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on Macroeconomics |
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Issue of 2007‒11‒03
71 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | Svan Jari Stehn; David Vines |
| Abstract: | Leith and Wren-Lewis (2007) have shown that government debt is returned to its pre-shock level in a New Keynesian model under optimal discretionary policy. This has two important implications for monetary and fiscal policy. First, in a high-debt economy, it may be optimal for discretionary monetary policy to cut the interest rate in response to a cost-push shock - thereby violating the Taylor principle - although this will not be true if inflation is significantly persistent. Second, the optimal fiscal response to such a shock is more active under discretion than commitment, whatever the degree of inflation persistence. |
| JEL: | E52 E60 E61 E63 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:acb:camaaa:2007-22&r=mac |
| By: | Ullrich, Katrin |
| Abstract: | The communication policy of the European Central Bank attracts a lot of attention from financial markets. This paper analyses the informational content of the monthly introductory statements of the ECB president explaining interest rate decisions with regard to inflation expectations of financial market experts for the euro area from February 1999 to June 2007. Estimations are conducted for the influence of ECB communication on expectations formation besides other macroeconomic variables. As the results indicate, the indicator measuring the informational content of ECB rhetoric contributes to the explanation of inflation expectations formation. |
| Keywords: | inflation expectations formation, central bank communication, Carlson-Parkin method, survey expectations |
| JEL: | D83 D84 E52 E58 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:6357&r=mac |
| By: | Antón Nákov (Banco de España); Andrea Pescatori (Federal Reserve Bank of Cleveland) |
| Abstract: | We assess the extent to which the great US macroeconomic stability since the mid-1980s can be accounted for by changes in oil shocks and the oil share in GDP. To do this we estimate a DSGE model with an oil-producing sector before and after 1984 and perform counterfactual simulations. We nest two popular explanations for the Great Moderation: (1) smaller (non-oil) real shocks; and (2) better monetary policy. We find that the reduced oil share accounted for as much as one-third of the inflation moderation, and 13% of the growth moderation, while smaller oil shocks accounted for 11% of the inflation moderation and 7% of the growth moderation. This notwithstanding, better monetary policy explains the bulk of the inflation moderation, while most of the growth moderation is explained by smaller TFP shocks. |
| Keywords: | Great Moderation, oil shocks, Bayesian estimation, counterfactual simulations |
| JEL: | E32 E52 Q43 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:0735&r=mac |
| By: | George Evans; Seppo Honkapohja; Kaushik Mitra |
| Abstract: | We consider the impact of anticipated policy changes when agents form expectations using adaptive learning rather than rational expectations. To model this we assume that agents combine limited structural knowledge with a standard adaptive learning rule. We analyze these issues using two well-known set-ups, an endowment economy and the Ramsey model. In our set-up there are important deviations from both rational expectations and purely adaptive learning. Our approach could be applied to many macroeconomic frameworks. |
| Keywords: | Taxation, expectations, Ramsey model. |
| JEL: | E62 D84 E21 E43 |
| Date: | 2007–08 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmawp:0717&r=mac |
| By: | Steve Ambler |
| Abstract: | The author surveys recent articles on the costs and benefits of price-level targeting versus inflation targeting, focusing on the benefits and costs of price-level targeting as a tool for stabilization policy. He reviews papers that examine how price-level targeting affects the short-run trade-off between output and inflation variability by influencing expectations of future inflation. The author looks at the implications of this argument for assigning an objective based on price-level targeting to a central bank that is unable to commit to its future policies. He discusses some recent papers that examine how price-level targeting can help to avoid the zero-bound problem, and papers that examine the incentives created by price-level targeting to change the degree of indexation of private contracts. |
| Keywords: | Monetary policy framework |
| JEL: | E31 E32 E52 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:07-11&r=mac |
| By: | Patrick Fève; Alain Guay |
| Abstract: | The usefulness of SVARs for developing empirically plausible models is actually subject to many controversies in quantitative macroeconomics. In this paper, we propose a simple alternative two step SVARs based procedure which consistently identifies and estimates the effect of permanent technology shocks on aggregate variables. Simulation experiments from a standard business cycle model show that our approach outperforms standard SVARs. The two step procedure, when applied to actual data, predicts a significant short-run decrease of hours after a technology improvement followed by a delayed and hump-shaped positive response. Additionally, the rate of inflation and the nominal interest rate displays a significant decrease after a positive technology shock. |
| Keywords: | SVARs, long-run restriction, technology shocks, consumption to output ratio, hours worked |
| JEL: | C32 E32 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:lacicr:0736&r=mac |
| By: | Frederic S. Mishkin |
| Abstract: | This paper reviews the progress that the science of monetary policy has made over recent decades. This progress has significantly expanded the degree to which the practice of monetary policy reflects the application of a core set of "scientific principles". However, there remains, and will likely always remain, elements of art in the conduct of monetary policy: in other words, substantial judgment will always be needed to achieve desirable outcomes on both the inflation and employment fronts. However, as case studies discussed here suggest, even through art will always be a key element in the conduct of monetary policy, the more it is informed by good science, the more successful monetary policy will be. |
| JEL: | E2 E44 E52 E58 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13566&r=mac |
| By: | Rossi, Raffaele |
| Abstract: | This paper shows that the introduction of a set of rule of thumb consumers (ROTC) a' la Galí et al.(2007) in a standard New Keynesian model can reverse the traditional predictions of a change in government spending on the economy as a whole. In particular, we show that under a reasonable parametrization of the model, an increase in government spending can lead, against the common Keynesian wisdom, to a decrease in total output. Furthermore we analyze how the determinacy condition of the model is affected by the presence of a set of ROTC and a fiscal policy which levies a proportional income tax. In particular we find that, when the share of ROTC is above a specified threshold, the monetary-fiscal policy mix that guarantees a unique equilibrium requires both policies to be, following the definition of Leeper (1991), either active or passive. Finally we show that with the introduction of a distortive fiscal policy and independently of the parametrization used, private consumption responds negatively to a positive government spending shock. JEL classification: E32; E62; H30 . |
| JEL: | E32 H30 E62 |
| Date: | 2007–08–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5478&r=mac |
| By: | Olivier Coibion (Department of Economics, College of William and Mary) |
| Abstract: | I consider the empirical evidence for the sticky information model of Mankiw and Reis (2002) relative to the basic sticky price model, conditional on historical measures of inflation forecasts. Overall, the evidence is unfavorable to the sticky information model of price-setting: the estimated structural parameters are inconsistent with an underlying sticky information model and the sticky-information Phillips Curve is statistically dominated by the New Keynesian Phillips Curve. I find that the poor performance of the sticky information approach is driven by two key elements. First, predicted inflation in the sticky information model places substantial weight on old forecasts of inflation. Because these consistently underestimate inflation in the 1970s and overestimate inflation since the 1980s, particularly at long forecast horizons, predicted inflation from the sticky information model inherits these patterns. Second, predicted inflation from the sticky information model is excessively smooth. |
| Keywords: | Sticky Information, Expectations, Inflation |
| JEL: | E30 E37 |
| Date: | 2007–10–21 |
| URL: | http://d.repec.org/n?u=RePEc:cwm:wpaper:61&r=mac |
| By: | Johann Scharler (Department of Economics, Johannes Kepler University Linz, Austria) |
| Abstract: | This paper assesses how the financial system influences the strength of the liquidity effect in a calibrated limited participation model of the monetary transmission mechanism. The model suggests that bankbased systems should be characterized by smaller liquidity effects since monetary injections are spread out over a larger number of firms. |
| Keywords: | limited participation; transmission mechanism; financial systems |
| JEL: | E32 E52 E58 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:jku:econwp:2007_18&r=mac |
| By: | Michael Dotsey; Andreas Hornstein |
| Abstract: | Currently there is a growing literature exploring the features of optimal monetary policy in New Keynesian models under both commitment and discretion. With respect to time consistent policy, the literature focuses on solving for allocations. Recently, however, King and Wolman (2004) have examined implementation issues involved under time consistent policy when the monetary authority chooses nominal money balances. Surprisingly, they find that equilibria are no longer unique under a money stock regime. Indeed, there exist multiple steady states. Dotsey and Hornstein find that King and Wolman's conclusion of non-uniqueness of Markov-perfect equilibria is sensitive to the instrument of choice. If, instead, the monetary authority chooses the nominal interest rate rather than nominal money balances, there exists a unique Markov-perfect steady state and point-in-time equilibria are unique as well. Thus, in King and Wolman's language, monetary policy is implementable using an interest rate instrument while it is not implementable using a money stock instrument. |
