nep-mac New Economics Papers
on Macroeconomics
Issue of 2008‒12‒21
35 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. A Small Open Economy DSGE Model for Pakistan By Bukhari, Syed Adnan Haider Ali Shah; Khan, Safdar Ullah
  2. Did the anchor of inflation expectations in the euro area turn adrift? By Gabriele Galati; Steven Poelhekke; Chen Zhou
  3. Monetary policies and low-frequency manifestations of the quantity theory By Sargent, Thomas; Surico, Paolo
  4. A Medium-scale Open Economy Model of Australia By Jarkko Jääskelä; Kristoffer Nimark
  5. Assessing the impact of the ECB’s monetary policy on the stock markets: A sectoral view By Konstantin Kholodilin; Alberto Montagnoli; Oreste Napolitano; Boriss Siliverstovs
  6. Oil Shocks: How Destabilizing are they? By Bhattacharya, Jyotirmoy
  7. 1958-2008, avatars et enjeux de la courbe de Phillips By Le Bihan, Hervé
  8. Monetary Transmission Mechanism in Central and Eastern Europe: Surveying the Surveyable By Balázs Égert; Ronald MacDonald
  9. Optimal Simple Monetary Policy Rules in a Small Open Economy with Exchange Rate Imperfections By Deming Luo; Stephen Ferris
  10. Business Cycle Measurement with Semantic Filtering: A Micro Data Approach By Christian Müller; Eva Köberl
  11. Dollarization in Transition Economies: New Evidence from Georgia By Olga Aslanidi
  12. The Great Moderation Flattens Fat Tails: Disappearing Leptokurtosis By WenShwo Fang; Stephen M. Miller; ChunShen Lee
  13. Are Asset Returns Predictable from the National Accounts? By Pierre Lafourcade
  14. Reshaping the International Monetary Architecture and Addressing Global Imbalances: Lessons from the Keynes Plan By Piffaretti, Nadia F.
  15. Modeling the Volatility of Real GDP Growth: The Case of Japan Revisited By WenShwo Fang; Stephen M. Miller
  16. The significance of the Cape trade route to economic activity in the Cape colony: a medium-term business cycle analysis By Willem H Boshoff; Johan Fourie
  17. To Dollarize or De-dollarize: Consequences for Monetary Policy By Patricia Alvarez-Plata; Alicia Garcia-Herrero
  18. Modelling Industry-level Ccorporate Credit Risk for the Netherlands By Ruud Vermeulen
  19. Property crime and macroeconomic variables in Malaysia: Some empirical evidence from a vector error-correction model By Habibullah, M.S.; Law, Siong-Hook
  20. S-shaped utility, subprime crash and the black swan By de Farias Neto, Joao Jose
  21. The Monetary Foundation of the Economic Circuit and the Principle of Effective Demand in Marx, Keynes and Kalecki By Hernando Matallana
  22. The sub-prime crisis, the credit crunch and bank “failure”: An assessment of the UK authorities’ response By Maximilian J. B. Hall
  23. The monetary effects arising from stochastic resource revenues and the subsidization of financial intermediation in resource rich developing economies By J. Stephen Ferris; Hossein Kavand
  24. A Resource Belief-Curse? Oil and Individualism By Rafael Di Tella; Juan Dubra; Robert MacCulloch
  25. Confidence in Monetary Policy By Yakov Ben-Haim; Maria Demertzis
  26. Financial structure, financial development and banking fragility: International evidence By Ruiz-Porras, Antonio
  27. Why the Euro Will Rival the Dollar By Menzie Chinn; Jeffrey Frankel
  29. Exchange Market Pressure in Central European Countries from the Eurozone Membership Perspective By Stavarek, Daniel
  30. A ‘New Bretton Woods’: Kaldor, and the Antipodean Quest for Global Full Employment By Leanne Ussher; Sean Turnell
  31. The Effects of Labour Market Policies in an Economy with an Informal Sector By James Albrecht; Lucas Navarro; Susan Vroman
  32. Tax quota development in the Czech Republic and in the European Union By Szarowska, Irena
  33. Plant Level Evidence on Product Mix Changes in Chilean Manufacturing By Lucas Navarro
  34. Fiscal reform and corporate governance in the Czech Republic By Szarowska, Irena
  35. Attracting Microfinance Investment Funds: Promoting Microfinance Growth through Increased Investments in Kenya By Matu, Jeffrey Ben

  1. By: Bukhari, Syed Adnan Haider Ali Shah; Khan, Safdar Ullah
    Abstract: This paper estimates a small open economy Dynamic Stochastic General Equilibrium (DSGE) model for Pakistan using Bayesian simulation approach. Model setup is based on new Keynesian framework, characterized by nominal rigidity in prices with habit formation in household’s consumption. The core objective is to study whether an estimated small open economy DSGE model provides a realistic behavior about the structure Pakistan economy with fully articulated description of the monetary policy transmission mechanism vis-à-vis domestic firm’s price setting behavior. To do so, we analyze the impulse responses of key macro variables; domestic inflation, imported inflation, output, consumption, interest rate, exchange rate, term of trade to different structural/exogenous shocks. From several interesting results, few are; (a) high inflation in Pakistan do not hit domestic consumption significantly; (b) Central bank of Pakistan responds to high inflation by increasing the policy rate by 100 to 200 bps; (c) exchange rate appreciates in both the cases of high domestic and imported inflation; (d) tight monetary policy stance helps to curb domestic inflation as well as imported inflation but appreciates exchange rate significantly (f) pass through of exchange rate to domestic inflation is very low; finally parameter value of domestic price stickiness shows that around 24 percent domestic firms do not re-optimize their prices which implies averaged price contract is about two quarters.
