nep-mac New Economics Papers
on Macroeconomics
Issue of 2008‒09‒05
29 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Optimal Fiscal and Monetary Policy under Sectorial Heterogeneity By Berriel, Tiago; Sinigaglia, Daniel
  2. Explaining Macroeconomic and Term Structure Dynamics Jointly in a Non-linear DSGE Model By Martin Møller Andreasen
  3. The advantage of flexible targeting rules By Andrea Ferrero
  4. Simple monetary rules under fiscal dominance By Michael Kumhof; Ricardo Nunes; Irina Yakadina
  5. The high-frequency impact of news on long-term yields and forward rates: Is it real? By Meredith J. Beechey; Jonathan H. Wright
  6. Credit Market Distortions, Asset Prices and Monetary Policy By Pfajfar, D.; Santoro, E.
  7. Optimal monetary policy with distinct core and headline inflation rates By Martin Bodenstein; Christopher J. Erceg; Luca Guerrieri
  8. Monetary Policy Surprises and Interest Rates: Choosing between the Inflation-Revelation and Excess Sensitivity Hypotheses By THORBECKE, Willem; Hanjiang ZHANG
  9. Consumption growth and time-varying expected stock returns By Stig Vinther Møller
  10. International Financial Aggregation and Index Number Theory: A Chronological Half-Century Empirical Overview By Barnett, William A.; Chauvet, Marcelle
  11. A pioneer of a new monetary policy? Sweden’s price level targeting of the 1930s revisited By Tobias Straumann; Ulrich Woitek
  12. Factor demand linkages and the business cycle: Interpreting aggregate fluctuations as sectoral fluctuations By Holly, S.; Petrella, I.
  13. Estimating the common trend rate of inflation for consumer prices and consumer prices excluding food and energy prices By Michael T. Kiley
  14. On The Cyclicality of Real Wages and Wage Differentials By Otrok, Christopher; Pourpourides, Panayiotis M.
  15. New Keynesian models: not yet useful for policy analysis By V. V. Chari; Patrick J. Kehoe; Ellen R. McGrattan
  16. Averaging forecasts from VARs with uncertain instabilities By Todd E. Clark; Michael W. McCracken
  17. Asymmetries in Inflation Expectation Formation Across Demographic Groups By Pfajfar, D.; Santoro, E.
  18. On reputation: A microfoundation of contract enforcement and price rigidity By Ernst Fehr; Martin Brown; Christian Zehnder
  19. National Annuity Markets: Features and Implications By Rob Rusconi
  20. Does the utility function form matter for indeterminacy in a two sector small open economy? By Zhang, Yan
  21. Mean Reversion in US and International Short Rates By Charlotte Christiansen
  22. Can News Be a Major Source of Aggregate Fluctuations? A Bayesian DSGE Approach By Ippei Fujiwara; Yasuo Hirose; Mototsugu Shintani
  23. Understanding Bank Runs: The Importance of Depositor-Bank Relationships and Networks By Rajkamal Iyer; Manju Puri
  24. Temporal risk aversion and asset prices By Skander J. Van den Heuvel
  25. A study of competing designs for a liquidity-saving mechanism By Antoine Martin; James McAndrews
  26. Social Economy and Social Economics –The Situation in the Republic of Ireland By Herrmann, Peter
  27. Heterogeneity, trust, human capital and productivity growth: Decomposition analysis. By yamamura, eiji
  28. Effects of Income Inequality on Growth through Efficiency Improvement and Capital Accumulation. By Yamamura, Eiji; Shin, Inyong
  29. Local Costs of Distribution, International Trade Costs and Micro Evidence on the Law of One Price By Giri, Rahul

  1. By: Berriel, Tiago; Sinigaglia, Daniel
    Abstract: This paper characterizes optimal fiscal and monetary policy in a new keynesian model with sectorial heterogeneity in price stickiness. In particular, we (i) derive a purely quadratic welfare-based loss function from an approximation of the representative agent's utility function and (ii) provide the optimal target rule for fiscal and monetary policy. Differently from the homogeneous case, the loss function includes sectorial inflation variances instead of aggregate inflation, with weights proportional to the degree of price stickiness; and sectorial output gaps instead of aggregate output gap with equal weight in each sector. Optimal policy implies a very strong positive correlation among sectorial output gaps and some dispersion of sectorial inflation in response to shocks. Larger heterogeneity in price stickiness implies larger impact of shocks on aggregate inflation. Optimal taxes are more responsive in sectors with stickier prices.
