|
on Macroeconomics |
|
Issue of 2009‒01‒10
fifty-one papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | Zheng Liu; Daniel F. Waggoner; Tao Zha |
| Abstract: | We study the sources of the Great Moderation by estimating a variety of medium-scale DSGE models that incorporate regime switches in shock variances and in the inflation target. The best-fit model, the one with two regimes in shock variances, gives quantitatively different dynamics in comparison with the benchmark constant-parameter model. Our estimates show that three kinds of shocks accounted for most of the Great Moderation and business-cycle fluctuations: capital depreciation shocks, neutral technology shocks, and wage markup shocks. In contrast to the existing literature, we find that changes in the inflation target or shocks in the investment-specific technology played little role in macroeconomic volatility. Moreover, our estimates indicate much less nominal rigidities than those suggested in the literature. |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:emo:wp2003:0811&r=mac |
| By: | Olivier Coibion; Yuriy Gorodnichenko |
| Abstract: | With positive trend inflation, the Taylor principle is not enough to guarantee a determinate equilibrium. We provide new theoretical results on restoring determinacy in New Keynesian models with positive trend inflation and combine these with new empirical findings on the Federal Reserve's reaction function before and after the Volcker disinflation to find that 1) while the Fed satisfied the Taylor principle in the pre-Volcker era, the US economy was still subject to self-fulfilling fluctuations in the 1970s, 2) while the Fed's response to inflation is not statistically different before and after the Volcker disinflation, the US economy nonetheless moved from indeterminacy to determinacy in this time period, and 3) the change from indeterminacy to determinacy is due to the simultaneous decrease in the response to the output gap, increases in the response to inflation and output growth and the decline in steady-state inflation from the Volcker disinflation. |
| JEL: | C22 E3 E43 E5 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14621&r=mac |
| By: | Frantisek Brazdik Author-Name: Juraj Antal |
| Abstract: | The novelty of this work is in the presentation of a theoretical frame work that allows the modeling of an announced switch of the monetary regime. In our experiment, the monetary authority announces stabilization of the nominal exchange rate after the announced number of periods. We analyze the effects of the monetary policy regime for the macroeconomic stability over the transition period. For our analysis, we consider representative forms of standard monetary regimes. Moreover, we rank the examined regimes in terms of loss functions. |
| Keywords: | New Keynesian models, small open economy, monetary regime switch. |
| JEL: | E17 E31 E52 E58 E61 F02 F41 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp368&r=mac |
| By: | António Afonso (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Ricardo M. Sousa (University of Minho, Department of Economics and Economic Policies Research Unit (NIPE), Campus of Gualtar, 4710-057 - Braga, Portugal; London School of Economics, Department of Economics and Financial Markets Group, Houghton Street, London WC2 2AE, United Kingdom.) |
| Abstract: | We investigate the macroeconomic effects of fiscal policy using a Bayesian Structural Vector Autoregression approach. We build on a recursive identification scheme, but we (i) include the feedback from government debt (ii); look at the impact on the composition of output; (iii) assess the effects on asset markets (via housing and stock prices); (iv) add the exchange rate; (v) assess potential interactions between fiscal and monetary policy; (vi) use quarterly data, particularly, fiscal data; and (vii) analyze empirical evidence from the U.S., the U.K., Germany, and Italy. The results show that government spending shocks, in general, have a small effect on GDP; lead to important “crowding-out” effects; have a varied impact on housing prices and generate a quick fall in stock prices; and lead to a depreciation of the real effective exchange rate. Government revenue shocks generate a small and positive effect on both housing prices and stock prices that later mean reverts; and lead to an appreciation of the real effective exchange rate. The empirical evidence also shows that it is important to explicitly consider the government debt dynamics in the model. JEL Classification: C11, C32, E62, H62. |
| Keywords: | Fiscal policy, Bayesian Structural VAR, debt dynamics. |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20090991&r=mac |
| By: | Nutahara, Kengo |
| Abstract: | In many applications of habit persistence to macroeconomics, it is of little significance whether habits are internal or external. In this paper, it is shown that the distinction between internal and external habits is important in a situation wherein a shock is news about the future. An internal habit can be a source of news-driven business cycles, positive comovement in consumption, labor, investment, and output from the news about the future, whereas an external habit cannot. |
| Keywords: | Habit persistence; internal habit; external habit; news-driven business cycles |
| JEL: | E32 E21 |
| Date: | 2009–01–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:12550&r=mac |
| By: | Reuven Glick; Michael Hutchison |
| Abstract: | In recent years China has faced an increasing trilemma—how to pursue an independent domestic monetary policy and limit exchange rate flexibility, while at the same time facing large and growing international capital flows. This paper analyzes the impact of the trilemma on China’s monetary policy as the country liberalizes its goods and financial markets and integrates with the world economy. It shows how China has sought to insulate its reserve money from the effects of balance of payments inflows by sterilizing through the issuance of central bank liabilities. However, we report empirical results indicating that sterilization dropped precipitously in 2006 in the face of the ongoing massive buildup of international reserves, leading to a surge in reserve money growth. We estimate a vector error correction model linking the surge in China’s reserve money to broad money, real GDP, and the price level. We use this model to explore the inflationary implications of different policy scenarios. Under a scenario of continued rapid reserve money growth (consistent with limited sterilization of foreign exchange reserve accumulation) and strong economic growth, the model predicts a rapid increase in inflation. A model simulation using an extension of the framework that incorporates recent increases in bank reserve requirements also implies a rapid rise in inflation. By contrast, model simulations incorporating a sharp slowdown in economic growth lead to less inflation pressure even with a substantial buildup in international reserves. |
| Keywords: | Monetary policy - China |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2008-32&r=mac |
| By: | Roberto Billi |