    Keywords: New-Keynesian economics; open economy DSGE models; nominal rigidities; monetary policy transmission mechanism; Bayesian Approach
    JEL: F37 E32 E52 F47 E47
    Date: 2008–11–18
  2. By: Gabriele Galati; Steven Poelhekke; Chen Zhou
    Abstract: Survey evidence indicates that inflation expectations increased after HICP inflation rose markedly in the course of 2007 and the first half of 2008, underpinning a general view that inflation expectations may have become unanchored from the ECB's target. However, until now there has been no formal test of whether this has in fact been the case. We fill this gap by testing the reaction of financial market-based measures of long-term expectations inflation expectations to news about inflation and other macroeconomic variables in the main euro area economies. If long-term inflation expectations are anchored, they should not react to the arrival of news. We find evidence that long-term inflation expectations have started to drift away from the ECB's anchor in the course of 2007. 
    Keywords: ECB; euro-area inflation and inflation compensation; anchors for expectations; news announcements. 
    JEL: E44 E52 E58
    Date: 2008–12
  3. By: Sargent, Thomas (New York University); Surico, Paolo (Monetary Policy Committee Unit, Bank of England)
    Abstract: To detect the quantity theory of money, we follow Lucas (1980) by looking at scatter plots of filtered time series of inflation and money growth rates and interest rates and money growth rates. Like Whiteman (1984), we relate those scatter plots to sums of two-sided distributed lag coefficients constructed from fixed-coefficient and time-varying VARs for US data from 1900-2005. We interpret outcomes in terms of population values of those sums of coefficients implied by two DSGE models. The DSGE models make the sums of coefficients depend on the monetary policy rule via cross-equation restrictions of a type that Lucas (1972) and Sargent (1971) emphasised in the context of testing the natural unemployment rate hypothesis. When the US data are extended beyond Lucas's 1955-75 period, the scatter plots mutate in ways that we attribute to prevailing monetary policy rules.
    Keywords: Quantity theory; policy regimes; time-varying VAR
    JEL: E40 E42 E51 E52 N10
    Date: 2008–12–08
  4. By: Jarkko Jääskelä (Reserve Bank of Australia); Kristoffer Nimark (Reserve Bank of Australia)
    Abstract: We estimate an open economy dynamic stochastic general equilibrium (DSGE) model of Australia with a number of shocks, frictions and rigidities, matching a large number of observable time series. We find that both foreign and domestic shocks are important drivers of the Australian business cycle. We also find that the initial impact on inflation of an increase in demand for Australian commodities is negative, due to an improvement in the real exchange rate, though there is a persistent positive effect on inflation that dominates at longer horizons.
    Keywords: monetary policy
    JEL: C11 E40 E52
    Date: 2008–12
  5. By: Konstantin Kholodilin (DIW Berlin, Germany); Alberto Montagnoli (University of Stirling, Stirling, UK); Oreste Napolitano (Parthenope University of Naples, Napoli, Italy); Boriss Siliverstovs (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: This paper analyzes the response of the European stock markets to the monetary policy shocks by the European Central Bank using the heteroskedasticity based approach of Rigobon (2003). We find that monetary policy tightening has a heterogeneous impact on the Euro Area sectors on the day the monetary policy is publicly announced. Furthermore, we provide statistical evidence against the use of the popular event study approach when assessing the impact of monetary policy shocks on the stock market as the maintained assumptions can be rejected for the aggregate stock market and for most of the sectoral stock market indexes.
