|
on Macroeconomics |
|
Issue of 2008‒11‒04
fifty-six papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | Lena Vogel (Department for Economics and Politics, University of Hamburg) |
| Abstract: | New Keynesian models of the Phillips curve in the spirit of Galí and Gertler (1999) generally assume a short-run trade-off between inflation and a measure of excess demand due to nominal rigidities, while in the long run inflation is constant at the Non-Accelerating Inflation Rate of Unemployment (NAIRU). By contrast, Gordon (1997) in his "triangle model" of inflation models a time-varying NAIRU. We combine both approaches and estimate state-space models of the hybrid New Keynesian Phillips curve (NKPC), where excess demand is measured by the unemployment gap and the NAIRU is allowed to vary over time as in Gordon (1997). Moreover, inflation expectations are measured directly from surveys on household?s inflation expectations and not instrumented for. Our model is estimated for the US, the UK, Italy and Spain and we find considerable variation in the NAIRU over time with NAIRU estimates significantly different from HP-filter derived measures such as usually employed in dynamic stochastic general equilibrium (DSGE) models. In contrast to GMM results for the hybrid NKPC, we find that backward looking behaviour generally seems to be quantitatively more important for inflation than forward looking behaviour. |
| Keywords: | Hybrid New Keynesian Phillips curve, time-varying NAIRU, state-space models |
| JEL: | C32 E31 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:hep:macppr:200803&r=mac |
| By: | Oliver Holtemöller; Torsten Schmidt |
| Abstract: | In this paper, we estimate a small New Keynesian dynamic stochastic general equilibrium (DSGE) model for Germany for the period from 1975 to 1998 and use it to identify the structural shocks, which have driven the business cycle. For this purpose we apply indirect inference methods, that is we specify the parameters of the theoretical model such that simulated data mimics observed data as closely as possible. In addition to the identification of structural shocks, we uncover the unobservable output gap, which is a prominent indicator in business cycle analysis. Furthermore,we show to which extent each identified shock has contributed to the business cycle fluctuations. |
| Keywords: | Business cycle accounting, dynamic stochastic general equilibrium models, Germany, indirect inference, New Keynesian macroeconomics |
| JEL: | C32 C51 E32 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0068&r=mac |
| By: | Heather Boushey |
| Abstract: | This policy proposal outlines a substantial economic stimulus package needed to address the recent downturn in the U.S. economy. This stimulus package details steps to create jobs, provide economic support and lessen the effects of a weakening economy. |
| Keywords: | fiscal stimulus, housing bubble, recession |
| JEL: | H50 H30 E62 E32 O51 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:epo:papers:2008-02&r=mac |
| By: | Carlos Robalo Marques (Banco de Portugal, Research Department, R. do Ouro, 27, 1100 Lisboa, Portugal.) |
| Abstract: | This paper investigates the persistence of aggregate wages and prices in Portugal assuming a model of a unionized economy with imperfect competition. An impulse response analysis is conducted where the structural shocks are identified by taking into account the long-run properties of the model, as well as the cointegrating and weak-exogeneity properties of the system. Real wages and wage inflation emerge as especially persistent following an import price shock, while price inflation is more persistent following an unemployment shock. At the business cycle horizon variation in the forecast errors of wages is attributable mainly to unemployment shocks (about 80 percent), whereas variation in the forecast errors of prices is attributable mainly to import price shocks (about 60 percent) and to unemployment shocks (around 20 percent). Productivity shocks explain somewhat less than 10 percent of the variation in forecast errors of wages and prices. JEL Classification: C32, C51, E31, J30. |
| Keywords: | wages, prices, impulse response function, persistence, structural error-correction model. |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080945&r=mac |
| By: | Ceyhun Bora Durdu; Serdar Sayan |
| Abstract: | This paper analyzes the implications of remittance fluctuations for various macroeconomic variables and Sudden Stops. The paper employs a quantitative two-sector model of a small open economy with financial frictions calibrated to Mexican and Turkish economies, two major recipients, whose remittance receipts feature opposite cyclical characteristics. We find that remittances dampen the business cycles in Mexico, whereas they amplify the cycles in Turkey. Their quantitative effects in the long run, approximated by the stochastic steady state are mild. In the short run, however, remittances have quantitatively large impacts on the economy, when the economy is borrowing constrained. This is because agents in the economy cannot adjust their precautionary wealth to sudden tightening in credit, hence, fluctuations in remittances get magnified through an endogenous debt-deflation mechanism. Our findings suggest that procyclical (or countercyclical) remittances can play a significant deepening (or mitigating) role for Sudden Stops. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:946&r=mac |
| By: | Martha Starr |
| Abstract: | This paper investigates the influence of economic news on consumer sentiment, and examines whether ‘news shocks’ –- changes in coverage that would not be expected from incoming data on economic fundamentals -– have aggregate effects. Using monthly U.S. data and a structural vector-autoregression, I find that (1) sentiment is affected by news shocks, (2) after filtering out effects of news shocks, shocks to sentiment still have positive effects on consumer spending, and (3) news shocks influence both spending and unemployment in significant, though transitory ways. These results are consistent with other evidence of a role of non-fundamental factors in aggregate fluctuations. |
| Keywords: | Consumption, consumer sentiment, economic news, aggregate fluctuations |
| JEL: | E21 D12 E32 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:amu:wpaper:1608&r=mac |
| By: | Chan, Tze-Haw; Khong, Wye Leong Roy |
| Abstract: | Currency crises and financial instability in the 1990s have increased the needs of regional cooperation, hence leading to the proposition of optimal currency area (OCA). But only if shocks are symmetric, the cost of relinquish the flexible monetary policy is to be outweighed by the benefits of forming OCA. To tackle the issue, this paper studies the extent of business cycle correlation and output linkages among fifteen Asia Pacific economies during 1961-2004. The real outputs series which sourced from the Penn World Data were estimated in standardized international dollars to construct business cycles based on the Christiano-Fitzgerald (2003)’s asymmetric band-pass filtering method. On the whole, the selected APEC members (especially ASEANs and NIEs) have achieved some important degree of business cycle co-fluctuations since the 1990s and further enhanced after 1997, most possibly attributed to the improved intra-trading and cross-boarder investments. For the US-Japan-ASEAN5 series, a dynamic analysis was conducted using the Autoregressive Distributed Log bounds test and the Unrestricted Error Correction Model (UECM) representation advanced in Pesaran et al. (2002). Nonetheless, the idiosyncratic and common shocks in ASEAN economies are more identical to the Japanese experience rather than the US’s. The overall finding has signified the brighter likelihood of economic cooperation and regional currency arrangements among APEC members. |
| Keywords: | Business Cycle Correlation; Output linkages; OCA; Asia Pacific; Band-pass Filtering; UECM |
| JEL: | C51 E32 O47 C22 |
| Date: | 2007–12–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:11305&r=mac |
| By: | Carrillo Julio A. (METEOR) |
| Abstract: | Cochrane (2007) points out that the Taylor rule parameters in New-Keynesian models are not identified, and thus trying to estimate them through single-equation regressions is pointless. This paper shows in contrast that this observation holds only for economies that do not display inflation inertia or habit formation. These inherent features of aggregate data allow to correctly identify the parameters of the monetary policy rule by single-equation analysis. |
| Keywords: | monetary economics ; |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umamet:2008034&r=mac |
| By: | Tobias Adrian; Hyun Song Shin |