| Abstract: | With inflation and policy interest rates at historically low levels, policymakers show great concern about "downside tail risks" due to a zero lower bound on nominal interest rates. Low probability or tail events, such as sustained deflation or recession, are disruptive for the economy and can be difficult to resolve. This paper shows that price-level targeting mitigates downside tail risks respect to inflation targeting when policy is conducted through a simple interest-rate rule subject to a zero lower bound. Thus, price-level targeting is a more effective policy framework than inflation targeting for the management of downside tail risks in a low-inflation economy. At the same time, the average performance of the economy is not very different if policy implements price-level targeting instead of inflation targeting through a simple interest-rate rule. Price-level targeting may imply less variability of inflation than inflation targeting because policymakers can shape private-sector expectations about future inflation more effectively by targeting directly the price level path rather than inflation. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp08-09&r=mac |
| By: | Ashima Goyal |
| Abstract: | In order to examine if the impact of oil price shocks depends on the structure of an economy, a vertical (VSC) and a horizontal (HSC) long-run supply curve identification are successively imposed on a three variable VAR with Indian time series data. While core inflation is measured with the VSC, the HSC requires a new concept of demand-driven inflation: Residual (demand) inflation, which gives the impact of short and medium run demand shocks on inflation. Core and residual inflation are both estimated. The data favors the HSC, but both identifications imply that policy demand squeeze aggravated international oil price shocks. |
| Keywords: | VAR, identification strategies, developing economy, residual, output, labor surplus, oil price, economy, vertical, horizontal, VSC, HSC, supply curve, inflation, time series, data, demand, residual, India, Indian, |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ess:wpaper:id:1826&r=mac |
| By: | Richard Dennis |
| Abstract: | Consumption-habits have become an integral component in new Keynesian models. However, consumption-habits can be modeled in a host of different ways and this diversity is reflected in the literature. I examine whether different approaches to modeling consumption habits have important implications for business cycle behavior. Using a standard new Keynesian business cycle model, I show that, to a first-order log-approximation, the consumption Euler equation associated with the additive functional form for habit formation encompasses the multiplicative function form. Empirically, I show that whether consumption habits are internal or external has little effect on the model's business cycle characteristics. |
| Keywords: | Business cycles |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2008-35&r=mac |
| By: | Mierzejewski, Fernando |
| Abstract: | A model is presented to characterise the (optimal) demand for cash balances in deregulated markets. After the model of James Tobin, 1958, net balances are determined in order to maximise the expected return of a certain portfolio combining risk and capital. Unlike the model of Tobin, however, the price of the underlying exposures are established in actuarial terms. Within this setting, the monetary equilibrium determines the rate at which a unit of capital is exchange by a unit of exposure to risk, or equivalently, it determines the market price of risk. In a Gaussian setting, such a price is expressed as a mean-to-volatility ratio and can then be regarded as an alternative measure to the Sharpe ratio. The effects of credit and monetary flows on money and security markets can be precisely described on these grounds. An alternative framework for the analysis of monetary policy is thus provided. |
| Keywords: | Liquidity-preference; Money demand; Monetary equilibrium; Market price of risk; Sharpe ratio |
| JEL: | G11 G22 E52 E44 E41 |
| Date: | 2008–12–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:12549&r=mac |
| By: | Lenno Uusküla |
| Abstract: | Traditional models of monetary transmission such as sticky price and limited participation abstract from firm creation and destruction. Only a few papers look at the empirical effects of the monetary shock on the firm turnover measures. But what can we learn about monetary transmission by including measures for firm turnover into the theoretical and empirical models? Based on a large scale vector autoregressive (VAR) model for the U.S. economy I show that a contractionary monetary policy shock increases the number of business bankruptcy filings and failures, and decreases the creation of firms and net entry. According to the limited participation model, a contractionary monetary shock leads to a drop in the number of firms. On the contrary the same shock in the sticky price model increases the number of firms. Therefore the empirical findings support more the limited participation type of the monetary transmission |
| Keywords: | monetary transmission, limited participation, sticky prices, firm entry, firm bankruptcy, structural VAR |
| JEL: | E32 C32 |
| Date: | 2009–01–02 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2008-07&r=mac |
| By: | Alejandro Justiniano; Giorgio E. Primiceri; Andrea Tambalotti |
| Abstract: | Shocks to the marginal efficiency of investment are the most important drivers of business cycle fluctuations in US output and hours. Moreover, these disturbances drive prices higher in expansions, like a textbook demand shock. We reach these conclusions by estimating a DSGE model with several shocks and frictions. We also find that neutral technology shocks are not negligible, but their share in the variance of output is only around 25 percent, and even lower for hours. Labor supply shocks explain a large fraction of the variation of hours at very low frequencies, but not over the business cycle. Finally, we show that imperfect competition and, to a lesser extent, technological frictions are the key to the transmission of investment shocks in the model. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-08-12&r=mac |
| By: | António Afonso (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Ricardo M. Sousa (University of Minho, Department of Economics and Economic Policies Research Unit (NIPE), Campus of Gualtar, 4710-057 - Braga, Portugal; London School of Economics, Department of Economics and Financial Markets Group, Houghton Street, London WC2 2AE, United Kingdom.) |
| Abstract: | This paper investigates the link between fiscal policy shocks and movements in asset markets using a Fully Simultaneous System approach in a Bayesian framework. Building on the works of Blanchard and Perotti (2002), Leeper and Zha (2003), and Sims and Zha (1999, 2006), the empirical evidence for the U.S., the U.K., Germany, and Italy shows that it is important to explicitly consider the government debt dynamics when assessing the macroeconomic effects of fiscal policy and its impact on asset markets. In addition, the results from a VAR counter-factual exercise suggest that: (i) fiscal policy shocks play a minor role in the asset markets of the U.S. and Germany; (ii) they substantially increase the variability of housing and stock prices in the U.K.; and (iii) government revenue shocks have apparently contributed to an increase of volatility in Italy. JEL Classification: C32, E62, G10, H62. |
| Keywords: | Bayesian Structural VAR, fiscal policy, housing prices, stock prices. |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20090990&r=mac |