    JEL: E52 E63
    Date: 2008–04–08
  2. By: Martin Møller Andreasen (School of Economics and Management, University of Aarhus, Denmark)
    Abstract: This paper shows how a standard DSGE model can be extended to reproduce the dynamics in the 10 year yield curve for the post-war US economy with a similar degree of precision as in reduced form term structure models. At the same time, we are able to reproduce the dynamics of four key macro variables almost perfectly. Our extension of a standard DSGE model is to introduce three non-stationary shocks which allow us to explain interest rates with medium and long maturities without distorting the dynamics of the macroeconomy.
    Keywords: Price stickiness, Stochastic and deterministic trends, Term structure model, The Central Difference Kalman Filter, Yield curve
    JEL: E10 E32 E43 E44
    Date: 2008–09–02
  3. By: Andrea Ferrero
    Abstract: This paper investigates the consequences of debt stabilization for inflation targeting. If the monetary authority perfectly stabilizes inflation while the fiscal authority holds constant the real value of debt at maturity, the equilibrium dynamics might be indeterminate. However, determinacy can be restored by committing to targeting rules for either monetary or fiscal policy that include a concern for stabilization of the output gap. In solving the indeterminacy problem, flexible inflation targeting appears to be more robust than flexible debt targeting to alternative parameter configurations and steady-state fiscal stances. Conversely, flexible fiscal targeting rules lead to more desirable welfare outcomes. The paper further shows that if considerations beyond stabilization call for a combination of strict inflation and debt targeting rules, the indeterminacy result can be overturned if the fiscal authority commits to holding constant debt net of interest rate spending.
    Keywords: Inflation targeting ; Banks and banking, Central ; Monetary policy ; Fiscal policy ; Debts, External
    Date: 2008
  4. By: Michael Kumhof; Ricardo Nunes; Irina Yakadina
    Abstract: This paper asks whether an aggressive monetary policy response to inflation is feasible in countries that suffer from fiscal dominance, as long as monetary policy also responds to fiscal variables. We find that if nominal interest rates are allowed to respond to government debt, even aggressive rules that satisfy the Taylor principle can produce unique equilibria. But following such rules results in extremely volatile inflation. This leads to very frequent violations of the zero lower bound on nominal interest rates that make such rules infeasible. Even within the set of feasible rules the optimal response to inflation is highly negative, and more aggressive inflation fighting is inferior from a welfare point of view. The welfare gain from responding to fiscal variables is minimal compared to the gain from eliminating fiscal dominance.
    Date: 2008
  5. By: Meredith J. Beechey; Jonathan H. Wright
    Abstract: This paper uses high-frequency intradaily data to estimate the effects of macroeconomic news announcements on yields and forward rates on nominal and index-linked bonds, and on inflation compensation. To our knowledge, it is the first study in the macro announcements literature to use intradaily real yield data, which allow us to parse the effects of news announcements on real rates and inflation compensation far more precisely than we can using daily data. Long-term nominal yields and forward rates are very sensitive to macroeconomic news announcements. We find that inflation compensation is sensitive to announcements about price indices and monetary policy. However, for news announcements about real economic activity, such as nonfarm payrolls, the vast majority of the sensitivity is concentrated in real rates. Accordingly, we conclude that most of the sizeable impact of news about real economic activity on the nominal term structure of interest rates represents changes in expected future real short-term interest rates and/or real risk premia rather than changes in expected future inflation and/or inflation risk premia. This suggests that explanations for the puzzling sensitivity of long-term nominal rates need to look beyond just inflation expectations and toward models that encompass uncertainty about the long-run real rate of interest.
