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on Macroeconomics |
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Issue of 2009‒01‒31
83 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | Edwin Le Heron (Sciences Po, Bordeaux, France) |
| Abstract: | Following the New Classical Macroeconomics and the New Keynesian Macroeconomics, the independence of central banks significantly increased after 1990, which could preclude the coordination between the fiscal and the monetary policies. The purpose of this paper is to consider the stabilizing effects of fiscal policy within the framework of the new monetary policies implemented by independent central banks.Firstly, we build a Post Keynesian stock-flow consistent (SFC) model with a private banks sector introducing more realistic features. New Keynesian Macroeconomics replaces the three equations of the Keynesian synthesis (IS-LM-Phillips Curve) by three new equations of the new consensus: an IS relation, a Taylor Rule and a New Keynesian Phillips Curve (IS-TR-NKPC). Our Post Keynesian SFC model replaces the IS relation. Secondly, we make simulations by imposing supply shocks (cost push) corresponding to an inflationary shock. The consequences are examined for two kinds of policy mix, for two countries: (i) For country (1), monetary policy is determined by a standard Taylor rule that corresponds to a dual mandate: output gap and inflation gap. Fiscal policy has a countercyclical effect. Broadly speaking, country (1) describes the United States. (ii) For country (2), monetary policy is determined by a ‘truncated’ Taylor rule that corresponds to a unique mandate: inflation gap only. Fiscal policy is neutralized, because we assume that the ratio of the current deficit of the Government (GD) on the GDP is constant and equal to zero, as imposed by the Maastricht Treaty. Broadly speaking, country (2) describes the European Union. |
| Keywords: | Monetary policy, fiscal policy, stock- flow consistent model, post-keynesian macroeconomics |
| JEL: | C15 E12 E31 E4 E52 E61 E62 G11 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:gmf:wpaper:2009-01&r=mac |
| By: | Haider, Adnan; 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: | 2008–11–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:12977&r=mac |
| By: | Ruthira Naraidoo (Department of Economics, University of Pretoria); Rangan Gupta (Department of Economics, University of Pretoria) |
| Abstract: | A simple empirical nonlinear framework is used to analyse monetary policy between 1983 and 2007 in South Africa, focusing on the policy of in?ation targeting introduced in Feb 2000, more precisely when the South African Reserve Bank (SARB) announced that an inflation zone targeting regime of 3-6% would be in place. We find that a model specification embodying a simple inflation learning rule for the future inflation rate seems to provide a better understanding of the decision process made by the SARB in its interest rate setting policy. The main findings are that the adoption of inflation targeting led to significant changes in monetary policy, secondly, post-2000 monetary policy is asymmetric as policy-makers respond more to downward deviation of inflation away from the target, thirdly, post-2000 policy-makers may be attempting to keep inflation within the 4.5%-6.9% range rather than pursuing a target zone of 3-6% as generally pre- announced and fourthly, the response of monetary policy to in?ation is nonlinear as interest rates respond more when inflation is further from the target. |
| Keywords: | Monetary policy, inflation targeting, inflation learning rule, nonlinear smooth transition model |
| JEL: | C51 E52 E58 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:200904&r=mac |
| By: | Balogun, Emmanuel Dele |
| Abstract: | This paper examines the determinants of inflation differentials in a panel of West African Monetary Zone (WAMZ) states vis-à-vis its set benchmark for macroeconomic convergence since 2000 to date. Using a stylized 5-country model of WAMZ area, the differences in national inflation is analyzed in light of country specific shocks or differences in the monetary transmission mechanisms. The main results show macroeconomic (price) stabilization around a desired target was not attained. Over the sample period, the un-weighted average regional inflation rates were most often above a single digit target and vary widely among the countries. The major monetary policy instruments determinants of inflationary divergence are the pursuit of distorted interest rates, exchange rates overvaluation and expansionary monetary policies, which penalized credit and accentuated output supply/demand gaps. |
| Keywords: | Inflation differentials; price convergence; exchange rate; WAMZ members; panel data |
| JEL: | E31 E52 |
| Date: | 2009–01–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:13045&r=mac |