    Keywords: Monetary policy, Stock markets, ECB
    JEL: E44 E47 E52
    Date: 2008–12
  6. By: Bhattacharya, Jyotirmoy
    Abstract: This note examines Prabhat Patnaik's argument that the contemporary international financial system crucially requires the stability of oil prices in terms of the dollar. By comparing the macroeconomic impact of recent oil shocks to those of the 1970s, it argues that sharp changes in the dollar price of oil need not necessarily lead to instability.
    Keywords: oil price; inflation; recession; dollar
    JEL: E31 E52
    Date: 2008
  7. By: Le Bihan, Hervé
    Abstract: The Phillips curve is fifty years old. Since Phillips (1958)'s original contribution this econometric relationship has undergone many criticisms and evolutions. The Phillips curve yet remains a fundamental tool for inflation forecasting and monetary policy analysis. This paper reviews the various versions of the Phillips curve, using reearch carried out at the Banque de France for illustration purpose, and discusses the main issues associated with this relation.
    Keywords: courbe de Phillips; inflation; salaires
    JEL: E31 B22 J30
    Date: 2008–09
  8. By: Balázs Égert; Ronald MacDonald
    Abstract: This paper surveys recent advances in empirical studies of the monetary transmission mechanism (MTM), with special attention to Central and Eastern Europe (CEE). Our results indicate that the strength of the exchange rate pass-through substantially declined over time mainly due to a fall in inflation rates and to some extent due to the so-called composition effect. The asset price channel is weak and is likely to remain weak because of shallow stock and private bond markets and because of low stock and bond holdings of domestic household. House prices may become an exception with higher levels mortgage lending and with high owner occupancy ratios. While the credit channel could be a powerful channel of monetary transmission - as new funds raised on capital markets are close to zero in CEE - it is actually not, as both commercial banks and non-financial corporations can escape domestic monetary conditions by borrowing from their foreign mother companies. The moderately good news is, however, that those banks and firms are influenced by monetary policy in the euro area because their parent institutions are themselves subjected to the credit channel in the euro area. <P>Canaux de transmission de la politique monétaire dans les PECO: une revue de la littérature <BR>Ce papier vise à synthétiser la littérature empirique portant sur le mécanisme de transmission monétaire, et tout particulièrement dans les pays d’Europe centrale et orientale (PECO). Cette étude montre que l’effet du taux de change sur l’inflation a diminué au cours du temps principalement en raison de la baisse des taux d’inflation, mais aussi dans une certaine mesure suite à un effet dit de composition. Le canal des prix d’actifs est faible et le restera probablement en raison des marchés d’actions et de titres obligataires privés peu développés, mais aussi à cause d’un faible taux de détention d’actifs financiers par les ménages. En revanche, avec l’accroissement du nombre de prêts immobiliers et de ménages propriétaires de leur appartements, les prix immobiliers peuvent jouer un rôle plus important à l’avenir. Même si le canal du crédit devrait être un des canaux de transmission les plus puissants, sachant que le financement externe sur les marchés est quasiment nul dans les PECO, tel n’est pas le cas pour autant. La raison en est que les banques commerciales mais aussi les entreprises peuvent échapper aux conditions monétaires nationales par le biais de financements obtenus auprès de leurs maisons mères implantées à l’étranger. La nouvelle quelque peu encourageante est que les entreprises mères sont elles-mêmes contraintes par la politique monétaire de la zone euro, exportant ainsi les effets du canal du crédit dans les PECO.
    Keywords: monetary transmission mechanism, asset prices, Central Europe, interest rate, credit channel, canal du crédit
    JEL: E31 E51 E58 F31 O11 P20
    Date: 2008–12–01
  9. By: Deming Luo (Department of Economics, Carleton University); Stephen Ferris (Department of Economics, Carleton University)
    Abstract: The paper addresses whether or not the exchange rate or some other dimension of the external side of the economy should form an integral part of the monetary rule for a small open economy (SOE) in which the central bank faces data deficiencies. Under a number of information scenarios, the model’s simulations suggest that some reflection of the external environment facing the SOE—either the real exchange rate gap and/or the law of one price gap—is needed to improve monetary policy performance. When the money rule includes both interest rate smoothing and the real exchange rate (or law of one price gap), the relative welfare gain from their inclusion increases as the monetary authorities loses access to more current and reliable information.
    Keywords: New Keynesian small open economy model, exchange rate pass through, optimal simple money rules, stochastic general equilibrium model.