    Date: 2008
  6. By: Pfajfar, D.; Santoro, E.
    Abstract: In this paper we develop a sticky price DSGE model to study the role of capital market imperfections for monetary policy implementation. Recent empirical and theoretical studies have stressed the e¤ect of .rms.external .nance on their pricing decisions. The so-called cost channel of the transmission mechanism has been explored within New Keynesian frameworks that pose particular emphasis on in.ation dynamics. These models generally disregard the role of external .nance for the dynamics of asset prices. We ask whether monetary policy should respond to deviations of asset prices from their frictionless level and, more importantly, if the answer to this question changes when financial frictions are properly taken into account. We analyze these issues from the vantage of equilibrium determinacy and stability under adaptive learning. We show that usual conditions for equilibrium uniqueness and E-stability are significantly altered when the cost channel matters. Nevertheless, we find that responding to actual or expected asset price misalignments helps at restoring determinacy and stability under learning. These conclusions are further enforced in the presence of a high degree of pass-through from policy to bank lending rates.
    Keywords: Monetary Policy, Capital Market Imperfections, Cost Channel, Asset Price.
    JEL: E31 E32 E52
    Date: 2008–04
  7. By: Martin Bodenstein; Christopher J. Erceg; Luca Guerrieri
    Abstract: In a stylized DSGE model with an energy sector, the optimal policy response to an adverse energy supply shock implies a rise in core inflation, a larger rise in headline inflation, and a decline in wage inflation. The optimal policy is well-approximated by policies that stabilize the output gap, but also by a wide array of "dual mandate" policies that are not overly aggressive in stabilizing core inflation. Finally, policies that react to a forecast of headline inflation following a temporary energy shock imply markedly different effects than policies that react to a forecast of core, with the former inducing greater volatility in core inflation and the output gap.
    Date: 2008
  8. By: THORBECKE, Willem; Hanjiang ZHANG
    Abstract: Romer and Romer (R&R) reported that federal funds rate increases may raise expected inflation by revealing the Fed's private information about inflation. Gurkaynak, Sack, and Swanson (GSS) presented evidence that funds rate increases lowered long-term expected inflation. To choose between these hypotheses we examine how monetary policy surprises affect daily traded commodity prices, term interest rates, and forward interest rates. We find that funds rate increases in the 1970s raised gold and silver prices and that increases after 1989 lowered gold and silver prices. We also find that funds rate hikes over both sample periods primarily affected short-term interest rates and near-term forward rates. For the 1970s, these results suggest that R&R's explanation is correct. For recent years, they indicate that funds rate increases affect real rates and may also be consistent with GSS's findings.
    Date: 2008–08
  9. By: Stig Vinther Møller (School of Economics and Management, University of Aarhus, Denmark)
    Abstract: When the consumption growth rate is measured based upon fourth quarter data, it tracks predictable variation in future excess stock returns. Low fourth quarter consumption growth rates predict high future excess stock returns such that expected returns are high at business cycle troughs and low at business cycle peaks. The consumption growth rate loses predictive power when it is measured based upon other quarters. This is consistent with the insight of Jagannathan and Wang (2007) that investors tend to review their consumption and investment plans during the end of each calendar year, and at possibly random times in be- tween. The consumption growth rate measured based upon fourth quarter data is a much stronger predictive variable than benchmark predictive variables such as the dividend-price ratio, the term spread, and the default spread.
    Keywords: Return predictability, Consumption growth
    JEL: C12 E21 E44 G12
    Date: 2008–09–02
  10. By: Barnett, William A.; Chauvet, Marcelle
    Abstract: This paper comprises a survey of a half century of research on international monetary aggregate data. We argue that since monetary assets began yielding interest, the simple sum monetary aggregates have had no foundations in economic theory and have sequentially produced one source of misunderstanding after another. The bad data produced by simple sum aggregation have contaminated research in monetary economics, have resulted in needless “paradoxes,” and have produced decades of misunderstandings in international monetary economics research and policy. While better data, based correctly on index number theory and aggregation theory, now exist, the official central bank data most commonly used have not improved in most parts of the world. While aggregation theoretic monetary aggregates exist for internal use at the European Central Bank, the Bank of Japan, and many other central banks throughout the world, the only central banks that currently make aggregation theoretic monetary aggregates available to the public are the Bank of England and the St. Louis Federal Reserve Bank. No other area of economics has been so seriously damaged by data unrelated to valid index number and aggregation theory. In this paper we chronologically review the past research in this area and connect the data errors with the resulting policy and inference errors. Future research on monetary aggregation and policy can most advantageously focus on extensions to exchange rate risk and its implications for multilateral aggregation over monetary asset portfolios containing assets denominated in more than one currency. The relevant theory for multilateral aggregation with exchange rate risk has been derived by Barnett (2007) and Barnett and Wu (2005).
