses on the effect of Australia’s system of compulsory pension accounts, the ‘Superannuation Guarantee’, on household saving behaviour. Microeconomic data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey, are used to explore three related questions: i. Have compulsory pension accounts increased household wealth? ii. What effect do compulsory pension accounts have on voluntary saving for retirement? iii. Do compulsory pension accounts influence the timing of retirement? This paper finds that Australia’s compulsory pension accounts increased household wealth. Voluntary saving for retirement in pension accounts also appeared to increase slightly, possibly due to the added convenience of being able to make contributions directly into these pension accounts. Finally, there is no evidence of a significant effect on retirement intentions. Overall, the results suggest that Australia’s compulsory pension accounts have increased household wealth and raised self-funded retirement incomes. |
| Keywords: | superannuation; household saving; pension reform; HILDA |
| JEL: | E21 G2 G11 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2007-08&r=mac |
| By: | William Scarth |
| Abstract: | Many analysts expect the aging population to lead to a reduction in the growth of living standards. Income inequality – a problem that has been accentuated by the payroll tax hikes that were necessary to fund the public pension as the population ages – is becoming an increasing challenge at the same time. As a result, policy-makers need to pursue initiatives that can simultaneously address both our efficiency and our equity objectives. With the challenge of the aging population, it is all the more important that we not rely on fiscal policies that involve a trade-off between growth and equality. This paper identifies a strategy for tax policy that meets these objectives. |
| Keywords: | fiscal policy, endogenous growth, efficiency and equity |
| JEL: | E10 E60 H30 O40 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:mcm:sedapp:213&r=mac |
| By: | Arnold J. Katz (Bureau of Economic Analysis) |
| JEL: | E60 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:bea:papers:0039&r=mac |
| By: | Michael Bradfield (Department of Economics, Dalhousie University) |
| Keywords: | kinked demand; stagflation; jobless recovery; competitiveness |
| Date: | 2007–04–23 |
| URL: | http://d.repec.org/n?u=RePEc:dal:wparch:kinked_demand&r=mac |
| By: | Marcelo Fernandes (Queen Mary, University of London); Marcelo Cunha Medeiros (Department of Economics, PUC-Rio); MArcelo Scharth |
| Abstract: | This paper performs a thorough statistical examination of the time-series properties of the market volatility index (VIX) from the Chicago Board Options Exchange (CBOE). The motivation lies on the widespread consensus that the VIX is a barometer to the overall market sentiment as to what concerns risk appetite. To assess the statistical behavior of the time series, we run a series of preliminary analyses whose results suggest there is some long-range dependence in the VIX index. This is consistent with the strong empirical evidence in the literature supporting long memory in both options-implied and realized volatilities. We thus resort to linear and nonlinear heterogeneous autoregressive (HAR) processes, including smooth transition and threshold HAR-type models, as well as to smooth transition autoregressive trees (START) for modeling and forecasting purposes. The in-sample results for the HAR-type indicate that they cope with the long-range dependence in the VIX time series as well as the more popular ARFIMA model. In addition, the highly nonlinear START specification also does a god job in controlling for the long memory. The out-of-sample analysis evince that the linear ARMA and ARFIMA models perform very well in the short run and very poorly in the long-run, whereas the START model entails by far the best results for the longer horizon despite of failing at shorter horizons. In contrast, the HAR-type models entail reasonable relative performances in most horizons. Finally, we also show how a simple forecast combination brings about great improvements in terms of predictive ability for most horizons. |
| Keywords: | heterogeneous autoregression, implied volatility, smooth transition, VIX. |
| JEL: | G12 C22 C53 E44 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:rio:texdis:548&r=mac |
| By: | Brent R. Moulton (Bureau of Economic Analysis) |
| JEL: | E60 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:bea:papers:0042&r=mac |
| By: | Alvin P. Ang |
| Abstract: | This paper considers the present issues surrounding the role of workers remittances and its contribution/effect on economic growth and development. In particular, this paper focuses on how such remittances have been able to spur development and growth. As a case study, the paper focuses on the Philippines, one of the countries in the world with a long history of sending workers abroad. In 2005, the Philippines received approximately US$11Bn of remittances, almost 10% of its GDP. It ranks as the 3rd largest recipient of remittances in the world after India and Mexico. Along this line, the paper looks into the following areas: (a) remittance and overall growth, (b) linkages between remittances and microfinance, (c) tracing the contribution of remittances to countryside development, and (d) relationship between worker remittances and structural reform policies. We are also concerned at how these remittances have impacted the poor in general. This is important as the expected benefits have generally been unfelt at the level of the poor. We hypothesize that workers’ remittance have not been properly utilized into productive and investment uses in the Philippines. There are strong anecdotal evidences that show that most of these resources are being used to fund conspicuous consumption. Hence, we would like to find ways where these resources can be harnessed into funding development needs of the country. |
| Keywords: | Remittances, Development, Migrant Workers |
| JEL: | E21 F2 G21 J61 O16 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:deg:conpap:c012_029&r=mac |
| By: | Bruce T. Grimm (Bureau of Economic Analysis) |
| Abstract: | The statistical discrepancy is equal to gross domestic product less gross domestic income. These two measures are, in principle, the same. The difference reflects less than perfect source data. The paper finds few components that statistically significantly explain the discrepancy in the last 35 years or in major subperiods, and their explanatory power is weak. The paper also finds that comprehensive benchmark revisions of the NIPAs appear to result in reductions in the explanatory power of the components that are likely to be due to reductions in measurement errors. |