    Date: 2008–08–01
  10. By: Christian Müller (Zurich University of Applied Sciences, School of Management and ETH Zurich, KOF Swiss Economic Institute); Eva Köberl (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: In this paper we develop a business cycle measure that can be shown to have excellent ex-ante forecasting properties for GDP growth. For identifying business cycle movements, we use a semantic approach. We infer nine different states of the economy directly from firms’ responses in business tendency surveys. Hence, we can identify the current state of the economy. We therewith measure business cycle fluctuations. One of the main advantages of our methodology is that it is a structural concept based on shock identification and therefore does not need any - often rather arbitrary - statistical filtering. Futhermore, it is not subject to revisions, it is available in real-time and has a publication lead to official GDP data of at least one quarter. It can therefore be used for one quarter ahead forecasting real GDP growth.
    Keywords: business cycle measurement, semantic cross validation, shock identification
    JEL: E32 C4 C5
    Date: 2008–11
  11. By: Olga Aslanidi
    Abstract: This paper provides new evidence for dollarization in Georgia during the period from 1996 to 2007 using implications of dynamic money-in-utility-function models. Partial effects of foreign and domestic inflation, exchange rate, and foreign and domestic currency deposits’ interest rates on dollarization are considered. The US dollar is a strong substitute for domestic currency and has a significant share in producing domestic liquidity services. The actual dollarization in Georgia is persistent and larger than partial effects models predict.
    Keywords: Dollarization, Georgia, Money-in-utility-function
    JEL: C51 E41 F31
    Date: 2008–09
  12. By: WenShwo Fang (Feng Chia University); Stephen M. Miller (University of Nevada, Las Vegas, and University of Connecticut); ChunShen Lee (Feng Chia University)
    Abstract: Recently, Fagiolo et al. (2008) find fat tails of economic growth rates after adjusting outliers, autocorrelation and heteroskedasticity. This paper employs US quarterly real output growth, showing that this finding of fat tails may reflect the Great Moderation. That is, leptokurtosis disappears after GARCH adjustment once we incorporate the break in the variance equation.
    Keywords: Real GDP growth, the Great Moderation, leptokurtosis, GARCH models
    JEL: C32 E32 O40
    Date: 2008–12
  13. By: Pierre Lafourcade
    Abstract: Rational expectations and the logic of budget constraints imply that the predictability of asset returns hinges on the stability and persistence of households' ratio of saving to asset wealth, not of consumption to total wealth. This misalignment undermines the rationale for Lettau and Ludvigson's estimated cay, a stationary but unduly loose approximation to the true but non-mean-reverting cay. Definitional considerations on saving, assets and returns suggest rehabilitating money in the households' &amp;nbsp;flow of funds identity. Accounting for money balances in cay restores stationarity, but at the cost of drastically lower persistence and predictive potential.&amp;nbsp;
    JEL: E01 E21 E41
    Date: 2008–12
  14. By: Piffaretti, Nadia F.
    Abstract: As we witness profound changes in the global economy, and as it becomes apparent that the so-called “Revived Bretton Woods System” may be nothing more than a temporary non sustainable financing of the US structural internal imbalance, favored by the global role of the dollar, which has increased the overall vulnerability of the global financial architecture, it’s worth revisiting the origins of the Bretton Woods conference, and pointing out the relevance for today’s framework of Keynes’ original 1942 plan for an International Clearing Union. In this note we explore the main characteristics of Keynes’ original plan, by revisiting his original writings between 1940 and 1944, and we outline its relevance to the current debate on the international financial architecture, We’ll argue that reforms of the international financial architecture should include anchoring the international monetary system on a sounder institutional ground.
    Keywords: International Financial Architecture; Bretton Woods Institutions; Keynes Plan; International Currency; Global Imbalances
    JEL: E12 E58 F02 N20 E50 E00 E44 F33
    Date: 2008–12–16
  15. By: WenShwo Fang (Feng Chia University; University of Connecticut); Stephen M. Miller (University of Nevada, Las Vegas, and University of Connecticut)
    Abstract: Previous studies (e.g., Hamori, 2000; Ho and Tsui, 2003; Fountas et al., 2004) find high volatility persistence of economic growth rates using generalized autoregressive conditional heteroskedasticity (GARCH) specifications. This paper reexamines the Japanese case, using the same approach and showing that this finding of high volatility persistence reflects the Great Moderation, which features a sharp decline in the variance as well as two falls in the mean of the growth rates identified by Bai and Perron’s (1998, 2003) multiple structural change test. Our empirical results provide new evidence. First, excess kurtosis drops substantially or disappears in the GARCH or exponential GARCH model that corrects for an additive outlier. Second, using the outlier-corrected data, the integrated GARCH effect or high volatility persistence remains in the specification once we introduce intercept-shift dummies into the mean equation. Third, the time-varying variance falls sharply, only when we incorporate the break in the variance equation. Fourth, the ARCH in mean model finds no effects of our more correct measure of output volatility on output growth or of output growth on its volatility.
