nep-mac New Economics Papers
on Macroeconomics
Issue of 2007‒10‒13
48 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Dynamics of Sticky Information and Sticky Price Models in a New Keynesian DSGE Framework By Arslan, M.Murat
  2. Macroeconomic policy mix, employment and inflation in a Post-Keynesian alternative to the New Consensus Model By Eckhard Hein; Engelbert Stockhammer
  3. Estimating the effects of fiscal policy under the budget constraint. By Peter Claeys
  4. Endogenous Monetary Policy Credibility in a Small Macro Model of Israel By Philippe D Karam; Natan P. Epstein; Eyal Argov; Douglas Laxton; David Rose
  5. The Effects of Monetary Policy in the Czech Republic: An Empirical Study By Magdalena Morgese Borys; Roman Horváth
  6. Monetary Policy, Vagabonding Liquidity and Bursting Bubbles in New and Emerging Markets - An Overinvestment View By Schnabl, Gunther; Hoffmann, Andreas
  7. Sticky Information vs. Sticky Prices: A Horse Race in a DSGE Framework By Trabandt, Mathias
  8. The Taylor Rule and the Macroeconomic Performance in Pakistan By Wasim Shahid Malik; Ather Maqsood Ahmed
  9. Central Bank transparency and the U.S. interest rates level and volatility response to U.S. news By TUYSUZ, Sukriye
  10. The Stability of the Euro-Demand Function By King Banaian; Artatrana Ratha
  11. Fiscal and Monetary Policies and the Cost of Sudden Stops By Michael M. Hutchison; Ilan Noy; Lidan Wang
  12. Which nonlinearity in the Phillips curve? The absence of accelerating deflation in Japan By Emmanuel De Veirman
  13. Non-Keynesian effects of Government Spending: Some implications for the Stability and Growth Pact By Neicheva, Maria
  14. Hazardous Times for Monetary Policy: What Do Twenty-Three Million Bank Loans Say About the Effects of Monetary Policy on Credit Risk? By Jiménez, Gabriel; Ongena, Steven; Peydró-Alcalde, José Luis; Saurina, Jesús
  15. An analysis of the informational content of New Zealand data releases: the importance of business opinion surveys By Troy Matheson
  16. Permanent vs Temporary Fiscal Expansion in a Two-Sector Small Open Economy Model By Olivier Cardi; Romain Restout
  17. Dating EU15 Monthly Business Cycle Jointly Using GDP and IPI By Monica Billio; Massimiliano Caporin; Guido Cazzavillan
  18. The effects of a greater central bank credibility on interest rates level and volatility response to news in the U.K. By Tuysuz, Sukriye
  20. Derivation and Estimation of a Phillips Curve with Sticky Prices and Sticky Information By Arslan, Mesut Murat
  21. The industrial impact of oil price shocks: Evidence from the industries of six OECD countries By Rebeca Jiménez-Rodríguez
  22. Numerical solution of linear models in economics: The SP-DG model revisited By T. Andrade, G. Faria, V. Leite, F. Verona, M. Viegas; O. Afonso; P.B. Vasconcelos
  23. Job Reallocation, Unemployment and Hours in a New Keynesian Model By Richard W P Holt
  24. The role of foreign and domestic factors in the evolution of the Brazilian EMBI spread and debt dynamics. By Andrea Fracasso
  25. LA TEORIA DEL CICLO DI HAYEK. ESPOSIZIONE E DISCUSSIONE (Hayek’s Business Cycle Theory) By Hervé Baron
  26. Real-Time Measurement of Business Conditions By S. Boragan Aruoba; Francis X. Diebold; Chiara Scotti
  27. Threshold Autoregressive Model of Exchange Rate Pass through Effect: The Case of Croatia By Petra Posedel; Josip Tica
  28. Estimating a small DSGE model under rational and measured expectations: some comparisons By Paloviita, Maritta
  29. Financial Frictions, Investment and Tobin’s q By Lorenzoni, Guido; Walentin, Karl
  30. Public debt and aggregate risk By Audrey Desbonnet; Sumudu Kankanamge
  31. Interactions between interest rates and the transmission of monetary and economic news: the cases of US and UK. By Tuysuz, Sukriye; Kuhry, Yves
  32. The Response of Business Fixed Investment to Changes in Energy Prices: A Test of Some Hypotheses About the Transmission of Energy Price Shocks By Edelstein, Paul; Kilian, Lutz
  33. Precautionary Demand for Foreign Assets in Sudden Stop Economies: An Assessment of the New Merchantilism By Ceyhun Bora Durdu; Marco Terrones; Enrique G. Mendoza
  34. U.K. Inflation and Relative Prices Over the Last Decade: How Important was Globalization? By Ben Hunt
  35. Persistent Gaps, Volatility Types, and Default Traps By Sandeep Kapur; Ana Fostel; Luis Catão
  36. Testing the Keynesian Proposition of Twin Deficits in the Presence of Trade Liberalisation: Evidence from Sri Lanka after War: the case of a bridge too far? By Chowdhury, Khorshed; Saleh, Ali Salman
  37. The Common Monetary Area in Southern Africa: Shocks, Adjustment, and Policy Challenges By Iyabo Masha; Kazuko Shirono; Leighton Harris; Jian-Ye Wang
  38. Global Yield Curve Dynamics and Interactions: A Dynamic Nelson-Siegel Approach By Francis X. Diebold; Canlin Li; Vivian Z. Yue
  39. A Theory of the Supply of Inside Money By William Coleman
  40. Real economic activity and state of financial markets By Szymon Grabowski
  41. Private Business Investment in Australia By Lynne Cockerell; Steven Pennings
  42. The Macroeconomic Implications of MDG-Based Strategies in Sub-Saharan Africa By John Weeks; Terry McKinley
  43. Statistical Implications of the Stability and Growth Pact: Creative accounting and the role of Eurostat By Frej Ohlsson, Lena
  44. Precautionary Demand for Labor in Search Equilibrium By Noritaka Kudoh; Masaru Sasaki
  45. Economics and Terrorism: What We Know, What We Should Know and the Data We Need By Llussá, Fernanda; Tavares, José
  46. The Affine Arbitrage-Free Class of Nelson-Siegel Term Structure Models By Jens H. E. Christensen; Francis X. Diebold; Glenn D. Rudebusch
  47. Competitiveness in the CFA Franc Zone By Charalambos G. Tsangarides; Gustavo Ramirez
  48. Estimation of a Behavioral Equilibrium Exchange Rate Model for Ghana By Elena Loukoianova; Plamen Iossifov

  1. By: Arslan, M.Murat
    Abstract: Recent literature on monetary policy analysis extensively uses the sticky price model of price adjustment in a New Keynesian Macroeconomic framework. This price setting model, however, has been criticized for producing implausible results regarding inflation and output dynamics. This paper examines and compares dynamic responses of the sticky price and sticky information models to a cost-push shock in a New Keynesian DSGE framework. It finds that the sticky information model produces more reasonable dynamics through lagged, gradual and hump-shaped responses to a shock as observed in data. However, these responses depend on the persistence of the shock.