| By: | Joshua Aizenman (Department of Economics, University of California, Santa Cruz); Michael Hutchison (Department of Economics, University of California, Santa Cruz); Ilan Noy (Department of Economics, University of Hawaii at Manoa) |
| Abstract: | We examine the inflation targeting (IT) experiences of emerging market economies, focusing especially on the roles of the real exchange rate and the distinction between commodity and non-commodity exporting nations. In the context of a simple empirical model, estimated with panel data for 17 emerging markets using both IT and non-IT observations, we find a significant and stable response running from inflation to policy interest rates in emerging markets that are following publically announced IT policies. By contrast, central banks respond much less to inflation in non-IT regimes. IT emerging markets follow a “mixed IT strategy” whereby both inflation and real exchange rates are important determinants of policy interest rates. The response to real exchange rates is much stronger in non-IT countries, however, suggesting that policymakers are more constrained in the IT regime—they are attempting to simultaneously target both inflation and real exchange rates and these objectives are not always consistent. We also find that the response to real exchange rates is strongest in those countries following IT policies that are relatively intensive in exporting basic commodities. We present a simple model that explains this empirical result. |
| Keywords: | Inflation targeting, real exchange rate, commodity exporters, emerging markets |
| JEL: | E52 E58 F3 |
| Date: | 2008–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:hai:wpaper:200810&r=mac |
| By: | Philip Jung; Keith Kuester |
| Abstract: | This paper develops a real business cycle model with labor market search and matching frictions, which endogenously links both the cyclical fluctuations and the mean level of unemployment to the aggregate business cycle risk. The key result of the paper is that business cycles are costly for all consumers, regardless of their wealth, yet that unemployment fluctuations themselves are not the source of these costs. Rather fluctuations over the cycle induce higher average unemployment rates as employment is non-linear in job-finding rates and past unemployment. The authors first show this result analytically in special cases. They then calibrate a general equilibrium model with risk-averse asset-holding and liquidity-constrained workers to US data. Also under these more general circumstances, business cycles mean higher unemployment for all workers. The ensuing costs of cycles rise further for liquidity-constrained agents when replacement rates are lower or when workers' skills depend on the length of (un)employment spells. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:08-31&r=mac |
| By: | Jens H. E. Christensen; Jose A. Lopez; Glenn D. Rudebusch |
| Abstract: | Differences between yields on comparable-maturity U.S. Treasury nominal and real debt, the so-called breakeven inflation (BEI) rates, are widely used indicators of inflation expectations. However, better measures of inflation expectations could be obtained by subtracting inflation risk premiums from the BEI rates. We provide such decompositions using an estimated affine arbitrage-free model of the term structure that captures the pricing of both nominal and real Treasury securities. Our empirical results suggest that long-term inflation expectations have been well anchored over the past few years, and inflation risk premiums, although volatile, have been close to zero on average. |
| Keywords: | Inflation (Finance) ; Treasury bonds |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2008-34&r=mac |
| By: | Naqvi, Nadeem |
| Abstract: | Agency-based explanations of the great deprivation, contrasted with structure-based explanations, suffer not merely from the criticism of relying on irrational and irresponsible behavior of millions, including that of the most astute financial experts, but are also at a loss to explain why such problems did not arise earlier when the same motivations and behavioral patterns were exhibited, thereby rendering such theories incomplete. Alternatively, if it is argued that such problems did not appear earlier because the economic structure was different then, then again attention must return to an examination of structure, not exclusively place blame on agency failures. (98 words) |
| Keywords: | structure; agency; great deprivation; financial crisis; fiscal policy; monetary policy; skilled labor markets; American economy; involuntary unemployment; voluntary unemployment; education; training; skill acquisition; income distribution; China; India; Germany; Japan |
| JEL: | F16 E32 E66 F01 E44 F21 |
| Date: | 2009–01–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:12473&r=mac |
| By: | Naqvi, Nadeem |
| Abstract: | Agency-based explanations of the great deprivation, contrasted with structure-based explanations, suffer not merely from the criticism of relying on irrational and irresponsible behavior of millions, including that of the most astute financial experts, but are also at a loss to explain why such problems did not arise earlier when the same motivations and behavioral patterns were exhibited, thereby rendering such theories incomplete. Alternatively, if it is argued that such problems did not appear earlier because the economic structure was different then, then again attention must return to an examination of structure, not exclusively place blame on agency failures. (98 words) |
| Keywords: | structure; agency; great deprivation; financial crisis; fiscal policy; monetary policy; skilled labor markets; American economy; involuntary unemployment; voluntary unemployment; education; training; skill acquisition; income distribution; China; India; Germany; Japan |
| JEL: | F16 E32 E66 F01 E44 F21 |
| Date: | 2009–01–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:12497&r=mac |
| By: | Zheng Liu; Louis Phaneuf |
| Abstract: | A commonly held view is that nominal rigidities are important for the transmission of monetary policy shocks. We argue that they are also important for understanding the dynamic effects of technology shocks, especially on labor hours, wages, and prices. Based on a dynamic general equilibrium framework, our closed-form solutions reveal that a pure sticky-price model predicts correctly that hours decline following a positive technology shock, but fails to generate the observed gradual rise in the real wage and the near-constance of the nominal wage; a pure sticky-wage model does well in generating slow adjustments in the nominal wage, but it does not generate plausible dynamics of hours and the real wage. A model with both types of nominal rigidities is more successful in replicating the empirical evidence about hours, wages and prices. This finding is robust for a wide range of parameter values, including a relatively small Frisch elasticity of hours and a relatively high frequency of price reoptimization that are consistent with microeconomic evidence. |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:emo:wp2003:0812&r=mac |
| By: | Ethan Cohen-Cole; Enrique Martinez-Garcia |
| Abstract: | In this paper, we study the role of the credit channel of monetary policy in a synthesis model of the economy. Through the use of a well-specified banking sector and a regulatory capital constraint on lending, we provide an alternate mechanism that can potentially explain the periods of asymmetry in monetary policy without appealing to ad-hoc central bank preferences. This is accomplished through the characterization of the external finance premium that includes bank leverage and systemic risk. |