    Keywords: Measurement error; monetary aggregation; Divisia index; aggregation; monetary policy; index number theory; exchange rate risk; multilateral aggregation; open economy monetary economics
    JEL: C43 E58 E52 E40 E41
    Date: 2008–08–08
  11. By: Tobias Straumann; Ulrich Woitek
    Abstract: The paper re-examines Sweden’s price level targeting during the 1930s which is regarded as a precursor of today’s inflation targeting. According to conventional wisdom the Riksbank was the first central bank to adopt price level targeting as the guideline for its activities, although in practice giving priority to exchange rate stabilisation over price level stabilisation. On the basis of econometric analysis (Bayesian VAR) and the evaluation of new archival sources we come to a more skeptical conclusion. Our results suggest that it is hard to reconcile the Riksbank’s striving for a fixed exchange rate with the claim that it adopted price level targeting. This finding has implications for the prevailing view of the 1930s as a decade of great policy innovations.
    Keywords: Sweden, monetary policy, price level targeting, Great Depression
    JEL: N14 E42
    Date: 2008–08
  12. By: Holly, S.; Petrella, I.
    Abstract: This paper investigates the drivers of industry and aggregate fluctuations. We model the dynamics of a panel of highly disaggregated manufacturing sectors. This allows us to consider directly the linkages between sectors typical of any production system, in a framework where the sectors are fully heterogeneous. We establish that these features are fundamental for the propagation of the shocks in the aggregate economy. Aggregate fluctuations can be accounted for by small industry specific shocks. Moreover, a contemporaneous technology shock to all sectors in the economy, i.e. an aggregate technology shock, implies a positive response in both output and hours at the aggregate level. When this intersectoral channel is neglected we find a negative correlation as with much of the literature. This suggests that the standard technology driven Real Business Cycle paradigm is a reasonable approximation of a more complicated model featuring heterogenously interconnected sectors.
    Keywords: Sectors, Technology shocks, Business cycles, Long-run restrictions, Cross Sectional Dependence.
    JEL: E20 E32 C31 C51
    Date: 2008–06
  13. By: Michael T. Kiley
    Abstract: I examine the common trend in inflation for consumer prices and consumer prices excluding prices of food and energy. Both the personal consumption expenditure (PCE) indexes and the consumer price indexes (CPI) are examined. The statistical model employed is a bivariate integrated moving average process; this model extends a univariate model that fits the data on inflation very well. The bivariate model forecasts as well as the univariate models. The results suggest that the relationship between overall consumer prices, consumer prices excluding the prices of food and energy, and the common trend has changed significantly over time. In the 1970s and early 1980s, movements in overall prices and prices excluding food and energy prices both contained information about the trend; in recent data, the trend is best gauged by focusing solely on prices excluding food and energy prices.
    Date: 2008
  14. By: Otrok, Christopher; Pourpourides, Panayiotis M. (Cardiff Business School)
    Abstract: Using longitudinal microdata on real wages we estimate a Bayesian dynamic latent factor model to measure the cyclical properties of real wages. We find that the comovement of real wages can be related to a common factor that exhibits a strong correlation with the national unemployment rate. However, our findings indicate that the common factor explains, on average, no more than 9% of wage variation. Furthermore, roughly half of the wages move procyclically while half move countercyclically. These facts are inconsistent with claims of a strong systematic relationship between real wages and the business cycle. We show that these wage dynamics are consistent with models of labor contracting, and inconsistent with a Walrasian labor market. We also confirm findings of previous studies in which skilled and unskilled wages exhibit roughly the same degree of cyclical variation.