    Keywords: Monetary policy; Sticky information; Sticky prices; Phillips curve
    JEL: E52 E50
    Date: 2007–08
  2. By: Eckhard Hein (Macroeconomic Policy Institute (IMK), Hans Boeckler Foundation, Duesseldorf); Engelbert Stockhammer (Department of Economics, Vienna University of Economics & B.A.)
    Abstract: New Consensus Models (NCMs) have been criticised by Post-Keynesians (PKs) for a variety of reasons. The paper presents a model that synthesises several of the PK arguments. The model consists of three classes: rentiers, firms and workers. It has a short-run inflation barrier derived from distribution conflict between these classes, which is endogenous in the medium run. Distribution conflict does not only affect inflation but also income shares. On the demand side the income classes have different saving propensities. We apply a Kaleckian investment function with expected sales and internal funds as major determinants. The paper analyses short-run stability and includes medium-run endogeneity channels for the Non-Accelerating-Inflation-Rate-of-Unemployment (NAIRU): persistence mechanisms in the labour market, adaptive wage and profit aspirations, investment in capital stock and cost effects of interest rate changes. The model is used to analyse NCM and PK policy assignments and policy rules. We argue that improved employment without increasing inflation will be possible, if macroeconomic policies are coordinated along the following lines: The central bank targets distribution, wage bargaining parties target inflation and fiscal policies are applied for short- and medium-run real stabilisation purposes.
    JEL: E12 E20 E52 E61
    Date: 2007–10
  3. By: Peter Claeys (Faculty of Economics, University of Barcelona.)
    Abstract: I reconsider the short-term effects of fiscal policy when both government spending and taxes are allowed to respond to the level of public debt. I embed the long-term government budget constraint in a VAR, and apply this common trends model to US quarterly data. The results overturn some widely held beliefs on fiscal policy effects. The main finding is that expansionary fiscal policy has contractionary effects on output and inflation. Ricardian effects may dominate when fiscal expansions are expected to be adjusted by future tax rises or spending cuts. The evidence supports RBC models with distortionary taxation. We can discard some alternative interpretations that are based on monetary policy reactions or supply-side effects.
    Keywords: fiscal policy, sustainability, spending, taxes, common trends, SVAR.
    JEL: E42 E63 E65
    Date: 2007–07
  4. By: Philippe D Karam; Natan P. Epstein; Eyal Argov; Douglas Laxton; David Rose
    Abstract: This paper extends a small linear model of the Israeli economy to allow for nonlinearities in the inflation-output process that arise from convexity in the Phillips curve and endogenous monetary policy credibility. We find that the dynamic responses to shocks in the extended model more closely resemble features in the data from the period 2001?03. In particular, the extended model does a much better job in accounting for the deterioration in monetary policy credibility and the output costs of regaining monetary policy credibility once it has been lost.
    Keywords: Monetary policy , Israel , Inflation targeting , Economic models , Working Paper ,
    Date: 2007–08–30
  5. By: Magdalena Morgese Borys (CERGE-EI); Roman Horváth (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Czech National Bank)
    Abstract: In this paper, we examine the effects of Czech monetary policy on the economy within VAR and the structural VAR framework. We document well-functioning transmission mechanism similar to the euro area countries, especially in terms of persistence of monetary policy shocks. Subject to various sensitivity tests, we find that contractionary monetary policy shock has a negative effect on the degree of economic activity and price level, both with a peak response after one year or so. Regarding the prices at the sectoral level, tradables adjust faster than non-tradables, which is in line with microeconomic evidence on price persistence. There is a rationale in using the real-time output gap instead of current GDP growth as using the former results in much more precise estimates. There is no evidence for price puzzle within the system. The results indicate a rather persistent appreciation of domestic currency after monetary tightening with a gradual depreciation afterwards.
    Keywords: transmission, VAR, real-time data, sectoral prices
    JEL: E52 E58 E31
    Date: 2007–10
  6. By: Schnabl, Gunther; Hoffmann, Andreas
    Abstract: Credit booms have globally fuelled hikes in stock, raw material and real estate markets which have culminated in the recent US subprime market crisis. We explain the global asset market booms since the mid 1980s based on the overinvestment theories of Hayek, Wicksell and Schumpeter. We argue that ample liquidity supply originating in the large industrialized countries has contributed to overinvestment cycles in Japan, East Asia, new markets in the industrial countries and many emerging market economies. Expansionary monetary policies in response to the burst of bubbles are argued to have contributed to vagabonding bubbles around the globe.
    Keywords: Bubbles; Boom-Bust Cycles; Hayek; Wicksell; Schumpeter; Emerging Markets; Capital Flows; Overinvestment Theories.
    JEL: E44 E32 B53 E58
    Date: 2007–09–10
  7. By: Trabandt, Mathias (Research Department, Central Bank of Sweden)
    Abstract: How can we explain the observed behavior of aggregate inflation in response to e.g. monetary policy changes? Mankiw and Reis (2002) have proposed sticky information as an alternative to Calvo sticky prices in order to model the conventional view that i) inflation reacts with delay and gradually to a monetary policy shock, ii) announced and credible disinflations are contractionary and iii) inflation accelerates with vigorous economic activity. I use a fully-fledged DSGE model with sticky information and compare it to Calvo sticky prices, allowing also for dynamic inflation indexation as in Christiano, Eichenbaum, and Evans (2005). I find that sticky information and sticky prices with dynamic inflation indexation do equally well in my DSGE model in delivering the conventional view.
    Keywords: sticky information; sticky prices; inflation indexation; DSGE
    JEL: E00 E30
    Date: 2007–06–01
  8. By: Wasim Shahid Malik (Pakistan Institute of Development Economics, Islamabad.); Ather Maqsood Ahmed (Central Board of Revenue, Islamabad.)
