nep-mac New Economics Papers
on Macroeconomics
Issue of 2008‒03‒01
fifty papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Policy Uncertainty, Symbiosis, and the Optimal Fiscal and Monetary Conservativeness By Giovanni Di Bartolomeo; Marco Manzo; Francesco Giuli
  2. Taylor Rule Under Financial Instability By Martin Cihák; Sofia Bauducco; Ales Bulir
  3. Estimating the natural rates in a simple New Keynesian framework By Hilde C. Bjørnland; Kai Leitemo; Junior Maih
  4. Do monetary indicators lead euro area inflation? By Boris Hofmann
  5. Real Business Cycles with Cournot Competition and Endogenous Entry By Colciago, Andrea; Etro, Federico
  6. GCC Monetary Union and the Degree of Macroeconomic Policy Coordination By Bassem Kamar; Samy Ben Naceur
  7. Inflation and Unemployment in General Equilibrium By Guillaume Rocheteau; Peter Rupert; Randall Wright
  8. Macroeconomic rates of return of public and private investment: crowding-in and crowding-out effects. By António Afonso; Miguel St. Aubyn
  9. Looking for a break in Spanish Inflation Data in the early eighties and assessing persistence By Maria Teresa Mota; Mariana Alves da Cunha; Carlos Santos
  10. VAR analysis and the Great Moderation. By Luca Benati; Paolo Surico
  11. Lumpy Labor Adjustment as a Propagation Mechanism of Business Cycles By Fang Yao
  12. Monetary policy under uncertainty: Min-max vs robust-satisficing strategies By Yakov Ben-Haim; Q. Farooq Akram; Øyvind Eitrheim
  13. Rule-of-thumb consumers, productivity and hours By Francesco Furlanetto; Martin Seneca
  14. Explaining the Great Moderation - it is not the shocks. By Domenico Giannone; Michele Lenza; Lucrezia Reichlin
  15. The Euro: The Economic Stabilizer of the Eurozone By Lorca-Susino, Maria
  16. Are sectoral stock prices useful for predicting euro area GDP? By Magnus Andersson; Antonello D’Agostino
  17. Forecasting inflation with dynamic factor model – the case of Poland By Jacek Kotlowski
  18. US Consumer Inflation Expectations: Evidence Regarding Learning, Accuracy and Demographics By Robert D. J. Anderson
  19. A Modelling of Ghana's Inflation Experience: 1960–2003 By Mathew Kofi Ocran
  20. Purdah - on the rationale for central bank silence around policy meetings. By Michael Ehrmann; Marcel Fratzscher
  21. Issues in Central Bank Finance and Independence By Ake Lonnberg; Peter Stella
  22. Why is Canada's Price Level So Predictable? By Vladimir Klyuev; Ondra Kamenik; Heesun Kiem; Douglas Laxton
  23. Financial Liberalisation and the Effectiveness of Monetary Policy on House Prices in South Africa By Kasai Ndahiriwe; Rangan Gupta
  24. A Markov-Switching Approach to Measuring Exchange Market Pressure By Francis Y. Kumah
  25. Are Banks Procyclical? Evidence from the Italian Case (1890-1973) By Carlo Brambilla; Giandomenico Piluso
  26. Inflation Differentials in the EU: A Common ( Factors ) Approach with Implications for EU8 Euro Adoption Prospects By Franziska Ohnsorge; Nada Choueiri; Rachel van Elkan
  27. The reserve fulfilment path of euro area commercial banks - empirical testing using panel data. By Nuno Cassola
  28. Where Did All the Aid Go? An Empirical Analysis of Absorption and Spending By Shekhar Aiyar; Ummul Ruthbah
  29. Alternative Fiscal Rules for Norway By Daniel Leigh; Etibar Jafarov
  30. Financial Frictions and Business Cycles in Middle-Income Countries By Jaime Guajardo
  31. Credit Expansion, the Prisoner´s Dilemma and Free Banking as Mechanism Design By van den Hauwe, Ludwig
  32. The Return to Capital and the Business Cycle By Paul Gomme; B Ravikumar; Peter Rupert
  33. Can Domestic Policies Influence Inflation? By Ashoka Mody; Franziska Ohnsorge
  34. Financial Intermediation and Macroeconomic Efficiency By Yves Kuhry; Laurent Weill
  35. Implications of Oil Inflows for Savings and Reserve Management in the CEMAC By Paulo Flavio Nacif Drummond
  36. Oil price shocks and the Portuguese economy since the 1970s By Robalo, Pedro Brito; Salvado, João Cotter
  37. The Macroeconomic Consequences of Financing Health Insurance By Stephen B. DeLoach; Jennifer M. Platania
  38. Imperfect Central Bank Communication: Information versus By Dale, Spencer; Orphanides, Athanasios; Österholm, Pär
  39. Money, Intermediation, and Banking By Andolfatto, David
  40. Does Financial Intermediation Matter for macroeconomic Efficiency ? By Pierre-Guillaume Méon; Laurent Weill
  41. Relative Price Variability and Inflation: Evidence from the Agricultural Sector in Nigeria By Obasi O. Ukoha
  42. Nowcasting Norwegian GDP: The role of asset prices in a small open economy By Knut Are Aastveit; Tørres G. Trovik
  43. Modelos econométricos dinámicos y desarrollo económico: Análisis del salario real, la productividad y el empleo en los países de la OCDE, 1965-2005 By Guisan, M.C.
  44. Hvilke faktorer driver kursutviklingen på Oslo Børs? By Randi Næs; Johannes A. Skjeltorp; Bernt Arne Ødegaard
  45. Baltic Tax Reform By Azacis, Helmuts; Gillman, Max
  46. Measuring Underground (Unobserved, Non-Observed, Unrecorded) Economies in Transition Countries: Can We Trust GDP? By Feige, Edgar L.; Urban, Ivica
  47. Commodity Money Equilibrium in a Convex Trading Post Economy with Transaction Costs By Ross Starr
  48. Consumer awareness and the use of payment media: evidence from young Finnish consumers By Hyytinen, Ari; Takalo, Tuomas
  49. The Impact of Remittances on Economic Growth and Development in Africa. By Bichaka Fayissa; Christian Nsiah
  50. A note on the drivers of R&D intensity By Azèle Mathieu; Bruno Van Pottelsberghe

  1. By: Giovanni Di Bartolomeo (University of Teramo); Marco Manzo; Francesco Giuli
    Abstract: This paper extends a well-known macroeconomic stabilization game between monetary and fiscal authorities introduced by Dixit and Lambertini (American Economic Review, 93: 1522-1542) to multiplicative (policy) uncertainty. We find that even if fiscal and monetary authorities share a common output and inflation target (i.e. the symbiosis assumption), the achievement of the common targets is no longer guaranteed; under multiplicative uncertainty, in fact, a time consistency problem arises unless policymakers¢ output target is equal to the natural level.