| Abstract: | In a market-based financial system, banking and capital market developments are inseparable. We document evidence that balance sheets of market-based financial intermediaries provide a window on the transmission of monetary policy through capital market conditions. Short-term interest rates are determinants of the cost of leverage and are found to be important in influencing the size of financial intermediary balance sheets. However, except for periods of crises, higher balance-sheet growth tends to be followed by lower interest rates, and slower balance-sheet growth is followed by higher interest rates. This suggests that consideration might be given to a monetary policy that anticipates the potential disorderly unwinding of leverage. In this sense, monetary policy and financial stability policies are closely linked. |
| Keywords: | Monetary policy ; Capital market ; Intermediation (Finance) ; Interest rates |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:346&r=mac |
| By: | Alexander Mihailov; Fabio Rumler; Johann Scharler |
| Abstract: | This paper applies GMMestimation to assess empirically the small open-economy New Keynesian Phillips Curve derived in Galí and Monacelli (2005). We obtain a testable specification where fluctuations in the terms of trade enter explicitly, thus allowing a comparison of the relevance of domestic versus external determinants of CPI inflation dynamics. For most countries in our sample the expected relative change in the terms of trade emerges as a more relevant inflation driver than the contemporaneous domestic output gap. Overall, our results indicate some, albeit moderate, support for the tested relationship based on data from ten OECD countries typically classified as open economies. |
| Keywords: | New Keynesian Phillips Curve, small open economies, terms of trade fluctuations, inflation dynamics, GMM estimation |
| JEL: | C32 C52 E31 F41 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:jku:econwp:2008_17&r=mac |
| By: | Elena Angelini (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Gonzalo Camba-Méndez (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Domenico Giannone (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Gerhard Rünstler (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Lucrezia Reichlin (London Business School, Regent’s Park, London NW1 4SA, United Kingdom.) |
| Abstract: | This paper evaluates models that exploit timely monthly releases to compute early estimates of current quarter GDP (now-casting) in the euro area. We compare traditional methods used at institutions with a new method proposed by Giannone, Reichlin, and Small (2005). The method consists in bridging quarterly GDP with monthly data via a regression on factors extracted from a large panel of monthly series with different publication lags. We show that bridging via factors produces more accurate estimates than traditional bridge equations. We also show that survey data and other ‘soft’ information are valuable for now-casting. JEL Classification: E52, C33, C53. |
| Keywords: | Forecasting, Monetary Policy, Factor Model, Real Time Data, Large datasets, News. |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080949&r=mac |
| By: | Christian Bordes (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I); Samuel Maveyraud (GREThA - Groupe de Recherche en Economie Théorique et Appliquée - CNRS : UMR5113 - Université Montesquieu - Bordeaux IV) |
| Abstract: | This paper o¤ers to investigate both the Friedman's and Mishkin's hypotheses on the consequences of inflation on output growth. To this end, we first base these hypotheses in a unified framework. Second, in an empirical work based on OECD countries, we distinguish between short-medium and long run and between headline and core inflation. We get two main results. First, nominal uncertainty and inflation are positively linked. Second, headline inflation negatively Granger causes out- put gap (US, Japan, France) but has no effect on potential output growth (US excepted) whereas core inflation impacts potential output growth (UK, Germany) but not output gap (US excepted). |
| Keywords: | Inflation, uncertainty, output growth, GARCH, CF filter |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:paris1:hal-00308571_v1&r=mac |
| By: | Kai Christoffel (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Günter Coenen (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Anders Warne (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.) |
| Abstract: | In this paper, we outline a version of the New Area-Wide Model (NAWM) of the euro area designed for use in the (Broad) Macroeconomic Projection Exercises regularly undertaken by ECB/Eurosystem staff. We present estimation results for the NAWM that are obtained by employing Bayesian inference methods and document the properties of the estimated model by reporting its impulse-response functions and forecast-error-variance decompositions, by inspecting the model-based sample moments, and by examining the model’s forecasting performance relative to a number of benchmarks, including a Bayesian VAR. We finally consider several applications to illustrate the potential contributions the NAWM can make to forecasting and policy analysis. JEL Classification: C11, C32, E32, E37. |
| Keywords: | DSGE modelling, open-economy macroeconomics, Bayesian inference, forecasting, policy analysis, euro area. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080944&r=mac |
| By: | Gabriel Fagan (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Vitor Gaspar (Bureau of European Policy Advisers, European Commission, Rue de la Loi 100, B-1049 Brussels, Belgium.) |
| Abstract: | The move to monetary union in Europe led to convergence of interest rates among the participating countries. This was associated with notable cross-country differences in the behaviour of key macroeconomic aggregates. Compared to the low interest rate countries, former high interest rate countries experienced a boom in domestic demand, a deterioration of the current account and appreciation of the real exchange rate. This paper documents the key stylised facts of this experience and provides a compact two-country model, based on the Blanchard-Yaari setup, to analyze this phenomenon. This model, though simple, is able to broadly capture the main qualitative features of the adjustment. Using this model, we show that the creation of the monetary union leads to an increase in welfare for all generations in both country groups. JEL Classification: F36, E21, F32. |
| Keywords: | euro area, interest rate convergence, overlapping generations model. |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080946&r=mac |
| By: | William Barnett (Department of Economics, The University of Kansas); Evgeniya Aleksandrovna Duzhak (Baruch College, City University of New York) |
| Abstract: | As is well known in systems theory, the parameter space of most dynamic models is stratified into subsets, each of which supports a different kind of dynamic solution. Since we do not know the parameters with certainty, knowledge of the location of the bifurcation boundaries is of fundamental importance. Without knowledge of the location of such boundaries, there is no way to know whether the confidence region about the parameters’ point estimates might be crossed by one or more such boundaries. If there are intersections between bifurcation boundaries and a confidence region, the resulting stratification of the confidence region damages inference robustness about dynamics, when such dynamical inferences are produced by the usual simulations at the point estimates only. Recently, interest in policy in some circles has moved to New Keynesian models, which have become common in monetary policy formulations. As a result, we explore bifurcations within the class of New Keynesian models. We study different specifications of monetary policy rules within the New Keynesian functional structure. In initial research in this area, Barnett and Duzhak (2008) found a New Keynesian Hopf bifurcation boundary, with the setting of the policy parameters influencing the existence and location of the bifurcation boundary. Hopf bifurcation is the most commonly encountered type of bifurcation boundary found among economic models, since the existence of a Hopf bifurcation boundary is accompanied by regular oscillations within a neighborhood of the bifurcation boundary. Now, following a more extensive and systematic search of the parameter space, we also find the existence of Period Doubling (flip) bifurcation boundaries in the class of models. Central results in this research are our theorems on the existence and location of Hopf bifurcation boundaries in each of the considered cases. We also solve numerically for the location and properties of the Period Doubling bifurcation boundaries and their dependence upon policy-rule parameter settings. |