    Keywords: Wages; Wage Differentials; Business Cycles; Bayesian Analysis
    JEL: C11 C13 C22 C23 C81 C82 J31
    Date: 2008–08
  15. By: V. V. Chari; Patrick J. Kehoe; Ellen R. McGrattan
    Abstract: Macroeconomists have largely converged on method, model design, reduced-form shocks, and principles of policy advice. Our main disagreements today are about implementing the methodology. Some think New Keynesian models are ready to be used for quarter-to-quarter quantitative policy advice; we do not. Focusing on the state-of-the-art version of these models, we argue that some of its shocks and other features are not structural or consistent with microeconomic evidence. Since an accurate structural model is essential to reliably evaluate the effects of policies, we conclude that New Keynesian models are not yet useful for policy analysis.
    Keywords: Keynesian economics ; Macroeconomics
    Date: 2008
  16. By: Todd E. Clark; Michael W. McCracken
    Abstract: Recent work suggests VAR models of output, inflation, and interest rates may be prone to instabilities. In the face of such instabilities, a variety of estimation or forecasting methods might be used to improve the accuracy of forecasts from a VAR. The uncertainty inherent in any single representation of instability could mean that combining forecasts from a range of approaches will improve forecast accuracy. Focusing on models of U.S. output, prices, and interest rates, this paper examines the effectiveness of combining various models of instability in improving VAR forecasts made with real-time data.
    Keywords: Econometric models ; Economic forecasting
    Date: 2008
  17. By: Pfajfar, D.; Santoro, E.
    Abstract: Relying on University of Michigan data on expectations, we establish some stylized facts on the process of in.ation expectation formation across different demographic groups. Percentile time series models are employed to test for rationality and to study learning dynamics across the whole cross-sectional spectrum of responses. These display a significant degree of heterogeneity and asymmetry. Income, education, and gender seem to be rather important characteristics when forecasting inflation. In particular, high income, highly educated, and male agents produce lower mean squared errors. Moreover, socioeconomically "disadvantaged" respondents assume as a reference point their specific consumption basket, while more advantaged respondents actually observe the general price level. A common observation applying to all socioeconomic groups is that agents positioned around the center of the distribution behave roughly in line with the rational expectations hypothesis. Agents on the left hand side of the median (LHS) of the distribution update information very infrequently. As to agents on the right hand side of the median (RHS), we can affirm that their expectations are consistent with adaptive learning and staggered information updating. However, the speed of learning can vary significantly across percentiles and di¤erent demographic groups.
    Keywords: Heterogeneous Expectations, Adaptive Learning, Survey Expectations.
    JEL: E31 C53 D80 J10
    Date: 2008–05
  18. By: Ernst Fehr; Martin Brown; Christian Zehnder
    Abstract: We study the impact of reputational incentives in markets characterized by moral hazard problems. Social preferences have been shown to enhance contract enforcement in these markets, while at the same time generating considerable wage and price rigidity. Reputation powerfully amplifies the positive effects of social preferences on contract enforcement by increasing contract efficiency substantially. This effect is, however, associated with a considerable bilateralisation of market interactions, suggesting that it may aggravate price rigidities. Surprisingly, reputation in fact weakens the wage and price rigidities arising from social preferences. Thus, in markets characterized by moral hazard, reputational incentives unambiguously increase mutually beneficial exchanges, reduce rents, and render markets more responsive to supply and demand shocks.
    Keywords: Reputation, Reciprocity, Relational Contracts, Price Rigidity, Wage Rigidity
    JEL: D82 J3 J41 E24 C9
    Date: 2008–07
  19. By: Rob Rusconi
    Abstract: This paper describes a number of national annuity markets, the types of products typically available, the demand for these products, the value for money on offer and the dynamics of the supply side. It explores supply and demand characteristics, asking what the main forces are that drive these dynamics and how they might be recognised and responded to by policymakers. <P>Marchés nationaux des rentes viagères : caractéristiques et implications <BR>Ce papier décrit un certain nombre de marchés nationaux des rentes viagères, le type de produits disponibles, la demande pour ces produits, la valeur de l‘argent sur l‘offre et la dynamique de la demande. Il explore les caractéristiques de l‘offre et de la demande, recherchant quelles sont les forces guidant cette dynamique et comment elles pourraient être reconnues et traitées par les responsables politiques.
