nep-mac New Economics Papers
on Macroeconomics
Issue of 2008‒04‒21
47 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Labour market imperfections, "divine coincidence" and the volatility of employment and inflation By Mirko Abbritti; Andrea Boitani; Mirella Damiani
  2. Central Bank Design with Heterogeneous Agents By Aleksander Berentsen; Carlo Strub
  3. A New-Keynesian DSGE Model for Forecasting the South African Economy By Guangling (Dave) Liu; Rangan Gupta; Eric Scaling
  4. The Rehn-Meidner Model in Sweden: Its Rise, Challenges and Survival By Erixon, Lennart
  5. Globalization, Macroeconomic Performance, and Monetary Policy By Frederic S. Mishkin
  6. Monetary policy and Swedish unemployment fluctuations By Alexius, Annika; Holmlund, Bertil
  7. The Comovement between Monetary and Fiscal Policy Instruments: Post-War Period in US. By Jesús Vázquez
  8. Demand for money in Iran: An ARDL approach By Sharifi-Renani, Hosein
  9. A Black Swan in the Money Market By John B. Taylor; John C. Williams
  10. The Cyclicity as Evolution Form of Economic Activities By UNGUREANU, Laura
  11. New Open Economy Macroeconomics By Giancarlo Corsetti
  12. Sweden's Monetary Internationalization under the Silver and Gold Standards, 1834–1913 By Anders Ögren
  13. Monopolistic Competition and the Dependent Economy Model By Romain Restout
  14. Term Structure and the Estimated Monetary Policy Rule in the Eurozone. By Ramón María-Dolores; Jesús Vázquez
  15. Monetary Politics in a Monetary Union: A Note on Common Agency with Rational Expectations By Michele Ruta
  16. Oil Price Shocks and Exchange Rate Management: The Implications of Consumer Durables for the Small Open Economy By Michael Plante
  17. "Term Structure of Interest Rates under Recursive Preferences in Continuous Time" By Hisashi Nakamura; Keita Nakayama; Akihiko Takahashi
  18. Long Term Effects of Fiscal Policy on the Size and the Distribution of the Pie in the UK By Xavier Ramos; Oriol Roca-Sagales
  20. A Model of Housing Boom and Bust in a Small Open Economy By Hajime Tomura
  21. Did Wages Reflect Growth in Productivity? By Martin S. Feldstein
  22. Les dynamiques de transmission des taux directeurs sur les taux bancaires en Europe By Raphaël Jeudy
  23. Impact of bank competition on the interest rate pass-through in the euro area By M. van Leuvensteijn; C. Kok Sørensen; J.A. Bikker; A.A.R.J.M. van Rixtel
  24. Détermination du niveau des prix et finances: le cas du Liban, 1965-2005. By Hassan Ayoub; Jérôme Creel; Etienne Farvaque
  26. The Degree of Legal Independence of the Mediterranean Central Banks: International Comparison and Macroeconomic Implications By Enrico Gisolo
  27. Searching for additional sources of inflation persistence : the micro-price panel data approach By Rafal Raciborski
  28. Play Money? Contemporary Perspectives on Monetary Sovereignty By Christoph Herrmann
  29. Effects of Firm Size and Business Cycle on Earning Losses of Displaced Workers By Oliver Ruf
  30. Remittances, Inflation and Exchange Rate Regimes in Small Open Economies By Christopher P. Ball; Martha Cruz-Zuniga; Claude Lopez; Javier Reyes
  31. Does taxation rhyme with democracy? By Pablo Zoido
  32. Is Belgium ready for EMU? A look at national, sectoral and regional developments By Filip Abraham; Joeri Van Rompuy
  33. Les cycles de souscription de l’assurance non vie en France By Catherine Bruneau; Nadia Sghaier
  34. Exporting Deflation? Chinese Exports and Japanese Prices By David Weinstein; Christian Broda
  35. The Propagation of Financial Extremes: An Application to Subprime Market Spillovers By Chollete, Lorán
  36. Interim Employment and a Leading Indicator for the Belgian Labour Market By Anneleen Peeters
  37. Aggregation of Producer Durables with Exogenous Technical Change and Endogenous Useful lives By Bitros, George
  38. Hechos Estilizados de la Economía Colombiana:Fundamentos Empíricos para la Construcción y Evaluación de un Modelo DSGE By Juan Carlos Parra Alvarez
  39. Finite Horizon, Externalities, and Growth By Wendner, Ronald
  40. The Consequences of Mortgage Credit Expansion: Evidence from the 2007 Mortgage Default Crisis By Atif Mian; Amir Sufi
  41. "Subnational Borrowing in Japan : from 'Implicit Guarantee' to Market Discipline and Fiscal Rule" By Nobuki Mochida
  42. The dynamics of ex-ante risk premia in the foreign exchange market: Evidence from the yen/usd exchange rate Using survey data By Georges Prat; Remzi Uctum
  43. Balance Sheet Effects in Currency Crises: Evidence from Brazil By Marcio M. Janot; Marcio G. P. Garcia; Walter Novaes
  44. Minimum Wages and Welfare in a Hotelling Duopsony By Kaas, Leo; Madden, Paul
  45. Delving into country risk By Silvia Iranzo
  46. Microfinance in Nigeria and the prospects of introducing its Islamic version there in the light of selected Muslim countries' experience By Mohammed, Aliyu Dahiru; Hasan, Zubair
  47. The Rational of Private Bank Note Issuance. The Enskilda Banks in the Economic and Financial Development of Nineteenth Century Sweden By Anders Ögren

  1. By: Mirko Abbritti (Graduate Institute of International Studies, Geneva); Andrea Boitani (DISCE, Università Cattolica, Milan); Mirella Damiani (Università di Perugia)
    Abstract: The dynamic general equilibrium model with hiring costs presented in this paper delivers involuntary unemployment in the steady state as well as involuntary fluctuations in unemployment. The existence of hiring friction introduces externalities that, in turn, entail the breakdown of the "divine coincidence" without assuming real wage rigidity. Our model with labour market imperfections outperforms the standard NK model as for the persistence of responses to monetary shocks. The model also allows for an analysis of the volatility of economies, differing in their "degrees of labour market rigidity". It turns out that "rigid" economies exhibit less unemployment volatility and more inflation volatility than "flexible" economies.