    Abstract: A widely agreed proposition in modern economics is that policy rules have greater advantage over discretion in improving economic performance. Simple monetary policy instrument rules are feasible options for developing countries lacking the pre-requisites for more sophisticated targeting rules. Notwithstanding the focus of modern literature on the issue, the State Bank of Pakistan (SBP) has never declared itself to be following any type of rule. Surprisingly, this topic has remained out of research focus (among the academia and the practitioners) in Pakistan. This is the first attempt to deal with a rule-based monetary policy strategy in the case of the SBP. We have estimated the Taylor rule and simulated the economy using this rule as a monetary policy strategy. Our results indicate that the SBP has not been following the Taylor rule. In fact, the actual policy can be taken as an extreme deviation from it. On the other hand, counterfactual simulation confirms that macroeconomic performance can be improved, in terms of stability in inflation and output, when a simple Taylor rule is adopted. In this regard the parameter values (especially the inflation target) in the rule must be set according to the conditions of the economy under consideration rather than by relying on the ones suggested by the Taylor rule.
    Keywords: Taylor Rule, Macroeconomic Performance, Counterfactual Simulation
    JEL: E47 E31 E52
    Date: 2007
  9. By: TUYSUZ, Sukriye
    Abstract: This paper investigates the impact of U.S. macroeconomic and monetary news on market interest rate level and volatility. These news relate to Federal Reserve System (FED) target variables and unexpected policy rate changes. It examines whether the fact that FED announces its policy rate decisions immediately after each Federal Open Market Committee (FOMC) meeting alters the market rate response. These meetings occur regularly at scheduled time since February 1994. It also checks if this transparency measure (i.e. announcing the policy rate immediately after the meetings and regularly at scheduled time) has increased the predictability of FED's rates by the market. The results reveal that after 1994, financial markets can better foresee monetary policy decisions compared to the period when the policy rate was announced with a delay of 45 days after the meetings. Moreover, U.S. interest rate volatility is less affected by the announcements on FED target variables after 1994. In the same way, unexpected monetary policy decisions influence less interest rate level. These results suggest that, in accordance with theory, a greater transparency improves market participants' understanding of the Federal Reserve's monetary policy reaction function. Interestingly, the date on which FED announces the policy rate decision has a greater impact on U.S. interest rate volatility after 1994. This observation suggests that the FED's credibility might have decreased after 1994. However, it is not related to the immediate diffusion of policy rate decisions.
    Keywords: Monetary policy; news announcements; transparency; term structure of interest rates; EGARCH
    JEL: E44 E58 E43
    Date: 2007–09–15
  10. By: King Banaian; Artatrana Ratha (Department of Economics, St. Cloud State University)
    Abstract: While the empirical literature on money demand is vast by any standards, it is relatively silent when it comes to the Euro, a major currency in the world. This hampers efforts, for example, to determine whether or not the European Central Bank can target monetary aggregates for inflation control. The difficulty has come from the lack of information about euro-wide monetary behavior, relying instead on speculative techniques for aggregating country-level data from previous periods of the European exchange rate mechanism. Now that we have six years of monthly data points, we investigate the stability of various Euro-zone monetary aggregates using the Bound Testing Procedure of Cointegration proposed by Pesaran et al. (2001) and study their policy implications.
    Keywords: money demand, euro, cointegration
    JEL: E41
    Date: 2007–08
  11. By: Michael M. Hutchison (Department of Economics, University of California, Santa Cruz); Ilan Noy (Department of Economics, University of Hawaii at Manoa); Lidan Wang (Risk Management, HSBC Credit Card Services, California)
    Abstract: This article investigates the effects of macroeconomic policy (monetary and fiscal) on output growth during financial crises characterized by a “sudden stop” in net capital inflows in developing and emerging market economies. We investigate 83 sudden stop crises in 77 countries over 1982-2003 using a baseline empirical model to control for the various determinants of output losses during sudden stop crises. Extending the baseline model to account for policies-- contractionary as well as expansionary-- we measure the marginal effects of policy on output losses. Simple descriptive statistics indicate no apparent correlation between the costs of financial crises and the economic policies pursed at the time. Once controlling for various pre-conditions and other factors, however, we find that monetary and fiscal tightening at the time of a sudden stop crisis significantly worsens output losses.
    Keywords: Output losses, financial crises, sudden stops, fiscal policy, financial policy
    JEL: E52 E62 F32 F43 O16
  12. By: Emmanuel De Veirman (Reserve Bank of New Zealand)
    Abstract: It is standard to model the output-inflation trade-off as a linear relationship with a time-invariant slope. We assess empirical evidence for three types of nonlinearity in the short-run Phillips curve. At an empirical level, we aim to discover why large negative output gaps in Japan during the period 1998-2002 did not lead to accelerating deflation, but instead coincided with stable, albeit moderately negative, inflation. We document that this episode is most convincingly interpreted as reflecting a gradual flattening of the Phillips curve. Our analysis sheds light on the determinants of the time-variation in the Phillips curve slope. Our results suggest that, in any economy where trend inflation is substantially lower (or substantially higher) today than in past decades, time-variation in the slope of the short-run Phillips curve has become too important to ignore.
    JEL: C22 C32 E31 E32
    Date: 2007–09
  13. By: Neicheva, Maria
    Abstract: The paper focuses on the non-Keynesian effects of fiscal policy, specifically government expenditure on output in Bulgaria. The main finding of the study is that the size of the fiscal impulse is the most important determinant of the non-Keynesian outcome. Also, the results imply that the “balanced-budget rule” does not automatically assure growth; the regulations regarding the budgetary categories themselves should also be considered.
    Keywords: Fiscal policy; Non-Keynesian effects; balanced-budget rule; Stability and Growth Pact
    JEL: E62
    Date: 2007–09
  14. By: Jiménez, Gabriel; Ongena, Steven; Peydró-Alcalde, José Luis; Saurina, Jesús
    Abstract: We investigate the impact of the stance and path of monetary policy on the level of credit risk of individual bank loans and on lending standards. We employ the Credit Register of the Bank of Spain that contains detailed monthly information on virtually all loans granted by all credit institutions operating in Spain during the last twenty-two years – generating almost twenty-three million bank loan records in total. Spanish monetary conditions were exogenously determined during the entire sample period. Using a variety of duration models we find that lower short-term interest rates prior to loan origination result in banks granting more risky new loans. Banks also soften their lending standards – they lend more to borrowers with a bad credit history and with high uncertainty. Lower interest rates, by contrast, reduce the credit risk of outstanding loans. Loan credit risk is maximized when both interest rates are very low prior to loan origination and interest rates are very high over the life of the loan. Our results suggest that low interest rates increase bank risk-taking, reduce credit risk in banks in the very short run but worsen it in the medium run. Risk-taking is not equal for all type of banks: Small banks, banks with fewer lending opportunities, banks with less sophisticated depositors, and savings or cooperative banks take on more extra risk than other banks when interest rates are lower. Higher GDP growth reduces credit risk on both new and outstanding loans, in stark contrast to the differential effects of monetary policy.