| By: | Ana Paula Ribeiro (CEMPRE and Faculdade de Economia, Universidade do Porto) |
| Abstract: | Although central banks often advocate labor market reforms, the latter may lead to higher stabilization costs in the presence of habit persistence in consumption. This is more likely to occur when strong habit persistence is coupled with an inflation-averse central bank. The presence of habit formation is a non-negligible assumption: theoretically, it is now a well-established device used in New-Keynesian models in order to be data-consistent with the response of real spending to several shocks. Moreover, estimates of habit formation are, according to the literature, quite large. To capture the interactions between monetary policy and structural reforms, our model improves on the one presented in Aguiar and Ribeiro (2008) by including a job matching process that introduces additional labor market features through which a labor market reform can operate. Within this framework, we assess, across different policy rules, how labor market institutional changes impinge on the effectiveness of monetary policy. We have concluded that labor market reform reduces central banks' losses, as long as the degree of habit persistence is not too strong; however, alternative reform devices impinge differently on monetary policy effectiveness. Moreover, the inflation targeting rule accommodates positive permanent effects from the reform for a wider range of habit persistence. Even when habit persistence is high, reform may still reduce stabilization costs if the importance of both demand and technology shocks is low relative to cost-push ones. |
| Keywords: | Monetary policy rules, Labor market reform, Labor market search and matching, New-Keynesian models |
| JEL: | E24 E37 E52 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:309&r=mac |
| By: | Berlemann, Michael (Helmut Schmidt University, Hamburg); Hielscher, Kai (Helmut Schmidt University, Hamburg) |
| Abstract: | According to the game-theoretic model of monetary policy, inflation is the consequence of time-inconsistent behavior of the monetary authority. The inflation bias can be eased by handing over the responsibility for monetary policy to an independent central bank and appointing a weight-conservative central banker. Countries around the world chose different combinations of central bank independence and conservatism. Most of the existing empirical studies concentrate on measuring legal or factual central bank independence thereby neglecting the degree of conservatism of the monetary authorities. In this paper we show how a joint empirical measure of central bank independence and conservatism can be derived from factual central bank behavior. Based on a panel logit approach we estimate measures of effective monetary policy conservatism for a sample of 11 OECD countries. |
| Keywords: | Central Banking; Conservatism; Central Bank Independence; Inflation |
| JEL: | E31 E58 |
| Date: | 2009–01–29 |
| URL: | http://d.repec.org/n?u=RePEc:ris:vhsuwp:2009_089&r=mac |
| By: | Rangan Gupta (Department of Economics, University of Pretoria); Alain Kabundi (Department of Economics and Econometrics, University of Johannesburg) |
| Abstract: | This paper assesses the impact of monetary policy on house price inflation for the nine census divisions of the US economy using a factor-augmented VAR (FAVAR), estimated a large data set comprising of 126 quarterly series over the period 1976:01 to 2005:02. The results based on the impulse response functions indicate that, in general, house price inflation responds negatively to monetary policy shock, but the responses are heterogeneous across the census divisions. In addition, our findings suggests the importance of South Atlantic, East South Central, West South Central, Mountain and the Pacific divisions, in particular, in shaping the dynamics of US house price inflation. |
| Keywords: | Monetary Policy, House Price Inflation, FAVAR |
| JEL: | C32 E52 R2 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:200903&r=mac |
| By: | Söderström, Ulf (Research Department, Central Bank of Sweden) |
| Abstract: | I revisit the potential costs and benefits for Sweden of joining the Economic and Monetary Union (EMU) of the European Union. I first show that the Swedish business cycle since the mid-1990s has been closely correlated with the Euro area economies, suggesting that common shocks have been an important driving force of business cycles in Europe. However, evidence from an estimated model of the Swedish economy instead suggests that country specific shocks have been important for fluctuations in the Swedish economy since 1993, implying that EMU membership could be costly. The model also indicates that the exchange rate has to a large extent acted to destabilize, rather than stabilize, the Swedish economy, pointing to the costs of independent monetary policy with a flexible exchange rate. Finally, counterfactual simulations of the model suggest that Swedish in inflation and GDP growth might have been slightly higher if Sweden had been a member of EMU since the launch in 1999, but also that GDP growth might have been more volatile. The evidence is therefore not conclusive about whether or not participation in the monetary union would be advantageous for Sweden. |