| JEL: | E60 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:bea:wpaper:0041&r=mac |
| By: | Leonard Loebach (Bureau of Economic Analysis) |
| JEL: | E60 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:bea:wpaper:0039&r=mac |
| By: | Louise Ku-Graf (Bureau of Economic Analysis) |
| JEL: | E60 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:bea:papers:0041&r=mac |
| By: | Paul Ramskogler (Department of Economics, Vienna University of Economics & B.A.) |
| Abstract: | This paper explores the nexus between uncertainty and credit restrictions. A Post Keynesian approach to an explanation of access rationing to credit is developed and contrasted with the dominant relationship lending school. It is argued that access rationing to credit has be understood in terms of uncertainty and power. Differences in systemic uncertainty to which hetrogenous market participants are exposed can explain the reluctance of banks to lend to certain applicants. Monopsonistic power and uncertainty further help to understand why banks of a different size show differences in their lending behavior. |
| JEL: | E12 E51 D81 D89 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwwuw:wuwp105&r=mac |
| By: | Ralph H. Kozlow (Bureau of Economic Analysis) |
| Abstract: | There has been a large amount of recent interest in how the U.S. can be the so-called world's largest debtor nation and at the same time have a persistent surplus on income in its balance of payments accounts. Based on BEA's published data, two factors explain the incongruence - a difference in the composition of U.S.-owned assets abroad compared to foreign-owned assets in the U.S., and a higher rate of return earned by U.S. investors on their overseas assets, particularly on direct investment, than the rate of return that foreign investors earn on similar classes of assets invested in the U.S. In contrast, some others have recently argued that the explanation for the incongruence is that U.S.-owned assets abroad are undervalued, mainly because large exports of intangible assets by U.S. direct investors to their foreign affiliates have gone undetected. This paper reviews the main points of this argument and discusses some of its implications. |
| JEL: | E60 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:bea:papers:0040&r=mac |
| By: | Federico Guerrero (Department of Economics, University of Nevada, Reno); Elliott Parker (Department of Economics, University of Nevada, Reno) |
| Abstract: | In this paper, we consider whether there is statistical evidence for a causal relationship between federal government expenditures and growth in real per-capita GDP in the United States, using available data going back to 1792. After studying the time-series properties of these variables for stationarity and cointegration, we investigate Granger causality in detail in the context of a Vector Error Correction Model. While we find causal evidence supporting Wagner’s Law, we find no evidence supporting the common assertion that a larger government sector leads to slower economic growth. |
| Keywords: | long-term economic growth, federal government size, Wagner’s Law, United States, cointegration, Granger causality, vector autoregression, vector error correction model |
| JEL: | G32 G15 D92 E65 F39 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:unr:wpaper:07-002&r=mac |
| By: | Michael Hanke; Jürgen Huber; Michael Kirchler; Matthias Sutter |
| Abstract: | The effects of a Tobin tax on foreign exchange markets have long been disputed. We present an experiment with currency trading on two markets, where either none, one, or both markets are taxed. Our results confirm the hitherto undisputed issues: a tax reduces trading volume, shifts market share to untaxed markets, and leads to negligible tax revenues if tax havens exist. Concerning the controversial issues we find that (i) volatility effects depend on the existence of tax havens and on market size, (ii) market efficiency remains unaffected by the tax, (iii) short-term speculation is reduced, and (iv) the tax has persistent effects even after its abolishment. |
| Keywords: | Tobin tax, Experiment, Foreign exchange, Market efficiency, Trading volume, Volatility |
| JEL: | C91 E62 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2007-18&r=mac |
| By: | Miles S. Kimball; Claudia R. Sahm; Matthew D. Shapiro |
| Abstract: | Economic theory assigns a central role to risk preferences. This paper develops a measure of relative risk tolerance using responses to hypothetical income gambles in the Health and Retirement Study. In contrast to most survey measures that produce an ordinal metric, this paper shows how to construct a cardinal proxy for the risk tolerance of each survey respondent. The paper also shows how to account for measurement error in estimating this proxy and how to obtain consistent regression estimates despite the measurement error. The risk tolerance proxy is shown to explain differences in asset allocation across households. |
| JEL: | C24 C42 E21 G11 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13337&r=mac |
| By: | Baoline Chen (Bureau of Economic Analysis) |
| Abstract: | This paper describes and illustrates a generalized least squares (GLS) reconciliation method that can efficiently incorporate all available information on initial data in reconciling a large system of disaggregated accounts and can accurately estimate industry distribution of statistical discrepancy. The GLS reconciliation method is applied to reconciling the 1997 GDP-by-industry accounts and the Input-output accounts. The GDP-by-industry accounts measure GDP by industry using industry gross income, and the input-output accounts measure GDP by industry as the residual between gross output and intermediate inputs. The GLS method produced balanced estimates and estimated the industry distribution of the statisical discrepancy. The results show that using reliability to reconcile different accounts produces statistically meaningful balanced estimates. The study demonstrates that reconciling a large system of disaggregated accounts is empirically feasible and computationally efficient. |
| JEL: | E60 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:bea:wpaper:0040&r=mac |