| Keywords: | Monetary policy |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbqu:qau08-7&r=mac |
| By: | Wilbert van der Klaauw; Wändi Bruine de Bruin; Giorgio Topa; Simon Potter; Michael Bryan |
| Abstract: | This paper reports preliminary findings from a Federal Reserve Bank of New York research program aimed at improving survey measures of inflation expectations. We find that seemingly small differences in how inflation is referred to in a survey can lead respondents to consider significantly different price concepts. For near-term inflation, the "prices in general" question in the monthly Reuters/University of Michigan Surveys of Consumers can elicit responses that focus on the most visible prices, such as gasoline or food. Questions on the "rate of inflation" can lead to responses on the prices that U.S. citizens pay in general - an interpretation, or concept, closer to the definition of inflation that economists have in mind; they also lead to both lower levels of reported inflation and to lower disagreement among respondents. In addition, we present results associated with new survey questions that assess the degree of individual uncertainty about future inflation outcomes as well as future expected wage changes. Finally, using the panel dimension of the surveys, we find that individual responses exhibit considerable persistence, both in the expected level of inflation and in forecast uncertainty. Respondents who are more uncertain make larger revisions to their expectations in the next survey. |
| Keywords: | Inflation (Finance) ; Economic indicators ; Economic surveys ; Uncertainty |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:359&r=mac |
| By: | Michael Dotsey; Andreas Hornstein |
| Abstract: | Currently there is a growing literature exploring the features of optimal monetary policy in New Keynesian models under both commitment and discretion. This literature usually solves for the optimal allocations that are consistent with a rational expectations market equilibrium, but it does not study how the policy can be implemented given the available policy instruments. Recently, however, King and Wolman (2004) have shown that a time-consistent policy cannot be implemented through the control of nominal money balances. In particular, they find that equilibria are not unique under a money stock regime. The authors of this paper find that King and Wolman's conclusion of non-uniqueness of Markov-perfect equilibria is sensitive to the instrument of choice. Surprisingly, if, instead, the monetary authority chooses the nominal interest rate there exists a unique Markov-perfect equilibrium. The authors then investigate under what conditions a time-consistent planner can implement the optimal allocation by just announcing his policy rule in a decentralized setting. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:08-30&r=mac |
| By: | Taeyoung Doh |
| Abstract: | This paper specifies and estimates a long run risks model with inflation by using the nominal term structure data in the United States from 1953 to 2006. The negative correlation between expected inflation and expected consumption growth in conjunction with the Epstein-Zin (1989) recursive preferences generates an upward sloping yield curve and fits the yield curve data better than the alternative specifications. However, the variations of the forward looking components of consumption growth and inflation in the estimated model are much smaller than implied by calibrated parameter values in the previous literature. An extended model with time varying volatilities alleviates this problem. In the extended model, estimated long run risks and volatilities, especially for inflation, are in line with survey data and the estimated inflation volatility explains a significant portion of the time variation of term premium. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp08-11&r=mac |
| By: | Jan-Oliver Menz (Department for Economics and Politics, University of Hamburg) |
| Abstract: | The contribution of this paper is twofold. First, a thorough presentation of the state of the art of the New Keynesian Macroeconomic model is provided. A discussion of its empirical caveats follows and some recent extensions of the standard model are evaluated in more detail. Second, a key insight of Behavioral Economics, hyperbolic discounting, is used for the derivation of the IS Curve. It is argued that this approach is more appropriate than the usual praxis of allowing for a rule-of-thumb agent in an otherwise standard optimization framework. |
| Keywords: | Behavioral Economics, New Keynesian Model, Rule-of-Thumbs,Hyperbolic Discounting |
| JEL: | D91 E21 D8 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:hep:macppr:200804&r=mac |
| By: | Antonella Foglia (Banca d'Italia) |
| Abstract: | This paper reviews the quantitative methods used at selected central banks to stress testing credit risk, focusing in particular on the methods used to link macroeconomic drivers of stress with bank specific measures of credit risk (macro stress test). Stress testing credit risk is an essential element of the Basel II Framework; because of their financial stability perspective, central banks and supervisors are particularly interested in quantifying the macro-to-micro linkages and have developed a specific modeling expertise in this field. In assessing current macro stress testing practices, the paper highlights the more recent developments and a number of methodological challenges that may be useful for supervisors in their review process of the banks' stress test models as required by the Basel II Framework. It also contributes to the on-going macroprudential research efforts that aim to integrate macroeconomic oversight and prudential supervision, in the direction of early identification of key vulnerabilities and assessment of macro-financial linkages. |
| Keywords: | Macro stress testing, financial stability, macro-prudential analysis, credit risk,probability of default |
| JEL: | E32 E37 G21 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_37_08&r=mac |
| By: | Patrick J. Kehoe; V. V. Chari; Andrew Atkeson |
| Abstract: | The Ramsey approach to policy analysis finds the best competitive equilibrium given a set of available instruments but is silent about unique implementation, namely, designing policies so that the associated competitive equilibrium is unique. This silence is particularly problematic in monetary policy environments, where many ways of specifying policy lead to indeterminacy. We show that sophisticated policies, which depend on the history of private actions and can differ on and off the equilibrium path, can uniquely implement any desired competitive equilibrium. A large literature has argued that monetary policy should adhere to the Taylor principle to eliminate indeterminacy. We show that adherence to the Taylor principle on these grounds is unnecessary for either determinacy or efficiency. We also show that sophisticated policies are robust to imperfect information. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:419&r=mac |
| By: | Tatom, John |