| Keywords: | Monetary union; Open economy; Optimum Currency Area; DSGE model. |
| JEL: | E42 E58 F41 |
| Date: | 2008–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0227&r=mac |
| By: | Cornel Oros (Universit 0064e Poitiers, CRIEF,France) |
| Abstract: | Given a monetary Union which is heterogeneous at the level of labour market flexibility, this paper investigates the effects in terms of macroeconomic stabilization of the different degrees of fiscal coordination between governments. We use a static Keynesian model within a closed monetary Union and we introduce an intermediate level of coordination between the national governments, which is the variable geometry coordination between economic clubs consisting of structurally close countries. The distinction between the wide Unions welfare and each country members individual welfare proves that the effectiveness of a variable geometry fiscal coordination mainly depends on the type of the economic shocks affecting the Union members, the nature of the fiscal spillovers, and the extent of the Unions structural heterogeneity. While this type of game is effective in neutralizing the demand shocks, it doesnt manage to improve the national protection of all the country members against the supply shocks. |
| Keywords: | Economic policy, Macroeconomic stabilization, Fiscal coordination, Economic shocks, Structural heterogeneity |
| JEL: | E52 E58 E61 E62 E63 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:voj:wpaper:200834&r=mac |
| By: | Tang, Hsiao Chink (Asian Development Bank) |
| Abstract: | In the first-half of the global financial turmoil, rising inflation was a major concern for emerging East Asian central banks. Coupled with a slowing US economy, regional central banks faced an inevitable monetary policy choice of either addressing higher inflation or supporting moderate growth. Higher food and fuel prices were the major drivers of headline inflation. Their causes, however, were a confluence of factors--whether cyclical or structural, domestic or global, supply or demand--all reinforcing each other and contributing to widespread price escalations in all classes of commodities. In response, a raft of fiscal and administrative measures of questionable effectiveness was widely implemented. Understandably, different economies faced different balance of risks between price stability and growth, but to attribute the causes of inflation to supply shocks alone was misleading and probably explained why many central banks were reluctant and/or slow to raise interest rates. This was all the more puzzling given that inflation and inflation expectations were on the rise, and central bank credibility was not in abundance. Without much credibility, inflation expectations cannot be well-anchored. To gain credibility, a central bank must "walk-the-talk" and this is only possible if it has the autonomy to do so. |
| Keywords: | Commodity prices; inflation; monetary policy; emerging East Asia |
| JEL: | E31 E52 E58 |
| Date: | 2008–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbrei:0023&r=mac |
| By: | Fabio Canova; Filippo Ferroni |
| Abstract: | We propose a method to estimate time invariant cyclical DSGE models using the information provided by a variety of filtering approaches. We treat data filtered with alternative procedures as contaminated proxy of the relevant model-based quantities and estimate structural and nonstructural parameters jointly using an unobservable component structure. We employ simulated data to illustrate the properties of the procedure and compare our estimates with those obtained when just one filter is used. We revisit the role of money in the transmission of monetary business cycles. |
| Keywords: | DSGE models, Filters, Structural estimation, Business cycles |
| JEL: | E32 C32 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1135&r=mac |
| By: | Sushil Wadhwani |
| Abstract: | We argue that central banks can improve macroeconomic performance by reacting to asset price misalignments over and above their reaction to fixed horizon inflation forecasts. This is because such countercyclical monetary policy tends to offset the impact on output and inflation of such bubbles. In addition, if it were know ex ante that monetary policy would LATW in this way, it might reduce the probability of bubbles arising at all. |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:fmg:fmgsps:sp180&r=mac |