| Keywords: | Bifurcation, dynamic general equilibrium, Hopf bifurcation, flip bifurcation, period doubling bifurcation, robustness, New Keynesian macroeconometrics, Taylor rule, inflation targeting. |
| JEL: | C14 C22 E37 E32 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:kan:wpaper:200811&r=mac |
| By: | António Afonso (Directorate General Economics, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Luca Agnello (University of Palermo, Department of Economics, Viale delle Scienze, 90128 Palermo, Sicily, Italy.); Davide Furceri (OECD, 2, rue André Pascal, F-75775 Paris Cedex 16, France.) |
| Abstract: | We decompose fiscal policy in three components: i) responsiveness, ii) persistence and iii) discretion. Using a sample of 132 countries, our results point out that fiscal policy tends to be more persistent than to respond to output conditions. We also found that while the effect of cross-country covariates is positive (negative) for discretion, it is negative (positive) for persistence thereby suggesting that countries with higher persistence have lower discretion and vice versa. In particular, while government size, country size and income have negative effects on the discretion component of fiscal policy, they tend to increase fiscal policy persistence. JEL Classification: E62, H50. |
| Keywords: | Fiscal Policy, Fiscal Volatility. |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080954&r=mac |
| By: | Casey Mulligan; Luke Threinen |
| Abstract: | We model the panic of 2008 as part of the wealth and substitution effects deriving from a housing price crash that began in 2006. The dissipation of the wealth effect stimulates a reorganization of the banking industry and increases in employment, GDP, and unemployment. The release of resources from the housing sector lowers investment goods prices, and thereby devalues existing non-residential capital while stimulating non-residential investment. These predictions are compared with measured U.S. economic performance from 2006 to 2008 Q2. |
| JEL: | E20 E32 R21 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14446&r=mac |
| By: | Ansgar Belke; Daniel Gros |
| Abstract: | It is widely assumed that a common currency makes it desirable to have also a common fiscal policy. However, if fiscal policy is a source of shocks, independent national fiscal policies are generally preferable because they allow for risk diversification. |
| Keywords: | Currency union, fiscal policy coordination, stabilisation |
| JEL: | E63 F42 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0062&r=mac |
| By: | Stefano Bosi (EPEE - Centre d'Etudes des Politiques Economiques - Université d'Evry-Val d'Essonne, EQUIPPE - ECONOMIE QUANTITATIVE, INTEGRATION, POLITIQUES PUBLIQUES ET ECONOMETRIE - Université des Sciences et Technologies de Lille - Lille I); Thomas Seegmuller (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris) |
| Abstract: | While most of the literature concerned with indeterminacy and endogenous cycles is based on the restrictive assumption of a representative consumer,some recent contributions have investigated the role of heterogeneous agents in dynamics. This paper adds to this latter strand of the literature by highlighting the effects of heterogeneity in consumers' preferences within an overlapping generations economy with capital accumulation, endogenous labor supply and consumption in both periods. Using a mean-preserving approach to heterogeneity, we show that increasing the dispersion of propensity to save decreases macroeconomic volatility, by narrowing down the range of parameter values compatible with indeterminacy and ruling out expectations-driven fluctuations under a sufficiently large heterogeneity. |
| Keywords: | Endogenous fluctuations; heterogeneouspreferences; mean-preserving dispersion; overlapping generations. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:hal:paris1:halshs-00266713_v1&r=mac |
| By: | OECD |
| Abstract: | This paper examines the nature and the length of economic adjustments to selected structural reforms, drawing on a variety of approaches: descriptive analysis and simulations using Dynamic General Equilibrium and macro-economic neo-Keynesian models. The descriptive analysis suggests that the correlation between reforms, including a change in the tax wedge, the replacement ratio or anti-competitive product market regulation and the structural unemployment rate peaks only after 5 to 10 years. Lowering employment and price adjustment costs in the euro area to their respective US levels would only have a relatively limited effect on the speed of adjustment to labour market and tax reforms. Monetary policy reaction can speed up the adjustment to a new equilibrium, though to a varying degree in the different OECD countries or regions. In particular, reforms in individual euro area countries are likely to trigger only little or no policy reaction, unless there is an area-wide effort to implement reforms. <P>Vitesse d’ajustement à des réformes sur le marché du travail et de la fiscalité <BR>Cet article examine la nature et la durée des ajustements économiques à un certain nombre de réformes structurelles, utilisant plusieurs approches : analyse descriptive et simulations des modèles dynamique d’équilibre général et macro-économiques néo-keynésiens, L’analyse descriptive suggère que la corrélation entre des réformes, notamment une modification du coin fiscal, du taux de remplacement et des régulations anticoncurrentielles sur le marché des produits et le taux de chômage structurel n’atteint son effet maximum qu’après 5 à 10 ans. Diminuer les coûts d’ajustement sur l’emploi et les prix de la zone euro à leur niveau observé aux États-Unis ne se traduirait que par des effets limités sur la vitesse d’ajustements aux réformes sur le marché du travail ou aux réformes fiscales. Une réaction de politique monétaire peut accélérer l’ajustement à un nouvel équilibre, mais de manière plus ou moins marquée dans les différents pays ou régions de l’OCDE. En particulier, les réformes menées au niveau des pays individuels généreront probablement peu ou pas de réaction monétaire, sauf en présence d’un effort concerté de mise en oeuvre de réformes au niveau de la zone. |
| Keywords: | réforme structurelle, United States, États-Unis, monetary policy, politique monétaire, zone Euro, euro area, structural reforms, adjustment, Taylor rule, DSGE model, modèle DSGE |
| JEL: | C5 E00 E5 G10 |
| Date: | 2008–10–28 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:647-en&r=mac |
| By: | Guido Menzio (Department of Economics, University of Pennsylvania); Espen Moen (Department of Economics, Norwegian School of Management (NSM)) |
| Abstract: | We consider a frictional labor market in which firms want to insure their senior employees against income fluctuations and, at the same time, want to recruit new employees to fill their vacant positions. Firms can commit to a wage schedule, i.e. a schedule that specifies the wage paid by the firm to its employees as function of their tenure and other observables. However, firms cannot commit to the employment relationship with any of their workers, i.e. firms can dismiss workers at will. We find that, because of the firm’s limited commitment, the optimal schedule prescribes not only a rigid wage for senior employees, but also a downward rigid wage for new hires. Moreover, we find that, while the rigidity of the wage of senior workers does not affect the allocation of labor, the rigidity of the wage of new hires magnifies the response of unemployment and vacancies to negative shocks to the aggregate productivity of labor. |
| Keywords: | Competitive Search, Risk Sharing, Unemployment, Business Cycles |
| JEL: | E24 E32 J64 |
| Date: | 2008–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:08-040&r=mac |
| By: | Claudio Campanale (Universidad de Alicante); Gian Luca Clementi (New York University); Rui Castro (Université de Montréal) |
| Abstract: | In this paper we provide a thorough characterization of the asset returns implied by a simple general equilibrium production economy with convex investment adjustment costs. When households have Epstein-Zin preferences, there exist plausible parametervalues such that the model generates unconditional mean risk--free rate and equity return, and volatility of consumption growth, which are in line with historical averages for the US economy. Consistently with the data, the model's implied price--dividendratio is pro-cyclical and stock returns are predictable (and increasingly so as the time horizon increases), while dividend growth is not. The model also implies realistic values for (i) the correlation of the risk--free rate with output growth and consumption growth and (ii) the correlation pattern between risk--free rate, equity return, and equity premium. The risk implied by the model is rather low. At the modal state of nature, an individual that expects to consume for 100,000 dollars a year faces a lottery over future consumption with a standard deviation of 55 dollars (per quarter). Her risk aversion is such that she's willing to pay 1 dollar (per quarter) in order to avoid that lottery. Very similar results can be obtained assuming that agents are disappointment averse in the sense of Gul (1991). With such risk preferences, the universality requirement is not a problem to the extent that it is in the case of expected utility. In fact, faced with a lottery that has a coefficient of variation 100 times as large as that implied by our model, a disappointment averse agent displays the same relative risk aversion as an expected utility agent with logarithmic utility! |