    Keywords: Hiring Costs, Wage Bargaining, Output Gap, New Keynesian Phillips Curve
    JEL: E24 E31 E32 E52 J64
    Date: 2008–04
  2. By: Aleksander Berentsen; Carlo Strub
    Abstract: We study alternative institutional arrangements for the determination of monetary policy in a general equilibrium model with heterogeneous agents, where monetary policy has redistributive effects. Inflation is determined by a policy board using either simple-majority voting, supermajority voting, or bargaining. We compare the equilibrium inflation rates to the first-best allocation.
    Keywords: Policy board, monetary policy, search
    JEL: E4 E5 D7
    Date: 2008–04
  3. By: Guangling (Dave) Liu (Department of Economics, University of Pretoria); Rangan Gupta (Department of Economics, University of Pretoria); Eric Scaling (Department of Economics, University of Pretoria)
    Abstract: This paper develops a New-Keynesian Dynamic Stochastic General Equilibrium (NKDSGE) Model for forecasting the growth rate of output, inflation, and the nominal short-term interest rate (91-days Treasury Bills rate) for the South African economy. The model is estimated via maximum likelihood technique for quarterly data over the period of 1970:1-2000:4. Based on a recursive estimation using the Kalman filter algorithm, the out-of-sample forecasts from the NKDSGE model are then compared with the forecasts generated from the Classical and Bayesian variants of the Vector Autoregression (VAR) models for the period 2001:1-2006:4. The results indicate that in terms of out-of-sample forecasting the NKDSGE model outperforms both the Classical and the Bayesian VARs for inflation, but not for output growth and the nominal short-term interest rate. However, the differences in the RMSEs are not significant across the models.
    Keywords: New-Keynesian DSGE Model; VAR and BVAR Model; Forecast Accuracy
    JEL: E17 E27 E32 E37 E47
    Date: 2008–04
  4. By: Erixon, Lennart (Dept. of Economics, Stockholm University)
    Abstract: A Swedish economic policy was developed by two trade union economists shortly after the Second World War. The Rehn-Meidner model recommends the use of selective employment policy measures, a tight macroeconomic policy and a wage policy of solidarity to combine full employment and equity with price stability and economic growth. Although never consistently applied in Sweden, it is possible to distinguish a golden age for the Rehn-Meidner model from the late 1950s to the early 1970s. In the 1970s and 1980s, Swedish governments abandoned the restrictive macroeconomic means of the Rehn-Meidner programme and decentralised wage bargaining obstructed the wage policy of solidarity. In the 1990s and 2000s a new economic-policy regime could not meet the strong requirement of full employment in the Rehn-Meidner model but it satisfied the model’s priority of selective employment policy within the framework of a restrictive macroeconomic policy.
    Keywords: Swedish model; Rehn-Meidner model; third way; labour market policy; wage policy; productivity growth; fiscal policy; unemployment; inflation
    JEL: E24 E31 E62 J23 J31 J62 O23
    Date: 2008–02
  5. By: Frederic S. Mishkin
    Abstract: The paper argues that many of the exaggerated claims that globalization has been an important factor in lowering inflation in recent years just do not hold up. Globalization does, however, have the potential to be stabilizing for individual economies and has been a key factor in promoting economic growth. The paper then examines four questions about the impact of globalization on the monetary transmission mechanism and arrives at the following answers: (1) Has globalization led to a decline in the sensitivity of inflation to domestic output gaps and thus to domestic monetary policy? No. (2) Are foreign output gaps playing a more prominent role in the domestic inflation process, so that domestic monetary policy has more difficulty stabilizing inflation? No. (3) Can domestic monetary policy still control domestic interest rates and so stabilize both inflation and output? Yes. (4) Are there other ways, besides possible influences on inflation and interest rates, in which globalization may have affected the transmission mechanism of monetary policy? Yes.
    JEL: E52 F41
    Date: 2008–04
  6. By: Alexius, Annika (Department of Economics, Stockholm University); Holmlund, Bertil (Department of Economics, Uppsala University)
    Abstract: A widely spread belief among economists is that monetary policy has relatively short-lived effects on real variables such as unemployment. Previous studies indicate that monetary policy affects the output gap only at business cycle frequencies, but the effects on unemployment may well be more persistent in countries with highly regulated labor markets. We study the Swedish experience of unemployment and monetary policy. Using a structural VAR we find that around 30 percent of the fluctuations in unemployment are caused by shocks to monetary policy. The effects are also quite persistent. In the preferred model, almost 30 percent of the maximum effect of a shock still remains after ten years.
    Keywords: Unemployment; monetary policy; structural VARs
    JEL: E24 J60
    Date: 2008–02–28
  7. By: Jesús Vázquez (The University of the Basque Country)
    Abstract: This paper empirically studies the dynamic relationship between monetary and fiscal policies by analyzing the comovements between the Fed funds rate and the primary deficit/output ratio. Simple economic thinking establishes that a negative correlation between Fed rate and deficit arises whenever the two policy authorities share a common stabilization objective. However, when budget balancing concerns lead to a drastic deficit reduction the Fed may reduce the Fed rate in order to smooth the impact of fiscal policy, which results in a positive correlation between these two policy instruments. The empirical results show (i) a significant negative comovement between Fed rate and deficit and (ii) that deficit and output gap Granger-cause the Fed funds rate during the post-Volcker era, but the opposite is not true.
    Keywords: Fed rate, deficit, comovement, switching regimes
    JEL: C32 E52 E62
    Date: 2008–04–08
  8. By: Sharifi-Renani, Hosein
    Abstract: The objective of this study is to estimate the demand for money in Iran using the autoregressive distributed lag (ARDL) approach to cointegration analysis. The empirical results show that there is a unique cointegrated and stable long-run relationship among M1 monetary aggregate, income, inflation and exchange rate. We find that the income elasticity and exchange rate coefficient are positive while the inflation elasticity is negative. This indicates that depreciation of domestic currency increases the demand for money, supporting the wealth effect argument and people prefer to substitute physical assets for money balances that are supporting our theoretical expectation. Our results also after incorporating the CUSUM and CUSUMSQ tests reveal that the M1 money demand function is stable between 1985 and 2006.