| Keywords: | Markov processes ; Monetary policy ; Money supply |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:07-27&r=mac |
| By: | Christian Conrad (Department of Management, Technology, and Economics, ETH Zurich); Michael J. Lamla (Department of Management, Technology, and Economics, ETH Zurich) |
| Abstract: | We investigate the impact of the European Central Bank's monetary policy an- nouncements on the level and volatility of the EUR-US Dollar exchange rate em- ploying an AR-FIGARCH specification. Using high-frequency data we estimate the individual and complementary effects of the release of the interest rate decision, the ECB's introductory statement and the question and answer session. Surprise interest rate changes explain the movements in the exchange rate immediately after press release. During the introductory statement, communication with respect to future price developments is most relevant and has two important functions: (i) it explains the previously announced decision and (ii) it serves as a guide for the future path of monetary policy. |
| Keywords: | European Central Bank, monetary policy announcements, communication, exchange rate, expectations, long memory GARCH processes |
| JEL: | C22 E52 E58 F31 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:07-174&r=mac |
| By: | Ruy Lama; Juan Pablo Medina |
| Abstract: | This paper studies optimal monetary policy in a two-sector small open economy model under segmented asset markets and sticky prices. We solve the Ramsey problem under full commitment, and characterize the optimal monetary policy in a calibrated version of the model. The findings of the paper are threefold. First, the Ramsey solution mimics the allocations under flexible prices. Second, under the optimal policy the volatility of non-tradable inflation is close to zero. Third, stabilizing nontradable inflation is optimal regardless of the financial structure of the small open economy. Even for a moderate degree of price stickiness, implementing a monetary policy that mitigates asset market segmentation is highly distortionary. This last result suggests that policymakers should resort to other policy instruments in order to correct financial imperfections. |
| Keywords: | Working Paper , Monetary policy , Prices , Financial assets , Markets , Economic models , |
| Date: | 2007–09–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:07/217&r=mac |
| By: | Edward Nelson; Anna J. Schwartz |
| Abstract: | Paul Krugman's essay "Who Was Milton Friedman?" seriously mischaracterizes Friedman's economics and his legacy. In this paper we provide a rejoinder to Krugman on these issues. In the course of setting the record straight, we provide a self-contained guide to Milton Friedman's impact on modern monetary economics and on today's central banks. We also refute the conclusions that Krugman draws about monetary policy from the experiences of the United States in the 1930s and of Japan in the 1990s. |
| JEL: | E31 E51 E58 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13546&r=mac |
| By: | Kitov, Ivan |
| Abstract: | Past and future evolution of inflation, p(t), and unemployment, UE(t), in Japan is modeled. Both variables are represented as linear functions of the change rate of labor force level. These models provide an accurate description for disinflation in the 1990s and deflationary period in the 2000s. In Japan, there exists a statistically reliable (R2=0.68) Phillips curve. This Phillips curve is characterized by a negative relation between inflation and unemployment and their synchronous evolution: UE(t) = -0.94p(t) + 0.045. Effectively, growing unemployment has resulted in decreasing inflation since 1982. A linear and lagged generalized relationship between inflation, unemployment and labor force has been also obtained for Japan: p(t) = 2.8*dLF(t)/LF(t) + 0.9*UE(t) - 0.0392. Labor force projections allow a reliable prediction of inflation and unemployment in Japan: CPI inflation will be negative (between -0.5% and -1% per year) during the next 40 years. Unemployment will increase from 4.0% in 2010 to 5.3% in 2050 |
| Keywords: | inflation; unemployment; labor force; modeling; Japan |
| JEL: | E24 J20 O11 E27 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5464&r=mac |
| By: | George Evans; Seppo Honkapohja |
| Abstract: | We consider robust stability under learning of alternative interest-rate rules. By “robust stability” we mean stability of the rational expectations equilibrium, under discounted (constant gain) least-squares learning, for a range of gain parameters. We find that many interest-rate rules are not robust, in this sense, when operational forms of policy rules are employed. Rules are considered operational if they do not depend on contemporaneous values of endogenous aggregate variables. We consider a variety of interest-rate rules, including instrument rules, optimal reaction functions under discretion or commitment, and rules that approximate optimal policy under commitment. For some of the rules that aim to achieve optimal policy, we allow for an interest-rate stabilization motive in the policy objective. The expectations-based rules proposed in Evans and Honkapohja (2003, 2006) deliver robust learning stability. In contrast, many proposed alternatives become unstable under learning even at small values of the gain parameter. |
| Keywords: | Commitment, interest-rate setting, adaptive learning, stability, determinacy. |
| JEL: | E52 E31 D84 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmawp:0719&r=mac |
| By: | Schneider, Elena; Chen, Pu; Frohn, Joachim |
| Abstract: | The objective of this paper is to apply the method developed in Garratt, Lee, Pesaran, and Shin (2000) to build a structural model for Germany with a transparent and theoretically coherent foundation. The modelling strategy consists of a set of long-run structural relationships suggested by economic theory and an otherwise unrestricted VAR model. It turns out that we can rebuild the structure of the model in Garratt, Lee, Pesaran, and Shin (2003b) for German data. Five long run relations : PPP, UIP, production function, trade balance, and real money balance characterize the equilibrium state of Germany as an open economy in our structural model. |
| Keywords: | Long-Run Structural VAR, Macroeconomic Modelling, A structural Model for Germany, Oil Price Shock |
| JEL: | C32 E24 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:6174&r=mac |
| By: | Andreas Humpe; Peter Macmillan |
| Abstract: | Within the framework of a standard discounted value model we examine whether a number of macroeconomic variables influence stock prices in the US and Japan. A cointegration analysis is applied in order to model the long term relationship between industrial production, the consumer price index, money supply, long term interest rates and stock prices in the US and Japan. For the US we find the data are consistent with a single cointegrating vector, where stock prices are positively related to industrial production and negatively related to both the consumer price index and a long term interest rate. We also find an insignificant (although positive) relationship between US stock prices and the money supply. However, for the Japanese data we find two cointegrating vectors. We find for one vector that stock prices are influenced positively by industrial production and negatively by the money supply. For the second cointegrating vector we find industrial production to be negatively influenced by the consumer price index and a long term interest rate. These contrasting results may be due to the slump in the Japanese economy during the 1990s and consequent liquidity trap. |
| Keywords: | Stock Market Indices, Cointegration, Interest Rates. |
| JEL: | C22 G12 E44 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmawp:0720&r=mac |
| By: | Sandra Martina Leitner (Department of Economics, Johannes Kepler University Linz, Austria) |
| Abstract: | Economies constantly undergo significant cyclical variations of distinct pattern and origin. In duration, business cycles vary from more than one to ten or twelve years, and comprise a boom, or expansionary phase, followed by a recession, or contractionary phase. Such cycles recur at unpredictable intervals and do not last for a fixed length of time. Recessions are characterized by high unemployment and low productivity with highly asymmetric short but sharper cycles than expansions. The purpose of this paper is to provide an overall picture of the Austrian business cycle covering the period 1970 until 2004 by studying the cycle’s “stylized facts” in terms of volatility, co-movements and persistence. The notion of stylized facts stems from the renowned work of Burns and Mitchell (1946) intending to provide and interpret model-free observations of macroeconomic variables’ behavior. Additionally potential hypotheses as to the source of observed cycles will be tested, pointing at the significant role supply-side shocks like technology play in triggering observed business cycles. This paper is organized as follows: Section I describes the methodology applied to extract the cyclical component from observed macroeconomic data. Section II gives a brief description of business cycle regularities observed in industrialized countries, while section III applies the empirical test to the economy case Austria and discusses the results on the basis of the data’s second moments. Section IV attempts to identify potential sources of observed cycles, focusing on prices and the real wage rate as discriminatory factors. A discussion of the baseline Real Business Cycle Model’s basic characteristics as well as resemblances with the observed data represents the focal points of section V while section VI concludes. |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:jku:econwp:2007_17&r=mac |
| By: | Gustav Horn (IMK at the Hans Boeckler Foundation); Camille Logeay (IMK at the Hans Boeckler Foundation); Silke Tober (IMK at the Hans Boeckler Foundation) |
| Abstract: | Potential output measures a country's attainable aggregate living standard and is thus one of the most important categories of economics. It is also a key indicator for monetary and fiscal policy. Despite its prominence, however, potential output is a difficult concept to pinpoint theoretically and even more so empirically. The study discusses these difficulties and also the marked revision of potential output estimates by major international organisations. The authors furthermore present the results of their attempts to quantify Germany's potential output based on a production function approach coupled with the Kalman-filter technique to estimate the NAIRU. The authors find that potential output and potential output growth greatly depend on how the NAIRU and potential total factor productivity are modelled. Given the difficulties involved in robustly estimating potential output, especially in real time, economic policy makers need to learn to pursue their policy objectives without reference to this variable. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:imk:studie:04-2007&r=mac |