| Keywords: | Equity Premium, Business Cycle, Predictability, Disappointment Aversion. |
| JEL: | D81 E32 E43 E44 G12 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasad:2008-14&r=mac |
| By: | Jacobson, Tor (Research Department, Central Bank of Sweden); Kindell, Rikard (Svenska Handelsbanken); Lindé, Jesper (Monetary Policy Department, Central Bank of Sweden); Roszbach, Kasper (Research Department, Central Bank of Sweden) |
| Abstract: | This paper studies the relation between macroeconomic fluctuations and corporate defaults while conditioning on industry affiliation and an extensive set of firm-specific factors. Using a logit approach on a panel data set for all incorporated Swedish businesses over 1990- 2002, we find strong evidence for a substantial and stable impact of aggregate fluctuations. Macroeffects differ across industries in an economically intuitive way. Out-of-sample evaluations show our approach is superior to both models that exclude macro information and best fitting naive forecasting models. While firm-specific factors are useful in ranking firms’ relative riskiness, macroeconomic factors capture fluctuations in the absolute risk level. |
| Keywords: | Default; default-risk model; business cycles; aggregate fluctuations; microdata; logit; firm-specific variables; macroeconomic variables |
| JEL: | C35 C41 C52 E44 G21 G33 |
| Date: | 2008–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0226&r=mac |
| By: | Takushi Kurozumi; Willem Van Zandweghe |
| Abstract: | We investigate implications of search and matching frictions in the labor market for in ation targeting interest rate policy in terms of equilibrium stability. When the interest rate is set in response to past or present in ation, determinacy of equilibrium is ensured similarly to comparable previous studies with frictionless labor markets. In stark contrast to these studies, indeterminacy is very likely if the interest rate is adjusted in response solely to expected future in ation. This is due to a vacancy channel of monetary policy that stems from the labor market frictions and renders in ation expectations self-ful lling. The indeterminacy can be overcome once the interest rate is adjusted in response also to output or the unemployment rate or if the policy contains interest rate smoothing. When E-stability is adopted as an equilibrium selection criterion, a unique E-stable fundamental rational expectations equilibrium is generated under active, but not too strong, policy responses only to expected future in ation. This suggests that the problem is not critical from the perspective of learnability of the fundamental equilibrium. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp08-03&r=mac |
| By: | Laurent Ferrara (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, DGEI-DAMEP - Banque de France); Dominique Guegan (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris) |
| Abstract: | Business surveys are an important element in the analysis of the short-term economic situation because of the timeliness and nature of the information they convey. Especially, surveys are often involved in econometric models in order to provide an early assessment of the current state of the economy, which is of great interest for policy-makers. In this paper, we focus on non-seasonally adjusted business surveys released by the European Commission. We introduce an innovative way for modelling those series taking the persistence of the seasonal roots into account through seasonal-cyclical long memory models. We empirically prove that such models produce more accurate forecasts than classical seasonal linear models. |
| Keywords: | Euro area, nowcasting, business surveys, seasonal, long memory. |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:paris1:halshs-00277379_v1&r=mac |
| By: | Elena Angelini (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Marta Bańbura (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Gerhard Rünstler (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.) |
| Abstract: | We estimate and forecast growth in euro area monthly GDP and its components from a dynamic factor model due to Doz et al. (2005), which handles unbalanced data sets in an efficient way. We extend the model to integrate interpolation and forecasting together with cross-equation accounting identities. A pseudo real-time forecasting exercise indicates that the model outperforms various benchmarks, such as quarterly time series models and bridge equations in forecasting growth in quarterly GDP and its components. JEL Classification: E37, C53. |
| Keywords: | Dynamic factor models, interpolation, nowcasting. |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080953&r=mac |
| By: | Ricardo Mestre (Corresponding author: European Central Bank, DG Research, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Peter McAdam (European Central Bank, DG Research, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.) |
| Abstract: | We evaluate residual projection strategies in the context of a large-scale macro model of the euro area and smaller benchmark time-series models. The exercises attempt to measure the accuracy of model-based forecasts simulated both out-of-sample and in-sample. Both exercises incorporate alternative residual-projection methods, to assess the importance of unaccounted-for breaks in forecast accuracy and off-model judgment. Conclusions reached are that simple mechanical residual adjustments have a significant impact of forecasting accuracy irrespective of the model in use, ostensibly due to the presence of breaks in trends in the data. The testing procedure and conclusions are applicable to a wide class of models and thus of general interest. JEL Classification: C52, E30, E32, E37. |
| Keywords: | Macro-model, Forecast Projections, Out-of-Sample, In-Sample, Forecast Accuracy, Structural Break. |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080950&r=mac |
| By: | Olga Bohachova |
| Abstract: | This paper explores the links between macroeconomic conditions and individual bank risk. Using capital adequacy ratios as a broad measure of risk sustainability, a linear mixed effects model for a large international panel of banks for the years 2001-2005 is estimated. In OECD countries, banks tend to hold higher capital ratios during business cycle highs, this effect being even stronger for a subsample of EU banks. In non-OECD countries, periods of higher economic growth are associated with lower capital ratios. This indicates procyclical behavior. Banks accumulate risks more rapidly in economically good times and some of these risks materialize as asset quality deteriorates during subsequent recessions. Furthermore, higher inflation rates are associated with higher capital ratios of banks, implying that inflation-induced economic uncertainty stimulates banks to restrict credit. As far as regulatory and institutional environment is concerned, econometric estimates show that banks in non-OECD countries with deposit insurance tend to be more risky, whereas evidence of a negative relationship between concentration of the banking sector and banks’ risk taking is statistically less robust. |
| Keywords: | international banking, macroeconomic conditions, banking risk |
| JEL: | F37 F41 G21 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:iaw:iawdip:44&r=mac |
| By: | Thomas Seegmuller (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris) |
| Abstract: | In macroeconomics, economists introduce most frequently imperfect competition on product markets using the Dixit and Stiglitz (1977) monopolistic competition model. However, by assumption, this framework ignores one important feature of imperfect competition: strategic interactions between producers. Taking into account this remark and following Yang and Hejdra (1993), this paper analyzes an overlapping generations model where strategic interactions between producers are introduced and examines how they affect the stability properties of the steady state. Because of free entry, strategic interactions between producers imply a new dynamic feature, mark-up variability, promoting indeterminacy and endogenous cycles. Indeed, in contrast to the model without strategic interaction, endogenous fluctuations can occur when the substitution between the production factors, capital and labor, is not too weak, but in accordance with empirical estimates. |