    Keywords: Money demand; ARDL; Stability; Iran
    JEL: E44 E4 E41
    Date: 2007–10–10
  9. By: John B. Taylor; John C. Williams
    Abstract: At the center of the financial market crisis of 2007-2008 was a highly unusual jump in spreads between the overnight inter-bank lending rate and term London inter-bank offer rates (Libor). Because many private loans are linked to Libor rates, the sharp increase in these spreads raised the cost of borrowing and interfered with monetary policy. The widening spreads became a major focus of the Federal Reserve, which took several actions -- including the introduction of a new term auction facility (TAF) --- to reduce them. This paper documents these developments and, using a no-arbitrage model of the term structure, tests various explanations, including increased risk and greater liquidity demands, while controlling for expectations of future interest rates. We show that increased counterparty risk between banks contributed to the rise in spreads and find no empirical evidence that the TAF has reduced spreads. The results have implications for monetary policy and financial economics.
    JEL: E43 E44 E52
    Date: 2008–04
  10. By: UNGUREANU, Laura
    Abstract: The persistent of cycles was remark even to the 19th century economists and the rigorous theory of fluctuation or bussines cycle are take form past century. In the analyses dynamics macroeconomic area is can observe a big variety of method and techniques for research fluctuates from economy and financial date. A complex way for evidence the economic cycles is to determine limits cycles for the dynamical system which model the economic phenomenon.
    Keywords: cyclic evolution; dynamical modeling; nonliniarity
    JEL: C53 E32
    Date: 2008–04–17
  11. By: Giancarlo Corsetti
    Abstract: The New Open Economy Macroeconomics refers to a vast body of literature embracing a new theoretical framework for policy analysis in open economy, with the goal of overcoming the limitations of the Mundell-Fleming model, while preserving the empirical wisdom and policy friendliness of traditional analysis. Starting in the early 1990s, NOEM contributions have developed general equilibrium models with imperfect competition and nominal rigidities, to reconsider conventional views on the transmission of monetary and exchange rate shocks; they have contributed to the design of optimal stabilization policies, identifying international dimensions of optimal monetary policy; they have raised issues in the desirability of international policy coordination.
    Keywords: Open economy models; exchange rates; stabilization policy; Mundell-Fleming
    Date: 2007–11–09
  12. By: Anders Ögren
    Abstract: The central bank’s possibility to sustain the specie standard was largely affected by both the financial development and its internationalization. The increased foreign debt denominated in foreign currencies forced the central bank to engage in more disciplinary monetary policy. The developed banking system worked in two ways: 1) increased public wealth in the banking system allowed a more relaxed discipline but 2) the commercial banks’ supply of liquidity through note issuance allowed the central bank to strengthen monetary discipline. The international economy developed as a credit economy and this international credit economy led to more flexible monetary policy. This affected the working of the adjustment mechanism where domestic prices simultaneously followed changes in the domestic money supply and in international prices. Thus the international integration made both prices and money supply grow in harmony over the borders.
    Keywords: Balance of Payments; Central Bank Reserves; Foreign Debt; Gold Standard; Monetary Base; Monetary Discipline; Monetary Policy; Money Supply; Silver Standard
    JEL: E42 E50 F33 N13 N23
    Date: 2008
  13. By: Romain Restout
    Abstract: This paper explores the consequences of introducing a monopolistic competition in an intertemporal two-sector small open economy model which produces traded and non traded goods. It is assumed that the non traded sector is the locus of the imperfectly competition. Our analysis shows that markup depends on the composition of aggregate non traded demand and is therefore endogenously determined in the model. Calibrating the model with OECD parameters, the effects of fiscal and technological shocks are simulated. Our findings are as follows. First, the model is consistent with the observed saving-investment correlations found in the data. Second, unlike the perfectly framework and in accordance with empirical studies, fiscal shocks cause real appreciation of the relative price of non traded goods, which in turn enlarges the responses of current account and investment. Third, the model is consistent with the empirical report that technological shocks result in current account deficits and investment rises. Fourth, the strength of the relative price appreciation following sector productivity differentials, i.e. the Balassa-Samuelson effect, is affected by the monopolistic competition hypothesis. Assume perfect competition when it is not, biases upward estimates of the Balassa-Samuelson effect.
    Keywords: Monopolistic Competition, Fiscal Policy, Productivity
    JEL: E20 E62 F31 F41
    Date: 2008
  14. By: Ramón María-Dolores (Bank of Spain, Universidad de Murcia); Jesús Vázquez (The University of the Basque Country)
    Abstract: In this paper we estimate a standard version of the New Keynesian Monetary (NKM) model augmented with term structure in order to analyze two issues. First, we analyze the effect of introducing an explicit term structure channel in the NKM model on the estimated parameter values of the model, with special emphasis on the interest rate smoothing parameter using data for the Eurozone. Second, we study the ability of the model to reproduce some stylized facts such as highly persistent dynamics, the weak comovement between economic activity and inflation, and the positive, strong comovement between interest rates observed in actual Eurozone data. The estimation procedure implemented is a classical structural method based on the indirect inference principle.
    Keywords: NKM model, term structure, policy rule, indirect inference
    JEL: C32 E30 E52
    Date: 2008–04–08
  15. By: Michele Ruta
    Abstract: Is the politicisation of monetary policy in a currency union desirable? This paper shows that in a setting where political influence by national governments is modeled as a common agency game with rational expectations, the answer to this question crucially depends on whether the common central bank can commit to follow its policy.
    Keywords: Common Agency, Political Pressures, European Monetary Union
    JEL: F33 E58 D78
    Date: 2007–09–28
  16. By: Michael Plante (Indiana University Bloomington)
    Abstract: This paper examines exchange rate management issues when a small open economy is hit by an exogenous oil price shock. In this model consumer durables play an important role in the demand for oil and oil based products as opposed to the traditional role of oil as a factor of production. When prices are sticky, oil price shocks lead to reduced output, lower inflation, and real exchange rate deprecation. These recessionary effects occur whether or not oil is in the production function because of the close relationship between consumer durables and oil. Tentative results suggest that flexible exchange rates produce smaller output losses and less volatile inflation in the non-tradables sector than fixed exchange rates but at the cost of front-loading real exchange rate movements.