| Abstract: | The Federal Reserve (Fed) and the U.S. Treasury have taken unprecedented steps to stem the financial crisis that began in August 2007 as part of the extended foreclosure crisis. In the most recent episode in September 2008, seven financial institutions either failed or were merged with stronger firms, sparking public concerns for their assets and for their own financial institutions. This has led to several new institutional arrangements of questionable value, foremost among them, the Bush Administration’s $700 billion bailout fund for illiquid mortgage-related assets on the books of financial institutions. All of these events had been anticipated for months, but the surprise was the bunching of these failures over such a short interval. The other noteworthy feature of these developments is the speed and completeness with which the private sector moved in to acquire the assets and operations of these companies with little or no regulatory or taxpayer cost. There are exceptions, but even in those cases, the costs were minimized and the firms involved hardly missed a beat, except for their new owners. This paper reviews arguments that the failure of Lehman precipitated recent developments and also whether financial deregulation was responsible. A Lehman-related development was the run on money market mutual funds and policy responses to it by both the Fed and Treasury. These are critically reviewed here as well. Finally, it reviews how rapidly and effectively the Fed responded to the September issues, something that Treasury bailouts cannot do, and that represents a major turning point in the Fed response to the foreclosure/financial crisis. |
| Keywords: | central banking policy; credit approach to monetary policy; sterilization; systemic risk |
| JEL: | E58 E52 E44 |
| Date: | 2008–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:12502&r=mac |
| By: | J. Christina Wang; Susanto Basu; John G. Fernald |
| Abstract: | This paper addresses the proper measurement of financial service output that is not priced explicitly. It shows how to impute nominal service output from financial intermediaries' interest income, and how to construct price indices for those financial services. We model financial intermediaries as providers of financial services which resolve asymmetric information between borrowers and lenders. We embed these intermediaries in a dynamic, stochastic, general-equilibrium model where assets are priced competitively according to their systematic risk, as in the standard consumption-based capital-asset-pricing model. In this environment, we show that it is critical to take risk into account in order to measure financial output accurately. We also show that even using a risk-adjusted reference rate does not solve all the problems associated with measuring nominal financial service output. Our model allows us to address important outstanding questions in output and productivity measurement for financial firms, such as: (1) What are the correct "reference rates" to use in calculating bank output? In particular, should they take account of risk? (2) If reference rates need to be risk-adjusted, should they be ex ante or ex post rates of return? (3) What is the right price deflator for the output of financial firms? Is it just the general price index? (4) When--if ever--should we count capital gains of financial firms as part of financial service output? |
| JEL: | E01 E44 G21 G32 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14616&r=mac |
| By: | Shahnoushi, Naser; Henneberry, Shida; Manssori, Hooman |
| Abstract: | This study examines the relationship between food prices and monetary policy variables, using a Vector Error Correction Model (VECM) approach applied to annual data from 1976 to 2006. Results indicate that food prices in Iran have a long-run and short-run equilibrium granger causality relationship with money supply. More specifically, monetary policy reforms are shown to have a significant impact on food prices and domestic agricultural production. These policies influence consumption patterns and have serious implications for poverty reduction, food security issues, and agricultural growth in Iran. |
| Keywords: | VEC model, food Prices, monetary policy, Iran, Agricultural and Food Policy, |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:ags:saeana:46078&r=mac |
| By: | Zheng Liu; Daniel F. Waggoner; Tao Zha |
| Abstract: | This study explores theoretical and macroeconomic implications of the self-confirming equilibrium in a standard growth model. When rational expectations are replaced by adaptive expectations, we prove that the self-confirming equilibrium is the same as the steady state rational expectations equilibrium, but that dynamics around the steady state are substantially different between the two equilibria. We show that, in contrast to Williams (2003), the differences are driven mainly by the lack of the wealth effect and the strengthening of the intertemporal substitution effect, not by escapes. As a result, adaptive expectations substantially alter the amplification and propagation mechanisms and allow technology shocks to exert much more impact on macroeconomic variables than do rational expectations. |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:emo:wp2003:0803&r=mac |
| By: | Aurélien Saidi |
| Abstract: | It has been shown that under perfect competition and constant returns-to-scale, a one-sector growth model may exhibit local indeterminacy when income tax rates are endogenously determined by a balanced-budget rule while government expendi- tures are fixed. This paper shows that the associated aggregate instability does not ensue from the local indeterminacy of a specific stationary equilibrium but from the multiplicity of the stationary equilibria and persists under local determinacy of all of them. We provide a global analysis of the Schmitt-Grohe and Uribe model [1997] and study specific cases that were not investigated in the original paper, when aggregate instability is inherited from the coexistence of two saddle-path equilibria on one hand and from the connection of the two steady states on the other hand. |
| Keywords: | Balanced-budget rule, Increasing returns, Indeterminacy, Saddle-sink connection |
| JEL: | E32 E4 E62 H61 O42 O47 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2008-44&r=mac |
| By: | Susanto Basu; Robert Inklaar; J. Christina Wang |
| Abstract: | Rather than charging direct fees, banks often charge implicitly for their services via interest spreads. As a result, much of bank output has to be estimated indirectly. In contrast to current statistical practice, dynamic optimizing models of banks argue that compensation for bearing systematic risk is not part of bank output. We apply these models and find that between 1997 and 2007, in the U.S. National Accounts, on average, bank output is overestimated by 21 percent and GDP is overestimated by 0.3 percent. Moreover, compared with current methods, our new estimates imply more plausible estimates of the share of capital in income and the return on fixed capital. |
| JEL: | E01 E44 G21 G32 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14615&r=mac |
| By: | Keith Kuester; Volker Wieland |