    Keywords: bank organization; business cycle; credit risk; duration analysis; financial stability; lending standards; low interest rates; monetary policy; risk-taking
    JEL: E44 G21 L14
    Date: 2007–10
  15. By: Troy Matheson (Reserve Bank of New Zealand)
    Abstract: We examine the informational content of New Zealand data releases using a parametric dynamic factor model estimated with unbalanced real-time panels of quarterly data. The data are categorised into 21 different release blocks, allowing us to make 21 different factor model forecasts each quarter. We compare three of these factor model forecasts for real GDP growth, CPI inflation, non-tradable CPI inflation, and tradable CPI inflation with real-time forecasts made by the Reserve Bank of New Zealand each quarter. We find that, at some horizons, the factor model produce forecasts of similar accuracy to the Reserve Bank’s forecasts. Analysing the marginal value of each of the data releases reveals the importance of the business opinion survey data – the Quarterly Survey of Business Opinion and the National Bank’s Business Outlook survey – in determining how factor model predictions, and the uncertainty around those predictions, evolves through each quarter.
    JEL: E52 E58 C33 C53
    Date: 2007–09
  16. By: Olivier Cardi (ERMES, Universit¶e Panth¶eon-Assas Paris 2, IRES, Universit¶e catholique de Louvain); Romain Restout (University Paris X - Nanterre, and GATE, University of Lyon, CNRS, ENS-LSH, Centre Léon Bérard)
    Abstract: This contribution shows that the duration of a fisscal shock together with sectoral capital intensity matter in determining the dynamic and steady-state effects in an intertemporal-optimizing two-sector small open economy model. First, unlike a permanent shock, net foreign asset position always worsens in the long-run after a transitory fiscal expansion. Second, steady-state changes in physical capital depend on sectoral capital-labor ratios but their signs may be reversed compared to the corresponding permanent public policy. Third, investment and the current account may now adjust non monotonically. Fourth, a temporary fiscal shock always crowds-out (crowds-in) investment in the long-run whenever the non traded (traded) sector is more capital intensive.
    Keywords: current account, government spending, nontraded goods, temporary shocks
    JEL: E22 E62 F32 F41
    Date: 2007–09
  17. By: Monica Billio (Department of Economics, University Of Venice Cà Foscari); Massimiliano Caporin (Dipartimento di Scienze Economiche “Marco Fanno”, University of Padova); Guido Cazzavillan (Department of Economics, University Of Venice Cà Foscari)
    Abstract: This paper aims at the production of a chronology for the EU15 business cycle by comparing parametric and non-parametric procedures on monthly and quarterly data as well in a combined approach. The main innovation is the joint use of the monthly series for the EU15 Gross Domestic Product (GDP) and the EU15 Industrial Production Index (IPI) from 1970 to 2003. The monthly IPI and the quarterly GDP at the EU15 level have been reconstructed starting from the available national series. The monthly GDP has then been computed using temporal disaggregation techniques. The obtained chronology is directly comparable to ones produced by several authors for the euro area.
    Keywords: Business cycle, Chronology, Historical reconstruction, Monthly GDP
    JEL: E32 C82
    Date: 2007
  18. By: Tuysuz, Sukriye
    Abstract: This paper investigates the impact of British macroeconomic and monetary news on English interest rates level and volatility. These news correspond to Bank of England (BoE) target variables news and to unexpected monetary policy rate changes. It analyzes whether the market rate response to these news has changed since the Bank of England (BoE) was granted operational independence in May 1997. It also checks if this credibility measure has increased the predictability of BoE decisions by the market. The results reveal that after May 1997, financial markets appears better able to anticipe BoE policy decisions than before May 1997. However, Bank of England target variable news announcements and policy rate changes diffusion influence more English interest rate volatility after May 1997. This results suggests that the credibility and/or transparency of BoE might have decreased after 1997. However, the closer evolution of the realized inflation around the target fixed by the BoE and the evolution of the transparency and credibility index suggest that the BoE transparency and credibility degree increase since 1997 compare to the period prior to 1997. One possible explanation of this last results rests on uncertainty created by the several financial crises (the Asian crisis (July 1997), the Russian crisis (August 1998), the bursting of the technology and internet bubble in 2002 in USA).
    Keywords: Monetary policy; announcements; news; credibility; transparency; term structure of interest rates; GARCH
    JEL: E44 C5 E43
    Date: 2007–09–01
  19. By: Mark Mink; Jan P.A.M. Jacobs; Jakob de Haan
    Abstract: We develop multivariate measures of synchronicity and co-movement of business cycles. In addition to synchronicity, the co-movement measure takes differences between cycle amplitudes into account that have been overlooked in most previous studies. We apply the new measures to the euro area. Synchronicity and co-movement for the region as a whole do not exhibit a clear upward tendency. Although several countries saw the similarity of their business cycle vis-`a-vis the euro area reference cycle increase, national business cycles remain fairly diverse. Changes in business cycle amplitudes cause most of the observed change in cycle co-movement.
    JEL: E32 F02 F42
    Date: 2007–09
  20. By: Arslan, Mesut Murat
    Abstract: I develop a structural model of inflation by combining two different models of price setting behavior: the sticky price model of the New Keynesian literature and the sticky information model of Mankiw and Reis. In a framework similar to the Calvo model, I assume that there are two types of firms. One type of firm chooses its prices optimally through forward-looking behavior---as assumed in the sticky price model. It uses all available information when deciding on prices. The other type of firm sets its prices under the constraint that the information it uses is ``sticky''---as assumed in the sticky information model. It collects and processes the information necessary to choose its optimal prices with a delay. This leads to the sticky price-sticky information (SP/SI) Phillips curve that nests the standard sticky price and sticky information models. Estimations of this structural model show that both sticky price and sticky information models are statistically and quantitatively important for price setting. However, the sticky price firms make up the majority of the firms in the economy. The resultant SP/SI Phillips curve models inflation better than either the sticky price or sticky information models. The results are robust to alternative sub-samples and estimation methods.