| By: | Russell Cooper (University of Texas - Department of Economics); Hubert Kempf (Paris School of Economics - Centre d'Economie de la Sorbonne); Dan Peled (University of Haifa - Department of Economics) |
| Abstract: | This paper studies the inflationary implications of interest bearing regional debt in a monetary union. Is this debt simply backed by future taxation with non inflationary consequences ?. Or will the circulation of region debt induce monetization by a central bank ?. We argue here that both outcomes can arise in equilibrium. In the model economy, there are multiple equilibria which reflect the perceptions of agents regarding the manner in which the debt obligations will be met. In one equilibrium, termed Ricardian, the future obligations are met with taxation by a regional government while in the other, termed Monetization, the central bank is induced to print money to finance the region's obligations. The multiplicity of equilibria reflects a commitment problem of the central bank. A key indicator of the selected equilibrium is the distribution of the holdings of the regional debt. We show that regional governments, anticipating central bank financing of their debt obligations, have an incentive to create excessively large deficits. We use the model to assess the impact of policy measures within a monetary union. |
| Keywords: | Monetary union, inflation tax, Seigniorage, public debt. |
| JEL: | E31 E42 E58 E62 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:v08070&r=mac |
| By: | Jean-Pierre Allegret (University of Lyon, France); Alain Sand-Zantman (University of Lyon, France) |
| Abstract: | This paper assesses the monetary consequences of the Latin-American integration process. Over the period 1991-2007, we analyze a sample of five Latin-American countries focusing on the feasibility of a monetary union between L.A. economies. To this end, we study the issue of business cycle synchronization with the occurrence of common shocks. First, we assess the international disturbances influence on the domestic business cycles. Second, we analyze the impact of the adoption of different exchange rate regimes on the countries responses to shocks. |
| Keywords: | Business cycles, OCA, Bayesian VAR, Latin American countries |
| JEL: | C32 E32 F42 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:voj:wpaper:200832&r=mac |
| By: | Secil Topak; Alfredo Cuevas |
| Abstract: | When faced with a relative price shock, monetary authorities often aim to contain its second round effects on inflation while accepting first round effects. We analyze the experience of South Africa and other inflation targeters to explore whether and when this policy prescription implies changing the monetary policy stance. Inflation targeting central banks differ on how aggressively they typically react to relative price shocks, reflecting differences in resilience of underlying inflation to such shocks. An examination of individual policy decisions reveals the importance of the broader economic context in framing the responses to relative price shocks. |
| Keywords: | Monetary policy , South Africa , External shocks , Inflation targeting , Pricing policy , Central banks , Energy prices , Commodity prices , |
| Date: | 2009–01–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:08/289&r=mac |
| By: | Tobias Adrian; Hyun Song Shin |
| Abstract: | In a market-based financial system, banking and capital market developments are inseparable, and funding conditions are closely tied to fluctuations in the leverage of market-based financial intermediaries. Offering a window on liquidity, the balance sheet growth of broker-dealers provides a sense of the availability of credit. Contractions of broker-dealer balance sheets have tended to precede declines in real economic growth, even before the current turmoil. For this reason, balance sheet quantities of market-based financial intermediaries are important macroeconomic state variables for the conduct of monetary policy. |
| Keywords: | Intermediation (Finance) ; Liquidity (Economics) ; Brokers ; Economic indicators ; Financial institutions |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:360&r=mac |
| By: | Cruijsen, C. van der; Eijffinger, S.C.W.; Hoogduin, L.H. (Tilburg University, Center for Economic Research) |