| By: | Faraglia, Elisa; Marcet, Albert; Scott, Andrew |
| Abstract: | Assuming the role of debt management is to provide hedging against fiscal shocks we consider three questions: i) what indicators can be used to assess the performance of debt management? ii) how well have historical debt management policies performed? and iii) how is that performance affected by variations in debt issuance? We consider these questions using OECD data on the market value of government debt between 1970 and 2000. Motivated by both the optimal taxation literature and broad considerations of debt stability we propose a range of performance indicators for debt management. We evaluate these using Monte Carlo analysis and find that those based on the relative persistence of debt perform best. Calculating these measures for OECD data provides only limited evidence that debt management has helped insulate policy against unexpected fiscal shocks. We also find that the degree of fiscal insurance achieved is not well connected to cross country variations in debt issuance patterns. Given the limited volatility observed in the yield curve the relatively small dispersion of debt management practices across countries makes little difference to the realised degree of fiscal insurance. |
| Keywords: | Bond Markets; Debt Management; Fiscal Insurance; Fiscal Policy |
| JEL: | E43 E62 H62 H63 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6539&r=mac |
| By: | Patrick Fève; Alain Guay |
| Abstract: | The response of hours worked to a technology shock is an important and a controversial issue in macroeconomics. Unfortunately, the estimated response is generally sensitive to the specification of hours in SVARs. This paper uses a simple two-step approach in order to consistently estimate technology shocks from a SVAR model and the response of hours that follow this shock. The first step considers a SVAR model with a set of relevant stationary variables, but excluding hours. Given a consistent estimate of technology shocks in the first step, the response of hours to this shock is estimated in a second step. When applied to US data, the two-step approach predicts a short-run decrease of hours after a technology improvement followed by a hump-shaped positive response. This result is robust to the specification of hours, different sample periods, measures of hours and output and to the variables included in the VAR in the first step. |
| Keywords: | SVARs, long-run restriction, technology shocks, consumption to output ratio, hours worked |
| JEL: | C32 E32 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:lacicr:0737&r=mac |
| By: | Francisco Torres (Universidade Moderna de Lisboa,Universidade Católica) |
| Abstract: | This paper aims to examine whether the economic and political reasoning behind Maastricht is consistent with earlier approaches to monetary integration. In doing so, it revisits the intellectual debate on monetary integration in Europe at different stages. It concludes that Economic and Monetary Union (EMU) as agreed at Maastricht reflected a compromise between two different but converging preferences, in the context of the experience of the European Monetary System (EMS) and other developments in national and European politics as well as in economic thought, on the role of monetary policy and institutions; the fall of the Berlin Wall may have added a new political dimension that might have made it easier to agree on the blueprint and on the calendar for the realisation of EMU. The various (political and economic) motivations for the convergence of initially different views on the role of monetary policy and successive interpretations of the objectives of EMU are discussed within the wider context of the process of European integration. |
| Keywords: | Economic and Monetary Union; Bretton Woods; European integration; Werner plan; European Monetary System; inflation; convergence of preferences; epistemic communities; currency crisis; monetary sovereignty; Maastricht treaty; convergence requirements. |
| JEL: | N14 E52 E58 E61 E65 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:23/2007&r=mac |
| By: | Alain Gabler |
| Abstract: | The counter-cyclicality in the relative price of equipment investment which is observed in the U.S. has been attributed to equipment-specific productivity shocks. Cross-country evidence indicates that a number of countries experience sizeable delays between a surge in equipment production and a fall in its relative price, which is difficult to reconcile with sector-specific shocks. I show that in the presence of sector specific, time-varying markups, relative price movements arise as a direct consequence of consumption smoothing, even if all shocks are aggregate, while barriers to firm entry lead to delays in relative price responses. A calibrated version of the model explains around one-third of the relative price fluctuations which are observed in the U.S., as well as the qualitative differences in the behaviour of this relative price across countries. |
| Keywords: | endogenous markups; firm entry and exit; relative prices |
| JEL: | E25 E32 D43 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:eco2007/25&r=mac |
| By: | Cadet, Raulin Lincifort |
| Abstract: | This paper presents a model of the banking sector that maximize profit and an individual bank which is a price taker, in a developing country. The interest rate on treasury bills is included in the model to measure monetary policy. The mathematical expression of the probability of banking failure is calculated; And, I show that, in developing countries, a tightening monetary policy may induce efficient banking failure. |
| Keywords: | Banking Failure; Monetary Policy; Interest Rate; Developing Countries |
| JEL: | G23 G21 E52 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5497&r=mac |
| By: | Gianni Amisano (European Central Bank, University of Brescia and The Rimini Centre for Economics Analysis, Rimini, Italy.); Oreste Tristani (European Central Bank.) |
| Abstract: | We estimate the approximate nonlinear solution of a small DSGE model on euro area data, using the conditional particle …lter to compute the model likelihood. Our results are consistent with previous …ndings, based on simulated data, suggesting that this approach delivers sharper inference compared to the estimation of the linearised model. We also show that the nonlinear model can account for richer economic dynamics: the impulse responses to structural shocks vary depending on initial conditions selected within our estimation sample. |
| Keywords: | DSGE models, in‡ation persistence, second order approximations, sequential Monte Carlo, Bayesian estimation. |
| JEL: | C11 C15 E31 E32 E52 |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:18-07&r=mac |
| By: | Toke S. Aidt (University of Cambridge); Francisco José Veiga (Universidade do Minho - NIPE); Linda Gonçalves Veiga (Universidade do Minho - NIPE) |
| Abstract: | The literature on political business cycles suggests that politicians systematically manipulate economic and fiscal conditions before elections. The literature on vote and popularity functions suggests that economic conditions systematically affect election outcomes. This paper integrates these two strands of literature. We use Rogo? (1990)’s model of the rational political business cycle to derive the two-way relationship between the win-margin of the incumbent politician and the size of the opportunistic distortion of fiscal policy. This relationship is estimated, for a panel of 275 Portuguese municipalities (from 1979 to 2001), as a system of simultaneous equations (by GMM). The results clearly support the theoretical predictions: (1) opportunism pays o?, leading to a larger win-margin for the incumbent; (2) incumbents behave more opportunistically when they expect a close election race. |
| Keywords: | Voting and popularity functions, opportunism, rational political business cycles, local government, system estimation, Portugal. |
| JEL: | D72 E32 H72 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:24/2007&r=mac |
| By: | Ebrima Faal |
| Abstract: | This paper assesses the presence of opportunistic electoral budget cycles in Papua New Guinea. Using quarterly time series data, a clear pattern emerges of pre-election manipulations of fiscal policy by incumbent governments, mainly in the form of increased development spending and overall primary expenditure, followed in some cases by retrenchment in post-election periods. These findings are consistent with the predictions of rational opportunistic political business cycle theory. It is noteworthy that revenue was not statistically significantly related to elections, either in the pre- or post-election period. In this regard, electoral swings in fiscal deficits reflect a preference for influencing expenditures rather than taxation. |
| Keywords: | Working Paper , Government expenditures , Papua New Guinea , Budget deficits , Business cycles , Political economy , |
| Date: | 2007–09–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:07/219&r=mac |
| By: | Wells, Graeme (School of Economics and Finance, University of Tasmania) |
| Abstract: | This note analyses the inflation-targeting model that underlies recent textbook expositions of the Aggregate Demand-Aggregate Supply approach used in introductory courses in macroeconomics. The paper shows how numerical simulations of a model with inflation inertia can be used as a tool to help students understand adjustments in response to demand and supply shocks of various kinds. |
| Keywords: | economic modeling, econometrics, teaching methods, instructional materials |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:tas:wpaper:2173&r=mac |
| By: | Francisco Torres (Universidade Moderna de Lisboa,Universidade Católica) |