    Keywords: Inflation; Phillips Curve; Sticky prices; Sticky information;
    JEL: E31 E12 E17
    Date: 2005–05
  21. By: Rebeca Jiménez-Rodríguez (University of Salamanca)
    Abstract: Most of the studies existing in theoretical and empirical understanding of the macroeconomic consequences of oil price shocks have been focused on US aggregate data. In contrast to these studies, this paper assesses empirically the dynamic effects of oil price shocks on the output of the main manufacturing industries in six OECD countries using an identified vector autoregression for each economy. The pattern of responses to an oil price shock by industrial output is diverse across the four European Monetary Union (EMU) countries under consideration (France, Germany, Italy, and Spain), but broadly similar in the UK and the US. Evidence on cross-industry heterogeneity of oil shock effects within the EMU countries is also reported. Moreover, our baseline results are quite robust with respect to changes in the number of lags, identification assumptions, and real oil price definition.
    Keywords: oil price shock, identified VAR, manufacturing industries
    JEL: E32 Q43
    Date: 2007–10
  22. By: T. Andrade, G. Faria, V. Leite, F. Verona, M. Viegas (PhD students at Universidade do Porto, Portugal); O. Afonso (CEMPRE and Faculdade de Economia da Universidade do Porto, Portugal); P.B. Vasconcelos (CMUP and Faculdade de Economia da Universidade do Porto, Portugal)
    Abstract: In general, complex and large dimensional models are needed to solve real economic problems. Due to these characteristics, there is either no analytical solution for them or they are not attainable. As a result, solutions can be only obtained through numerical methods. Thus, the growing importance of computers in Economics is not surprising. This paper focuses on an implementation of the SP-DG model, using Matlab,developed by the students as part of the Computational Economics course. We also discuss some of our teaching/learning experience within the course, given for the first time in the FEP Doctoral Programme in Economics.
    Keywords: SP-DG Model, Output, Inflation, Numerical Simulation, Teaching of Economics
    JEL: A12 A23 C61 C63 E24 E31 E32
    Date: 2007–10
  23. By: Richard W P Holt
    Abstract: This paper focusses on the reallocation of labour resources in a New Keynesian environment with labour market search and endogenous separations. We show that introduction of variation in hours per worker alters the incentives for intertemporal substitution in a way that generates a more steeply downward sloping Beveridge curve and reduces the tendency to synchronise gross job flows. This also enables the New Keynesian model to capture the interaction of hours and employment at business cycle frequencies. We show that the impact of labour supply elasticity on the slope of the Beveridge curve and the correlation of gross job flows is determined primarily by variation in the response to monetary shocks. When hours variation is suppressed the comovement of job creation with job destruction and of unemployment with vacancies are strongly positive in response to monetary shocks. Whereas with variation in hours both measures of reallocation take on the correct negative sign. We also note that frictions in price adjustment make it possible to account a large part of the variation in unemployment observed in US data, despite the absence of wage rigidity or departures from the Hosios condition which have been proposed to resolve the unemployment variability puzzle identified by Shimer (2005).
    Date: 2007–10–04
  24. By: Andrea Fracasso (Department of Economics, University of Trento)
    Abstract: This paper examines the relative importance of global and domestic factors as a source of macroeconomic fluctuations in Brazil from 1995 to 2004. US and Brazilian credit spreads are encompassed in a near-VAR model, including the main debt-related domestic variables. The US corporate bond spread is used as a measure of international risk aversion. The relative importance of global factors to the volatility of Brazilian domestic series is singled out by means of a partial identification strategy, whereby foreign variables are treated as block exogenous. The estimates reveal that foreign investors’ appetite for risk is an important determinant of the volatility of the macroeconomic Brazilian series and affects the monetary policy transmission channel, as recently suggested by Olivier Blanchard.
    Keywords: External factors, Credit spreads, External debt, Fiscal dominance.
    JEL: F34 F42 O23 E32
    Date: 2006–09
  25. By: Hervé Baron (Università degli Studi di Firenze, Dipartimento di Scienze Economiche)
    Abstract: Here we will deal with Hayek economist and without considering his theoretical production completely. In fact, the purpose of the present work is to expose and discuss Hayek’s theory of economic cycle. To try to develop our assignment in best way, naturally, we have also to deal us with Hayek’s monetary theory as well as to mention his theory of capital and his methodological formulations. During this writing, after having delineated Hayek’s analytical tools and the general characters of his analysis, we will introduce the most important models of the cycle elaborated by him during the years; lot of time will be given to the discussion of the model reported in “Prices and Production”, for the reasons that will be subsequently exposed. Then, we will try to discuss the “internal” problems concerning Hayek’s theory to finally draw some conclusions concerning if this theory is still actual or not.
    Keywords: teoria del ciclo, fluttuazioni cicliche, ciclo economico
    JEL: B13 B31 E13 E32
    Date: 2007
  26. By: S. Boragan Aruoba (Department of Economics, University of Maryland); Francis X. Diebold (Department of Economics, University of Pennsylvania); Chiara Scotti (Division of International Finance, Federal Reserve Board)
    Abstract: We construct a framework for measuring economic activity in real time (e.g., minute-by-minute), using a variety of stock and flow data observed at mixed frequencies. Specifically, we propose a dynamic factor model that permits exact filtering, and we explore the efficacy of our methods both in a simulation study and in a detailed empirical example.
    Keywords: Business cycle, Expansion, Recession, State space model, Macroeconomic forecasting, Dynamic factor model
    JEL: E32 E37 C01 C22
    Date: 2007–07–24
  27. By: Petra Posedel (Faculty of Economics and Business, University of Zagreb); Josip Tica (Faculty of Economics and Business, University of Zagreb)
    Abstract: In this paper exchange rate pass-through effect in Croatia is estimated with nonlinear (asymmetric) threshold autoregressive model (TAR). In total 12285 regressions is estimated and a strong case of nonlinearity with single threshold is proven. According to our estimation there is a threshold at 2.69% of monthly change of nominal exchange rate of German mark (Euro) and the way in which nominal exchange rate affects inflation is asymmetric around it. Below the threshold, effect of change in nominal exchange rate on inflation is statistically insignificant and above the threshold the effect is strong and significant.