| Abstract: | In this paper, the authors aim to design a monetary policy for the euro area that is robust to the high degree of model uncertainty at the start of monetary union and allows for learning about model probabilities. To this end, they compare and ultimately combine Bayesian and worst-case analysis using four reference models estimated with pre-EMU synthetic data. The authors start by computing the cost of insurance against model uncertainty, that is, the relative performance of worst-case or minimax policy versus Bayesian policy. While maximum insurance comes at moderate costs, they highlight three shortcomings of this worst-case insurance policy: (i) prior beliefs that would rationalize it from a Bayesian perspective indicate that such insurance is strongly oriented toward the model with highest baseline losses; (ii) the minimax policy is not as tolerant of small perturbations of policy parameters as the Bayesian policy; and (iii) the minimax policy offers no avenue for incorporating posterior model probabilities derived from data available since monetary union. Thus, the authors propose preferences for robust policy design that reflect a mixture of the Bayesian and minimax approaches. They show how the incoming EMU data may then be used to update model probabilities, and investigate the implications for policy. ; Forthcoming in the Journal of the European Economic Association. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:08-29&r=mac |
| By: | Jean De Beir (EPEE - Université d'Evry-Val d'Essonne); Mouez Fodha (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); Francesco Magris (EPEE - Université d'Evry-Val d'Essonne) |
| Abstract: | The aim of this paper is to examine whether the development of waste recycling activities can be a source of economic fluctuation. We assume that the recycling sector has four fundamental characteristics. (i) The production factors are restricted by the production of the last period. (ii) These production factors are waste for which the price determination is non-competitive. (iii) It produces a recycled good, which is a perfect substitute to th primary good. (iv) It reduces waste stream. We consider the simplest economy with an infinitely lived agent and a life cycle hypothesis for the goods. We show that the equilibrium is unique and is always determinate. In spite of the lack of indeterminacy, however, our system can display cyclical behavior, depending on some usual conditions on parameters. Namely, the steady-state may undergo a Flip and a Hopf bifurcation. |
| Keywords: | Cycles, recycling, waste. |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00348862_v1&r=mac |
| By: | Glenn Rudebusch; Eric Swanson |
| Abstract: | The term premium on nominal long-term bonds in the standard dynamic stochastic general equilibrium (DSGE) model used in macroeconomics is far too small and stable relative to empirical measures obtained from the data--an example of the ''bond premium puzzle.'' However, in models of endowment economies, researchers have been able to generate reasonable term premiums by assuming that investors have recursive Epstein-Zin preferences and face long-run economic risks. We show that introducing Epstein-Zin preferences into a canonical DSGE model can also produce a large and variable term premium without compromising the model's ability to fit key macroeconomic variables. Long-run real and nominal risks further improve the model's ability to fit the data with a lower level of household risk aversion. |
| Keywords: | Interest rates ; Econometric models |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2008-31&r=mac |
| By: | Christoffer Kok Sørensen (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); David Marqués Ibáñez (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Carlotta Rossi (Corresponding author: Banca d’Italia, via Nazionale 91, I-00184 Roma, Italy.) |
| Abstract: | We model the determinants of loans to non-financial corporations in the euro area. Using the Johansen (1992) methodology, we identify three cointegrating relationships. These relationships are interpreted as the long-run loan demand, investment and loan supply equations. The short-run dynamics of loan demand for the euro area are subsequently modelled by means of a Vector Error Correction Model (VECM). We perform a number of specification tests, which suggest that developments in loans to non-financial corporations in the euro area can be reasonably explained by the model. We then use the estimated model to analyse the impact of permanent and temporary shocks to the policy rate on bank lending to nonfinancial corporations. JEL Classification: C32, C51. |
| Keywords: | Bank credit, euro area, non-financial corporations, cointegration, error-correction model. |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20090989&r=mac |
| By: | Tatom, John |
| Abstract: | Since August 2007 the Board of Governors of the Federal Reserve System (Fed) has approached near panic in their adoption of multiple and inconsistent traditional policy measures and, since December 2007, they have multiplied these efforts by adopting major new policy tools, some of which may go well beyond their congressional mandate. These actions have been motivated, in the first instance, by an emerging mortgage foreclosure crisis that began in late-2006 and that the Fed first recognized in May 2007, in the second instance by a credit crisis that emerged in August in Europe and quickly moved on shore. This article summarizes and explains the Fed actions from August 2007 through March 2008, distinguishing its normal policy actions from a multitude of new facilities that it has created for policy response to illiquidity (or perhaps insolvency) in various corners of private credit markets. What stands out is that the Fed has aimed to target credit to various specific areas of the private financial market and as stridently aimed to insulate overall Fed credit, bank reserves, the federal funds rate or monetary aggregates from these novel responses. This campaign has involved creating numerous new facilities for the private sector and financing them largely by liquidating government securities held by the Fed. In the process, the Fed has transformed itself largely into a lender to the private sector rather than the government. It has violated the fundamental premise of central banking in a crisis to lend liberally at a premium and largely by lending against safe government securities and letting the marketplace direct new credit to solvent but illiquid institutions. It remains to be seen whether such an approach can stimulate a rebound on private credit markets and economic activity. |
| Keywords: | Foreclosure Crisis; Federal Reserve Policy; Sterilization; Central Banking |
| JEL: | E58 E52 |
| Date: | 2008–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:12501&r=mac |
| By: | Silvio Contessi; Pierangelo DePace; Johanna Francis |
| Abstract: | We describe the second-moment properties of the components of international capital flows and their relationship (covariance and correlation) to business cycle variables of 22 emerging and OECD countries. Disaggregated flows have different volatility properties, with debt being the most volatile and FDI the least volatile. We show that (a) inward flows are procyclical, outward and net outward flows are countercyclical for most industrial and emerging countries while, for the G-7, both inward and outward flows are procyclical and net outflows are countercyclical; (b) inward FDI flows are procyclical in industrial countries, countercyclical in emerging countries; and (c) there is no clear pattern for other equity flows and debt. Using formal statistical tests, we document changes in variability, covariance, and correlation of capital flows with a set of macroeconomic variables for G-7 countries. We find mixed evidence of changes over capital account liberalization episodes and breaks in international business cycles, and a clear increase in variance for all types and signs of flows. We estimate breaks at unknown dates in the conditional variance of each capital flow to find that they differ considerably from the breaks associated with capital account liberalization and financial globalization. |