    Keywords: Monetary-fiscal policy interactions, uncertainty, symbiosis.
    JEL: E61 E63
    Date: 2008–02–17
  2. By: Martin Cihák; Sofia Bauducco; Ales Bulir
    Abstract: This paper contributes to the analysis of monetary policy in the face of financial instability. In particular, we extend the standard new Keynesian dynamic stochastic general equilibrium (DSGE) model with sticky prices to include a financial system. Our simulations suggest that if financial instability affects output and inflation with a lag and if the central bank has privileged information about credit risk, monetary policy that responds instantly to increased credit risk can trade off more output and inflation instability today for a faster return to the trend than a policy that follows the simple Taylor rule with only the contemporaneous output gap and inflation.
    Keywords: Monetary policy , Inflation , Credit risk , Financial stability ,
    Date: 2008–01–30
  3. By: Hilde C. Bjørnland (Norwegian School of Management (BI) and Norges Bank (Central Bank of Norway)); Kai Leitemo (Norwegian School of Management (BI)); Junior Maih (Norges Bank (Central Bank of Norway))
    Abstract: The time-varying natural rate of interest and output and the implied mediumterm inflation target for the US economy are estimated over the period 1983-2005. The estimation is conducted within the New-Keynesian framework using Bayesian and Kalman-filter estimation techniques. With the model-consistent estimate of the output gap, we get a small weight on the backward-looking component of the New-Keynesian Phillips curve – similar to what is obtained in studies which use labor share of income as a driver for inflation (e.g., Galì et al., 2001, 2003). The turning points of the business cycle are nevertheless broadly consistent with those of CBO/NBER. We find considerable variation in the natural rate of interest while the inflation target has been close to 2% over the last decade.
    Keywords: Natural rate of interest, natural rate of output, New-Keynesian model, inflation target.
    JEL: C51 E32 E37 E52
    Date: 2008–01–11
  4. By: Boris Hofmann (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: This paper assesses the performance of monetary indicators as well as of a large range of economic and financial indicators in predicting euro area HICP inflation out-of-sample over the period first quarter 1999 till third quarter 2006 considering standard bivariate forecasting models, factor models, simple combination forecasts as well as trivariate two-pillar Phillips Curve forecasting models using both ex-post revised and real-time data. The results suggest that the predictive ability of money-based forecasts relative to a simple random walk benchmark model was high at medium-term forecasting horizons in the early years of EMU, but has substantially deteriorated recently. A significantly improved forecasting performance vis-à-vis the random walk can, however, be achieved based on the ECB’s internal M3 series corrected for the effects of portfolio shifts and by combining monetary and economic indicators. JEL Classification: E31, E40, C32.
    Keywords: Euro area, inflation, leading indicators, money.
    Date: 2008–02
  5. By: Colciago, Andrea; Etro, Federico
    Abstract: We introduce Cournot competition and endogenous entry in an otherwise neoclassical macroeconomic framework. First, we develop a model with exogenous savings à la Solow describing the dynamic path of business creation. Then, we develop a model à la Ramsey describing the dynamic interaction of consumption and business creation. Our models are able to explain why markups vary countercylically and profits are procyclical. The analysis of permanent and temporary technology and preference shocks and of the second moments suggests that our model can outperform the Real Business Cycle framework in many dimensions.
    Keywords: Business Cycle; Cournot Competition; Endogenous Entry
    JEL: E32 L13
    Date: 2007–09–30
  6. By: Bassem Kamar; Samy Ben Naceur
    Abstract: Coordinating macroeconomic policies is a pre-requisite to a successful launch of the common currency in the GCC countries. Relying on the Behavioral Equilibrium Exchange Rate approach as a theoretical framework, we apply the Pooled Mean Group methodology to determine the similarity of the impact of a selected set of macroeconomic indicators on the real exchange rate in each country. Our empirical evidence points to a clear coordination of monetary policy, fiscal policy, government consumption, and openness across the member countries. While RER misalignments also show a substantial convergence building over time, differences in the misalignments of the two polar cases remain rather substantial, calling for further coordination and policy harmonization.
    Keywords: Working Paper , Cooperation Council for the Arab States of the Gulf , Monetary unions , Monetary policy , Financial integration , Foreign exchange , Economic policy , Central bank policy ,
    Date: 2007–10–29
  7. By: Guillaume Rocheteau (none); Peter Rupert (University of California, Santa Barbara); Randall Wright (University of Pennsylvania)
    Abstract: When labor is indivisible, there exist efficient outcomes with some agents randomly unemployed (Rogerson 1988). We integrate this idea into the modern theory of monetary exchange, where some trade occurs in centralized markets and some in decentralized markets (as in Lagos and Wright 2006). This delivers a general equilibrium model of unemployment and money, with explicit microeconomic foundations. We show the implied relation between inflation and unemployment can be positive or negative, depending on simple preference conditions. Our Phillips Curve provides a long-run, exploitable, trade off for monetary policy; it turns out, however, that the optimal policy is the Freidman rule.
    Keywords: inflation, unemployment, Phillips Curve,
    Date: 2007–08–01
  8. By: António Afonso (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Miguel St. Aubyn (ISEG/TULisbon, Technical University of Lisbon, Department of Economics, UECE, Research Unit on Complexity and Economics, R. Miguel Lupi 20, 1249-078 Lisbon, Portugal.)
    Abstract: Using annual data from 14 European Union countries, plus Canada, Japan and the United States, we evaluate the macroeconomic effects of public and private investment through VAR analysis. From impulse response functions, we are able to assess the extent of crowding-in or crowding-out of both components of investment. We also compute the associated macroeconomic rates of return of public and private investment for each country. The results point mostly to the existence of positive effects of public investment and private investment on output. On the other hand, the crowding-in effects of public investment on private investment vary across countries, while the crowding-in effect of private investment on public investment is more generalised. JEL Classification: C32, E22, E62.
    Keywords: Fiscal policy, public investment, private investment, impulse response, vector autoregression, European Union.
    Date: 2008–02
  9. By: Maria Teresa Mota (Faculdade de Economia e Gestão - Universidade Católica Portuguesa (Porto)); Mariana Alves da Cunha (Faculdade de Economia e Gestão - Universidade Católica Portuguesa (Porto)); Carlos Santos (Faculdade de Economia e Gestão - Universidade Católica Portuguesa (Porto))
    Abstract: Using the Bai-Perron test, we look for a shift in the conditional mean of an AR representation of Spanish CPI inflation over the period: 1978-2006. It is clear that Spain, as most OECD economies, experienced an inflation slowdown in the early eithgties, which can be related to some policy measures undertook by the government coming out of the 1982 elections. It is shown, that when the break is accounted for, there are no signs of persistence in Spanish CPI inflation.