    Keywords: threshold autoregressive model, pass-through effect, exchange rate, inflation, nonlinear econometrics
    JEL: E31 E58 F31
    Date: 2007–10–01
  28. By: Paloviita, Maritta (Bank of Finland Research)
    Abstract: Using European panel data and GMM system estimation, we explore the empirical performance of the standard three-equation New Keynesian macro model under different informational assumptions. As a benchmark, we consider the performance of the model under rational expectations and revised (final) data. Alternatively, instead of imposing rational expectations hypothesis we use real- time information, ie Consensus Economics survey data, to generate empirical proxies for expectations in the model and the current output gap in the Taylor rule. We demonstrate that, contrary to the assumption of rational expectations, the errors in measured expectations and real-time current output gaps are positively autocorrelated. We produce evidence that the use of real-time variables (including measured expectations) improves the empirical performance of the New Keynesian model. Relaxation of the rational expectations hypothesis makes a noticeable difference for the parameters of the New Keynesian model, especially in the Taylor rule.
    Keywords: DSGE model; survey expectations; GMM system estimation; expectations; estimation
    JEL: C52 E20 E52
    Date: 2007–10–03
  29. By: Lorenzoni, Guido (Department of Economics, MIT); Walentin, Karl (Research Department, Central Bank of Sweden)
    Abstract: We develop a model of investment with financial constraints and use it to investigate the relation between investment and Tobin’s q. Afirm 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 valu 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.
    Keywords: Financial constraints; investment; Tobin’s q; limited enforcement.
    JEL: E22 E30 E44 G30
    Date: 2007–06–01
  30. By: Audrey Desbonnet (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I]); Sumudu Kankanamge (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I])
    Abstract: This paper assesses the optimal level of public debt in a new framework where aggregate fluctuations are taken into account. Agents are subject to both aggregate and idiosyncratic shocks and the market structure prevents them from perfectly insuring against the risk. We find that the optimal level of debt is very different when aggregate risk is taken into account : a simple idiosyncratic model generates a quarterly optimal level of debt of 60 % of GDP, our benchmark model embedding aggregate risk finds the quarterly optimal level of debt to be 180 % of GDP, our benchmark model embedding aggregate risk finds the quarterly optimal level of debt to be 180 % of GDP. Thus aggregate fluctuations have a strong positive impact on the level of public debt in the economy. Aggregate fluctuations exacerbate the overall risk level in the economy and households are forced to increase their precautionary saving in response. Public debt and the implied higher interest rate generate a strong effect that helps precautionary saving behavior.
    Keywords: Debt, aggregate risk, precautionary saving.
    Date: 2007–09
  31. By: Tuysuz, Sukriye; Kuhry, Yves
    Abstract: In recent years, economies have become more and more interdependent. The constitution of commercial and monetary unions has increased the level of coordination of public decisions. On the other hand, some countries still have an strong influence at the world or regional levels. This paper studies the evolutions of UK and USA interest rates markets as well as their interactions during the last decade. Thus, we determine empirically the main determinants of interest rates in both countries using several explanatory variables among which, macroeconomic, monetary and financial variables. In particular, it is of interest to determine whether interest rates react and how to the publication of key economic and financial figures. We thus considered in this paper the effects of news, as measured by the difference between anticipated and observed data, on the interest rates means and volatilities. Determining the interest rates dynamics from their national determinants also allow us to evaluate the degrees of transparency and credibility of central banks in both countries. Second, we are interested in measuring the degree of integration of American and British economies by analyzing the spillover and feedback effects between interest rates as well as news spillover effects. In order to take into account the evolutions of interest rates values as well as their volatilities, we use a VAR model where the error term is specified as a multivariate GARCH. Contrary to previous papers in the same area, we do not assume that there is a "small" and a "big" country as we allow any causality to be determined by the data. We find that factors that account for most variations in interest rates are, for both countries, the monetary policy decisions, the price levels and the rate of unemployment. Moreover, the reaction of UK interest rates to US variables tend to be less important in recent years, while we observe the contrary the other way round. Those seemingly contradictory results can gain sense if one takes into account the emergence of EMU as a new economic power.
    Keywords: interest rates; news spillovers; multivariate GARCH
    JEL: C52 F3 E44 E43
    Date: 2007–04–15
  32. By: Edelstein, Paul; Kilian, Lutz
    Abstract: Changes in firms’ investment expenditures are considered one of the primary channels through which energy price shocks are transmitted to the economy. It is widely believed that the response of business fixed investment to energy price increases differs from its response to energy price decreases. We show that the apparent asymmetry in the estimated responses of business fixed investment in equipment and structures cannot be reconciled with standard theoretical explanations of asymmetric responses. Rather this evidence is an artifact (1) of the aggregation of mining-related expenditures by the oil, natural gas, and coal mining industry and all other expenditures, and (2) of ignoring an exogenous shift in investment caused by the 1986 Tax Reform Act. After controlling for these factors, formal statistical tests are unable to reject the assumption of symmetric responses to energy price shocks for all components of investment in structures. For nonresidential equipment there is weak statistical evidence of classical asymmetries in some components, but not in the aggregate. Once symmetry is imposed and mining-related expenditures are excluded, the estimated response of business fixed investment in equipment and structures tends to be small and mostly statistically insignificant. Historical decompositions show that energy price shocks have played a minor role in driving fluctuations in nonresidential fixed investment other than investment in mining. Our conclusions are largely robust to defining energy price shocks in terms of percent changes, large percent changes or net percent changes of energy prices; they are also robust to using alternative measures of energy prices and to weighting energy prices by the energy share in value added.
    Keywords: 1986 Tax Reform Act; Asymmetric responses; Equipment; Nonresidential fixed investment; Oil price shocks; Structures
    JEL: E22 E32 Q43
    Date: 2007–10
  33. By: Ceyhun Bora Durdu; Marco Terrones; Enrique G. Mendoza
    Abstract: Financial globalization was off to a rocky start in emerging economies hit by Sudden Stops in the 1990s. The surge in foreign reserves since then is viewed as a New Merchantilism in which reserves are a war-chest for defense against Sudden Stops. We conduct a quantitative assessment of this argument using a framework in which precautionary savings affect foreign assets via business cycle volatility, financial globalization, and endogenous Sudden Stops. Our results show that financial globalization and Sudden Stop risk are plausible explanations of the surge in reserves but cyclical volatility, which has declined in the globalization period, is not.