    Keywords: oil, durables, exchange rates
    JEL: E31 F41 E52
    Date: 2008–04
  17. By: Hisashi Nakamura (Faculty of Economics, University of Tokyo); Keita Nakayama (Graduate School of Economics, University of Tokyo); Akihiko Takahashi (Faculty of Economics, University of Tokyo)
    Abstract: This paper proposes a testable continuous-time term-structure model with recursive utility to investigate structural relationships between the real economy and the term structure of real and nominal interest rates. Under mean-reverting expectation on real output growth and inflation, this paper finds that, if interest rates tend to be high during economic booms, then a real yield curve slopes up when, and only when, late resolution is preferred strongly enough. Also, even when the real yield curve slopes down, the nominal yield curve may slope up when expected inflation is negatively correlated with the real output growth.
    Date: 2008–01
  18. By: Xavier Ramos; Oriol Roca-Sagales
    Abstract: This paper provides a joint analysis of the output and distributional long term effects of various fiscal policies in the UK, using a Vector Autoregression approach. Our findings suggest that the output effects of fiscal policies are consistent with the Keynesian paradigm for both direct and indirect taxes but not for public spending. The estimated long term impact on GDP of increasing all type of expenditure and taxes analysed is negative and especially strong in the case of current expenditure. We also find significant distributional effects associated to fiscal policies, indicating that an increase in public spending and direct taxes reduces inequality while a raise in indirect taxes increases income inequality. Finally, the relationship between inequality and output is also explored.
    Keywords: Fiscal policy, inequality, UK, VAR models
    JEL: C5 E6 H3
    Date: 2007–12–18
  19. By: Toke S. Aidt (University of Cambridge, Faculty of Economics); Francisco José Veiga (Universidade do Minho and NIPE, Escola de Economia e Gestão); Linda Gonçalves Veiga (Universidade do Minho and NIPE, Escola de Economia e Gestão)
    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 Rogoff (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 show that (1) opportunism pays off, leading to a larger win-margin for the incumbent; (2) incumbents behave more opportunistically when their win-margin is small. These results are consistent with the theoretical model.
    Keywords: Voting and popularity functions, opportunism, rational political business cycles, local government, system estimation, Portugal.
    JEL: D72 E32 H72
    Date: 2008–04
  20. By: Hajime Tomura
    Abstract: This paper considers a dynamic stochastic general equilibrium model for a small open economy and finds that an improvement in the terms of trade causes a housing boom-bust cycle if the duration of the improvement is uncertain. It is shown that as the economy has better access to the international financial market, the extent of the housing boom and bust gets larger. Also, an increase in the loan-to-value ratio in the domestic mortgage market tends to enhance the extent of the housing boom and bust when the economy has good access to the international financial market.
    Keywords: Business fluctuations and cycles; Credit and credit aggregates
    JEL: E44 F41
    Date: 2008
  21. By: Martin S. Feldstein
    Abstract: The level of productivity doubled in the U.S. nonfarm business sector between 1970 and 2006. Wages, or more accurately total compensation per hour, increased at approximately the same annual rate during that period if nominal compensation is adjusted for inflation in the same way as the nominal output measure that is used to calculate productivity. Total employee compensation as a share of national income was 66 percent of national income in 1970 and 64 percent in 2006. This measure of the labor compensation share has been remarkably stable since the 1970s. It rose from an average of 62 percent in the decade of the 1960s to 66 percent in the decades of the 1970s and 1980s and then declined to 65 percent in the decade of the 1990s where it has again been from 2000 until the most recent quarter.
    JEL: E24 J3
    Date: 2008–04
  22. By: Raphaël Jeudy
    Abstract: Analyses of the transmission of money market rates to retail interest rates are a way to appreciate some effects of the monetary policy. The main question since Euro is the convergence of this transmission in the Euro zone. The aim of this study is to find likeness in evolutions and dynamics of transmission to confirm or to reject the convergence hypothesis. In this way, estimates of the pass-through have been conducted with rolling regressions between 1990 and 2004 on 11 countries (Belgium, Germany, France, Spain, Italy, Ireland, Portugal, Austria, Netherlands, Finland and Greece) and on several retail interest rates (N2, N3, N4, N5 and N8). This pass-through approach is a way to study transmission’s dynamics between interest rates. Finally, we made the same approach with threshold models to underline asymmetric dynamics.
    Date: 2008
  23. By: M. van Leuvensteijn; C. Kok Sørensen; J.A. Bikker; A.A.R.J.M. van Rixtel
    Abstract: This paper analyses the impact of loan market competition on the interest rates applied by euro area banks to loans and deposits during the 1994-2004 period, using a novel measure of competition called the Boone indicator. We find evidence that stronger competition implies significantly lower spreads between bank and market interest rates for most loan market products, in line with expectations. Using an error correction model (ECM) approach to measure the effect of competition on the pass-through of market rates to bank interest rates, we likewise find that banks tend to price their loans more in accordance with the market in countries where competitive pressures are stronger. Further, where loan market competition is stronger, we observe larger bank spreads (implying lower bank interest rates) on current account and time deposits. This would suggest that the competitive pressure is heavier in the loan market than in the deposit markets, so that banks under competition compensate for their reduction in loan market income by lowering their deposit rates. We observe also that bank interest rates in more competitive markets respond more strongly to changes in market interest rates. These findings have important monetary policy implications, as they suggest that measures to enhance competition in the European banking sector will tend to render the monetary policy transmission mechanism more effective.
    Keywords: Monetary transmission, banks, retail rates, competition, panel data
    JEL: D4 E50 G21 L10
    Date: 2008–03
  24. By: Hassan Ayoub (Universités de Lille.); Jérôme Creel (OFCE et ESCP- EAP.); Etienne Farvaque (Universités de Lille.)
    Abstract: La théorie budgétaire du niveau des prix distingue deux types de régimes pour les politiques économiques : Ricardien et Non-Ricardien. Nous analysons dans quelle mesure ces deux régimes peuvent s'appliquer à des sous-périodes dans l'histoire économique d'un pays. Le cas du Liban, passé de la prospérité à la guerre puis à la reconstruction, offre une application de cette théorie, et montre sa pertinence empirique.