    Keywords: inflation persistence; structural breaks; monetary policy
    JEL: E31 E65 C12 C22
    Date: 2008–02
  10. By: Luca Benati (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Paolo Surico (Bank of England and University of Bari,Postal address-Monetary Policy Committee Unit, Bank of England, Threadneedle Street, London EC2R 8AH, UK.)
    Abstract: Most analyses of the U.S. Great Moderation have been based on structural VAR methods, and have consistently pointed towards good luck as the main explanation for the greater macroeconomic stability of recent years. Based on an estimated New-Keynesian model in which the only source of change is the move from passive to active monetary policy, we show that VARs may misinterpret good policy for good luck. First, the policy shift is sufficient to generate decreases in the theoretical innovation variances for all series, and decreases in the variances of inflation and the output gap, without any need of sunspot shocks. With sunspots, the estimated model exhibits decreases in both variances and innovation variances for all series. Second, policy counterfactuals based on the theoretical structural VAR representations of the model under the two regimes fail to capture the truth, whereas impulse-response functions to a monetary policy shock exhibit little change across regimes. Since these results are in line with those found in the structural VARbased literature on the Great Moderation, our analysis suggests that existing VAR evidence is compatible with the ‘good policy’ explanation of the Great Moderation. JEL Classification: E38, E52.
    Keywords: Great Moderation; DSGE models; indeterminacy; vector autoregressions.
    Date: 2008–02
  11. By: Fang Yao
    Abstract: This paper aims to study the quantitative significance of lumpy labor adjustment as a propagation mechanism for business cycles. In the baseline model, I introduce lumpy job turnover in the spirit of Taylor (1980) and Calvo (1983) in a DSGE framework and find that it performs as same as the quadratic-adjustment-cost model at the aggregate level, but different at firm’s level. In particular, It can capture lumpy labor adjustment at plant’s level through the ’front-loading effect’. Then I implement the Weibull distribution in the same framework to incorporate the increasing hazards of the labor adjustment process, which is supported by the evidence from micro data. This extension represents a substantial improvement over benchmark models. It can replicate high volatility of employment, low volatile labor productivity and persistent dynamics in output. Based on these results, I conclude that intratemporal substitution between the two production factors and the aggregation mechanism play an important role in the propagation mechanism.
    Keywords: Business cycles, Lumpy labor adjustment, Weibull distribution, Increasing hazard function
    JEL: E32 E24 E22
    Date: 2008–02
  12. By: Yakov Ben-Haim (Technion-Israel Institute of Technology); Q. Farooq Akram (Norges Bank (Central Bank of Norway)); Øyvind Eitrheim (Norges Bank (Central Bank of Norway))
    Abstract: We study monetary policy under uncertainty. A policy which ameliorates a worst case may differ from a policy which maximizes robustness and satisfices the performance. The former strategy is min-maxing and the latter strategy is robust-satisficing. We show an “observational equivalence” between robust-satisficing and min-maxing. However, there remains a “behavioral difference” between robust-satisficing and min-maxing. Policy makers often wish to respect specified bounds on target variables. The robust-satisficing policy can be more (and is never less) robust, and hence more dependable, than the min-max policy. We illustrate this in an empirical example where monetary policy making amounts to selecting the coefficients of a Taylor-type interest rate rule, subject to uncertainty in the persistence of shocks to inflation.
    Keywords: Knightian uncertainty, robustness, info-gap decision theory, monetary policy, minmax policy, robust-satisficing policy.
    JEL: E52 E58
    Date: 2007–12–05
  13. By: Francesco Furlanetto (Norges Bank (Central Bank of Norway)); Martin Seneca (University of Aarhus and Danmarks Nationalbank)
    Abstract: In this paper we study the transmission mechanisms of productivity shocks in a model with rule-of-thumb consumers. In the literature, this financial friction has been studied only with reference to fiscal shocks. We show that the presence of rule-of-thumb consumers is also very helpful in accounting for recent empirical evidence on productivity shocks. Rule-of-thumb agents, together with nominal and real rigidities, play an important role in reproducing the negative response of hours and the delayed responses of output and consumption after a productivity shock.
    Keywords: rule-of-thumb consumers, productivity shocks, nominal rigidities, real rigidities.
    JEL: E32
    Date: 2007–11–14
  14. By: Domenico Giannone (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Michele Lenza (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Lucrezia Reichlin (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: This paper shows that the explanation of the decline in the volatility of GDP growth since the mid-eighties is not the decline in the volatility of exogenous shocks but rather a change in their propagation mechanism. JEL Classification: E32, E37, C32, C53.
    Keywords: Shocks, Information, Great Moderation.
    Date: 2008–02
  15. By: Lorca-Susino, Maria
    Abstract: A monetary union is a group of states which share a single, or common, currency. An economic and monetary union (EMU), like the Eurozone, is characterized not only by a single currency, but also by a single market, as well as by a common economic and monetary policy. According to Cohen2, a monetary union represents the complete abandonment of all separate national currencies, and the full centralization of the monetary authority in a single joint institution, normally, a central bank. In theory, there are two possibilities for a monetary union. The first one is a situation where currencies may continue to be issued by individual governments, but tied together in an exchange-rate union. The second is to have member-states’ money replaced not by a joint currency, but rather by the money of a larger partner—an arrangement generically labelled “dollarization” after the United States dollar, the currency most widely used for this purpose. In the EMU3 member states give up their currencies and seigniorage revenues4 in favour of a common currency—the euro—following conversion between the former national currencies and the euro.
    Keywords: Euro; stabilizer; inflation; employment; business cycle
    JEL: E50
    Date: 2007–11
  16. By: Magnus Andersson (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Antonello D’Agostino (Central Bank and Financial Services Authority of Ireland, Economic Analysis and Research Department, PO Box 559, Dame Street, Dublin 2, Ireland.)
    Abstract: This paper evaluates how well sectoral stock prices forecast future economic activity compared to traditional predictors such as the term spread, dividend yield, exchange rates and money growth. The study is applied to euro area financial asset prices and real economic growth, covering the period 1973 to 2006. The paper finds that the term spread is the best predictor of future growth in the period leading up to the introduction of Monetary Union. After 1999, however, sectoral stock prices in general provide more accurate forecasts than traditional asset price measures across all forecast horizons. JEL Classification: C52, C53.
    Keywords: Forecasting Models, Asset Prices.