| Abstract: | Should central banks increase their degree of transparency any further? We show that there is likely to be an optimal intermediate degree of central bank transparency. Up to this optimum more transparency is desirable: it improves the quality of private sector inflation forecasts. But beyond the optimum people might: (1) start to attach too much weight to the conditionality of their forecasts, and/or (2) get confused by the large and increasing amount of information they receive. This deteriorates the (perceived) quality of private sector inflation forecasts. Inflation then is set in a more backward looking manner resulting in higher inflation persistence. By using a panel data set on the transparency of 100 central banks we find empirical support for an optimal intermediate degree of transparency at which inflation persistence is minimized. Our results indicate that while there are central banks that would benefit from further transparency increases, some might already have reached the limit. |
| Keywords: | central bank transparency;monetary policy;inflation persistence. |
| JEL: | E31 E52 E58 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:200859&r=mac |
| By: | Ana Carolina Saizar; Nigel Andrew Chalk |
| Abstract: | Monetary policy, at least in part, operates through both an interest rate and credit channel. The question arises, therefore, whether monetary policy is a less potent a device in affecting output and inflation in countries that have low levels of credit and where investment and consumption are not financed by borrowing in local currency. This paper employs a Panel Vector Auto Regression approach to examine the empirical evidence in a broad sample of emerging market countries. The data suggests that the effectiveness of changes in policy interest rates in influencing the path of inflation appear to be unrelated to the level of credit and that, instead, the willingness to allow exchange rate flexibility is a far more important determining factor. |
| Keywords: | Monetary policy , Credit , Interest rates , Inflation , Flexible exchange rates , Economic models , |
| Date: | 2008–12–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:08/288&r=mac |
| By: | Joseph H. Davis; Christopher Hanes; Paul W. Rhode |
| Abstract: | Most major American industrial business cycles from around 1880 to the First World War were caused by fluctuations in the size of the cotton harvest due to economically exogenous factors such as weather. Wheat and corn harvests did not affect industrial production; nor did the cotton harvest before the late 1870s. The unique effect of the cotton harvest in this period can be explained as an essentially monetary phenomenon, the result of interactions between harvests, international gold flows and high-powered money demand under America’s gold-standard regime of 1879-1914. |
| JEL: | E32 N11 N51 N61 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14686&r=mac |
| By: | Laurent Ferrara (Centre d'Economie de la Sorbonne et Banque de France); Dominique Guegan (Paris School of Economics - Centre d'Economie de la Sorbonne); Patrick Rakotomarolahy (Centre d'Economie de la Sorbonne) |
| Abstract: | This papier formalizes the process of forecasting unbalanced monthly data sets in order to obtain robust nowcasts and forecasts of quarterly GDP growth rate through a semi-parametric modelling. This innovative approach lies on the use on non-parametric methods, based on nearest neighbors and on radial basis function approaches, ti forecast the monthly variables involved in the parametric modelling of GDP using bridge equations. A real-time experience is carried out on Euro area vintage data in order to anticipate, with an advance ranging from six to one months, the GDP flash estimate for the whole zone. |
| Keywords: | Euro area GDP, real-time nowcasting, forescasting, non-parametric methods. |
| JEL: | C22 C53 E32 |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:b08082&r=mac |
| By: | Luis Ignacio Jácome; Inci Ötker; Turgut Kisinbay; Francisco F. Vázquez; Alessandro Giustiniani; David Vávra; Kotaro Ishi; Karl Friedrich Habermeier |
| Abstract: | This paper analyzes the monetary policy response to rising inflation in emerging and developing countries associated with the food and oil price shocks in 2007 and the first half of 2008. It reviews inflation developments in a sample of countries covering all regions and a broad range of monetary and exchange rate policy regimes; discusses the underlying causes of inflation; provides a synthesis of policy responses taken against the background of the conflicting objectives and trade-offs, the uncertainties regarding the nature of the shocks, and the additional challenges brought on by the global financial turmoil; and presents considerations for policy. |
| Keywords: | Monetary policy , Inflation , Emerging markets , Developing countries , Exchange rate regimes , External shocks , Oil prices , Inflation targeting , Central banks , |
| Date: | 2009–01–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:09/1&r=mac |
| By: | Essahbi Essaadi (GATE, University of Lyon, CNRS, ENS-LSH, Centre Léon Bérard, France); Zied Ftiti (GATE, University of Lyon, CNRS, ENS-LSH, Centre Léon Bérard, France) |