    Keywords: Niveau général des prix ; inflation ; politiques monétaire et budgétaire ; dette publique ; ancrage nominal ; économie de guerre
    JEL: E60 E63
    Date: 2008–04
  25. By: Rod Tyers; Iain Bain
    Abstract: With exports almost half of its GDP and most of these directed to Europe and North America, negative financial shocks in those regions might be expected to retard China’s growth. Yet mitigating factors include the temporary flight of North American and European savings into Chinese investment and some associated real exchange rate realignments. These issues are explored using a dynamic model of the global economy. A rise in American and European financial intermediation costs is shown to retard neither China’s GDP nor its import growth in the short run. Should the Chinese government act to prevent the effects of the investment surge, through tighter inward capital controls or increased reserve accumulation, the associated losses would be compensated by a trade advantage since its real exchange rate would appreciate less against North America than those of other trading partners. The results therefore suggest that, so long as the financial shocks are restricted to North America and Western Europe, China’s growth and the imports on which its trading partners rely are unlikely to be significantly hindered.
    JEL: C68 E17 F21 F17 F43 F47 O5
    Date: 2008–04
  26. By: Enrico Gisolo
    Abstract: The aim of the present paper is to assess the degree of central bank legal independence enjoyed by the central banks of the south shore of the Mediterranean Sea, which belong to the Euro-Mediterranean Partnership and to shed some light on the macroeconomic outcomes of different degrees of independence. To this end a methodology used by the International Monetary Fund, here slightly modified to better suit the characteristics of the central banks in the area, is introduced and applied. The main findings of the present work are as follows: i) as regards legal independence, the Mediterranean countries show a diverse picture, sometimes far from the common wisdom; ii) legal independence does not always appear in line with the de facto situation; iii) Cyprus and Malta (that recently joined the European Union), as well as Turkey, that has been recognized a candidate country status, do not always show the best degrees of legal/actual independence and iv) many central banks of the area have recently amended their Statutes with a view to achieving more independence, as the issue has a key role in the modernization of the economies and a priority status in the implementation of a comprehensive and effective set of political and economic reforms.
    Keywords: central bank independence; independence assessment; macroeconomic performance
    Date: 2007–11–19
  27. By: Rafal Raciborski (European Center for Advanced Research in Economics and Statistics)
    Abstract: It is often argued that the baseline New-Keynesian model, which relies solely on the notion of infrequent price adjustment, cannot account for the observed degree of inflation sluggishness. Therefore it is a common practice among macro modellers to introduce an ad hoc additional source of persistence to their models. Yet, the empirical validity of this practice has never been formally tested. This paper attempts to examine whether there is some additional persistence present in the data on micro-prices, beyond that implied by infrequent price adjustment. We consider two distinct sets of assumptions consistent with the existence of an intrinsic or extrinsic source of sluggishness and build and estimate two alternative models based on these assumptions. It is shown that in he case of certain product categories, particularly food, there is evidence of less sluggishness than what the standard assumptions underlying the New-Keynesian model would imply. We find certain support for the existence of an additional source of sluggishness for some industrial goods and services. Importantly however, the results are sensitive to the choice of the model. We conclude that some inconsistencies with the baseline New-Keynesian assumptions may be tracked in the price behavior. Yet, it is too early to assess their strength or the effect on macro aggregates. Therefore, at the current stage it would be premature to discard the baseline version of the New-Keynesian model based on evidence from micro-data. Similarly, the micro support for introducing an extra source of inflation sluggishness to macro-models is still relatively weak
    Keywords: Price stickiness, inflation persistence, gradualism
    JEL: C51 C81 E13 E1 D21 L11
    Date: 2008–04
  28. By: Christoph Herrmann
    Abstract: Money has always been a difficult and complex concept and the views about what money actually is could hardly be more diverse. This is all the more true in the times of completely manipulated irredeemable paper currencies, the functioning of which is based almost completely on the extent to which people believe in its trustworthiness. The final abolition of Gold as a universal standard of currencies in the early 1970s at first glance seems to have strengthened the grip of governments on money. Nevertheless, it is often argued that "national currencies" are under threat. According to this view, "monetary sovereignty" is waning, as is sovereignty as a whole. The present paper takes a different view. It argues that "monetary sovereignty" understood as a legal concept remains intact and is not even significantly limited by obligations under public international law. This leaves governments significant leeway in taking decisions regarding the setup of their monetary regime ("sovereignty games") and empirical evidence shows the large number of different options that are actually chosen.
    Keywords: Sovereignty, Monetary Sovereignty, International Monetary Relations, Monetary Policy, Money
    Date: 2007–11–09
  29. By: Oliver Ruf
    Abstract: This paper analyzes labor market success of workers who are displaced in boom versus recession periods. Moreover, the empirical analysis contrasts workers from small firms and large firms. The idea is that displacement carries no information about workers' productivity in large firms but is a signal of low productivity in small firms. This signal is stronger when the plant closure occurs in a boom period than in a recession period. Results indicate that the (i) state of the business cycle is important for influence the effect of displacement on labor market success and (ii) the effect differs by the size of the firm. In large firms, displaced workers suffer from larger earning losses when displacement occurs in recession compared to boom, the opposite result is found for workers displaced from small firms.
    Keywords: Displaced workers, wage losses, business cycle, size of the firm
    JEL: E32 J64 J65
    Date: 2008–04
  30. By: Christopher P. Ball; Martha Cruz-Zuniga; Claude Lopez; Javier Reyes
    Abstract: Remittances are private monetary transfers yet the rapidly growing literature on the subject seems to forget their monetary nature and thus ignore the role that exchange rate regimes play in determining the effect remittances have on a recipient economy. This paper uses a theoretical model and panel vector autoregression techniques to explore the role exchange rate regimes play in understanding the effect of remittances. The analysis considers yearly and quarterly data for seven Latin American countries. Our theoretical model predicts that remittances should be inflationary and generate an increase in the domestic money supply under a fixed regime but deflationary and generate no change in the money supply under a flexible regime. These differences are borne out in the data. This adds to our understanding of the true effect of remittances on economies and suggests results existent in the literature that do not control for regimes may be biased.