    Date: 2008–02
  17. By: Jacek Kotlowski (Warsaw School of Economics, National Bank of Poland)
    Abstract: The purpose of the article is to evaluate the forecasting performance of dynamic factor models in forecasting inflation in the Polish economy. The factor models are based on the assumption that the behavior of most macroeconomic variables can be well described by several unobservable factors, which are often interpreted as the driving factors in the economy. Such models are very often successfully used for forecasting. Employing several factors instead of a large number of explanatory variables may increase the number of degrees of freedom with the same information content. In the article we compare forecast accuracy of dynamic factor models with the forecast accuracy of three competitive models: univariate autoregressive model, VAR model and the model with leading indicator from the business survey. We have used 92 monthly time series from the Polish and world economy to conduct the out-of-sample real time forecasts of inflation (consumer price index). The results are encouraging. The dynamic factor model outperforms other models for both 1-step ahead and 3-step ahead forecast. The advantage of factor models is more straightforward for 1-month than for 3-month horizon.
    Keywords: inflation, forecasting, factor models
    JEL: C22 C53 E31 E37
    Date: 2008–02–24
  18. By: Robert D. J. Anderson
    Abstract: Central banks have become increasingly aware of the importance of consumer inflation expectations in meeting monetary policy objectives. US consumer year-ahead inflation expectations data is available as measured by the Michigan 'Survey of Consumer Attitudes and Behavior'. Using the detailed demographic information recorded as part of the interview process to accommodate forecast heterogeneity, results suggest the accuracy of forecasts is linked to the demographic characteristics of the respondent. This survey also contains a short-rotating panel dimension, with most respondents being reinterviewed six months after the initial interview. Uniquely, this paper uses these matched interviews to examine whether consumers learn about inflation, improving the accuracy of their forecast from initial to reinterview. Results suggest, having corrected for attrition bias, that being reinterviewed stimulates agents to learn and improve forecast accuracy, the level of improvement being dependent on the demographic characteristic of the interviewee.
    Date: 2008
  19. By: Mathew Kofi Ocran
    Abstract: The study sought to ascertain the key determinants of inflation in Ghana for the past 40 years. Stylized facts about Ghana’s inflation experience indicate that since the country’s exit from the West African Currency Board soon after independence, inflation management has been ineffective despite two decades of vigorous reforms. Using the Johansen cointegration test and an error correction model, the paper identified inflation inertia, changes in money and changes in Government of Ghana treasury bill rates, as well as changes in the exchange rate, as determinants of inflation in the short run. Of these, inflation inertia is the dominant determinant of inflation in Ghana. It is therefore suggested that to make treasury bill rates more effective as a nominal anchor, inflationary expectations ought to be reduced considerably.
    Date: 2007–08
  20. By: Michael Ehrmann (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Marcel Fratzscher (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: Despite substantial differences in monetary policy and communication strategies, many central banks share the practice of purdah, a self-imposed guideline of abstaining from communication around policy meetings or other important events. This practice is remarkable, as it seems to contradict the virtue of transparency by requiring central banks to withhold information precisely when it is sought after intensely. However, imposing such a limit to communication has often been justified on grounds that such communication may create excessive market volatility and unnecessary speculation. This short paper assesses the purdah for the Federal Reserve. The empirical results confirm the conjecture that financial markets are substantially more sensitive to central bank communication around policy meetings. Short-term interest rates react three to four times more strongly to statements in the purdah before FOMC meetings than during other times, and market volatility increases (compared to a volatility reduction induced by statements otherwise). The findings thus offer relevant insights about the limits to central bank transparency. JEL Classification: E58, E52, E43.
    Keywords: Purdah; communication, transparency, monetary policy, interest rates, effectiveness, Federal Reserve.
    Date: 2008–02
  21. By: Ake Lonnberg; Peter Stella
    Abstract: Conventional economic policy models focus only on selected elements of the central bank balance sheet, in particular monetary liabilities and sometimes foreign reserves. The canonical model of an "independent" central bank assumes that it chooses money (or an interest rate), unconstrained by a need to generate seignorage for itself or government. While a long line of literature has emphasized the dangers of fiscal dominance influencing the conduct of monetary policy the idea that an independent central bank could be constrained in achieving its policy objectives by its own balance sheet situation is a relatively novel idea considered in this paper. If one accepts this potential constraint as a valid concern, the financial strength of the central bank as a stand alone entity becomes highly relevant for ascertaining monetary policy credibility. We consider several strands of evidence that clearly indicate fiscal backing for central banks cannot be assumed and hence financial independence is relevant to operational independence. First we examine 135 central bank laws to illustrate the variety of legal approaches adopted with respect to central bank financial independence. Second, we examine the same data set with regard to central bank recapitalization provisions to show that even in cases where the treasury is nominally responsible for maintaining the central bank financially strong, it may do so in purely a cosmetic fashion. Third, we show that, in actual practice, treasuries have frequently not provided central banks with genuine financial support on a timely basis leaving them excessively reliant on seignorage to finance their operations and/or forcing them to abandon policy objectives.
    Keywords: Central banks , Capital account , Capital flows ,
    Date: 2008–02–08
  22. By: Vladimir Klyuev; Ondra Kamenik; Heesun Kiem; Douglas Laxton
    Abstract: One of the pioneers of inflation targeting (IT), the Bank of Canada is now considering a possibility of switching to price-level-path targeting (PLPT), where past deviations of inflation from the target would have to be offset in the future, bringing the price level back to a predetermined path. This paper draws attention to the fact that the price level in Canada has strayed little from the path implied by the two percent inflation target since its introduction in December 1994, and has tended to revert to that path after temporary deviations. Econometric analysis using Bayesian estimation suggests that a low probability can be assigned to explaining this behavior by sheer luck manifesting itself in mutually offsetting shocks. Much more plausible is the assumption that inflation expectations and interest rates are determined in a way that is consistent with an element of PLPT. This suggests that the difference between IT as it is actually practiced (or perceived) and PLPT may be less stark than what pure theoretical constructs posit, and that the transition to a fullfledged PLPT regime will likely be considerably easier than what was previously thought. The paper also shows that inflation expectations are a major driver of actual inflation in Canada, which makes it easier to keep inflation close to the target without large output costs.
    Keywords: Inflation targeting , Canada , Prices , Interest rates , Price stabilization ,
    Date: 2008–01–31
  23. By: Kasai Ndahiriwe (Department of Economics, University of Pretoria); Rangan Gupta (Department of Economics, University of Pretoria)
    Abstract: This paper investigates the effectiveness of monetary policy on house prices in South Africa, before and after financial liberalisation, with financial liberalisation being identified with the recommendations of the De Kock Commission (1985). Using both impulse response and variance decomposition analysis performed on SVARs, we find that, irrespective of house sizes, during the period of financial liberalisation, interest rate shocks had relatively stronger effects on house price inflation. However, given that the size of these effects were nearly negligible, the result seems to indicate that house prices are exogenous, and, at least, are not driven by monetary policy shocks.