| Keywords: | Endogenous fluctuations ; imperfect competition ; strategic interactions ; mark-up variability ; capital-labor substitution ; overlapping generations |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:hal:paris1:halshs-00194292_v1&r=mac |
| By: | Li, Wu |
| Abstract: | This paper presents a discrete-time growth model to describe the dynamics of a multi-agent economy, and the model consists of production process, exchange process, price and technology adjustment processes etc. Technologies of agents in each period are represented by a technology matrix pair, and some properties of Perron-Frobenius eigenvalues and eigenvectors of technology matrix pairs are discussed. An exchange model is also developed to serve as the exchange part of the growth model. And equilibrium paths of the growth model are proved to be balanced growth paths sharing a unique normalized price vector. Though this paper focuses mainly on the case of n agents and n goods, the growth model can also deal with the case of m agents and n goods. A numerical example with 6 agents and 4 goods is given, which describes the dynamics of a two-country economy and has endogenous price fluctuations and business cycles. |
| Keywords: | von Neumann’s expanding economic model; input-output model; dynamic general equilibrium; disequilibrium; multi-country economic model |
| JEL: | B51 C68 O41 D58 F43 D51 C67 D5 E32 C02 F1 |
| Date: | 2008–08–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:11302&r=mac |
| By: | Robert A. Blecker |
| Abstract: | This paper finds that shocks to net financial inflows, world oil prices, the U.S. growth rate, and the lagged real exchange rate explain most of the fluctuations in Mexico’s annual growth since 1979. The paper also estimates how the effects of these external constraints have changed since Mexico’s liberalization policies of the late 1980s and the formation of NAFTA in 1994. Estimates of an investment function and other tests show that growth drives investment but not conversely, in the short run. Inflows of foreign direct investment have positive effects on investment, but the coefficients are small and not always significant. |
| Keywords: | Latin America, Mexico, external shocks, economic growth, investment, financial inflows |
| JEL: | O54 O11 E22 F43 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:amu:wpaper:0408&r=mac |
| By: | Stefano Bosi (EQUIPPE - Université de Lille I, EPEE - Université d'Evry-Val d'Essonne); Thomas Seegmuller (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris) |
| Abstract: | The aim of this paper is to study the role of progressive tax rules on the allocations of steady state and the stability properties in a Ramsey economy with heterogeneous households and borrowing constraints. Since labor supply in elastic, considering different tax rates on capital and labor incomes is relevant. The steady state analysis allows us to highlight the existence of different types of stationary equilibria. While patient agents always hold capital, impatient ones have or not positive savings, depending on the leval of real interest rate. Furthermore, it is not always optimal for all households to have a positive labor supply. Studying the comparative statics and local dynamics, we focus on the steady state with a segmented population : patient households own the whole stock of capital, while the impatient ones are workers. Varying the population sizes and the tax rates, we underline the crucial role of fiscal progressivity and endogenous labor. Moreover, in contrast to many contributions, we prove that progressive tax rules can promote expectation-driven fluctuations and endogenous cycles which means that progressivity can be inopportune to stabilize macroeconomic volatility. |
| Keywords: | Progressive taxation, heterogeneous agents, borrowing constraint, endogenous labor supply, steady state allocation, macroeconomic stability. |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:paris1:halshs-00331299_v1&r=mac |
| By: | Audrey Desbonnet (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, University of Vienna - University of Vienna); Sumudu Kankanamge (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris) |
| Abstract: | This paper assesses the long-run optimal level of public debt in a framework where aggregate fluctuations are taken into account. Households are subject to both aggregate and idiosyncratic shocks and the market structure prevents them from perfectly insuring against risk. We find that the long-run optimal level of public debt is generally higher in a setting embedding aggregate fluctuations than in a setting without. Aggregate fluctuations modify both the cost and the motive for precautionary saving. Higher levels of public debt, by effectively reducing the cost of precautionary saving, help agents to smooth consumption when they face price and employment fluctuations. |
| Keywords: | Public debt, aggregate risk, precautionary saving, credit constraints. |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:hal:paris1:halshs-00175877_v2&r=mac |
| By: | Attiya Y. Javid (Pakistan Institute of Development Economics, Islamabad); Eatzaz Ahmad (Quaid-i-Azam University, Islamabad) |
| Abstract: | This is an attempt to empirically investigate the risk and return relationship of individual stocks traded at Karachi Stock Exchange (KSE), the main equity market in Pakistan. The analysis is based on daily as well as monthly data of 49 companies and KSE 100 index is used as market factor covering the period from July 1993 to December 2004. The natural startingpoint of this study is to test the adequacy of the standard Capital Asset Pricing Model (CAPM) of Sharpe (1964) and Lintner (1965). The empirical findings do not support the standard CAPM model as a model to explain assets pricing in Pakistani equity market. The critical condition of CAPM—that there is a positive trade-off between risk and return—is rejected and residual risk plays some role in pricing risky assets. This allows for the return distribution to vary over time. The empirical results of the conditional CAPM, with time variation in market risk and risk premium, are more supported by the KSE data, where lagged macroeconomic variables, mostly containing business cycle information, are used for conditioning information. The information set includes the first lag of the following business cycle variables: market return, call money rate, term structure, inflation rate, foreign exchange rate, growth in industrial production, growth in real consumption, and growth in oil prices. In a nutshell, the results confirm the hypothesis that risk premium is time-varying type in Pakistani stock market and it strengthens the notion that rational asset pricing is working, although inefficiencies are also present in unconditional and conditional settings. The observation is that the dynamic size and book-to-market value coefficient explain the cross-section of expected returns in a few sub-periods. The conditional approach to testing the CAPM and the three-factor CAPM shows that the asset prices relationship is better explained by accommodating business cycle variables as information set. The findings of the conditional three-factor CAPM also give support to the fact that time-varying firm attributes have only a limited role in Pakistani market to explain the asset price behaviour. |
| Keywords: | Capital Asset Pricing Model, Fama-French Three Factor Model, Market Risk, Residual Risk, Size, Book-to-market Value, Information Set, Business Cycle Variables |
| JEL: | C53 E44 G11 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:pid:wpaper:2008:48&r=mac |
| By: | Alexander Ludwig; Michael Reiter (Mannheim Research Institute for the Economics of Aging (MEA)) |
| Abstract: | We model the optimal reaction of a public PAYG pension system to demographic shocks. We compare the ex-ante first best and second best solution of a Ramsey planner with full commitment to the outcome under simple third best rules that mimic the pension systems observed in the real world. The model, in particular the pension system, is calibrated to the German economy. The objective of the social planner is calibrated such that the size of the German pension system was optimal under the economic and demographic conditions of the 1960s. We find that the German system comes relatively close to the second-best solution, especially when labor market distortions are correctly modelled. Furthermore, the German system and a constant contribution rate lead to a lower variability of lifetime utility than does the second best policy. The recent baby-boom/baby-bust cycle leads to welfare losses of about 5% of lifetime consumption for some cohorts. We argue that it is crucial for these results to model correctly the labor market distortions arising from the pension system. |