    Keywords: annuity markets, money‘s worth ratios, supply and demand of annuities, marches des rentes viagères, money‘s worth ratios, offre et demande des rentes viagères
    JEL: D11 D14 D91 E21 G11 G38 J14 J26
    Date: 2008–09
  20. By: Zhang, Yan
    Abstract: In his paper "Does utility curvature matter for indeterminacy", Kim (2005) analyzed the relationship among the utility function form, curvature and indeterminacy, concluding that the relationship between curvature and indeterminacy is not robust in neoclassical growth model and the indeterminacy may disappear under the utility specification as in Greenwood (1998). The models he discussed are confined within one sector closed economy. Weder (2001), Meng and Velasco (2004) extend the Benhabib and Farmer (1996) and Benhabib and Nishimura (1998)'s closed economy two sector models into open economy, showing that indeterminacy can occur under small external effects, independently of the intertemporal elasticities in consumption. Meng and Velasco (2003) went further, showing the independence between the elasticity of labor supply and indeterminacy in open economy. Under nonseparable utility forms like in King, Plosser and Rebelo (1988, henceforth KPR) or Bennett-Farmer (2000) form, do we still have this property? In other words, is the independence between curvature and indeterminacy in small open economy models robust to the specification of the utility functions? In this note, I tackle this issue under two different versions of nonseparable utility functions commonly used in the literature. The answer is "yes" to KPR form but "no" to Bennett-Farmer form. Endogenous time preference and consumable nontradable goods are two elements to deliver this result.
    Keywords: Indeterminacy; Endogenous time preference
    JEL: F4 E32
    Date: 2008–05
  21. By: Charlotte Christiansen (School of Economics and Management, University of Aarhus, Denmark)
    Abstract: In this paper we extend the CKLS one factor short rate model to include extreme value nonlinear mean reversion. Similarly to a recent stock market study, we include the smallest short rate during the previous year in the mean equation. We investigate the US and five other major markets (Canada, Germany, Japan, Switzerland, and the UK). There is extreme value mean reversion in the US short rate. For Japan there is both linear and nonlinear mean reversion. For the remaining short rates there is no evidence of mean reversion.
    Keywords: Short term interest rate, Mean reversion, Extreme value, Nonlinearity
    JEL: G12 G15 E43 C13
    Date: 2008–09–02
  22. By: Ippei Fujiwara; Yasuo Hirose; Mototsugu Shintani
    Date: 2008–08–29
  23. By: Rajkamal Iyer; Manju Puri
    Abstract: We use a unique, new, database to examine micro depositor level data for a bank that faced a run. We use minute-by-minute depositor withdrawal data to understand the effectiveness of deposit insurance, the role of social networks, and the importance of bank-depositor relationships in influencing depositor propensity to run. We employ methods from the epidemiology literature which examine how diseases spread to estimate transmission probabilities of depositors running, and the significant underlying factors. We find that deposit insurance is only partially effective in preventing bank runs. Further, our results suggest that social network effects are important but are mitigated by other factors, in particular the length and depth of the bank-depositor relationship. Depositors with longer relationships and those who have availed of loans from a bank are less likely to run during a crisis, suggesting that cross-selling acts not just as a revenue generator but also as a complementary insurance mechanism for the bank. Finally, we find there are long term effects of a solvent bank run in that depositors who run do not return back to the bank. Our results help understand the underlying dynamics of bank runs and hold important policy implications.
    JEL: E58 G21
    Date: 2008–08
  24. By: Skander J. Van den Heuvel
    Abstract: Agents with standard, time-separable preferences do not care about the temporal distribution of risk. This is a strong assumption. For example, it seems plausible that a consumer may find persistent shocks to consumption less desirable than uncorrelated fluctuations. Such a consumer is said to exhibit temporal risk aversion. This paper examines the implications of temporal risk aversion for asset prices. The innovation is to work with expected utility preferences that (i) are not time-separable, (ii) exhibit temporal risk aversion, (iii) separate risk aversion from the intertemporal elasticity of substitution, (iv) separate short-run from long-run risk aversion and (v) yield stationary asset pricing implications in the context of an endowment economy. Closed form solutions are derived for the equity premium and the risk free rate. The equity premium depends only on a parameter indexing long-run risk aversion. The risk-free rate instead depends primarily on a separate parameter indexing the desire to smooth consumption over time and the rate of time preference.