    Keywords: Financial liberalisation, Impulse Response, Variance Decomposition, Structural Decomposition.
    JEL: C01 C32 E52
    Date: 2008–03
  24. By: Francis Y. Kumah
    Abstract: This paper characterizes exchange market pressure as a nonlinear Markov-switching phenomenon, and examines its dynamics in response to money growth and inflation over three regimes. The empirical results identify episodes of exchange market pressure in the Kyrgyz Republic and confirm the statistical superiority of the nonlinear regime-switching model over a linear VAR version in understanding exchange market pressure. The nonlinear empirical approach adequately characterizes the data generation process and yields results that are consistent with theoretical predictions, particularly the dampening effect of monetary contraction on depreciation pressure. During periods of appreciation pressure, however, the reverse policy option-monetary expansion-may not be efficient, particularly where PPP rather than UIP drives exchange rates. In addition, monetary expansion in such cases defeats the primary objective of monetary policy-price stability-and may exacerbate the instability.
    Keywords: Working Paper , Exchange rate regimes , Monetary policy , Price stabilization , Kyrgyz Republic , Economic models ,
    Date: 2007–10–24
  25. By: Carlo Brambilla; Giandomenico Piluso
    Abstract: Recently a number of studies on banking systems’ procyclicality have been drawn. Such an issue, often developed as a consequence of Basel 2 agreements, is related with credit crunch phenomena and financial stability. Typically, a temporary shock may produce a long term effect following or amplifying fluctuations through finance. For this reason procyclicality may significantly affect capital accumulation and long-term growth. Therefore, verifying and measuring whether a banking system is, or is not, procyclical is relevant in order to understand which effects regulatory schemes and financial architectures can produce on capital formation processes. While studies generally have a short period perspective, this paper analyses business fluctuations and banking cycles in the long run. The Italian financial history could provide useful insights because its evolutionary path experimented two different banking patterns. Universal banking prevailed until the Great Depression, whilst specialised financial institutions emerged afterwards. Economic historians have considered Italian universal banks, up to the early 1930s, a convincing example of procyclical intermediaries. Such hypothesis relies on qualitative research based on case studies, but it has not been verified in quantitative terms, yet. Thus, this paper aims to verify procyclicality of the Italian banking system in the long run applying VAR analysis on a wide set of economic and financial indicators. What emerges is that a certain cycle-smoothing effect is observed during the whole period, in spite of the major institutional shock occurred in the early 1930s (i.e. the new bank law), whilst relevant changes in banks’ asset structures suggest that central bank and government intervention had important impact on banks behaviour and policies
    Keywords: credit cycles, business cycles, procyclicality, credit crunch, financial stability, universal banking
    JEL: E32 G21 N13 N14 N23 N24
    Date: 2007–12
  26. By: Franziska Ohnsorge; Nada Choueiri; Rachel van Elkan
    Abstract: This paper explores inflation determinants within the EU and implications for new members' euro adoption plans. Factor analysis partitions observed inflation in EU25 countries into common-origin and country-specific (idiosyncratic) components. Cross-country differences in common-origin inflation within the EU are found to depend on gaps in the initial price level, changes in the nominal effective exchange rate, the quality of institutions, and the economy's flexibility. Idiosyncratic inflation is generally small in magnitude. Nonetheless, the results show that country-specific shocks have systematically pushed down headline inflation, potentially influencing the assessment of compliance with the Maastricht inflation criterion.
    Keywords: Inflation , Euro Area , Globalization , Trade ,
    Date: 2008–01–31
  27. By: Nuno Cassola (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: The theory of liquidity management under uncertainty predicts that, under certain conditions, commercial banks will accumulate minimum reserve requirements linearly over the reserve maintenance period. This prediction is empirically tested using daily data (from March 2004 until February 2007) on the current accounts and minimum reserve requirements of a panel of 79 commercial banks from the euro area. The linear accumulation hypothesis is not rejected by the data with the exception of small banks which build-up excess reserves. The empirical analysis suggest that idio-syncratic liquidity uncertainty is much higher than aggregate liquidity uncertainty. Nevertheless, on the penultimate day in the reserve maintenance period, the inverse demand schedule of the representative bank is relatively flat around the middle of the interest rate corridor set by the standing facilities. This suggests that liquidity effects on the overnight inter-bank rate should be very muted on this day. Our calibration exercise suggests that the probability of an individual bank's daily overdraft in the euro area is very low (less than 1.0%). This is confirmed by the analysis of the daily recourses to the marginal lending facility by the panel banks. JEL Classification: C23, E4, E5, G2.
    Keywords: Monetary policy implementation, Reserve requirements, Rate corridor, Liquidity management, Panel data.
    Date: 2008–02
  28. By: Shekhar Aiyar; Ummul Ruthbah
    Abstract: This paper examines the macroeconomic usage of aid using panel data for a broad sample of aid-recipients. By definition an increase in aid must go toward a reduction in the current account balance (absorbed aid), an increase in capital outflows, or reserve accumulation. It is found that short-run absorption is typically very low, with much aid exiting through the capital account. Moreover, aid spending, defined in terms of the increase in government fiscal expenditures as a result of aid, is significantly greater than aid absorption, implying that aid systematically leads to an injection of domestic liquidity in recipient economies. The evidence here may help illuminate the rather weak link between aid and growth found in the literature. It reinforces the case for greater coordination between fiscal and monetary authorities in response to aid inflows.
    Keywords: Development assistance , Government expenditures , Consumption , Investment , Current account balances ,
    Date: 2008–02–06
  29. By: Daniel Leigh; Etibar Jafarov
    Abstract: This paper considers long-term fiscal policy options in Norway, the world's fifth largest oil exporter, in light of the substantial expected increase in pension outlays. It compares the current fiscal rule, which targets a (central government structural) non-oil deficit equal to 4 percent of Government Pension Fund assets, with three alternatives that save a larger share of oil revenue and accumulate more assets to pay for aging costs. It also analyzes the macroeconomic consequences of accumulating more assets, finding that the additional income generated from more assets allows lower tax rates, with positive effects on long-term output.
    Keywords: Working Paper , Fiscal policy , Norway , Oil revenues , Pensions ,
    Date: 2007–10–24
  30. By: Jaime Guajardo
    Abstract: A standard DSGE small open economy model can not generate the cyclical regularities of middle-income countries. It predicts excessive consumption smoothing, and procyclical, instead of countercyclical, real net exports. Previous studies have solved this problem by increasing the shocks’ persistence or by lowering the intertemporal elasticity of substitution. This paper tackles the problem by introducing market imperfections relevant for MICs into an otherwise standard model. More specifically, I build a model with limited access to the foreign capital market, identified as an external borrowing constraint, and asymmetric financing opportunities across nontradable and tradable sectors, identified as a sector-specific labor financing wedge. The key parameters associated to these frictions are deduced to replicate selected data for Chile between 1986 and 2004. I find that both frictions are necessary to replicate the cyclical regularities of middle-income countries as they help the model reproduce different features of the data: The external borrowing constraint makes investment and consumption of tradable goods more procyclical and volatile, and makes real net exports countercyclical, while the sector-specific labor financing wedge makes the model reproduce the cyclical moments of work hours and consumption of non tradable goods.