| JEL: | E62 H3 H55 |
| Date: | 2008–10–30 |
| URL: | http://d.repec.org/n?u=RePEc:mea:meawpa:08166&r=mac |
| By: | Stéphane Auray (Université Lille 3 (GREMARS), Université de Sherbrooke (GREDI) and CIRPÉE); Aurélien Eyquem (GATE, UMR 5824, Université de Lyon and Ecole Normale Supérieure Lettres et Sciences Humaines, France) |
| Abstract: | Dans cet article, nous montrons que l'incomplétude des marchés dans une union monétaire caractérisée par des chocs asymétriques et des rigidités nominales génère des gains de bien-être. L'existence de marchés incomplets relâche la pression sur les termes de l'échange, ce qui réduit la volatilité des taux d'inflation nationaux. Les gains associés µa cette baisse dépassent les coûts de l'imparfait partage des risques. L'effet net est positif et les gains correspondants peuvent atteindre 0.05% de consommation permanente. |
| Keywords: | union monétaire, chocs asymétriques, prix rigides, bien-être, marchés financiers incomplets |
| JEL: | E51 E58 F36 F41 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:shr:wpaper:08-13&r=mac |
| By: | Michael W.M. Roos; Wolfgang J. Luhan |
| Abstract: | In this paper we report the results of a laboratory experiment, in which we observed the behavior of agents in a simple macroeconomic setting. The structure of the economy was only partially known to the players which is a realistic feature of our experiment. We investigate whether subjects manage to approach optimal behavior even if they lack important information. Furthermore, we analyze subjects’ perceptions of the model and whether their behavior is consistent with their perceptions. The full information model predicts changes of employment correctly, but not the level of employment. In the aggregate, subjects have correct perceptions, although individual perceptions are biased.We finally show that deviations from the full information solution are due to optimization failures than than misperceptions. |
| Keywords: | Methodology, macroeconomic experiment, perceptions, optimization, expectations |
| JEL: | D01 D83 D84 B41 C91 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0055&r=mac |
| By: | James W. Boudreau (University of Connecticut) |
| Abstract: | Agents on the same side of a two-sided matching market (such as the marriage or labor market) compete with each other by making self-enhancing investments to improve their worth in the eyes of potential partners. Because these expenditures generally occur prior to matching, this activity has come to be known in recent literature (Peters, 2007) as pre-marital investment. This paper builds on that literature by considering the case of sequential pre-marital investment, analyzing a matching game in which one side of the market invests first, followed by the other. Interpreting the first group of agents as workers and the other group as firms, the paper provides a new perspective on the incentive structure that is inherent in labor markets. It also demonstrates that a positive rate of unemployment can exist even in the absence of matching frictions. Policy implications follow, as the prevailing set of equilibria can be altered by restricting entry into the workforce, providing unemployment insurance, or subsidizing pre-marital investment. |
| Keywords: | Matching, pre-marital investment, unemployment. |
| JEL: | C78 H30 E24 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2008-45&r=mac |
| By: | Wendner, Ronald |
| Abstract: | This paper investigates the effects of (``keeping up with the Joneses'' and ``learning-by-investing'') externalities, when labor productivity decreases with age. Within the framework of a continuous time overlapping generations model, the effects of the consumption externality on the propensity to consume, capital level and individual consumption growth rates are ambiguous and depend on the presence (absence) and sign of the ``generation replacement effect'' (GRE). The sign of the GRE is determined by the rate at which labor productivity declines. Both externalities generate distortions --- even with exogenous labor supply. Depending on the sign of the GRE, in case of a production externality, the consumption externality may raise efficiency by introducing an additional distortion. For a specific rate of labor productivity decline the GRE vanishes. In this case, externalities display the same effects in both a representative agent and the overlapping generations model. |
| Keywords: | Externality; labor productivity; overlapping generations; perpetual youth; distortion; growth |
| JEL: | D91 E21 O40 |
| Date: | 2008–10–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:11335&r=mac |
| By: | Martin Halla; Johann Scharler |
| Abstract: | In this paper we study the importance of marriage for interstate risk sharing. We find that US states in which married couples account for a higher share of the population are less exposed to state-specific output shocks. Thus, marriages do not just improve the allocation of risk at the individual level, but also have implications for the allocation of risk at the more aggregated state-level. Quantitatively, the impact of marriage on interstate risk sharing varies over divorce regimes. |
| Keywords: | Risk sharing, marriage, divorce, family law |
| JEL: | J12 E21 K36 G21 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:jku:econwp:2008_16&r=mac |
| By: | Guerrero, Carlos (Tecnológico de Monterrey, Campus Ciudad de México) |
| Abstract: | Although the use of the plutocratic index is, perhaps, an historical convention, it constitutes a misleading target. Our aim is to construct alternative CPI’s for Mexico using the median of the expenditure distribution. Additionally, considering that 42.6% of Mexican people live in poverty (54.7% in rural and 35.6% in urban areas, figures for 2006), our alternative CPI’s distinguish between areas. In the final part of this paper, the use of a single goal by the Mexican monetary authority is criticized. |
| Keywords: | CPI, Mexico, plutocratic index, inflation |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:ega:docume:200805&r=mac |
| By: | Martin Halla; Johann Scharler |
| Abstract: | In this paper we study the importance of marriage for interstate risk sharing. We find that US states in which married couples account for a higher share of the population are less exposed to state-specific output shocks. Thus, marriages do not just improve the allocation of risk at the individual level, but also have implications for the allocation of risk at the more aggregated state-level. Quantitatively, the impact of marriage on interstate risk sharing varies over divorce regimes. |
| Keywords: | Risk sharing, marriage, divorce, family law |
| JEL: | J12 E21 K36 G21 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:jku:nrnwps:2008_03&r=mac |
| By: | Iuliana Matei (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I) |
| Abstract: | This article studies the features of co-movements of prices and production between six CEECs recently joined the EU and the euro zone. More precisely, based partially on the methodology suggested by Alesina, Barro and Tenreyro [2002], we evaluate the size and the persistence of prices and outputs shocks between each CEECs and euro zone. Results will contribute to the debate around the participation of the new members to the EMU. |
| Keywords: | European monetary integration, co-movements, AR models, CEECs. |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00335025_v1&r=mac |
| By: | Iuliana Matei (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I) |
| Abstract: | This article studies the features of co-movements of prices and production between six CEECs recently joined the EU and the euro zone. More precisely, based partially on the methodology suggested by Alesina, Barro and Tenreyro [2002], we evaluate the size and the persistence of prices and outputs shocks between each CEECs and euro zone. Results will contribute to the debate around the participation of the new members to the EMU. |
| Keywords: | European monetary integration, co-movements, AR models, CEECs. |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:hal:paris1:halshs-00335025_v1&r=mac |
| By: | Ghosh, Dipak |