    Keywords: Japan, real GDP growth, the Great Moderation, outlier, structural changes, IGARCH effect
    JEL: C32 E32 O40
    Date: 2008–12
  16. By: Willem H Boshoff (Department of Economics, University of Stellenbosch); Johan Fourie (Department of Economics, University of Stellenbosch)
    Abstract: Trade is a critical component of economic growth in newly settled societies. This paper tests the impact of ship traffic on the Cape economy using a time series smoothing technique borrowed from the business cycle literature and employing an econometric procedure to test for long-run relationships. The results suggest a strong systematic co-movement between wheat production and ship traffic, with less evidence for wine production and stock herding activities. While ship traffic created demand for wheat exports, the size of the co-movement provides evidence that ship traffic also stimulated local demand through secondary and tertiary sector activities, supporting the hypothesis that ship traffic acted as a catalyst for growth in the Cape economy.
    Keywords: Colonial trade, Cape of Good Hope, Dutch East India, Band-pass filter, Medium-term fluctuations, Business cycle, South Africa, Ships, Harvest cycles, Colonial economy
    JEL: N17 E32 N77
    Date: 2008
  17. By: Patricia Alvarez-Plata; Alicia Garcia-Herrero
    Date: 2008
  18. By: Ruud Vermeulen
    Abstract: This paper examines corporate credit risks in the Netherlands at the industry-level, addressing two key questions. First, to what extent are corporate credit risks driven by idiosyncratic financial factors or systematic macroeconomic factors? Second, did debt financing in the late 1990s indeed push a large number of firms into bankruptcy in the subsequent years? To this end, bankruptcy rates are regressed on a number of industry-specific financial ratio's and macroeconomic variables in a panel-regression framework covering six industries from 1992 to 2005. I find that an industry's bankruptcy rate rises with an increase in leverage and a decrease in profitability and liquidity. Adding macroeconomic variables shows that lower GDP growth, higher interest rates, and an appreciating currency raise credit risks. Applying a model with parameter heterogeneity illustrates that systematic factors primarily account for the overall rise in bankruptcy rates between 2000 and 2003, but that idiosyncratic factors dominate in the worst-affected industries. This includes the IT industry where the build-up of debt was most pronounced and compounded losses.
    JEL: E44 E52 E58
    Date: 2008–12
  19. By: Habibullah, M.S.; Law, Siong-Hook
    Abstract: In this study we investigated the long-run relationship between property crime and three macro-financial economic variables in Malaysia for the period 1973 to 2003. In order to avoid what the econometrician term as ‘spurious regression problem’ we estimate the model using the vector-error correction (VECM) framework. The results tend to suggest that there are long-run relationship between property crime and the three macroeconomic variables in Malaysia. Our VECM results, however, suggest that there is no long-run and short-run causal effect of the three macro-variables on the property crime. Nevertheless, our variance decomposition results indicate that property crime in Malaysia is affect by economic growth measure by real income per capita. But, given the short sample nature of this study, our results should be viewed with cautious.
    Keywords: property crime; Malaysia; vectot error-correction model
    JEL: E24 K00
    Date: 2008–02–03
  20. By: de Farias Neto, Joao Jose
    Abstract: I propose an S-shaped utility function of consumption which, combined with an heterogeneous agents and external habit setting, fits well the first order moments of the American financial and macroeconomic time series relevant for the equity premium puzzle in the second half of XX century. The average relative risk aversion of the agents remains in the 0-3 range. A "black swan"-kind phenomenon makes two of the 50 years considered (the two oil shocks) responsible for half the average of the stochastic discount factor, thus bringing the annual subjective discount factor to a very low level, around 0.5, which solves the risk-free puzzle. The shape of the relative risk aversion function of consumption suggests an explanation for the 2008 suprime crash akin to the breaking of waves on a beach in a lifecycle overlapping generations model.
    Keywords: financial puzzles; subprime crash; black swan; S-shaped utility
    JEL: G12 D91 E44
    Date: 2008–12–12
  21. By: Hernando Matallana
    Abstract: Marx carried out the first full inquiry on the economics of the all-comprising circulation process of capital, first in Grundrisse in the late 1850s, and later in Capital and Theories of Surplus Value in the 1860s and the 1870s. Two substantial aspects are at the center of Marx’s analysis: (a) the monetary determination of the social process of production and circulation of capital, i.e. the fact that money-capital is a social relation determining the interaction of agents in the monetary production economy alias capitalism; and (b) the notion of the economic circuit as the key economic category for the understanding of the monetary logic of the principle of effective demand. These aspects are also at the center of Keynes’s and Kalecki’s foundation of the theory of the monetary production economy.