    Keywords: Consumption , Exports , Investment , Borrowing ,
    Date: 2008–01–30
  31. By: van den Hauwe, Ludwig
    Abstract: Despite the distinctive character of the Austrian approach to “microfoundations for macroeconomics”, the literature on free banking contains a number of arguments which make use of game-theoretic concepts and models such as the well-known Prisoner´s Dilemma model. While there can be no general a priori presumption against the possible usefulness of game-theoretic concepts for Austrian theorizing, in the context of the debate on free banking such concepts and models have been used with varying degrees of perspicacity. One example which is elaborated in the paper is concerned with the interaction configuration between independent banks in a fractional-reserve free banking system, which has sometimes been modeled as a One-Shot Prisoner´s Dilemma. This conceptualization does not provide a sufficient argument for the in-concert overexpansion thesis, nor for the thesis that fractional-reserve free banking will “inevitably” lead to central banking. The author drops the implicit assumption that there exists a one-to-one correspondence between the outcome matrix and the utility matrix. When it is acknowledged that banks in a fractional-reserve free banking system need not necessarily adopt a “myopic”, self-regarding perspective but may recognize the long-run harmony of interests between the banking sector and society at large, a different conceptualization and a different matrix representation emerge.
    Keywords: Free Banking; Business Cycle Theory; Prisoner´s Dilemma; Mechanism Design;
    JEL: E32 E66 E58 E42 E31 G18 E52 D01 K39
    Date: 2008–02–21
  32. By: Paul Gomme (Concordia University); B Ravikumar (University of Iowa); Peter Rupert (University of California, Santa Barbara)
    Abstract: We measure the return to capital directly from the NIPA and BEA data and examine the return implications of the real business cycle model. We construct a quarterly time series of the after-tax return to business capital. Its volatility is considerably smaller than that of S&P 500 returns. The standard business cycle model captures almost 50% of the volatility in the return to capital (relative to the volatility of output). We consider several departures from the benchmark model; the most promising is one with stochastic taxes which captures nearly 80% of the relative volatility in the return to capital.
    Keywords: return to capital, volatility, real business cycles,
    Date: 2007–05–01
  33. By: Ashoka Mody; Franziska Ohnsorge
    Abstract: Globalization operates not only by reducing domestic pressures on inflation but also by reducing the scope of domestic authorities to influence the pace of inflation. First, as markets are integrated, the common, cross-border sources of inflation increase, reducing the extent of domestically-generated inflation. Based on a methodology identifying common time and sectoral trends, we find this to be especially the case in the countries of the eurozone, with their longer histories of product market integration. Second, even the domestically-generated component of inflation may be difficult to manipulate. Policies act, especially in the shortrun, through managing domestic demand. But the relationship between domestic demand (proxied by the output gap and unit labor cost growth) and inflation has been weak, constrained in part by trade openness. Moreover, the domestic component of inflation contains a country-specific international catch-up process that generates price equalization across countries. The evidence is that catch-up has accelerated with increasing market integration. Thus, for the eurozone economies, there may be limits on the use of fiscal and labor market policies to contain inflation. The new member states may not have policy leverage to meet the Maastricht inflation limit necessary for entering the eurozone. Casestudies show that fiscal consolidation needed to comply with the inflation criterion can be large and sustained only briefly to get under the Maastricht wire.
    Keywords: Inflation , Globalization , Euro , Markets ,
    Date: 2007–11–08
  34. By: Yves Kuhry; Laurent Weill (Laboratoire de Recherche en Gestion et Economie, Institut d'Etudes Politiques, Strasbourg)
    Keywords: Financial development, income, aggregate productivity, efficiency.
    JEL: C33 O11 O16 O47
    Date: 2008
  35. By: Paulo Flavio Nacif Drummond
    Abstract: This paper argues that as part of their fiscal optimization strategies CEMAC countries should be given the opportunity to invest into longer-term assets that generate market-based returns. The BEAC has created a framework of longer-term savings funds but due to low remuneration and other factors usage has remained limited. The paper also argues that regional savings in the form of reserve accumulation must be sufficient to ensure the stability of the common currency. While the current level of common foreign reserves may now be appropriate, maintaining an adequate level calls for a link between country-specific savings decisions and the setting of a regional reserve target. Strengthening and diversifying reserve management will also be desirable, a process the BEAC has embarked upon.
    Keywords: Working Paper , Central African Economic and Monetary Community , Oil revenues , Fiscal policy , Reserves adequacy , Reserves accumulation , Savings , Central bank policy ,
    Date: 2007–10–24
  36. By: Robalo, Pedro Brito; Salvado, João Cotter
    Abstract: This paper assesses empirically the effect of oil price shocks on Portuguese aggregate economic activity, industrial production and price level. We take the usual multivariate VAR methodology to investigate the magnitude and stability of this relationship. In doing so, we follow the approach presented in the recent literature and adopt different oil price specifications. We conclude that, as for most industrialized countries, the nature of this relationship changed in the mid-1980s. Furthermore, we show that the main Portuguese macroeconomic variables have become progressively less respon
    Date: 2008
  37. By: Stephen B. DeLoach (Department of Economics, Elon University); Jennifer M. Platania (Department of Economics, Elon University)
    Abstract: Employer-financed health insurance systems, like that used in the United States, distort firms' labor demand and adversely affect the economy. Since such costs vary with employment rather than hours worked, firms have an incentive to increase output by increasing worker hours rather than employment. Given that the returns to employment exceed the returns to hours worked, this results in lower levels of employment and output. In this paper we construct a heterogeneous agent general equilibrium model where individuals differ with respect to their productivity and employment opportunities. Calibrating the model to the U.S. economy, we generate steady state results for several alternative models for financing health insurance: one in which health insurance is financed primarily through employer contributions that vary with employment; a second where insurance is funded through a non-distortionary, lump-sum tax; and a third where insurance is funded by a payroll tax. We measure the effects of each of the alternatives on output, employment, hours worked and inequality.