| Abstract: | In Portugal, as in most other European Union (EU) countries, the challenge of Economic and Monetary Union (EMU) has worked as a mechanism for economic stabilisation. However, the political consensus on the participation in EMU did not develop with respect to the need for implementing structural reforms and abolishing many of the policy distortions affecting the economy and to other goals of European integration, such as environmental quality, consumer protection or internal social cohesion, all of them pre-conditions for long-term development. Moreover, the objectives of EMU price stability and sound public finances were also not internalised in that consensus, although they were behind some crucial policy decisions, such as to join the EMS in 1992. During the entire macroeconomic convergence phase European monetary reform was regarded as an unavoidable external constraint that went together with an exogenous political objective. It was only due to the political consensus on not being left out of the EU core that the necessary consensus could be maintained to pursue a policy compatible with the objective of EMU participation throughout the heights of the European recession in Portugal (1993/94), the electoral year of 1995 and the two first years of a new legislature (1996/97) with a minority Government of a different political colour. This lack of internal objectives and economic and political strategy of integration surfaced and the political and social consensus broke once Portugal had joined EMU upon its inception. |
| Keywords: | Portugal; European Union; macroeconomic stabilisation; monetary and fiscal policy; economic reform. |
| JEL: | E63 E65 O52 F02 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:21/2007&r=mac |
| By: | Argia M. Sbordone |
| Abstract: | This paper analyzes the potential effect of global market competition on inflation dynamics. It does so through the lens of the Calvo model of staggered price-setting, which implies that inflation depends on expected future inflation and a measure of marginal costs. I modify the assumption of a constant elasticity of demand, standard in this model, to provide a channel through which an increase in the number of traded goods may affect the degree of strategic complementarity in price setting, and hence alter the dynamic response of inflation to marginal costs. I first discuss the behavior of the variables that drive the impact of trade openness on this response, and then I evaluate whether an increase in the variety of traded goods of the size observed in the US in the `90s might have a sizable quantitative impact. I find that it is difficult to argue that such an increase in trade should have generated an increase in US market competition leading to a decline in the slope of the inflation-marginal cost relation. |
| JEL: | E31 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13556&r=mac |
| By: | Catriona Purfield |
| Abstract: | This paper examines rising asset prices in India. For the most part, asset prices in India reflect structural factors but the risk of a correction cannot be ruled out. However, at this juncture monetary policy may not be the most effective tool to safeguard financial stability because (i) India's economy is undergoing rapid structural change making it difficult to identify price misalignments; (ii) the macroeconomic impact of an asset price correction is likely to be small; and (iii) the relationship between monetary policy and asset prices is also weak. Targeted changes in financial regulations are better tools to address potential risks. |
| Keywords: | Working Paper , India , Asset prices , Monetary policy , |
| Date: | 2007–09–18 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:07/221&r=mac |
| By: | Robert Poole (U.S. Bureau of Labor Statistics); Randal Verbrugge (U.S. Bureau of Labor Statistics) |
| Abstract: | Between 1999 and 2006, there were two episodes during which inflation in the Rent index in the CPI diverged markedly from inflation in the index for Owner’s Equivalent Rent (OER); early in 2007, these series began to diverge again. Such divergence often prompts many to question CPI methods. A key difference between these two series is that OER indexes are based upon rents which have received a utilities adjustment – an adjustment which is necessary because the OER index is intended to track pure rent-of-shelter, not shelter-plus-utilities. Critics have claimed that the Rent-OER inflation divergences stem from an inappropriate utilities adjustment. This claim is false. In this paper, we decompose the Rent-OER inflation differential into its various determinants, and explore the multiple causes of this divergence over time. There is only one divergence episode – of only six months duration – which is primarily attributable to the utilities adjustment procedure. Indeed, the utilities adjustment sometimes reduced potential divergence between the two series. Instead, the main culprit is rental market segmentation; that is, different rent inflation rates were experienced by different parts of the rental market. Before 2003, the Rent-OER inflation divergence mainly resulted from divergent rental inflation rates within metropolitan areas: areas with a higher proportion of renters experienced higher rental inflation. After 2004, similar divergent inflation across metropolitan areas resulted in higher Rent inflation. Compared to other units, rent control units experienced higher inflation in 2004 (and, to a lesser extent, before mid-2001 and in 2006), which increased Rent inflation but not OER inflation. Finally, in early 2007, there was a sizable divergence between OER and Rent inflation, driven mostly by divergent rental inflation rates within metropolitan areas; the extent of the divergence only becomes evident once the effect of the utilities adjustment is accounted for. |
| Keywords: | Owners' Equivalent Rent, Utilities Adjustment, Rental Market Segmentation, Rent Control, Inflation Measurement, Core Inflation |
| JEL: | R31 R21 E31 C81 C82 O47 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:bls:wpaper:ec070090&r=mac |
| By: | Reichenvater, Arno |
| Abstract: | Politicians and political parties are faced with the problem of being elected into power, and later, of being re-elected. These political ambitions are often fuelled by policies that affect the entire economy and business cycles. The purpose of this paper is to compare the various models used to describe how political decision-making may affect business cycles. Both opportunistic and partisan models, and exchange rate manipulation are examined, and empirical evidence is used to view the validity of the models. |
| Keywords: | business cycles; partisan models; opportunistic models; politics |
| JEL: | E32 C73 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5527&r=mac |
| By: | Knüppel, Malte; Tödter, Karl-Heinz |
| Abstract: | This paper discusses methods to quantify risk and uncertainty in macroeconomic forecasts. Both, parametric and non-parametric procedures are developed. The former are based on a class of asymmetrically weighted normal distributions whereas the latter employ asymmetric bootstrap simulations. Both procedures are closely related. The bootstrap is applied to the structural macroeconometric model of the Bundesbank for Germany. Forecast intervals that integrate judgement on risk and uncertainty are obtained. |
| Keywords: | Macroeconomic forecasts, stochastic forecast intervals, risk, uncertainty, asymmetrically weighted normal distribution, asymmetric bootstrap |
| JEL: | C14 C53 E37 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:6341&r=mac |
| By: | Hale, Galina B; Razin, Assaf; Tong, Hui |
| Abstract: | This paper analyzes the effect of creditor protection on the volatility of stock market returns. Our application of the Tobin’s q model predicts that credit protection reduces the probability of oscillations between binding and nonbinding states of the credit constraint, which result from liquidity crises and their aftermath. In this way creditor protection regulation reduces the stock market price volatility. We test this prediction by using cross-country panel regressions of the stock return volatility, in 40 countries, over the period from 1984 to 2004. Estimated probabilities of big shocks to liquidity are used as a forecast of a switch from a credit–unconstrained to a credit-constrained regime. We find support for the hypothesis that creditor protection institutions reduce the probability of oscillations between binding and nonbinding states of the credit constraint and thereby help reduce the asset price volatility. |
| Keywords: | collateral; Credit constrained regimes; probability of liquidity crisis |
| JEL: | E44 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6540&r=mac |
| By: | Schnabl, Gunther; Schobert, Franziska |
| Abstract: | The paper analyses the monetary policy operations of central banks in the Middle East and North Africa (MENA). We distinguish the pattern of monetary policy operations of the liquidity providing central banks of the large industrialized countries (creditor central banks) and the liquidity absorb-ing central banks of emerging market economies (debtor central banks). Many debtor central banks provide liquidity through foreign exchange intervention in reaction to foreign exchange inflows. If the respective liquidity expansion is regarded as a threat to domestic price and financial stability, liquidity is partly absorbed through sterilization operations. The paper finds that most MENA coun-tries are debtor central banks due to a general pattern of excessive liquidity creation as well as due to country specific reasons. |
| Keywords: | Emerging Markets; Debtor Central Banks; Foreign Exchange Inflows; Sterilization. |
| JEL: | F31 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5474&r=mac |
| By: | Marie Brière (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussel and Credit Agricole Asset Management SGR, Paris.); Ombretta Signori (Credit Agricole Asset Management SGR, Paris.) |
| Abstract: | This paper examines the dynamics of conditional volatilities and correlations of three asset classes: inflation-linked (IL) bonds, nominal bonds and equities in the United States and Europe for the period 1997-2007. Using a DCC-MVGARCH model, we highlight the significant change that has taken place in the dynamics of correlations and volatilities since 2003. Inflation-linked bonds have become much more volatile and, at the same time, much more highly correlated with nominal bonds. Monthly portfolio optimization since 1997, using our estimates of conditional correlations and volatilities, clearly demonstrates the decreasing weight of inflation-linked bonds in an optimal allocation. This weighting should now be partially reallocated to equities in a US portfolio, while in Europe, the decreased weight of IL bonds is redistributed, with about one-third going to equities and two-thirds to nominal bonds. |
| Keywords: | inflation-linked bonds, optimal allocation, portfolio choice, conditional volatility, conditional correlation. |
| JEL: | G11 G12 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:07-029&r=mac |
| By: | Francisco Torres (Universidade Moderna de Lisboa,Universidade Católica) |