    Keywords: Working Paper , Reserves accumulation , Crisis prevention , Financial crisis , Deflation , Deflation , Dollarization , Globalization , Business cycles , Credit , Economic models ,
    Date: 2007–06–28
  34. By: Ben Hunt
    Abstract: In this paper, the IMF's new Global Economy Model (GEM) is used to estimate the relative importance of a number of factors argued to explain the differences in the trends in core inflation and relative prices in the United Kingdom, the Euro Area and the United States. The simulation results indicate that while the direct effect of globalization has had a larger effect in the United Kingdom than in either the United States or the Euro Area, it explains only a portion of the developments and U.K. specific factors played an important role.
    Keywords: Inflation , United Kingdom , Prices , Globalization , Economic models , Working Paper ,
    Date: 2007–08–30
  35. By: Sandeep Kapur; Ana Fostel; Luis Catão
    Abstract: We show that cross-country differences in the underlying volatility and persistence of macroeconomic shocks help explain two historical regularities in sovereign borrowing: the existence of "vicious" circles of borrowing-and-default ("default traps"), as well as the fact that recalcitrant sovereigns typically face higher interest spreads on future loans rather than outright market exclusion. We do so in a simple model where output persistence is coupled with asymmetric information between borrowers and lenders about the borrower's output process, implying that a decision to default reveals valuable information to lenders about the borrower's future output path. Using a broad cross-country database spanning over a century, we provide econometric evidence corroborating the model's main predictions-namely, that countries with higher output persistence and conditional volatility of transient shocks face higher spreads and thus fall into default traps more easily, whereas higher volatility of permanent output tends to dampen these effects.
    Keywords: Production , Sovereign debt , Working Paper , Economic models , Borrowing ,
    Date: 2007–07–05
  36. By: Chowdhury, Khorshed (University of Wollongong); Saleh, Ali Salman (University of Wollongong)
    Abstract: This paper examines the long-run and short-run relationships between the current account deficit, budget deficit, savings and investment gap and trade openness in Sri Lanka using the autoregressive distributive lagged (ARDL) approach. The time series properties of the variables, in the presence of endogenous structural breaks, was previously analysed using Perron’s (1997) additive outlier (AO) and innovational outlier (IO) models. The empirical analysis supports the Keynesian view that a link exists between the current account, budget deficit and savings and investment gap. We found that trade openness has a positive effect on the current account deficit, but is statistically insignificant, and offer some strategies to stabilise the budget deficit and current account deficits in Sri Lanka.
    Keywords: twin deficit, structural change, unit roots, ARDL
    JEL: E60 E62 C22 F41
    Date: 2007
  37. By: Iyabo Masha; Kazuko Shirono; Leighton Harris; Jian-Ye Wang
    Abstract: This study assesses the experience of the Common Monetary Area (CMA) based on available empirical evidence over the last two decades. It pays particular attention to member countries' adjustment to economic shocks in recent years and the inter-country linkages, including the spillover effects of policies. The paper draws the main lessons from the CMA experience, identifies key policy challenges, and discusses the issues facing the member countries in their efforts to achieve sustained growth. Implications for further economic integration in a broader regional context are also noted.
    Keywords: Working Paper , Monetary unions , Economic policy , Adjustment process , Financial integration , Financial sector ,
    Date: 2007–07–13
  38. By: Francis X. Diebold (Department of Economics, University of Pennsylvania); Canlin Li (Graduate School of Management, University of California, Riverside); Vivian Z. Yue (Department of Economics, New York University)
    Abstract: The popular Nelson-Siegel (1987) yield curve is routinely fit to cross sections of intra-country bond yields, and Diebold and Li (2006) have recently proposed a dynamized version. In this paper we extend Diebold-Li to a global context, modeling a potentially large set of country yield curves in a framework that allows for both global and country-specific factors. In an empirical analysis of term structures of government bond yields for the Germany, Japan, the U.K. and the U.S., we find that global yield factors do indeed exist and are economically important, generally explaining significant fractions of country yield curve dynamics, with interesting differences across countries.
    Keywords: Term Structure, Interest Rate, Dynamic Factor Model, Global Yield, World Yield, Bond Market
    JEL: G1 E4 C5
    Date: 2007–05–30
  39. By: William Coleman
    Abstract: This paper advances a theory of the supply of inside money that is squarely based on optimisation, and which sets out from the question, 'As outside money has an opportunity cost that a mere promise to pay outside money does not, why is outside money used at all?'. The theory identifies the nominal rate of return on capital as the key determinant of the supply of inside money. So just as the nominal rate of return on capital is the cost of demanding money, so the nominal rate of return is identified here as the reward for supplying (inside) money. And just as the demand for money is negatively related to the nominal rate of return on capital, so the supply of inside money is positively related to the nominal rate of return on capital.
    JEL: E42 E51
    Date: 2007–09
  40. By: Szymon Grabowski (Warsaw School of Economics)
    Abstract: This study examines the relation between real economic activity and condition of financial markets in Poland in the framework of Consumption Based Capital Asset Pricing Model (CCAPM). The article analyses the relation between yield spreads calculated for Polish debt securities and real economic activity. Since CCAPM is the framework of presented analysis the value of real retail sale is used as a measure of real economic activity (here level of real consumption). Furthermore, since host of researchers apply in their studies the whole spectrum of measures of real economic activity the study is extended to encompass also the supply side of the economy. The outcomes for Polish economy suggest that there is some evidence that financial markets may facilitate to forecast the real economic activity. The conclusions from models evaluated for supply and demand side of economy are coherent. Although, the research is conducted on monthly time series the results are consistent with quarterly analyses done for other economies.
    Keywords: CCAPM, economic growth, financial markets, term spreads, expectations.
    JEL: G12 E43 E44
  41. By: Lynne Cockerell (Reserve Bank of Australia); Steven Pennings (Reserve Bank of Australia)
    Abstract: The behaviour of aggregate Australian private business investment has attracted relatively little attention in the literature over the past decade or so, probably reflecting the well-known difficulties associated with modelling it. This paper reviews the main drivers of Australian business investment through a discussion of some long- and short-run trends and estimation of error-correction models for its main components. Two innovations are introduced in the modelling approach. The first is that investment in computing equipment is excluded from the models, recognising that it cannot be treated in the same way as other types of investment, particularly in light of the dramatic falls in its relative price over recent decades. The second is that standard techniques are used to exclude influential observations when modelling the short-run variation in the data as a means of accounting for the considerable volatility in these variables. This improves the robustness of the estimation. The different types of investment – equipment, building and engineering – are found to be influenced by their own idiosyncratic factors, though for each type of investment, an inverse relationship between the investment-to-output ratio and its corresponding measure of the cost of capital is found.