    JEL: E62 O41 C68
    Date: 2008–02
  38. By: Dale, Spencer (Board of Governors of the Federal Reserve System); Orphanides, Athanasios (Central Bank of Cyprus); Österholm, Pär (Department of Economics)
    Abstract: Much of the information communicated by central banks is noisy or imperfect. This paper considers the potential benefits and limitations of central bank communications in a model of imperfect knowledge and learning. It is shown that the value of communicating imperfect information is ambiguous. If the public is able to assess accurately the quality of the imperfect information communicated by a central bank, such communication can inform and improve the public`s decisions and expectations. But if not, communi-cating imperfect communication has the potential to mislead and distract. The risk that imperfect communication may detract from the publics understanding should be considered in the context of a central banks communications strategy. The risk of distraction means the central bank may prefer to focus its communi-cation policies on the information it knows most about. Indeed, conveying more certain information may improve the public`s under-standing to the extent that it "crowds out" a role for communicating imperfect information.
    Keywords: Transparency; Forecasts; Learning
    JEL: E52 E58
    Date: 2008–02–25
  39. By: Andolfatto, David
    Abstract: The business of money creation is conceptually distinct from that of intermediation. Yet, these two activities are frequently---but not always---combined together in the form of a banking system. We develop a simple model to examine the question: When is banking essential? There is a role for money due to a lack of record-keeping and a role for intermediation due to the existence of private information: both money and intermediation are essential. When monitoring costs associated with intermediation are sufficiently low, the two activities can be separated from one another. However, when monitoring costs are sufficiently high, a banking system that combines these two activities is essential.
    Keywords: Money; Record-keeping; Private Information; Delegated Monitoring
    JEL: E42
    Date: 2008–02–24
  40. By: Pierre-Guillaume Méon; Laurent Weill (Laboratoire de Recherche en Gestion et Economie, Institut d'Etudes Politiques, Strasbourg)
    Abstract: This paper investigates whether financial intermediary development influences macroeconomic technical efficiency on a sample of 47 countries, both developed and developing, over 1980-1995. We do so by applying Battese and Coelli (1995)’s method at the aggregate level. It is found that financial intermediary development, except financial depth, is on average associated with more efficiency. However we find strong evidence that this relationship is conditional on the level of economic development. The lower economic development the weaker is the impact of financial development on efficiency. That impact can even become negative in the poorest countries.
    Keywords: Financial development, income, aggregate productivity, efficiency.
    JEL: C33 O11 O16 O47
    Date: 2008
  41. By: Obasi O. Ukoha
    Abstract: The main objective of this study is to establish quantitative relationships among the relative price volatility of agricultural commodities, inflation and agricultural polices in Nigeria. The data for the study, covering the period 1970–2003, were obtained from publications of the Central Bank of Nigeria, Federal Office of Statistics, and Federal Ministry of Agriculture and Rural Development. Our results show that the effect of inflation on relative price variability among agricultural commodities in Nigeria is non-neutral. Inflation has a significant positive impact on relative price variability in both the long run and the short run. The findings suggest the need for policies that will buffer the agricultural sector from the effects of inflation in the short run, and in addition the crops subsector from the long-run effect of inflation. Similarly, policies that reduce the rate of inflation will minimize relative price variability among agricultural commodities and consequently reduce inefficiency, distortions and misallocation of resources in agriculture that might be caused by inflation. No data points in the study period showed negative inflation. As a result of this, the data could not provide evidence for the effect of deflation on relative price variability. Policies like the Green Revolution and structural adjustment programmes and post-SAP policies increased relative price variability among cash crops in the long run, but influenced food crop prices only in the short run. In addition to this, the Operation Feed the Nation project (OFN) had a significant positive short-run effect on food prices. Thus the agricultural policies under SAP, post-SAP and Green Revolution caused price changes that led to efficient reallocation of resources among cash crops in the long run and food crops in the short run. The policies should be considered in planning for the agricultural sector. On the other hand, the price control policy brought about a reduction in relative price variability among cash crops and consequently led to a misallocation of resources in the sector. Cash crop prices should be allowed to be determined by market forces of demand and supply, and no attempts should be made to fix prices administratively.
    Date: 2007–10
  42. By: Knut Are Aastveit (University of Oslo and Norges Bank (Central Bank of Norway)); Tørres G. Trovik (Norges Bank (Central Bank of Norway))
    Abstract: This paper finds that asset prices on Oslo Stock Exchange is the single most important block of data to improve estimates of current quarter GDP in Norway. Other important blocks of data are labor market data and industrial production indicators. We use an approximate dynamic factor model that is able to handle new information as it is released, thus the marginal impact on mean square nowcasting error can be studied for a large number of variables. We use a panel of 148 non-synchronous variables covering a broad spectrum of the Norwegian economy. The strong impact from financial data is due to an ability of the market clearing process to impart information about the real activity in Norway in a timely manner.
    Keywords: Forecasting, financial markets, economic growth, small open economy
    JEL: E37 E50 G14
    Date: 2008–01–11
  43. By: Guisan, M.C.
    Abstract: In order to analyses the propagation effect, which is of great importance in the analysis of dynamic relationships in studies of Economic Development, here we present a classification of dynamic models, having into account several situations retarding this important effect, including not only models with lags but also models without explicit lags but with propagation effect through one stock variable, as it happens in the case of the production function when real Gdp is explained by the supply side of primary inputs. We present a comparison of several dynamic specifications, including models in levels, in first differences, mixed dynamic models and Error Correction Models, to wages, productivity, employment and GDP in Spain and other OECD countries. The main conclusion regarding the dynamic model specification is that the mixed dynamic model is a good choice for many econometric applications. <p> Analizamos el efecto propagación, que es de gran importancia en el análisis de relaciones dinámicas en estudios de desarrollo económico, y para ello presentamos una clasificación de los modelos dinámicos, teniendo en cuenta varias situaciones e incluyendo no sólo modelos con retardos sino también modelos sin retardos explícitos donde el efecto propagación se transmite a través de una variable stock, como es el caso de la función de producción cuando el PIB real es explicado por el lado de la oferta de inputs primarios. Presentamos una comparación de varias especificaciones dinámicas, incluyendo modelos en niveles, en primeras diferencias, dinámico mixto, y modelos de corrección de error, CE, aplicadas a los salarios, productividad, empleo y PIB en España y en otros países de la OCDE. La principal conclusión en relación con la especificación dinámica es que el modelo dinámico mixto as una buena elección en muchas aplicaciones econométricas.
    JEL: B41 C51 C52 O51 E2 E24 O52 O57
    Date: 2007
  44. By: Randi Næs (Norges Bank (Central Bank of Norway)); Johannes A. Skjeltorp (Norges Bank (Central Bank of Norway)); Bernt Arne Ødegaard (Handelshøyskolen BI)
    Abstract: I denne rapporten analyserer vi avkastningsmønsteret på Oslo Børs over perioden 1980 - 2006. Formålet med rapporten er å analysere drivkreftene bak kursutviklingen i det norske aksjemarkedet. Et viktig siktemål med analysen er dessuten å undersøke i hvilken grad hovedresultatene fra tilsvarende analyser av andre lands aksjemarkeder også gjelder for det norske markedet.