    Date: 2008
  31. By: Pablo Zoido
    Abstract: Latin America has put its faith in democracy and the market economy. Efficient, fair and equitable fiscal policy can help foster development and consolidate democracy. * This Policy Insights is based on the Latin American Economic Outlook 2008.
    Date: 2007–10
  32. By: Filip Abraham; Joeri Van Rompuy
    Abstract: Summary for Economic Policy: The starting date of the European Monetary Union (EMU) is coming close. After several years of intense efforts, eleven European Union (EU) countries are prepared to go ahead. Belgium is one of those countries. This is a step of great importance. Gradually, the attention is shifting from the preparation of EMU to the question whether EMU will work. In Belgium much of this discussion focuses on the performance of the labour market. Belgium is a country with relatively high structural unemployment. The country is also confronted with a substantial regional gap in economic growth and unemployment. This diverging economic performance gives rise to politically sensitive interregional transfers between the North and the South. There is a widespread concern that the Belgian labour market will fail to cope efficiently with the need to adjust to changing economic conditions. While a macroeconomic wage restraint with respect to the major trading partners is ingrained in the so-called ‘law to safeguard the Belgian competitive position’, the country has been repeatedly urged by institutions such as the IMF and the OECD to promote wage and labour market flexibility, as well as to increase labour mobility. The prime minister, Jean-Luc Dehaene, pleaded recently for less government intervention in the wage formation process and for a greater wage differentiation that takes into account the diverging conditions that exist in various sectors of the economy. This position is shared by Karel Vinck, the head of the Flemish Employer Organisation (VEV), who views an increased role for sectoral negotiations between unions and employers as a means to achieving wage differentiation in the Belgian economy. And also Karel Boone, the president of the Belgian Employer Federation (VBO), emphasises the responsability of the sectoral level in the Belgian wage negotiations. Is this concern about insufficient labour market adjustment warranted ? The answer to this question requires a detailed understanding of the structural features in the Belgian economy. Subsequently, one must assess whether wages adjust to those economic shocks. Both issues are the focus of this study. After a theoretical discussion of the statistical framework (which can be skipped by the technically less inclined reader), the second part of this paper offers a detailed picture of changes in production that occurred in the Belgian economy during the period 1985-1995. Those production shocks were strong and, to an important degree, can be statistically decomposed in developments at the national, regional and sectoral level. Sectoral shocks are changes that are observed within the same industry in Flanders, Brussels and Wallonia but that are not shared by other sectors. Those sectoral changes are the dominant driving force in the Belgian economy. In our statistical exercise, the sectoral component explains an average of 47% of total output variation and 76% of the output changes explained by our statistical model. Even higher numbers are obtained when changes in employment and labour productivity are considered. The message is clear : the main source of differentiation in the Belgian economy is found at the sectoral level. These average figures mask a lot of interesting variation in individual industrial and service sectors. We distinguish between a small group of sectors that experience a structurally better growth performance than a group of poor performers. In between those two groups, a large number of primarily manufacturing industries are situated with a comparable growth performance. Looking at the cyclical pattern of individual sectors, there is not much evidence for very different nor for very similar sector-specific business cycles. One interesting exception is the countercyclical role of the government. Apparently, the government increases spending on public services in times of an economic slowdown. In this paper, regional shocks are defined as output developments that occur in all sectors of a specific region. We find evidence of such shocks but they are of secondary importance when compared to sectoral changes. Apparently, many of the observed regional trends are caused by developments in specific sectors that are primarily located in one region. Having said this, the well-known regional division of the Belgian economy emerges clearly from the statistical model. Flanders is characterised by a better medium-term growth performance, a different cyclical pattern and a greater similarity in regional output changes than either Brussels or Wallonia. By definition, national shocks are found in all sectors and in all regions. From 1985 to 1995 they accounted for 9% of the total output variation and for 14% of the production changes explained by our model. National factors matter mostly for a limited group of sectors including Metal Products, Construction, Other Market Services and Other Manufacturing. In an efficient labour market, we expect wage growth to reflect the dominating role of developments at the sectoral level. In the third part of the study, we found this not to be the case in the Belgian economy. While wage levels to some degree reflect long term sectoral productivity differentials, wage growth displays little differentiation across sectors. This lack of sectoral wage flexibility amplifies the impact of the production shocks on employment. Weaker sectors are faced with wage increases which they can ill afford. As a result, the employment performance gap between stronger and weaker sectors widens. In the end, the Belgian economy is faced with a substantial and widespread need for employment reallocation, for which the rigid labour market with limited labour mobility is ill prepared. A greater sectoral wage flexibility would avoid many of those problems. What about regional differentiation in wage setting ? There is no sign that Belgian wage increases are taking into account regional differences. This comes mostly at the expense of the weakest region, Wallonia, which suffers from higher unemployment than would be obtained if regional wage moderation were feasible. Quite likely, greater sectoral wage differentiation would contribute a lot to regional wage flexibility. Wherever necessary, this sectoral approach could be supplemented by greater attention to the regional dimension in wage setting. Such complementary approach would reduce the need for politically sensitive long-term interregional transfers and in this way enhance political cohesion in the country.
    Date: 2008–03
  33. By: Catherine Bruneau; Nadia Sghaier
    Abstract: This paper provides an empirical analysis of the presence and determinants of the underwriting cycle in non-life insurance for France for the industry and for two individual lines which one long and one short for the period 1963-2004 and 1982-2004. First, the estimation of the AR(2) process of the rate of growth of premiums shows the presence of a cyclical behavior since 80 for the aggregate sector and for the automobile line. Second, we aim to determine their causes. For that, we consider the amount of claims and expenses, equities and returns on financial assets. We adopt a multivariate approach and we estimate an error correction vector model that allows the distinction between the e¤ects of short and long term. We provide evidence of causality between different variables and we end with an impulse analysis. The empirical results that we get are interpreted with reference to principal hypothesis made in the literature to explain the cycle and financial model of insurance pricing. These results show that the causes vary across lines and periods.
    Keywords: Presence and determinants of the underwriting cycles, non life in-surance, error correction vectoriel model, causality, impulse analysis.