| Abstract: | The closed systems nature of neoclassical models of economic growth - guaranteeing automatic equality between planned savings and investment which, in turn, ensures stability of such models - is achieved by assuming away the existence of uncertainty inherent in economic systems. Once the role of Keynesian uncertainty is acknowledged, the assumption of automatic equality between ex-post savings and ex-ante investment becomes untenable. This paper attempts to show that once this possibility of planned savings and investment inequality is incorporated in an otherwise essentially neoclassical model of economic growth, its closed system nature disappears and the model metamorphoses itself into an open system. |
| Keywords: | Keynesian uncertainty; technical progress function; Harrodian instability; growth and instability; closed systems; open systems |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:stl:stledp:2008-07&r=mac |
| By: | Yanneth Rocío Betancourt; Hernando Vargas |
| Abstract: | Tradicionalmente los requerimientos de encaje han sido vistos como un instrumento clave de la política monetaria, sin embargo, recientemente éstos han sido menos esenciales dado que el crecimiento de los agregados monetarios ha dejado de ser el objetivo de política de muchos países. A pesar del desmonte gradual de los encajes durante la década de los noventa en varios países, en ciertas coyunturas específicas países como Colombia han hecho uso de políticas de encajes para fortalecer el control monetario. De esta forma, el análisis de los encajes es de interés a la hora de evaluar la efectividad de dichas políticas bajo los diferentes regímenes monetarios (metas intermedias sobre agregados monetarios e inflación objetivo). En este documento se encuentra que aún bajo el esquema de inflación objetivo, los encajes pueden tener un efecto sobre la tasa de interés de los créditos y sobre la cartera del sistema financiero, dada la incertidumbre sobre la tasa de interés de política futura y el consecuente riesgo que deben enfrentar los intermediarios financieros cuando los plazos de los créditos y los depósitos bancarios difieren de los plazos del crédito del Banco Central. |
| Keywords: | Encajes Bancarios; Inflación Objetivo; Riesgo de tasa de interés. Classification JEL: E51; E52; G21. |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:533&r=mac |
| By: | Tor Jacobson; Rikard Kindell; Jesper Linde; Kasper Roszbach |
| Abstract: | This paper studies the relation between macroeconomic fluctuations and corporate defaults while conditioning on industry affiliation and an extensive set of firm-specific factors. Using a logit approach on a panel data set for all incorporated Swedish businesses over 1990-2002, we find strong evidence for a substantial and stable impact of aggregate fluctuations. Macroeffects differ across industries in an economically intuitive way. Out-of-sample evaluations show our approach is superior to both models that exclude macro information and best fitting naive forecasting models. While firm-specific factors are useful in ranking firms’relative riskiness, macroeconomic factors capture fluctuations in the absolute risk level. |
| Keywords: | Business failures |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:08-21&r=mac |
| By: | Fernando Rios Avila; Eva Schlarb |
| Abstract: | In many developing countries, the formal financial sector is underdeveloped and majority of the population does not have access to it. This paper analyzes the empirical link between remittances and financial sector development on a microeconomic level. Using a unique household dataset for Moldova, we find that receiving monetary remittances has a positive and significant effect on the probability of having a bank account, thereby promoting financial sector development. Furthermore, we show that remittances tend to have an even higher positive effect on household savings, which is a sign for a hidden potential for financial sector development. |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieasw:448&r=mac |
| By: | Sang-Wook Stanley Cho (School of Economics, The University of New South Wales) |
| Abstract: | This paper constructs a quantitative general equilibrium model with both lifecycle and dynastic features along with uninsurable labor income to assess differences in wealth and intergenerational transfers across countries. The model features both 'pure' and 'impure' forms of altruism and investigates the role of borrowing constraints in accounting for the timing of intergenerational transfers between intervivos transfers and bequests. Under a perfect capital market, the timing of parental transfers is irrelevant. However, under borrowing constraints, parental transfer will be geared towards helping out borrowing-constrained children. The model is calibrated to match the US and Korean economy. Numerical experiments show that tightening borrowing constraints leads to more intervivos transfers geared towards younger children and lower level of bequest. Borrowing constraints also play a role in accounting for the observed differences in the wealth inequality between the two economies. |
| Keywords: | intervivos transfer; wealth accumulation; incomplete markets |
| JEL: | D52 D91 E21 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:swe:wpaper:2008-15&r=mac |
| By: | Hart, Robert A.; Devereux, Paul J. |
| Abstract: | In this paper, we compile a unique historical dataset that records strike activity in the British engineering industry from 1920 to 1970. These data have the advantage of containing a fairly homogenous set of companies and workers, covering a long period with varying labour market conditions, including information that enables the addition of union and company fixed effects, and providing geographical detail that allows a districtlevel analysis that controls for year and seasonal effects. We study the cyclicality of strike durations, strike incidence, and strike outcomes and distinguish between pay and non-pay strikes. Like the previous literature, we find evidence that strikes over pay have countercyclical durations. However, in the post-war period, the magnitude of this effect is much reduced when union and firm fixed effects are included. These findings suggest that it is important when studying strike durations to take account of differences in the composition of companies and unions that are involved in strikes at different points of the business cycle. We also find that strike outcomes tend to be more favourable to unions when the national unemployment rate is lower. |
| Keywords: | Outcome; Incidence; Duration; Cyclicality; Strikes |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:stl:stledp:2008-12&r=mac |
| By: | Ágnes Lublóy (Corvinus University of Budapest, Institute of Finance and Accounting); Eszter Tanai (Magyar Nemzeti Bank) |
| Abstract: | Central bankers wish to ensure worldwide that large-value transfer systems, as a component of the key market infrastructure, exhibit sufficiently robust levels of operational resilience. We focus on the operational resilience of the Hungarian real time gross settlement system, known as VIBER. The goal of the research is the quantitative assessment of the ability of the system to withstand certain types of operational shocks. Systemically important participants are identified and it is argued that they overlap with endangered participants. An indicative list of participants who might be endangered by a liquidity shock is compiled by analysing proxies for liquidity risk. We shed light on the capacity of the system to function smoothly in the event of operational problems by simulating the technical default of one or two systemically important participants in VIBER. Altogether six plausible scenarios were formed, three entire-day incidents and three incidents involving less time (part-time incidents). The impact of behavioural reactions of technically non-defaulted participants and the application of existing backup procedures are also considered. The disturbance in the payment system was measured by the value of initially not submitted payments, the value of rejected payments, the total value of queued payments, the maximum queue value, the average queue length and the settlement delay. By means of gross and net liquidity deficit indicators, liquidity assistance required to settle all previously rejected transactions is calculated. By comparing the value of unsettled payments with the value of eligible collaterals in the banks’ balance sheet, we can gain insight into whether the liquidity deficit can be financed through normal monetary policy operations. |
| Keywords: | real-time gross settlement, large-value transfer system, operational risk, shock-absorbing capacity. |
| JEL: | E50 G10 G21 L10 L14 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:mnb:opaper:2008/75&r=mac |
| By: | Iqbal Syed (School of Economics, University of New South Wales); Robert J. Hill (School of Economics, University of New South Wales); Daniel Melser (Moody's Economy.Com) |