| Abstract: | This paper addresses the question whether the process of European monetary integration implies efficiency-legitimacy trade-off. The paper considers that the process of monetary policy delegation to the European Central Bank (ECB), ratified by all European Union (EU) parliaments, was a non-zero-sum game, increasing both the efficiency and the legitimacy of monetary policy in the eurozone. There was however a change in the nature of delegation: the initial principal (EU national governments and/or parliaments) delegated to the agent (the ECB) control over its behaviour in regard to monetary policy. The paper distinguishes two types of constraints for monetary policy: credibility constraints and political constraints. The change in the nature of delegation of monetary policy (tying the hands of the principal) was a means of dealing with credibility constraints. The paper goes on investigating whether, and if so to what extent, the European Parliament (EP) is fit to function as a principal of the ECB as a means of dealing with political constraints. Thus, the paper analyses the European Parliament’s increased involvement in overseeing the Central Bank’s activities, aiming at understanding whether and how that new and special role (an informal institution of dialogue) could affect the trade-off between efficiency and legitimacy in the conduct of eurozone. |
| Keywords: | Economic and Monetary Union; monetary policy delegation: efficiency and legitimacy; accountability; responsiveness; principal-agent relations; governance. |
| JEL: | E58 E61 E65 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:22/2007&r=mac |
| By: | Baranowska, Anna; Bukowski, Maciej; Bober, Magda; Lewandowski, Piotr; Magda, Iga; Sarzalska, Malgorzata; Szydlowski, Arkadiusz; Zawistowski, Julian |
| Abstract: | This book constitutes a follow-up and extension of Employment in Poland 2005. In this issue we analyse the influence of demand-side factors on Polish labour market and especially so from the macroeconomic and regional perspectives. We begin with macroeconomic look at the labour markets in eight – out of ten – states which joined the EU in 2004. We focus on identifying aggregate disturbances which had a crucial influence on the economic fluctuations within the CEE region in the period 1994-2005, and we assess to what extent these disturbances are responsible for different dynamics of unemployment and employment trends in the examined countries and to what extent different fiscal and monetary approaches adopted at that time contributed to remedy these disturbances. The key finding resulting is that the relatively most significant decrease in employment and increase in unemployment levels in Europe, which came about in Poland after the year 2000, are due to the idiosyncratic decrease in return on capital and total factor productivity [TFP] dynamics. We also find that, although the policy-mix adopted in the above period was not the direct cause for the slowdown, its role in accommodating the shock was probably moderately negative. Then we study regional differences in the labour market in Poland in the period 2000-2005. We analyse aggregate data and identify microeconomic factors affecting trends in job creation and destruction. We group the NUTS4 regions in Poland in six homogenous clusters and find that in the period 2000-2005 no significant changes in the labour market indicators occurred either between clusters or between voivodeships (NUTS2 regions). This is so because the direction and depth of fluctuations on the regional scale were generally shaped by aggregate shocks which affected the economy as a whole. Moreover, the above period saw a greater differentiation in terms of productivity and thus, in most parts of Poland, increasing employment and unemployment rates are due to the development of labour-intensive manufacturing. We argue that only the largest urban conglomerations in Poland have adopted the development model which supports high economic growth in medium and long term. In third part of the study we focus on spatial mobility of Polish workers. In case of both internal and international migrations we demonstrate that economic factors determine significantly decisions about changing place of residence and that the key incentive to migrate is higher wages in the destination location and a relatively worse situation in the labour market in the region of origin. We also estimate the scale of international migration from Poland, which indicate that the number of people who stayed abroad for more than two months in the year 2005 was higher by approximately 165,000-379,000 people than before EU accession, due to one-time increase in migration flows. Moreover, we point out that international migration is mostly seasonal and that emigrants retain strong ties with their homeland. As for internal migration, we argue that its aggregate intensity is relatively modest and we emphasise that although in general the population moves from smaller to larger conglomerates, the limited scale of these movements makes the progress in urbanisation being slow and agglomerations less numerous than in other EU member states. In the long run, this may constitute an obstacle for real convergence to the most developed EU countries. Finally we scrutinize work in the non-observed economy (NOE) in Poland. According to various methodologies we asses the NOE output at 15-30 per cent of the GDP, and we find that the main reasons behind the existence of the grey economy in Poland are overly burdensome fiscal policy and excessively restrictive economic regulations. We close the report with demonstrating links between areas we studied and implications for labour market and economic policy in Poland. |
| Keywords: | Poland; unemployment; employment; transition countries; labour market shocks; unemployment persistance; regional disparities; labour migration; informal employment |
| JEL: | J23 E24 R23 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5524&r=mac |
| By: | Ravn, Morten O.; Schmitt-Grohé, Stephanie; Uribe, Martín |
| Abstract: | Using panel structural VAR analysis and quarterly data from four industrialized countries, we document that 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 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. |
| Keywords: | Countercyclical Mark-ups; Deep Habits; Government Spending Shocks; Real exchange rate movements |
| JEL: | E30 F42 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6541&r=mac |
| By: | Axel Dreher (KOF Swiss Economic Institute, ETH Zurich); Silvia Marchesi (University of Milano-Bicocca, Department of Economics); James Raymond Vreeland (Yale University, Department of Political Science, USA) |
| Abstract: | Using panel data for 157 countries over the period 1999-2005 we empirically investigate the politics involved in IMF economic forecasts. We find a systematic bias in growth and inflation forecasts. Our results indicate that countries voting in line with the US in the UN General Assembly receive lower inflation forecasts. As the US is the Fund’s major shareholder, this result supports the hypothesis that the Fund’s forecasts are not purely based on economic considerations. We further find inflation forecasts are systematically biased downwards for countries with greater IMF loans outstanding relative to GDP, indicating that the IMF engages in “defensive forecasting.” Countries with a fixed exchange rate regime also receive low inflation forecasts. Considering the detrimental effects that inflation can have under such an exchange rate regime, we consider this evidence consistent with the Fund’s desire to preserve economic stability. |
| Keywords: | IMF, Economic Forecasts, Political Influence |
| JEL: | C23 D72 F33 F34 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:07-176&r=mac |
| By: | Taryn Parry |
| Abstract: | Latin America has experienced a resurgence in growth in recent years. However, it is also a region that has been prone to crises while growth has not delivered a significant reduction in poverty and inequality. Maintaining a strong and stable macroeconomic performance in Latin America will depend on further cuts in public debt, identification and reduction of fiscal vulnerabilities and improvements in the quality of public spending. Improvements in governance and the business environment will also aid in attracting investment. This paper draws on assessments of fiscal transparency in twelve countries in Latin America to highlight good fiscal management and improvements in fiscal transparency that might enhance the prospect for sound fiscal performance and a more favorable investment environment. This would be an important step toward sustaining stable, higher quality growth in the region. |
| Keywords: | Working Paper , Latin America , Fiscal transparency , Fiscal management , Economic stabilization , Economic growth , |
| Date: | 2007–09–18 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:07/220&r=mac |
| By: | Anthony Annett |
| Abstract: | Expenditure in Iceland, especially related to the government wage bill, has tended to move in a procyclical manner, related to the fragmentation of political decision making. Iceland's elevated macroeconomic volatility reinforces these tendencies, as large booms unleash greater fiscal pressures as well as procyclical revenue elasticities that magnify these underlying strains. To improve its fiscal framework, Iceland could look to the experience of countries like Belgium and the Netherlands. In particular, it could adopt binding nominal expenditure rules, independent forecasts, and use representative committees to lay out medium-term targets across different levels of government. |
| Keywords: | Working Paper , Fiscal policy , Iceland , Government expenditures , Political economy , |
| Date: | 2007–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:07/235&r=mac |
| By: | Aubhik Khan; Julia K. Thomas |
| Abstract: | The authors study a model of lumpy investment wherein establishments face persistent shocks to common and plant-specific productivity, and nonconvex adjustment costs lead them to pursue generalized (S,s) investment rules. They allow persistent heterogeneity in both capital and total factor productivity alongside low-level investments exempt from adjustment costs to develop the first model consistent with the cross-sectional distribution of establishment investment rates. Examining the implications of lumpy investment for aggregate dynamics in this setting, the authors find that they remain substantial when factor supply considerations are ignored, but are quantitatively irrelevant in general equilibrium. ; The substantial implications of general equilibrium extend beyond the dynamics of aggregate series. While the presence of idiosyncratic shocks makes the time-averaged distribution of plant-level investment rates largely invariant to market-clearing movements in real wages and interest rates, the authors show that the dynamics of plants' investments differ sharply in their presence. Thus, model-based estimations of capital adjustment costs involving panel data may be quite sensitive to the assumption about equilibrium. Their analysis also offers new insights about how nonconvex adjustment costs influence investment at the plant. When establishments face idiosyncratic productivity shocks consistent with existing estimates, they find that nonconvex costs do not cause lumpy investments, but act to eliminate them. |