    Date: 2008–11–13
  22. By: Maximilian J. B. Hall (Dept of Economics, Loughborough University)
    Abstract: On 8 October 2008 the UK Government announced a far-reaching plan to restore financial stability, protect depositors and re-invigorate the flow of credit to businesses and individuals in the UK. The £400 billion bailout plan embraced three elements: a massive expansion in emergency liquidity support from the Bank of England; recapitalisation of UK banks and building societies using taxpayers' money; and the provision of a Government guarantee of new short- and medium-term debt issuance made by UK-incorporated banks and building societies. This action proved necessary in the wake of continuing and substantial weaknesses in many banks' share prices despite the temporary ban on short-selling imposed by the Financial Services Authority. It followed two revisions to domestic deposit protection arrangements, and the adoption of a piecemeal approach to failure resolution which saw the eventual nationalisation of Northern Rock in February 2008, the nationalisation of Bradford and Bingley in September 2008 and the brokering of takeover rescues of Alliance and Leicester and HBOS by Banco Santander and Lloyds TSB respectively in July and September 2008, and of the Cheshire and Derbyshire Building Societies by the Nationwide Building Society in September 2008. This metamorphosis in approach to failure resolution by the UK authorities in response to the sub-prime crisis and the credit crunch – nationalisation by default to (part) nationalisation as the preferred course of action - is duly analysed in this article, as well as their proposals for banking reforms which still have to be agreed by Parliament.
    Keywords: UK banks; banking regulation and supervision; failure resolution; central banking; deposit protection.
    JEL: E53 E58 G21 G28
    Date: 2008–11
  23. By: J. Stephen Ferris (Department of Economics, Carleton University); Hossein Kavand (Faculty of Economics, University of Tehran, Tehran, Iran)
    Date: 2008–10–01
  24. By: Rafael Di Tella; Juan Dubra; Robert MacCulloch
    Abstract: We study the correlation between a belief concerning individualism and a measure of luck in the US during the period 1983-2004. The measure of beliefs is the answer to a question related to whether the poor should be helped by the government or if they should help themselves, while the measure of luck is the share of the oil industry in the state's economy multiplied by the price of oil. The correlation is negative, suggesting that more reliance on luck is correlated with less individualism. We provide three short models that help interpret this correlation. One implication of this finding is that societies that depend heavily on oil, and perhaps natural resources more generally, will experience a heavier demand for government intervention. We argue that if a government cares about the impact of its natural resource policies on the demand of government intervention more generally, it should take this effect into account.
    JEL: E62 P16
    Date: 2008–12
  25. By: Yakov Ben-Haim; Maria Demertzis
    Abstract: In situations of relative calm and certainty, policy makers have confidence in the mechanisms at work and feel capable of attaining precise and ambitious results. As the environment becomes less and less certain, policy makers are confronted with the fact that there is a trade-off between the quality of a certain outcome and the confidence (robustness) with which it can be attained. Added to that, in the presence of Knightian uncertainty, confidence itself can no longer be represented in probabilistic terms (because probabilities are unknown). We adopt the technique of Info-Gap Robust Satisficing to first define confidence under Knightian uncertainty, and second quantify the trade-off between quality and robustness explicitly.We apply this to a standard monetary policy example and provide Central Banks with a framework to rank policies in a way that will allow them to pick the one that either maximizes confidence given an acceptable level of performance, or alternatively, optimizes performance for a given level of confidence.&amp;nbsp;
    Keywords: Knightian Uncertainty; Satisficing; Bounded Rationality; Minmax
    JEL: D81 E52 E58
    Date: 2008–12
  26. By: Ruiz-Porras, Antonio
    Abstract: We study the effects of financial structure and financial development on banking fragility. We develop our study by using fixed-effects panel-data regressions and by controlling the effects of certain banking indicators. We use individual and principal-components indicators of the activity, size and efficiency of intermediaries and markets. The indicators include data for 211 countries between 1990 and 2003. Our main findings suggest that banking stability is enhanced in market-based financial systems. Financial development reduces it. However this fragility-enhancing effect can be unveiled only when we account for financial structure. Thus, financial structure and development jointly matter to assess banking fragility.