    Date: 2008
  34. By: David Weinstein; Christian Broda
    Abstract: Between 1992 and 2002, the Japanese Import Price Index registered a decline of almost 9 percent and Japan entered a period of deflation. We show that much of the correlation between import prices and domestic prices was due to formula biases. Had the IPI been computed using a pure Laspeyres index like the CPI, the IPI would have hardly moved at all. A Laspeyres version of the IPI would have risen 1 percentage point per year faster than the official index. Second we show that Chinese prices did not behave differently from the prices of other importers. Although Chinese prices are substantially lower than the prices of other exporters, they do not exhibit a differential trend. However, we estimate that the typical price per unit quality of a Chinese exporter fell by half between 1992 and 2005. Thus the explosive growth in Chinese exports is attributable to growth in the quality of Chinese exports and the increase in new products being exported by China.
    JEL: E31 F1 F12
    Date: 2008–04
  35. By: Chollete, Lorán (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)
    Abstract: What drives extreme and rare economic events? Motivated by recent theory, and events in US subprime markets, we begin to open the black box of extremes. Specifically, we build a taxonomy of extremes, then extend standard economic analysis of extreme risk. First, we model the potentially relevant dimensions of dynamics and endogeneity. In characterizing individuals' endogenous propagation of extremes, we relate the latter to public goods. Second, using over a century of daily stock price data, we construct empirical probabilities of extremes. We document that extremes are relatively frequent and persistent. We find evidence that extremes are endogenous, raising the possibility that control of extremes is a public good.
    Keywords: Extreme event; Subprime Market; Dynamics; Endogeneity; Public Good
    JEL: C10 E44 E51 H23 H41
    Date: 2008–01–31
  36. By: Anneleen Peeters
    Abstract: This paper focuses on the construction of a leading indicator for the Belgian labour market based on labour market variables. It is shown that our employment indicator constructed from monthly data on interim work and business failures: (1) resembles quite well the cyclical pattern of observed employment in Belgium; (2) performs not significantly better when product market variables are added; (3) is a better predictor of the cycles in the labour market compared to existing leading indicators for the product market. Furthermore, it was found that even more accurate forecasts of future employment could be derived if information on the past behaviour of total employment (captured by an AR(2)-process) was added to our constructed leading indicator. But this last specification loses its leading character due to long publication delays for the employment data.
    Date: 2008–03
  37. By: Bitros, George
    Abstract: The received theory of aggregation has been erected on certain fundamental hypotheses. One of them is that producer durables deteriorate exponentially, which implies that their replace-ment is proportional to the corresponding capital stocks. However the proportionality hypothesis conflicts with most of the available theoretical and empirical evidence. So an effort to relax it is long overdue. To this end the present paper investigates the conditions for consistent aggregation in a two-sector vintage capital model with exogenous technological change and endogenous use-ful lives. In the model aggregation is achieved by adaptation of the procedure first suggested by Haavelmo (1960). From the simulations of the solution with data from the United States in the post-war period it is found that the conventional approach to aggregation may be responsible for significant biases in the measurement of the economy-wide capital stock.
    Keywords: E20
    JEL: E22 E01 D24 B41
    Date: 2008
  38. By: Juan Carlos Parra Alvarez
    Abstract: En este documento se presentan los resultados obtenidos de un ejercicio empírico que pretende extraer los principales hechos estilizados de la economía colombiana para el período 1994:I 2007:I. El objetivo es servir de apoyo tanto para el diseño y especificación como para la evaluación de un modelo de equilibrio general dinámico y estocástico (DSGE) que actualmente desarrolla el Departamento de Modelos Macroeconómicos del Banco de la República. Para ello se emplea una base de datos que permite descomponer algunos de los principales agregados macroeconómicos calculados por el DANE a través del sistema de cuentas nacionales anuales en sus componentes doméstico e importado, asi como construir una medida de los márgenes de comercialización adicionados a los bienes de consumo e inversión importados. Una vez se dispone de los datos, se analiza la estructura de la economía colombiana por componentes de oferta y demanda siguiendo de cerca la metodología empleada por Restrepo y Soto (2004) en Chile y Restrepo y Reyes (2000) en Colombia.
    Date: 2008–04–15
  39. By: Wendner, Ronald
    Abstract: This paper investigates the impact of externalities on economic growth in an AK model. In contrast to the existing literature, the paper considers finitely-lived agents along the continuous time, overlapping generations literature. A series of new results, not holding for infinitely-lived agent economies, emerge. Consumption externalities generally introduce a distortion (inefficiency), even when labor supply is exogenous and there is no concurrent production externality. A negative consumption externality implies overconsumption, and growth is lower than optimal. Transition paths are considered. The model employed encompasses the infinitely-lived agent economy as a special case, thus helps understanding the differences in results between finite-horizon overlapping-generations and infinitely-lived agents economies.
    Keywords: AK growth; externality; finite lifetime; overlapping generations; optimum
    JEL: D91 E21 O40
    Date: 2008–01–01
  40. By: Atif Mian; Amir Sufi
    Abstract: We demonstrate that a rapid expansion in the supply of mortgages driven by disintermediation explains a large fraction of recent U.S. house price appreciation and subsequent mortgage defaults. We identify the effect of shifts in the supply of mortgage credit by exploiting within-county variation across zip codes that differed in latent demand for mortgages in the mid 1990s. From 2001 to 2005, high latent demand zip codes experienced large relative decreases in denial rates, increases in mortgages originated, and increases in house price appreciation, despite the fact that these zip codes experienced significantly negative relative income and employment growth over this time period. These patterns for high latent demand zip codes were driven by a sharp relative increase in the fraction of loans sold by originators shortly after origination, a process which we refer to as "disintermediation." The increase in disintermediation-driven mortgage supply to high latent demand zip codes from 2001 to 2005 led to subsequent large increases in mortgage defaults from 2005 to 2007. Our results suggest that moral hazard on behalf of originators selling mortgages is a main culprit for the U.S. mortgage default crisis.