    Keywords: Australian business investment; cost of capital; computing equipment
    JEL: E22
    Date: 2007–09
  42. By: John Weeks (Professor Emeritus, School of Oriental and African Studies, University of London); Terry McKinley (International Poverty Centre)
    Keywords: Macroeconomic; MDG; Sub-Saharan Africa; Poverty
    Date: 2007–10
  43. By: Frej Ohlsson, Lena (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: This study covers the relation between the political and accounting implications of the Stability and Growth Pact, which entered into force in 1996. It describes the underlying legal framework and accounting rules and the role of the European Commission and Eurostat in this respect. Additionally, a complete description of the work in the context of the excessive deficit procedure is provided, including the provision of data by Member States, the validation process by Eurostat, the procedures in case of disagreements and the main methodological decisions taken by Eurostat in recent years. Furthermore, the implementation of the statistical framework and rules by the Member States is analysed in detail. Apart from a general chapter on the concept and use of creative accounting, a range of case studies are presented, based on the national accounts framework ESA95. The countries included in the study are Portugal, Italy, France, Germany and Sweden. A separate chapter is devoted to Greece, due to the importance and consequence of the case. The results of the analysis in the case studies show not only the complexity of the statistical framework as such and its implementation, but also the political influence. Finally, as an outcome of the developments in some countries, and in particular in Germany and France in 2003, as well as the Greek tragedy, the SGP was revised. The content and outcome of this revision are also covered.<p>
    Keywords: Stability and Growth Pact; SGP; excessive deficit; creative accounting; Eurostat; European Union
    JEL: E01 E62 E63
    Date: 2007–10–03
  44. By: Noritaka Kudoh (Department of Economics, Hokkaido University); Masaru Sasaki (Department of Economics, Osaka University)
    Abstract: This paper studies firmsf job creation decisions in a labor market with search frictions. A simple labor market search model is developed in which a firm can search for a second employee while producing with a first worker. A firm expands employment even if the instantaneous payoff to a large firm is less than that of staying small--a firm has a precautionary motive to expand its size. In addition, this motive is enhanced by a greater market tightness. Because of this effect, firmsf decisions become interdependent--a firm creates a vacancy if it expects other firms to do the same, creating strategic complementarity among firms and thereby self-fulfilling multiple equilibria.
    Keywords: labor demand, firm size distribution.
    JEL: E24 J23
    Date: 2007–10
  45. By: Llussá, Fernanda; Tavares, José
    Abstract: In this paper we organize the literature on the economics of terrorism around seven different topics, offering a comprehensive view of the literature with a view to identifying questions that remain unanswered. The chosen topic areas are: The Measurement of Terrorist Activity, The Nature of Terrorists, The Utility Cost of Terrorism, The Impact of Terrorism on Aggregate Output, Terrorism and Specific Sectors of Activity, Terrorism and Economic Policy, and Counter-Terrorism. In a sense, we proceed from measurement issues to studies of the characteristics of terrorists and terrorist organizations, the consequences of terrorism on individual utility and, aggregate output and on specific sectors of activity, as well as the impact of terrorism on fiscal and monetary policies. We conclude with an examination of the economics literature on counter-terrorism measures. For each of the topics above, we present what the literature has achieved, the important questions that remain open and the type of data that would help researchers make progress. In our discussion, we identify the main papers in the literature and the issue(s) where each made a contribution, presenting a brief individual summary for these papers, organized along the topic areas.
    Keywords: Counter-Terrorism; Economics of Terrorism; Nature of Terrorists; Output Costs; Utility Costs
    JEL: A12 D10 E20 H00 K00 O11
    Date: 2007–10
  46. By: Jens H. E. Christensen (Financial Research, Federal Reserve Bank of San Francisco); Francis X. Diebold (Department of Economics, University of Pennsylvania); Glenn D. Rudebusch (Economic Research Department, Federal Reserve Bank of San Francisco)
    Abstract: We derive the class of arbitrage-free affine dynamic term structure models that approximate the widely-used Nelson-Siegel yield-curve specification. Our theoretical analysis relates this new class of models to the canonical representation of the three-factor arbitrage-free affine model. Our empirical analysis shows that imposing the Nelson-Siegel structure on this canonical representation greatly improves its empirical tractability; furthermore, we find that improvements in predictive performance are achieved from the imposition of absence of arbitrage.
    Keywords: arbitrage, Nelson-Siegel, term structure, factor models, forecast accuracy
    JEL: C5 G1 E4
    Date: 2007–09–11
  47. By: Charalambos G. Tsangarides; Gustavo Ramirez
    Abstract: This paper reviews the evolution of competitiveness in the CFA franc zone using a proposed comprehensive competitiveness framework. In particular, we examine competitiveness in the WAEMU and CEMAC regions by analyzing the "environment" and "policy" components of competitiveness and their quantifiable determinants, including indicators to measure productivity and labor market conditions, prices and costs, macroeconomic performance, business environment, governance, and technology and infrastructure. Our findings suggest that despite some recent improvements-particularly for the CEMAC-both regions face serious competitiveness challenges when compared to pier groups of countries. In order to become more competitive, raise growth, and improve the quality of life, there is a need for structural reform to improve productivity, reduce factor costs, and create the right business, legal, and political environment to attract economic activity.
    Keywords: Working Paper , Export competitiveness , CFA franc , Exports , West African Economic and Monetary Union , Central African Economic and Monetary Community ,
    Date: 2007–08–30
  48. By: Elena Loukoianova; Plamen Iossifov
    Abstract: The paper estimates a behavioral equilibrium exchange rate model for Ghana. Regression results show that most of the REER's long-run behavior can be explained by real GDP growth, real interest rate differentials (both relative to trading-partner countries), and the real world prices of Ghana's main export commodities. On the basis of these fundamentals, the REER in late 2006 was found to be very close to its estimated equilibrium level. The results also suggest, that deviations from the equilibrium path are eliminated within two to three years.
    Keywords: Working Paper , Ghana , Export prices , Commodity prices , External competitiveness , Economic models ,
    Date: 2007–07–12

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