    Keywords: Banks; fragility; financial structure; financial development
    JEL: N20 E44 G21
    Date: 2008–12–12
  27. By: Menzie Chinn (Wisconsin University); Jeffrey Frankel (Harvard University)
    Abstract: Evro je izrastao u kredibilnog potencijalnog konkurenta dolaru kao vodećoj međunarodnoj valuti, baš kao što je dolar pretekao britansku funtu pre 70 godina. Ovaj rad koristi ekonometrijski ocenjene determinante udela najvažnijih valuta u deviznim rezervama svetskih banaka širom sveta. Značajni faktori su: veličina zemlje, stopa prinosa, i likvidnost relevantnog domaćeg finansijskog centra (merena obrtom na deviznom tržištu). Postoji prelomni trenutak, ali promene se osećaju tek znatno kasnije (ocena pondera na prošlogodišnji valutni udeo je otprilike 0.9). Van uzorka, naš model je precizno predvideo smanjenje jaza između dolara i evra u periodu od 1999. do 2007. godine. Rad ažurira ove kalkulacije u pogledu budućih scenarija. Isključujemo scenario po kom se Velika Britanija priključuje evrozoni. Međutim, uzimamo u obzir da je London ipak postao de facto finansijski centar evra, više nego Frankfurt. Takođe uzimamo za pretpostavku da dolar nastavlja depresijaciju po trend stopi koju je u proseku pokazao u poslednjih 20 godina.
    Keywords: Devizno tržište, Evro, Dolar, Rezervna valuta
    JEL: E32 R10
    Date: 2008–07
  28. By: Yashin, Pete
    Abstract: In this paper, the neoclassical model is extended for the general case of economic growth, which can be represented as the sum of cyclical and growth components. If the general formulation of the golden rule of capital accumulation is satisfied (the savings rate is equal to the capital income share), the production function takes the form of the Cobb-Douglas function. This function governs the economic growth both when the economy is growing along an equilibrium path and when the economy is departing from it (the correlation coefficient between U.S. GDP changes and calculated ones is equal to 0.91). When economy fluctuations are averaged along an equilibrium path, the Cobb-Douglas function reduces to condition, which is similar to Harrod-Domar one. The level of technology may be reasonably considered to express in terms of the wage level.
    Keywords: neoclassical growth model; golden rula of capital accumulation; Cobb-Douglas function; Harrod-Domar condition
    JEL: E13
    Date: 2008–02–03
  29. By: Stavarek, Daniel
    Abstract: This paper estimates the exchange market pressure (EMP) in four Central European countries (Czech Republic, Hungary, Poland, Slovakia) over the period 1993-2006. Therefore, it is one of very few studies focused on this region and the very first paper applying concurrently model-dependent as well as model-independent approach to the EMP estimation on these countries. The results obtained suggest that the approaches lead to inconsistent findings. They often differ in identification of the principal development trends as well as magnitude and direction of the pressure. The paper provides evidence that a shift in the exchange rate regime towards the quasi-fixed ERM II should not stimulate EMP to grow. However, it is highly probable that some episodes of the excessive EMP will make the fulfillment of the exchange rate stability criterion more difficult in all countries analyzed.
    Keywords: Exchange Market Pressure; Model-dependent Approach; Model-independent Approach; European Union; Euro-candidate Countries
    JEL: C32 E42 F31 F36
    Date: 2008–11–10
  30. By: Leanne Ussher (Department of Economics, Queens College of the City University of New York); Sean Turnell (Macquarie University, Sydney, Australia)
    Abstract: In 1949 Nicholas Kaldor co-authored a report that, if implemented, would have revolutionised international economic policy-making. National and International Measures for Full Employment (NIFE) had been commissioned by the United Nations. A capstone to efforts throughout the 1940s to transform international economic policy-making along Keynesian lines, NIFE was without precedent in the importance it accorded global effective demand in determining employment and trade outcomes, and in the commitments it required of governments – not only to their own people, but in enunciating their responsibilities to those of other nations as well. For this it earned the enmity of many, including some prominent economists. In the end NIFE fell victim to the independence of nations within the UN as well as changing world circumstances, and the report was quietly shelved. Today it is little known, and to the extent that NIFE continues to be commented on, its ideas are presented as originating from Kaldor as just another step in his progressive thinking from national to global macroeconomics. But while Nicholas Kaldor was the principal author of NIFE, we argue that the origin for this global Keynesian macro policy should equally lie with his Australian co-authors.