| Keywords: | Capital movements ; Business cycles |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2008-041&r=mac |
| By: | Theodore Crone; Leonard I. Nakamura; Richard Voith |
| Abstract: | Until the end of 1977, the U.S. consumer price index for rents tended to omit rent increases when units had a change of tenants or were vacant, biasing inflation estimates downward. Beginning in 1978, the Bureau of Labor Statistics (BLS) implemented a series of methodological changes that reduced this nonresponse bias, but substantial bias remained until 1985. The authors set up a model of nonresponse bias, parameterize it, and test it using a BLS microdata set for rents. From 1940 to 1985, the official BLS CPI-W price index for tenant rents rose 3.6 percent annually; the authors argue that it should have risen 5.0 percent annually. Rents in 1940 should be only half as much as their official relative price; this has important consequences for historical measures of rent-house-price ratios and for the growth of real consumption. (Revision forthcoming in Review of Economics and Statistics.) |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:08-28&r=mac |
| By: | John Schmitt; Hye Jin Rho |
| Abstract: | This paper updates Ronald Reagan's famous question during the 1980 presidential election: "Are you better off now than you were four years ago?" by comparing the state of the economy in 2000 and 2008. We use 25 indicators of economic well-being and economic performance and find that 23 of the 25 indicators are worse in 2008 than they were in 2000. Even after we limit comparisons to similar points across the business cycle, the same 23 indicators were worse at the most recent business-cycle peak (2007) than they were in 2000. |
| Keywords: | recession, business cycle |
| JEL: | E E2 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:epo:papers:2008-26&r=mac |
| By: | Michael Elsby; Bart Hobijn; Aysegul Sahin |
| Abstract: | We provide a set of comparable estimates for the rates of inflow to and outflow from unemployment for fourteen OECD economies using publicly available data. We then devise a method to decompose changes in unemployment into contributions accounted for by changes in inflow and outflow rates for cases where unemployment deviates from its flow steady state, as it does in many countries. Our decomposition reveals that fluctuations in both inflow and outflow rates contribute substantially to unemployment variation within countries. For Anglo-Saxon economies we find approximately a 20:80 inflow/outflow split to unemployment variation, while for Continental European countries, we observe much closer to a 50:50 split. Using the estimated flow rates we compute gross worker flows into and out of unemployment. In all economies we observe that increases in inflows lead increases in unemployment, whereas outflows lag a ramp up in unemployment. |
| JEL: | E24 J6 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14617&r=mac |
| By: | Mark Weisbrot; Rebecca Ray |
| Abstract: | This paper looks at Venezuela’s export revenue, imports, and trade and current account balances under a range of oil price outcomes for the next two years. It finds that Venezuela would run large current account surpluses for prices between $60-90 per barrel, and would even run a small surplus with prices at $50 per barrel. (Most oil industry estimates for the next two years are in the range of $80-90 per barrel). The authors conclude that Venezuela is unlikely to run into foreign exchange constraints in the foreseeable future, and can pursue expansionary fiscal policies to counter any economic downturn. |
| Keywords: | Venezuela, Venezuelan oil exports, Venezuelan government revenue |
| JEL: | E E6 E62 F F1 F14 O54 Q4 Q43 Q48 |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:epo:papers:2008-29&r=mac |
| By: | Antonella Tutino |
| Abstract: | This paper studies the implications of information-processing limits on the consumption and savings behavior of households through time. It presents a dynamic model in which consumers rationally choose the size and scope of the information they want to process concerning their financial possibilities, constrained by a Shannon channel. The model predicts that people with higher degrees of risk aversion rationally choose more information. This happens for precautionary reasons since, with finite processing rate, risk averse consumers prefer to be well informed about their financial possibilities before implementing a consumption plan. Moreover, numerical results show that consumers with processing capacity constraints have asymmetric responses to shocks, with negative shocks producing more persistent effects than positive ones. This asymmetry results in more savings. I show that the predictions of the model can be effectively used to study the impact of tax reforms on consumers spending. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2008-62&r=mac |
| By: | Rick Mattoon; Leslie McGranahan |
| Abstract: | The 2001 recession proved alarming to state government finances. A relatively shallow national recession led to a severe downturn in state revenues that took three years to unwind. In the current economic downturn, early signs of fiscal stress are already apparent. This raises several fundamental questions: * Since 1984 the U.S. macroeconomy entered into the ?Great Moderation? in which economic volatility was reduced. Has state revenue volatility relative to the business cycle increased during this period? * Has the composition of state revenues and expenditures made states more susceptible to economic downturns and less likely to rebound in recovery? * Do states have the appropriate tools to address structural deficits or are they using budgeting techniques designed to address cyclical downturns to fix structural gaps? * Do the states have appropriate early warning mechanisms to anticipate fiscal stress? In this paper we will use state specific indicators of economic conditions to examine fiscal performance and budgeting practice over the economic cycle. In particular we will examine the interaction of policy choices in the states of Illinois and Iowa to see how these choices have impacted revenue collections and revenue productivity. Illinois and Iowa have significantly different economic structures and tax structures that should help illuminate what factors affect fiscal conditions. Finally we will offer some observations on how revenue and expenditure structures may need to change if states are going to avoid (or minimize) fiscal downturns. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-08-15&r=mac |
| By: | Michael Woodford |