    Keywords: Verdsettingsmodeller, Flerfaktormodeller, Generalized Method of Moments
    JEL: G12 E44
    Date: 2007–12–18
  45. By: Azacis, Helmuts (Cardiff Business School); Gillman, Max (Cardiff Business School)
    Abstract: The paper presents an endogenous growth economy with a representation of the tax rate system in the Baltic countries, and the constraint that government spending is a given fraction of output. It shows how a flat tax system is second best optimal. It then computes how specific changes in tax policy since the 2000 Baltic tax reforms affect the growth rate and welfare, including transition dynamics. Conducting alternative tax experiments, it shows that a flat tax increases welfare more in Latvia than actual recent tax changes. This shows how flat rate taxes can be optimal in both theory and practice. Simply lowering personal and social security taxes is better in Estonia and Lithuania compared to recent tax changes, which results because labour income is taxed relatively more heavily than corporate income, as compared to Latvia.
    Keywords: tax reforms; endogenous growth; transitional dynamics; flat taxes
    JEL: E13 H20 O11 O14
    Date: 2008–02
  46. By: Feige, Edgar L.; Urban, Ivica
    Abstract: Abstract This paper compiles alternative estimates of underground economies in twenty five transition countries during the transition decade and finds a disturbing lack of convergence between them, calling into question the reliability of GDP figures (which in varying degrees now include non-transparent imputations for the “non-observed economy”) as well as the macro model estimates of the unrecorded economy. A corollary of this finding is that substantive results from many studies examining the consequences of the radical transition from planned to market economies must be viewed with considerable skepticism. Underground (unobserved, non-observed, unrecorded) economic activities play a major role in transition economies. Evaluations of the success and failure of the transition experience should be based on estimates of total economic activity (TEA) namely, recorded plus unrecorded economic activity. We examine the conceptual and empirical relationships between new National Income and Product Accounts (NIPA) methods for obtaining “exhaustive” measures of total economic activity and the two most popular macro-model approaches (electric consumption and currency ratio models) for estimating the size and growth of the unrecorded sector. Our updated empirical results detailing the size and trajectory of unrecorded activities obtained from different estimation methods reveal a disturbing lack of convergence. Until these important differences are resolved, investigations of the relationship between economic reforms and economic outcomes during the transition decade must be viewed with considerable caution. Given the shortcomings of conventional macro model estimates of the underground economy and the lack of transparency and consistency of NOE estimates, it is high time that the profession acknowledges how little we really know about underground economies and their causes and consequences.
    Keywords: Key words: Underground; unrecorded; unobserved; non-observed; NOE; hidden; informal; shadow; GDP; national accounts; transition economies.
    JEL: O11 P24 E26 E01
    Date: 2007–11
  47. By: Ross Starr (University of California, San Diego)
    Abstract: Existence and efficiency of general equilibrium with commodity money is investigated in an economy where N commodities are traded at N(N-1)/2 commodity-pairwise trading posts. Trade is a resource-using activity recovering transaction costs through the spread between bid (wholesale) and ask (retail) prices. Budget constraints, enforced at each trading post separately, imply demand for a carrier of value between trading posts. Existence of general equilibrium is established under conventional convexity and continuity conditions while structuring the price space to account for distinct bid and ask price ratios. Commodity money flows are identified as the difference between gross and net inter-post trades.
    Keywords: General equilibrium, money, transaction cost, trading post, bid, ask, commodity money,
    Date: 2007–12–21
  48. By: Hyytinen, Ari (University of Jyväskylä and Bank of Finland); Takalo, Tuomas (Bank of Finland Research)
    Abstract: In the market for payment media, some consumers use only one medium when paying for their point-of-sale transactions, while others use many. This pattern reflects the diffusion of new payment media, because a payment method innovation is typically first used simultaneously with the established methods. We study the use of multiple payment media by employing data on young Finnish consumers. We find that the use of multiple payment media is directly related to consumer awareness and that not controlling for the endogeneity of awareness can bias its effect downwards. These results suggest that increasing consumer awareness may have been underlying the rise of debit card use around the world. It could also speed up the adoption of new means of payment, such electronic money and mobile payments. To the extent that antitrust concerns in the market for payment media stem from the lack of information, improving consumer awareness could be a remedy.
    Keywords: payment media; consumer awareness; adoption of financial technology
    JEL: E59 G20
    Date: 2008–02–27
  49. By: Bichaka Fayissa; Christian Nsiah
    Abstract: For more than half a century, there have been heated debates on the sources of economic growth in developing economies. The perceived factors of economic growth have ranged from surplus labor to capital investment and technological change, foreign aid, foreign direct investment, investment in human capital, increasing returns from investment in new ideas and research and development. The positive or negative impacts of the above listed traditional sources of economic growth have been well documented in literature. Other researchers have also considered the importance of institutional factors such as the role of political freedom, political instability, voice and accountability on economic growth and development. Despite the increasing importance of remittances in total international capital flows, however, the direct or indirect relationship between remittances and economic growth has not been adequately studied. This study explores the aggregate impact of remittances on economic growth within the conventional neoclassical growth framework using an unbalanced panel data spanning from1980 to 2004 for 37 African countries. We find that remittances boost growth in countries where the financial systems are less developed by providing an alternative way to finance investment and helping overcome liquidity constraints.
    Keywords: Workers’ Remittances, Economic Growth, Panel Data, Fixed-Effects, Random-Effects,Arellano-Bond, Quantile Regression
    JEL: E21 F21 G22 J61 O16
    Date: 2008–02
  50. By: Azèle Mathieu (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels.); Bruno Van Pottelsberghe (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels and DULBEA, Université Libre de Bruxelles and ECARES, Université Libre de Bruxelles.)
    Abstract: The objective of this paper is to evaluate the extent to which technological specialization influences the observed R&D intensity of countries, and hence would bias the well-known country rankings that consist in comparing aggregate R&D intensity. The econometric analysis performed on a cross-country cross-industry panel dataset (21 industrial sectors, 10 countries, from 1991 to 2002) suggests that accounting for the technological specialization of countries drastically reduces the differences in relative R&D efforts observed at the country level. The only exception is Sweden (and the USA, but to a lower extent), which has an ‘above-than-average’ R&D intensity in most industries. Countries like Finland, Japan or Germany do not have an R&D intensity that is particularly higher than their industrial structure would predict.
    Keywords: R&D intensity, S&T policies, high-tech industries
    JEL: E22 O31 O57
    Date: 2008–01

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