| Keywords: | Investments |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:07-24&r=mac |
| By: | Benneth O. Obi |
| Abstract: | The rise in fiscal policy as a tool of macroeconomic management and the pervasive and widespread inequality in terms of income disparity has renewed interest in the use of fiscal policy in the alleviation of poverty and the reduction of income disparity. This study sets out to examine the potency of fiscal policy as a tool for poverty alleviation. The study uses a static real-side computable general equilibrium model as the framework. Three counterfactual scenarios were examined. These are transfers to the poor household, targeting of government expenditure and import tariff adjustment. The study observed that targeting of government expenditure seems to be the most potent tool for effective poverty reduction. Moreover, tariff adjustment tends to aggravate income disparity/poverty amongst households. In this light, the study proposes that in the quest for poverty reduction in Nigeria, fiscal policy should be designed so that government expenditure is properly focused to ensure that goods required by poor households are provided through public means. |
| Date: | 2007–02 |
| URL: | http://d.repec.org/n?u=RePEc:aer:rpaper:rp_164&r=mac |
| By: | Giancarlo Corsetti; Luca Dedola; Sylvain Leduc |
| Abstract: | We analyze the policy trade-offs generated by local currency price stability of imports in economies where upstream producers strategically interact with downstream firms selling the final goods to consumers. We study the effects of staggered price setting at the downstream level on the optimal price (and markup) chosen by upstream producers and show that downstream price movements affect the desired markup of upstream producers, magnifying their price response to shocks. We revisit the international dimensions of optimal monetary policy, unveiling an argument in favor of consumer price stability as the main prescription for monetary policy. Since stable consumer prices feed back into a low volatility of markups among upstream producers, this contains inefficient deviations from the law of one price at the border. However, efficient stabilization of different CPI components will not generally result into perfect stabilization of headline inflation. National policies optimally respond to the same shocks in a similar way, thus containing volatility of the terms of trade, but not necessarily of the real exchange rate. The latter will be more volatile, among other things, the larger the home bias in expenditure and the content of local inputs in consumer goods. |
| JEL: | F31 F33 F41 F42 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13544&r=mac |
| By: | James T. E. Chapman; Antoine Martin |
| Abstract: | Freeman (1999) proposes a model in which discount window lending and open market operations have different effects. This is important because in most of the literature, these policies are indistinguishable. However, Freeman's argument that the central bank should absorb losses associated with default to provide risk-sharing stands in stark contrast to the concern that central banks should limit their exposure to credit risk. We extend Freeman's model by introducing moral hazard. With moral hazard, the central bank should avoid absorbing losses and Freeman's argument breaks down. However, we show that policies resembling discount window lending and open market operations can still be distinguished in this new framework. The optimal policy is for the central bank to make a restricted number of creditors compete for funds. By restricting the number of agents, the central bank can limit the moral hazard problem. By making them compete with each other, the central bank can exploit market information that reveals the state of the economy. |
| Keywords: | Payment, clearing, and settlement systems; Financial markets; Central bank research |
| JEL: | G20 E58 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:07-51&r=mac |
| By: | Stähler, Nikolai |
| Abstract: | In a dynamic model of fiscal policy, social polarization provokes a deficit bias. Policy advisors have recently proposed that governments running a deficit should be forced to generate additional tax revenue. We show that this deficit taxation reduces the deficit bias as it internalizes the externality different lobby groups impose on others. The mechanism described here is not due to the political risk of being elected out of office because the private sector dislikes taxation. Lower government spending and the resulting reduced deficit bias augment capital accumulation. |
| Keywords: | fiscal rules, deficit taxation, polarization, capital accumulation |
| JEL: | E62 H61 H62 H63 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:6342&r=mac |
| By: | Columba, Francesco |
| Abstract: | This paper estimates the speed and determinants of euro adoption across Italian provinces by exploiting the natural experiment in early 2002 when euro and lira dually circulated as legal tender. A unique data set with daily observations on the net flows of euro banknotes from the branches of the Bank of Italy, province by province, is used. The speed of euro adoption differs according to the availability of transaction technology and demographic characteristics. Lessons for countries adopting a new currency are obtained. |
| Keywords: | currency; euro; financial innovation; monetary transition |
| JEL: | E51 E42 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5547&r=mac |
| By: | Philippe Moutot (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Dieter Gerdesmeier (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Adriana Lojschová (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Julian von Landesberger (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | Monetary growth has increased significantly in the euro area in recent years, raising concerns about the risks to price stability. Viewed from a sectoral perspective, this increase reflects to a large extent the deposit holdings of other financial intermediaries (OFIs). This paper presents analytical work on the role of OFIs in monetary and credit developments in the euro area. Although, at the moment, some shortcomings in the data available – such as the lack of long time series data – seriously limit the analysis of the role of OFIs in monetary and credit aggregates, it seems clear that OFIs have gained considerable importance in recent years, not only as a factor affecting monetary developments, but also for the functioning of the financial system. This gain in importance may be due to financial deregulation and liberalisation, as well as financial innovation. These developments are reflected in the integration and deepening of euro area financial markets, as well as in investors’ attitude to risk. |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20070075&r=mac |
| By: | Jochen Hartwig (KOF Swiss Economic Institute, ETH Zurich) |
| Abstract: | Macroeconomic data are indispensable for modern governance, yet it is often unclear how reliable these data are. The production process of macroeconomic data inside the statistical offices is often not very transparent for the general public. Bystanders usually have no choice but to take for granted the published data because criteria by which to judge data quality are wanting. Hoping to contribute to a better understanding of the quality of macroeconomic data, this paper proposes several plausibility checks and applies them to recently published Swiss labour productivity growth figures. Although the proposed checks cannot ‘prove’ or ‘disprove’ the official data, they are capable of either strengthening our confidence in the official data or, alternatively, of casting them into doubt. Policy debates drawing on official data will hardly be able to ignore differences in the degree of confidence with which these data are held to be accurate. |
| Keywords: | Accuracy of macroeconomic observations, statistical artefacts, labour productivity |
| JEL: | C82 O47 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:07-173&r=mac |
| By: | Thesia I. Garner (U.S. Bureau of Labor Statistics); Randal Verbrugge (U.S. Bureau of Labor Statistics) |
| Abstract: | This paper constructs, for the five largest cities in the United States, user costs and rents for the same structure, in levels (i.e., measured in dollars). The levels formulation is a major advantage over indexes since one can answer questions like "Is it cheaper to rent or to own?" or "Are houses overvalued?" because such questions are essentially about the levels of rents and house prices and their fundamentals. These new measures are constructed using Consumer Expenditure Survey (CE) Interview data from 1982 to 2002, along with house price appreciation forecasts from Verbrugge (2007a). Characteristics, current market value, and rental equivalence of owner-occupied housing are used in a regression framework to predict the rent associated with a structure with median characteristics in each city. The property value of this median house is used to construct a user cost estimate for this structure. We find that, for the median structure in each city, estimated user costs and rents diverge to a surprising degree, in keeping with the previously noted findings of Verbrugge (2007a). It is not always cheaper to own: user costs sometimes lie well above rents. Finally, the dynamics of the estimated price-to-rent ratio are generally similar to those found in conventional estimates based upon indexes, suggesting that the present study might be useful for scaling or normalizing other estimates. |
| Keywords: | User Costs, Arbitrage, Transaction Costs, House Price Appreciation, Consumer Expenditure Survey, Forecasting, Inflation Stickiness, Rental Equivalence, CPI |
| JEL: | E21 E22 R31 R21 E31 C81 C82 O47 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:bls:wpaper:ec070080&r=mac |
| By: | Emine Boz |
| Abstract: | Emerging market financial crises are abrupt and dramatic, usually occurring after a period of high output growth, massive capital flows, and a boom in asset markets. This paper develops an equilibrium asset-pricing model with informational frictions in which vulnerability and the crisis itself are consequences of the investor optimism in the period preceding the crisis. The model features two sets of investors, domestic and foreign. Both sets of investors learn from noisy signals, which contain information relevant for asset returns and formulate expectations, or "beliefs," about the state of productivity. We show that, if preceded by a sequence of positive signals, a small, negative noise shock can trigger a sharp downward adjustment in investors' beliefs, asset prices, and consumption. The magnitude of this downward adjustment and sensitivity to negative signals increase with the level of optimism attained prior to the negative signal. |