    JEL: E44 E51 G21 L85 O51 R21
    Date: 2008–04
  41. By: Nobuki Mochida (Faculty of Economics, University of Tokyo)
    Abstract: In many countries, local borrowing is an important source for long-term development projects such as roads, bridges, and waterworks. Local borrowing for such projects is justified on the ground that benefit of these projects often last decades and the cost of these projects should be borne by future tax payers. However, there are serious concerns with issuance of local bonds by decentralized local governments. Local governments in Japan would not default on their borrowing because of such "implicit government guarantee." As a result, lenders and tax payers have lost incentive to monitor subnational government because they view their investment as protected by a central government. The purpose of this paper is to review the local borrowing in Japan. At first, the transition from administrative control to rule-based, market oriented system is described. Following this, soft budget constraint and effectiveness of market discipline is investigated. Third, bank lending and local bonds as a way of financing long-term infrastructures are compared. Finally, we shed light on the credibility of local bonds in Japan and offer some proposals.
    Date: 2008–01
  42. By: Georges Prat; Remzi Uctum
    Abstract: Using financial experts’ Yen/USD exchange rate expectations provided by Consensus Forecasts surveys (London), this paper aims to model the 3 and 12-month ahead ex-ante risk premia measured as the difference between the expected and forward exchange rates. According to a two-country portfolio asset pricing model, the risk premium is modeled as the product of three factors: a constant risk aversion coefficient, the expected variance of the rate of change in the real exchange rate, and the spread between domestic agent’s market position in foreign assets and foreign agent’s market position in domestic assets (net market position). When the returns are partially predictable, the expected variance is horizondependent and this is a sufficient condition for agents not to require at any time a unique risk premium for all maturities but a set of premia scaled by the time horizon of the investment. For each horizon the expected variance is assumed to depend on the historical values of the variance and on the unobservable maturity-dependent net market positions which have been estimated through a state space model using the Kalman filter methodology. We find that the model explains satisfactorily both the common and the non-random specific time-patterns of the 3- and 12-month ex-ante premia.
    Keywords: risk premium, foreign exchange market, international asset pricing model
    JEL: D84 E44 G14
    Date: 2008
  43. By: Marcio M. Janot (Central Bank of Brasil); Marcio G. P. Garcia (Department of Economics, PUC-Rio); Walter Novaes (Department of Economics, PUC-Rio)
    Abstract: In third generation currency crises models, balance sheet losses from currency depreciations propagate the crises into the real sector of the economy. To test these models, we built a firmlevel database that allowed us to measure currency mismatches around the 2002 Brazilian currency crisis. We found that between 2001 and 2003, firms with large currency mismatches just before the crisis reduced their investment rates 8.1 percentage points more than other publicly held firms. We also showed that the currency depreciation increased exporters revenue, but those with currency mismatches reduced investments 12.5 percentage points more than other exporters. These estimated reductions in investment are economically very significant, underscoring the importance of negative balance sheet effects in currency crises. Jel Codes:F32; F34; G31; G32
    Keywords: Investment; Balance sheets; Currency crises; Hedge; Financial constraints.
    Date: 2008–04
  44. By: Kaas, Leo (University of Konstanz); Madden, Paul (University of Manchester)
    Abstract: Two firms choose locations (non-wage job characteristics) on the interval [0,1] prior to announcing wages at which they employ workers who are uniformly distributed; the (constant) marginal revenue products of workers may differ. Subgame perfect equilibria of the two-stage location-wage game are studied under laissez-faire and under a minimum wage regime. Up to a restriction for the existence of pure strategy equilibria, the imposition of a minimum wage is always welfare-improving because of its effect on non-wage job characteristics.
    Keywords: hotelling, duopsony, minimum wages
    JEL: D43 E24 J48
    Date: 2008–04
  45. By: Silvia Iranzo (Banco de España)
    Abstract: Since the Latin American debt crisis of the early 80s, country risk analysis has accounted for a significant part of the work of research and risk management departments of banks, insurance companies, rating agencies, financial market regulators, and multinational companies. Country risk is a very broad concept, that includes sovereign risk, transfer risk, and other risks related with international financial activities. Country risk analysis requires delving into multiple fields, such as economics, finance, politics and history. This paper addresses the concept of country risk, the agents involved, the methods for assessing country risk, the payments crises, risk prevention, the assessment of country risk in the present world and the Spanish country risk regulation.
    Keywords: country risk, financial crises, default, solvency, reserves
    JEL: E44 E66 G12 G32 F32 F33
    Date: 2008–04
  46. By: Mohammed, Aliyu Dahiru; Hasan, Zubair
    Abstract: Today widespread poverty is one of the major problems of mankind and its alleviation one of her major agendas. In recent years microfinance has emerged as an important instrument to relieve poverty in the developing countries. Today there are more than 7000 micro lending institutions providing loans to more than 25 million poor individuals across the world, their vast majority being the women. However these institutions face some serious challenges, especially in less developed countries where the proportion of people in poverty is high. The existing microfinance in Nigeria serves less than 1 million people out of 40 million being the potential number that need the service. Also, the aggregate micro credit facilities in Nigeria, account for about 0.2 percent of the GDP and is less than one percent of total credit in the economy. Addressing this situation inadequately would further accentuate the problem and slow down growth and development of the country. We find that the microfinance institutions charge interest rate as high as up to 100% for lending and pay as low as 5% on savings. This aggravates the existing inequalities in the distribution of wealth and income in Nigeria. Finally, Nigeria being a country with a Muslims majority, represents a potential for Islamic microfinance especially that most Muslims reject the conventional interest based micro financing, which is not tailored in line with their faith. This might cause failure of government project to combat poverty in the country through micro financing. Under the circumstance Islamic micro financing has potential to serve the country better. The paper has relied on the sources of Shari`ah law, secondary data from journals, periodicals, conference proceedings, text book , internet search and other sources of published data to support the argument.
    Keywords: Microfinance; Islam; Nigeria
    JEL: E51
    Date: 2008
  47. By: Anders Ögren
    Abstract: First established during the 1830's, the Enskilda banks were characterized by unlimited liability and the right to issue bank notes. In Swedish banking history, these banks have been considered to be primitive relics. This paper utilizes new data to revise this picture. Issuing notes based on an anchor provided by the National bank, the Enskilda banks made an important contribution to the development of liquid capital markets and for economic growth. The note issuance was also of importance to overcome shortages of liquidity due to both seasonal and regional variations in demand. In view of the crucial role of the Enskilda banks, the Banking Act of 1864, which permitted freer establishment and automatic prolongation of the charters for such banks, must be judged to have been an important institutional change.
    JEL: E40 G21 N13 N23
    Date: 2008

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