| Abstract: | We propose a flexible hedonic methodology for computing house price indexes that uses multiple imputation (MI) to account for missing data (a huge problem in housing data sets). Ours is the first study to use MI in this context. We also allow for spatial correlation, include interaction terms between characteristics, between regions and periods, and between regions and characteristics, and break the regressions up into overlapping blocks of five consecutive periods (quarters in our case). These features ensure that the shadow prices are flexible both across regions and time. This flexible structure makes the derivation of price indexes from the estimated regression equations far from straightforward. We develop innovative methods for resolving this problem and for splicing the overlapping blocks together to generate the overall panel results. We then use our methodology to construct temporal and spatial price indexes for 15 regions in Sydney, Australia on a quarterly basis from 2001 to 2006 and combine them to obtain an overall price index for Sydney. Our hedonic indexes differ quite significantly from the official index for Sydney published by the Australian Bureau of Statistics. We also find clear evidence of convergence in prices across regions from 2001-3 (while prices were rising), and divergence thereafter. We conclude by exploring some of the implications of these empirical findings. |
| Keywords: | Real estate; House prices; Hedonic price index; Missing data; Multiple imputation; Spatial correlation |
| JEL: | C43 E01 E31 R31 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:swe:wpaper:2008-14&r=mac |
| By: | Annabelle Mourougane; Lukas Vogel |
| Abstract: | This paper examines the short-term distributional effects of a number of tax and labour market reforms in the euro area, drawing on simulations using a micro-founded dynamic general equilibrium model. A heterogeneous household sector with two groups of consumers is considered. The first group maximises intertemporal utility over an infinite horizon in the presence of habit persistence. The second group is liquidity constrained and has no access to financial markets for intertemporal income transfers. It thus spends its disposable income entirely on current consumption. Although the examined reforms are estimated to boost aggregate consumption and output immediately after implementation, they have sizeable distributional effects. In particular, liquidity-constrained households may incur transitional losses after a cut in the benefit replacement ratio. Lowering employment and/or price adjustment costs could markedly reduce these short-term costs. A suitable compensation scheme could also reduce the uneven distribution of transitional losses, but at the expense of lower aggregate gains in the long run. <P>Effets redistributifs de court terme de réformes structurelles: simulations dans le cadre d’un modèle dynamique d’équilibre général <BR>Cet article examine les effets redistributifs de court terme d’un certain nombre de réformes dans les domaines de la fiscalité et du marché du travail dans la zone euro, à partir de simulations réalisées à l’aide d’un modèle dynamique d’équilibre général. Le secteur des ménages est hétérogène et composé de deux groupes de consommateurs. Le premier groupe maximise sa fonction d’utilité intertemporelle sur un horizon infini en présence de persistance dans son comportement de consommation. Le second groupe est contraint en matière de liquidité et n’a pas accès aux marchés financiers pour optimiser sa consommation dans le temps. Il dépense en conséquence tout son revenu disponible en consommation courante. Les réformes considérées sont estimées augmenter la consommation et la production au niveau agrégé immédiatement après leur mise en oeuvre, mais ont des effets redistributifs importants. En particulier, les ménages contraints au niveau de leur liquidité peuvent souffrir de pertes durant la période de transition après une diminution du taux de remplacement. Diminuer les coûts d’ajustement liés à l’emploi ou aux prix pourrait réduire de manière significative ces coûts de court terme. Un programme de compensation adéquate pourrait aussi lisser une distribution inégale des pertes durant la période de transition, mais au prix d’une diminution des gains de long terme au niveau agrégé. |
| Keywords: | réforme structurelle, structural reforms, trade transaction costs, distribution, DSGE model, modèle DSGE |
| JEL: | C5 D3 E00 |
| Date: | 2008–10–28 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:648-en&r=mac |
| By: | Thomas Seegmuller (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris) |
| Abstract: | In past years, imperfect competition has been introduced in several dynamic models to show how mark-up variability, increasing returns (decreasing marginal cost), and monopoly profits affect the occurrence of endogenous fluctuations. In this paper, we focus on another possible feature of imperfectly competitive economies: consumers' taste for variety due to endogenous product diversity. Introducing monopolistic competition (Dixit and Stiglitz (1977), Bénassy (1996)) in an overlapping generations model where consumers have taste for variety, we show that local indeterminacy can occur under the three following conditions: a high substitution between capital and labor, increasing returns arbitrarily small and a not too elastic labor supply. The key mechanism for this result is based on the fact that, due to taste for variety, the aggregate price decreases with the pro-cyclical product diversity, which has a direct influence on the real wage and the real interest rate. |
| Keywords: | Endogenous fluctuations; taste for variety; imperfect competition. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:hal:paris1:halshs-00266722_v1&r=mac |
| By: | Nii Ayi Armah; Norman R. Swanson |
| Abstract: | In economics, common factors are often assumed to underlie the co-movements of a set of macroeconomic variables. For this reason, many authors have used estimated factors in the construction of prediction models. In this paper, we begin by surveying the extant literature on diffusion indexes. We then outline a number of approaches to the selection of factor proxies (observed variables that proxy unobserved estimated factors) using the statistics developed in Bai and Ng (2006a,b). Our approach to factor proxy selection is examined via a small Monte Carlo experiment, where evidence supporting our proposed methodology is presented, and via a large set of prediction experiments using the panel dataset of Stock and Watson (2005). One of our main empirical findings is that our “smoothed” approaches to factor proxy selection appear to yield predictions that are often superior not only to a benchmark factor model, but also to simple linear time series models which are generally difficult to beat in forecasting competitions. In some sense, by using our approach to predictive factor proxy selection, one is able to open up the “black box” often associated with factor analysis, and to identify actual variables that can serve as primitive building blocks for (prediction) models of a host of macroeconomic variables, and that can also serve as policy instruments, for example. Our findings suggest that important observable variables include various S&P500 variables, including stock price indices and dividend series; a 1-year Treasury bond rate; various housing activity variables; industrial production; and exchange rates. |
| Keywords: | Macroeconomics |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:08-25&r=mac |
| By: | Shouyong Shi |
| Abstract: | I construct a theoretical framework in which firms offer wage-tenure contracts to direct the search by risk-averse workers. All workers can search, on or off the job. I characterize an equilibrium and prove its existence. The equilibrium generates a non-degenerate, continuous distribution of employed workers over the values of contracts, despite that all matches are identical and workers observe all offers. A striking property is that the equilibrium is block recursive; that is, individuals' optimal decisions and optimal contracts are independent of the distribution of workers. This property makes the equilibrium analysis tractable. Consistent with stylized facts, the equilibrium predicts that (i) wages increase with tenure, (ii) job-to-job transitions decrease with tenure and wages, and (iii) wage mobility is limited in the sense that the lower the worker's wage, the lower the future wage a worker will move to in the next job transition. Moreover, block recursivity implies that changes in the unemployment benefit and the minimum wage have no effect on an employed worker's job-to-job transitions and contracts. |
| Keywords: | Directed search; On-the-job search; Wage-tenure contracts |
| JEL: | E24 C78 J6 |
| Date: | 2008–10–27 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-343&r=mac |