| Keywords: | Working Paper , Financial crisis , Emerging markets , Investment , Foreign investment , Consumption , Asset prices , Economic models , |
| Date: | 2007–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:07/223&r=mac |
| By: | Lim, Jamus Jerome |
| Abstract: | With heterogeneous productivity and sticky prices in the short run, exchange rate changes can generate real effects on agents in the economy; the result is that the currency regime becomes a policy variable amenable to political competition. This paper discusses how special interests and government policymakers interact in the decisionmaking processes concerning the optimal level of the exchange rate, and how these interactions may lead to a disconnect between the exchange rate and economic fundamentals which---under appropriate conditions---may affect the timing, and possibility, of a currency crisis. The model is also tested empirically with exchange rate data from 25 countries. |
| Keywords: | Currency crisis; exchange rate policy; special interest politics; new open-economy macroeconomics |
| JEL: | F34 D72 F41 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5516&r=mac |
| By: | Jean-Pierre DANTHINE; John B. DONALDSON |
| Abstract: | We study the dynamic general equilibrium of an economy where risk averse shareholders delegate the management of the firm to risk averse managers. The optimal contract has two main components: an incentive component corresponding to a non-tradable equity position and a variable 'salary' component indexed to the aggregate wage bill and to aggregate dividends. Tying a manager's compensation to the performance of her own firm ensures that her interests are aligned with the goals of firm owners and that maximizing the discounted sum of future dividends will be her objective. Linking managers' compensation to overall economic performance is also required to make sure that managers use the appropriate stochastic discount factor to value those future dividends. |
| Keywords: | incentives; optimal contracting; stochastic discount factor |
| JEL: | E32 E44 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:lau:crdeep:07.10&r=mac |
| By: | Joshua Gallin (Board of Governors of the Federal Reserve System); Randal Verbrugge (U.S. Bureau of Labor Statistics) |
| Abstract: | As a rental unit ages, its quality typically falls; a failure to correct for this would result in downward bias in the CPI. We investigate the BLS age bias imputation and explore two potential categories of error: approximations related to the construction of the age bias factor, and model mis-specification. We find that, as long as one stays within the context of the current official regression specification, the approximation errors are innocuous. On the other hand, we find that the official regression specification – which is more or less of the form commonly used in the hedonic rent literature – is severely deficient in its ability to match the conditional log-rent vs. age relationship in the data, and performs poorly in out-of-sample tests. It is straightforward to improve the specification in order to address these deficiencies. However, basing estimates upon a single regression model is risky. Age-bias adjustment inherently suffers from a general problem facing some types of hedonic-based adjustments, which is related to model uncertainty. In particular, age-bias adjustment relies upon specific coefficient estimates, but there is no guarantee that the true marginal influence of a regressor is being estimated in any given model, since one cannot guarantee that the Gauss-Markov conditions hold. To address this problem, we advocate the use of model averaging, which is a method that minimizes downside risks related to model misspecification and generates more reliable coefficient estimates. Thus, after selecting several appropriate models, we estimate age-bias factors by taking a trimmed average over the factors derived from each model. We argue that similar methods may be readily implemented by statistical agencies (even very small ones) with little additional effort. We find that, in 2004 data, BLS age-bias factors were too small, on average, by nearly 40%. Since the age bias term itself is rather small, the implied downward-bias of the aggregate indexes is modest. On the other hand, errors in particular metropolitan areas were much larger, with annual downward-bias as large as 0.6%. |
| Keywords: | Depreciation, Hedonics, Model Averaging, Inflation, CPI Bias |
| JEL: | E31 C81 C82 R31 R21 O47 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:bls:wpaper:ec070100&r=mac |
| By: | Nombulelo Duma |
| Abstract: | This paper uses the growth accounting framework to assess Sri Lanka's sources of growth. It finds that while labor was the dominant factor contributing to growth in the 1980s, labor's contribution declined over time and was overtaken, to a large extent, by total factor productivity (TFP) and, to a lower extent, by physical and human capital accumulation. A higher growth path over the medium term will depend on securing a stable political and macroeconomic environment; implementing structural reforms necessary to improve productivity and efficiency of investment; attaining fiscal consolidation; and creating space for the private sector. |
| Keywords: | Working Paper , Economic growth , Sri Lanka , Productivity , Capital accumulation , |
| Date: | 2007–09–21 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:07/225&r=mac |
| By: | Richard Allen; Isabell Adenauer; Kevin Fletcher; Sanjeev Gupta; Duncan Last; Gerd Schwartz; Shamsuddin Tareq |
| Abstract: | This paper discusses the role of fiscal policy and fiscal institutions in managing scaled-up aid. In an environment of volatile scaled-up aid, fiscal policy formulation should be anchored in medium-term frameworks, incorporating a longer-term view of potential resource availability and spending plans. There is merit in smoothing expenditures over time so that all programs are adequately funded. The paper argues that wage-bill ceilings should be used in Fund-supported programs only in exceptional cases. The paper also discusses basic reforms for strengthening public financial management systems for effective utilization of scaled-up aid flows. |
| Keywords: | Working Paper , Development assistance , Fiscal policy , Public finance , Government expenditures , Fund policies , |
| Date: | 2007–09–19 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:07/222&r=mac |
| By: | Rolf Schenker (KOF Swiss Economic Institute, ETH Zurich) |
| Abstract: | This paper compares quantitative and qualitative data on firm level. The data is taken from two Swiss investment surveys. This has not yet been done in the literature. We will see that the mean change in investment of firms planning to increase (decrease) investments is positive (negative). In contrast, the mean change in investment of firms indi- cating “no change” is indeed virtually zero. Carlson & Parkin (1975) assume the quantitative observations to follow a normal distribution. Other research (e.g. Dasgupta & Lahiri 1992) has been done assuming other distributions. In this paper we show that the micro data does not follow a normal, logistic or exponential distribution. Furthermore, we adopt the response functions presented by Ronning (1984) to the investment data. They help us to determine the share of firms giving the different qualitative statement for every instance of the quantitative data. We will show that with larger (smaller) quantitative changes, more firms give positive (negative) qualitative statements. |
| Keywords: | Response Functions, Investment survey, Qualitative response, Contingency Table |
| JEL: | C5 E22 C42 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:07-169&r=mac |
| By: | Brad Baxter (School of Economics, Mathematics & Statistics, Birkbeck); Liam Graham; Stephen Wright (School of Economics, Mathematics & Statistics, Birkbeck) |
| Abstract: | We relax the assumption of full information that underlies most dynamic general equilibrium models, and instead assume agents optimally form estimates of the states from an incomplete information set. We derive a version of the Kalman filter that is endogenous to agents' optimising decisions, and state conditions for its convergence. We show the (restrictive) conditions under which the endogenous Kalman filter will at least asymptotically reveal the true states. In general we show that incomplete information can have signi?cant implications for the time-series properties of economies. We provide a Matlab toolkit which allows the easy implementation of models with incomplete information. |
| Keywords: | Dynamic general equilibrium, Kalman filter, imperfect information, signal extraction |
| JEL: | E27 E37 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkefp:0719&r=mac |
| By: | Christina D. Romer; David H. Romer |
| Abstract: | The hypothesis that decreases in taxes reduce future government spending is often cited as a reason for cutting taxes. However, because taxes change for many reasons, examinations of the relationship between overall measures of taxation and subsequent spending are plagued by problems of reverse causation and omitted variable bias. To deal with these problems, this paper examines the behavior of government expenditures following legislated tax changes that narrative sources suggest are largely uncorrelated with other factors affecting spending. The results provide no support for the hypothesis that tax cuts restrain government spending; indeed, they suggest that tax cuts may actually increase spending. The results also indicate that the main effect of tax cuts on the government budget is to induce subsequent legislated tax increases. Examination of four episodes of major tax cuts reinforces these conclusions. |
| JEL: | E62 H50 H60 N12 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13548&r=mac |
| By: | Andreas Irmen (University of Heidelberg, Department of Economics); Rainer Klump (University of Frankfurt, Department of Economics) |