| Abstract: | I present a generalization of the standard (full-information) model of state-dependent pricing in which decisions about when to review a firm's existing price must be made on the basis of imprecise awareness of current market conditions. The imperfect information is endogenized using a variant of the theory of "rational inattention" proposed by Sims (1998, 2003, 2006). This results in a one-parameter family of models, indexed by the cost of information, which nests both the standard state-dependent pricing model and the Calvo model of price adjustment as limiting cases (corresponding to a zero information cost and an unboundedly large information cost respectively). For intermediate levels of the information cost, the model is equivalent to a "generalized Ss model" with a continuous "adjustment hazard" of the kind proposed by Caballero and Engel (1993a, 1993b), but provides an economic motivation for the hazard function and very specific predictions about its form. For high enough levels of the information cost, the Calvo model of price-setting is found to be a reasonable approximation to the exact equilibrium dynamics, except in the case of (infrequent) large shocks. When the model is calibrated to match the frequency and size distribution of price changes observed in microeconomic data sets, prices are found to be much less flexible than in a full-information state-dependent pricing model, and only about 20 percent more flexible than under a Calvo model with the same average frequency of price adjustment. |
| JEL: | E31 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14620&r=mac |
| By: | Elijah Brewer, III; George G. Kaufman; Larry D. Wall |
| Abstract: | This paper extends the literature on bank capital structure by modeling capital structure as a function of important public policy and bank regulatory characteristics of the home country, as well as of bank-specific variables, country-level macroeconomic conditions, and country-level financial characteristics. The model is estimated with annual data from 1992 to 2005 for an unbalanced panel of the seventy-eight largest private banks in the world headquartered in twelve industrial countries. The results indicate that bank capital ratios are significantly affected in the hypothesized directions by most of the bank-specific variables. Several of the country characteristic and policy variables are also significant with the predicted sign: Banks maintain higher capital ratios in home countries in which the bank sector is relatively smaller and in countries that practice prompt corrective actions more actively, have more stringent capital requirements, and have more effective corporate governance structures. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2008-27&r=mac |
| By: | Mark Weisbrot |
| Abstract: | This report looks at Argentina’s current debt, fiscal, and overall economic situation to see if there is justification for concerns that Argentina is facing serious economic problems that could lead to a default on its sovereign debt. The Argentine economy has grown more than 60 percent since its recovery began six years ago, has trade and current account surpluses, and has declining levels of debt relative to GDP and other indicators. It also has a large amount of reserves relative to potential debt financing shortfalls. The paper finds that there is little or no basis for the fear that Argentina might default on its sovereign debt at any time in the foreseeable future, or indeed even the more distant future. |
| Keywords: | Argentina, Argentina crisis, Argentina debt |
| JEL: | E H F O H60 H50 F50 O54 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:epo:papers:2008-28&r=mac |
| By: | Daniel Levy; Dongwon Lee; Haipeng Chen; Robert Kauffman; Mark Bergen |
| Abstract: | We study the link between price points and price rigidity, using two datasets containing over 100 million observations. We find that (i) 9 is the most frequently used price-ending for the penny, dime, dollar and ten-dollar digits, (ii) 9-ending prices are between 24%-73% less likely to change in comparison to non-9-ending prices, (iii) the average size of the price change is higher if it ends with 9 in comparison to non-9-ending prices, and (iv) the most common price changes are multiples of dimes, dollars, and ten-dollars. We conclude that price points might constitute a substantial source of retail price rigidity. |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:emo:wp2003:0809&r=mac |
| By: | Donath, Liliana; Milos, Marius |
| Abstract: | The role of the state is finally the decision of the citizens. The government, being a result of elections, can provide more or less protection and increase or decrease expenditures. Anyway for achieving goals and for being performant the state definitly has to promote a good governance. Good governance means the way unions, public institutions, civil society and tax payers work together. An other important factor is the transparency and accountability of the elected government. As regards public services and goods, it is definitly important to grow efficiency of the government. Therefore themes like tax competition, public expenditures and harmonization of the tax system have to be analysed. There are main differences between eastern and western countries of the European Union witch generate social and economical consequences. It is also important to think of measuring performances of the public sector and of finding the most appropriate way in which government size and efficiency can lead to economical growth. |
| Keywords: | distributive role; regulation; welfare; performance; public expenditures; |
| JEL: | E62 E6 |
| Date: | 2008–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:12568&r=mac |
| By: | Bleuel, Hans-H. (Department of Economics of the Duesseldorf University of Applied Sciences) |
| Abstract: | The US-Dollar has depreciated noticeably since the beginning of the year 2006. This depreciation changes the competitiveness of nations and corporations. This paper briefly presents the related exchange rate risks. Subsequently, the operating exposure is discussed, as this is the relevant foreign exchange risk in the long-term. A related issue in corporate risk management is to identify and quantify exchange rate risks. In this context a short guideline proposes an applied 3-step analysis. This DIR-Analysis investigates: direct exposures, indirect exposures and enterprise responses to changed fx-rates. |
| Keywords: | ökonomisches Wechselkursrisiko, ökonomisches Währungsrisiko, Unternehmensplanung, Risikomanagement, Euro, operating exporsure, foreign exchange risk, corporate planning, hedging, simulation |
| JEL: | E52 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:ddf:wpaper:fobe02&r=mac |
| By: | Muşetescu, Radu; Dima, Alina; Cristian, Paun |
| Abstract: | The forging of the Single Market represents the most important dimension of the first pillar of the European Union, which is the European Community. It can be argued that, as compared to the other two pillars (the Common Foreign and Security Policy and the Police and Judicial Cooperation in the Criminal Matters), it has the most powerful impact on the welfare of European citizens. The European policy makers define however the Internal Market as not only an economic area where there are no more state-imposed barriers in the path of the freedom of movement of goods and services at the borders of the member-states but also a single business environment where there are a single currency, coordinated economic policies as well as homogeneous business practices of private undertakings. In this process, despite a large set of common policies, the competition policy has reached the status of the building block of the Common Market. |
| Keywords: | market integration competition policy Common Market |
| JEL: | F15 D41 E61 |
| Date: | 2008–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:12475&r=mac |