    Keywords: Kaldor, Australian Keynesians, International Full Employment
    Date: 2008–08
  31. By: James Albrecht (Georgetown University and IZA); Lucas Navarro (ILADES-Georgetown University, Universidad Alberto Hurtado); Susan Vroman (Georgetown University and IZA)
    Abstract: In this paper, we build an equilibrium search and matching model of an economy with an informal sector. Our model extends Mortensen and Pissarides (1994) by allowing for ex ante worker heterogeneity with respect to formal-sector productivity. We use the model to analyze the effects of labour market policy on informal-sector and formal sector output, on the division of the workforce into unemployment, informal-sector employment and formal-sector employment, and on wages. Finally, we examine the distributional implications of labour market policy; specifically, we analyse how labour market policy affects the distributions of wages and productivities across formal-sector matches. Keywords: Informality and Labour Market Policy
    JEL: E26 J64 O17
    Date: 2008–09
  32. By: Szarowska, Irena
    Abstract: Eurostat and OECD regularly publish data concerning a tax burden in particular countries. Tax quota (compound tax quota) is used as a basic international comparative indicator, which determines a ratio of taxes in the gross domestic product. This indicator is a subject of interest even in discussions concerning the tax harmonization of the European Union, which objective is to make taxes not to be a barrier of free movement of people, capital, goods and services among states and also to prevent tax evasions. This paper describes a basic conception of the indicator, points out methodical differences in the calculation of the tax quota and analyses the development of the tax quota in the Czech Republic and in the European Union. The objective is as well to verify a hypothesis that a value of the tax quota is decreasing in time and indirect taxes currently outweigh direct ones.
    Keywords: tax; tax quota; direct taxes; indirect taxes; tax harmonization
    JEL: E62 H20 F2
    Date: 2008
  33. By: Lucas Navarro (ILADES-Georgetown University, Universidad Alberto Hurtado)
    Abstract: This paper analyzes changes in the product mix by Chilean manufacturing plants in the period 1996-2003. Three-quarters of the surviving plants changed the set of products produced and more than three-quarters of the exporting plants changed the mix of products they exported during the sample period. Plants that changed their product mix contributed 85% of the aggregate growth in real sales of surviving plants between 1996 and 2003. Finally and in contrast to the US evidence, there is a negative correlation between revenue per product and the number of products. Apart from this, new evidence consistent with recent models of multi-product heterogeneous firms and trade is provided.
    Keywords: heterogeneous plants, multiple products, entry and exit, trade, development.
    JEL: D21 E23 F14 L11 O14 O54
    Date: 2008–11
  34. By: Szarowska, Irena
    Abstract: The Czech Republic became a Member State of the European Union in May 2004. Under the EU legislation, prior to adopting the euro the Czech Republic must therefore be an EU Member State and must have fulfilled the Maastricht convergence criteria. The Czech Republic is currently reporting an excessive deficit, which poses an obstacle on the way towards compliance with Maastrich convergence criteria. Therefore Czech government has decided to solve primarily public finance problems. Early April 2007, the Czech government introduced a planned legislative reform affecting taxes, social security, health insurance etc. The bill introduced by the Czech government contains many significant changes which came into effect from 2008. Moreover the president of the Czech Republic signed the amendment on the stabilization of public finances which brings alterations to the most of the currently valid tax law. The main object of approved changes is to stabilize Czech public finance, but tax and fiscal reform will have a fundamental impact on corporate governance in the Czech Republic. The aim of a paper is not to summarize all approved modifications but paper analyzes and points out significant changes which came into effect in year 2008 and focuses on estimated impact and consequences for corporate governance in the Czech Republic in a future period.
    Keywords: tax reform; corporate governance; corporate income tax; value added tax
    JEL: E62 G3 H2
    Date: 2008
  35. By: Matu, Jeffrey Ben
    Abstract: Although microfinance has played a significant role in providing a wide range of financial products and services, many microfinance institutions (MFIs) in Kenya still face major challenges with efficiently and effectively delivering microfinance services in the country. As the demand for these services continues to grow, the limited sources of available capital have greatly undermined the capabilities of MFIs to efficiently operate their services and expand their various microfinance activities. This has led to a financial gap in the supply of microfinance services, and consequently has reduced the opportunities for the poor to access basic socio-economic benefits that could potentially improve their wellbeing. The widening financial gap in the microfinance sector has been attributed to self-governance issues, capacity building issues, non-compliance with reporting requirements, and a lack of appropriate performance criteria. These and other factors have jeopardized MFIs sustainability and have compromised the delivery of microfinance services in the country. There is a need for a policy that advocates for better access to capital sources and investment opportunities for microfinance sustainability, and also encourages MFIs to increase their accessibility, build capacity, be more transparent, adopt acceptable performance standards, and promote professionalism to enhance service delivery. This paper analyzes three policy alternatives which include: (i) maintaining the status quo; (ii) government regulation of all MFIs; and (iii) voluntarily self-regulating by member MFIs as alternatives for closing the financial gap in the supply of microfinance services. All the three alternatives are evaluated against the following criteria: efficiency, financial and political feasibility, and accessibility to determine the best policy option.
    Keywords: microfinance; investment funds; social responsible investing; Africa; Kenya; public policy; economics; finances; financial economics; public economics; Kenya microfinance Act
    JEL: G2 E58 E22 O2 F21 G20
    Date: 2008–04–18

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