| Abstract: | We analyze a generalized neoclassical growth model that combines a normalized CES production function and possible asymmetries of savings out of factor incomes. This generalized model helps to shed new light on a recent debate concerning the impact of factor substitution and income distribution on economic growth. We can show that this impact relies on both an efficiency and an acceleration effect, where the latter is caused by the distributional consequences of an increase in the elasticity of substitution. While the efficiency effect is always positive, the direction of the acceleration effect depends on the particular savings hypothesis. However, if savings out of capital income are substantial so that a certain threshold value is surpassed we find that the efficiency effect dominates so that higher factor substitution can work as a major engine of growth. |
| Keywords: | Capital Accumulation, Elasticity of Substitution, Income Distribution, Neoclassical Growth Model |
| JEL: | E21 O11 O41 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:awi:wpaper:0453&r=mac |
| By: | Aysan, Ahmet Faruk; Ceyhan, Sanli Pinar |
| Abstract: | This paper aims to find the productivity change in the banking sector between 1990 and 2006, with an emphasis to the period after 2001 crisis during which the Turkish banking system experienced a structural change. Using DEA, we find the Malmquist TFP Change Index and its mutually exclusive and exhaustive components of efficiency and technological changes over time. Additionally, we further decompose the technical efficiency change into pure technical and scale efficiency changes. The productivity of the banking sector is found out to have increased, the main reason being technological improvement rather than efficiency increase. For the cases of productivity decline, however, the changes come from the efficiency side rather than technology. An analysis with respect to the ownership status revealed that foreign banks were the most efficient group until 2001 after which state banks captured the first place. We attribute this change to the inflation accounting practice as well as better management of state banks with less political intrusion. The analysis with respect to bank size reveals that before 2000, the most efficient bank group was the medium-scale banks (the banks mainly purchased by foreign banks) followed by small banks while the efficiency scores converged after 2001. |
| Keywords: | Turkish Banking Sector; Data Envelopment Analysis; Efficiency; Productivity; Post-Crises Period |
| JEL: | E32 G20 G21 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5492&r=mac |
| By: | Adeola F. Adenikinju; Niyi Falobi |
| Abstract: | In spite of its vast oil endowments, Nigeria continues to experience sporadic domestic oil supply shortages. These oil shortages manifest in regular queues at fuel stations that are often empty and in thriving parallel markets that sprout all over the country. The shortages have resulted in huge economic and non-economic costs to the economy. This study investigates the causes of the shortages and provides quantitative estimates of the economic costs to the Nigerian economy using a survey and a computable general equilibrium (CGE) model. The findings from this study show very clearly that oil sector supply shocks are costly both directly and indirectly. Oil supply shocks result in lower real GDP, higher average prices and greater balance of payment deficits. Other macroeconomic variables such as private consumption, investment, government revenue and employment also decline. In addition, the distributional impact of the quantitative energy supply shocks is higher for poor households than rich households. We also find that the sectoral impacts are mixed, often depending on the oil intensity of the sector. Finally, our survey results show that many economic agents on the demand side are willing to pay higher prices if that will guarantee a stable oil supply. Few players in the market chain benefit from supply disruptions, while consumers and the poor bear the main burden of these shocks. |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:aer:rpaper:rp_162&r=mac |
| By: | Juergen Jung (Indiana University Bloomington); Chung Tran (Indiana University Bloomington) |
| Abstract: | We analyze whether a consumer driven health care plan like the newly established Health Savings Accounts (HSAs) can reduce health care expenditures in the United States and increase the fraction of the population with health insurance. We use an overlapping generations model with health uncertainty and endogenous health care spending. Agents can choose between a low deductible- and a high deductible health insurance. If agents choose to purchase the high deductible health insurance, they are allowed to contribute tax free to an HSA. We examine the steady state effects of introducing HSAs into a system with private health insurance for young agents and Medicare for old agents. Since the model is a general equilibrium model, we fully account for feedback effects from both, factor markets and insurance markets. Our results from numerical simulations indicate that HSAs can decrease total health expenditures by up to 3% of GDP but increase the number of uninsured individuals by almost 5%. Furthermore, HSAs decrease the aggregate level of health capital and therefore decrease output. We also address possible extensions of the HSA reform that include the eligibility to pay health insurance premiums with HSA funds, the full privatization of Medicaid via HSAs, and Medicare for workers. |
| Keywords: | Health Savings Accounts |
| JEL: | H51 I18 I38 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:inu:caeprp:2007023&r=mac |
| By: | Agnes d'Artigues; Jacques Percebois; Thierry Vignolo |
| Abstract: | Time-inconsistency can arise when a government attempts to convince private sector to use a particular alternative energy (gas, green electricity...) rather than petroleum products. By introducing taxes and feed-in prices, a government would encourage firms and households to switch to an alternative energy rather than use petroleum products. However, even if a government is in favor of increasing alternative energy consumption, it can benefit from considerable financial resources resulting from petroleum product consumption. As a result of these conflicting issues, the private sector may not find the alternative energy policy credible, which prevents the government to implement a socially efficient policy. |
| Keywords: | energy policy; time inconsistency; alternative energy |
| JEL: | E62 Q42 Q48 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:eco2007/32&r=mac |
| By: | Alex Mandilaras (University of Surrey); Helen Popper (University of Santa Clara) |
| Abstract: | The paper examines the capital flows of seven Southeast Asian emerging economies over the last decade and a half. It first evaluates the role of economic conditions within a country itself, including the country's domestic financial conditions and the openness of its financial markets to international capital flows. Then, the role of the counties' own domestic conditions is compared with regional influences and with the importance of macroeconomic conditions elsewhere, such as in Europe, and in the largest single recipient of the outflows, the United States. Key results include: (1) domestic capital market conditions are the best predictors (among the variables that we examine) of the capital flows of these countries; (2) capital market openness is of little use in predicting changes in capital flows; and, (3) while the macroeconomic conditions of the United States are strong predictors of subsequent GDP growth in the region, they are not, by themselves, good predictors of the region's capital flows. |
| Keywords: | Global Imbalances, Financial Market Capitalization, Productivity |
| JEL: | F32 |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:sur:surrec:1407&r=mac |
| By: | Paloma Acevedo (Banco de España); Enrique Alberola (Banco de España); Carmen Broto (Banco de España) |
| Abstract: | In recent years, for most emerging markets, public debt has decreased and its composition has evolved toward domestic currency. This progress is remarkable in terms of reduced financial vulnerability, which has been underpinned by favourable financing conditions and related deepening of local debt markets. In this paper, we assess the vulnerability reduction —conveyed in the ratio of total debt to GDP— achieved for six selected emerging economies, focusing on the importance of exchange rate evolution relative to the proactive policies that fiscal authorities have implemented to reduce the external exposure of debt. We first disentangle both components in the current structure of debt to show that proactive debt management has been the dominant factor in the reduction of the forex debt share. We then perform a stress test within a debt sustainability analysis framework. The results show that proactive debt management policies have —somehow paradoxically— entailed a short-term cost, preventing a more dramatic reduction in the debt to GDP ratio, but this is more than compensated by the benefits in terms of financial vulnerability reduction in the face of financial turbulences, reducing simultaneously the probability of such contingency. |
| Keywords: | external debt, local debt markets, financial crises, debt sustainability analysis |
| JEL: | H6 E6 F3 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:0733&r=mac |
| By: | DAMAY, Coralie |
| Abstract: | Ce papier s’appuie sur des théories de cognition numérique pour étudier les erreurs de rappel de prix faites par les enfants. L’objectif est, entre autre, de souligner les caractéristiques du prix qui sont sources d’erreurs et d’analyser la structure même de ces erreurs afin de comprendre le traitement de l’information-prix chez les enfants. Les résultats révèlent que le prix est codé de multiple façon qui affecte sa mémorisation. De plus, le niveau de cherté, la terminaison et le nombre de syllabes du prix influencent les erreurs réalisées. |
| Keywords: | Rappel des prix; enfant; structure des erreurs; cognition numérique; nombre à deux chiffres |
| JEL: | D12 D46 E31 |
| Date: | 2007–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:heccah:0871&r=mac |
| By: | Thomas Philippon |
| Abstract: | I study the allocation of human capital in an economy with production externalities, financial constraints and career choices. Agents choose to become entrepreneurs, workers or financiers. Entrepreneurship has positive externalities, but innovators face borrowing constraints and require the services of financiers in order to invest efficiently. When investment and education subsidies are chosen optimally, I find that the financial sector should be taxed in exactly the same way as the non-financial sector. When direct subsidies to investment and scientific education are not feasible, giving a preferred tax treatment to the financial sector can improve welfare by increasing aggregate investment in research and development. |
| JEL: | E2 G18 G2 H2 O3 O41 O43 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13560&r=mac |