    Date: 2008
  25. By: Antoine Martin; James McAndrews
    Abstract: We study two designs for a liquidity-saving mechanism (LSM), a queuing arrangement used with an interbank settlement system. We consider an environment where banks are subjected to liquidity shocks. Banks must make the decision to send, queue, or delay their payments after observing a noisy signal of the shock. With a balance-reactive LSM, banks can set a balance threshold below which payments are not released from the queue. Banks can choose their threshold such that the release of a payment from the queue is conditional on the liquidity shock. With a receipt-reactive LSM, a payment is released from the queue if an offsetting payment is received, regardless of the liquidity shock. We find that these two designs have opposite effects on different types of payments. Payments that are costly to delay will be settled at least as early, or earlier, with a receipt-reactive LSM. Payments that are not costly to delay will always be delayed with a receipt-reactive LSM, while some of them will be queued and settled early with a balance-reactive LSM. We also show that parameter values will determine which system provides higher welfare.
    Keywords: Bank liquidity ; Interbank market ; Payment systems ; Bank liquidity
    Date: 2008
  26. By: Herrmann, Peter
    Abstract: The Paper gives a brief overview over the social economy in Ireland, presenting this against the background of the countries history and social structure
    Keywords: Social economy; Ireland
    JEL: L30 P40 L20 D20 A10 H00 J20 J40 J00 D60 E20
    Date: 2008
  27. By: yamamura, eiji
    Abstract: This paper uses panel data from Japan to decompose productivity growth measured by the growth of output per labor unit into three components of efficiency improvement, capital accumulation and technological progress. It then examines their determinants through a dynamic panel model. In particular, this paper focuses on the question of how inequality, trust and humans affect the above components. The main findings derived from empirical estimations are: (1) Inequality impedes not only improvements in efficiency but also capital accumulation. (2) A degree of trust promotes efficiency improvements and capital accumulation at the same time. However, human capital merely enhances improvements in efficiency.
    Keywords: Heterogeneity; Inequality; Trust; DEA analysis
    JEL: E25 O15 O4
    Date: 2007–10–24
  28. By: Yamamura, Eiji; Shin, Inyong
    Abstract: In the present paper, the inverted-U shape relationship between growth and inequality found in Chen(2003), is reexamined. We decompose productivity growth into efficiency improvement, capital accumulation and technological progress and then ascertain their determinants by employing a fixed effects and dynamic panel models. In particular, this paper focuses on the question of how economic inequality affects capital accumulation and efficiency improvement. Key findings are that inequality enhances efficiency improvement as well as capital accumulation and then undermines them as inequality widens. However, other factors such as human capital, openness, and government consumption have different effects on them.
    Keywords: Inequality; Growth; Fixed effects
    JEL: E25 O15
    Date: 2008–04–23
  29. By: Giri, Rahul
    Abstract: Observed trade flows provide one metric to gauge the degree of international goods market segmentation. Deviations from the law of one price provide another. New survey data on retail prices for a broad cross section of goods across 13 EU countries, compiled by Crucini, Telmer and Zachariadis (2005), show that (i) the average dispersion of law of one price deviations across all goods is 28 percent and (ii) the range of that dispersion across goods is large, varying from 2 percent to 83 percent. Quantitative multi-country Ricardian models, a la Eaton and Kortum, use data on bilateral trade volumes to estimate international trade barriers or trade costs. This paper investigates whether the degree of international goods market segmentation implied by these models can account for observed cross-country dispersion in prices. When heterogeneous and asymmetric trade costs are carefully calibrated to match observed bilateral trade volumes, the model can account for 85 percent of the average dispersion of law of one price deviations found in the data. However, it generates only 21 percent of the good by good variation in price dispersion. The model is augmented to permit heterogeneity in local costs of distribution - across goods and countries - and is calibrated to match data on distribution margins. While the augmented model can reproduce 96.5 percent of the average dispersion of law of one price deviations, it can match only 32 percent of the variation in that dispersion. Heterogeneity in trade costs, and in local distribution costs, cannot account for observed heterogeneity in the dispersion of law of one price deviations.
    Keywords: Trade; international trade costs; distribution costs; law of one price; price dispersion
    JEL: F15 E31 F10
    Date: 2008–08–12

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