| Abstract: | In this work, we study the inflation targeting effect on the inflation dynamics in the case of four industrial countries. Our objective is to check whether the inflation targeting policy (ITP) has a significant impact on the change of the inflation path. We use a non-parametric approach that doesn’t require any previous modelling. This is the evolutionary spectral analysis, as defined by Priestley (1965-1996). Then, we use a test that can detect many break points on the time series. This test is inspired by Subba Rao (1981). We use an extension to this test to allow the detection of multiple breaks. We base this on the extension of Ahamada and Boutahar (2002). This is the first time that this method is used in the case of inflation-targeting countries. We find that the inflation-targeting policy had a transition period for countries that had a high and volatile inflation experience before the inflation-targeting adoption. There is the case of New Zealand, Canada and Sweden. In these countries, we identify a structural change in the inflation series resulting to the inflation targeting intervention. However, In the case of other countries like United Kingdom that have a relatively lower inflation rate experience before the ITP adoption, we didn’t find a break point caused by this monetary policy intervention. In this case, the ITP had a role of ensuring this price stability. This result is explained by the fact that the inflation targeting is relevant when the initial inflation to be stabilized is near the target range (Artus, 2004). So, in this paper we justify the intuition of Artus (2004). The second result in our paper consists on the nature of inflation stabilization during the inflation-targeting period. The results proof a long-term stabilization on the inflation dynamic in the period of IT. These results traduce the success of this new framework to anchor the inflation expectation anchoring. So, we can conclude that this policy is preferment to ensure price stability in the case of industrials countries. |
| Keywords: | Inflation Targeting, Spectral Analysis and Structural Change |
| JEL: | C16 E52 E63 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:0832&r=mac |
| By: | Essahbi Essaadi (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines); Zied Ftiti (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines) |
| Abstract: | In this paper, we study the inflation dynamics in an industrial inflation-targeting country (New Zealand). Our objective is to check if the inflation targeting policy has a transition period or not. Loosely speaking, we try to give some response to the famous debate: if the inflation targeting is a framework or a simple monetaryrule. For this purpose, we use a frequency approach: Evolutionary Spectral Analysis, as defined by Priestley (1965-1996). Then, we detect endogenously a structuralbreak point in inflation series, by applying a non-parametric test. This is the first time that this method is used in the case of inflation-targeting countries. Our main finding is that the adoption of the inflation-targeting policy in New Zealand was characterized by a transition period before the adoption of this framework. This period was characterized by many radical reforms, which caused a structuralbreak in the New Zealand inflation series. These reforms were made to lead back the inflation close to the initial target. In addition, these reforms increased the transparency and the credibility of the monetary policy. We conclude from our frequency analysis that the inflation series becomes stable in long-term after the adoption of the inflation targeting. This can be a justification of the effectiveness of this policy to ensure the price stability. |
| Keywords: | New Zealand; inflation targeting; spectral analysis and structural change |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00355628_v1&r=mac |
| By: | Frederic S. Mishkin |
| Abstract: | This short paper argues that the view that monetary policy is ineffective during financial crises is not only wrong, but may promote policy inaction in the face of a severe contractionary shock. To the contrary, monetary policy is more potent during financial crises because aggressive monetary policy easing can make adverse feedback loops less likely. The fact that monetary policy is more potent than during normal times provides a rationale for a risk-management approach to counter the contractionary effects from financial crises, in which monetary policy is far less inertial than would otherwise be typical – not only by moving decisively through conventional or nonconventional means to reduce downside risks from the financial disruption, but also in being prepared to quickly take back some of that insurance in response to a recovery in financial markets or an upward shift in inflation risks. |
| JEL: | E52 G1 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14678&r=mac |
| By: | Rangan Gupta (Department of Economics, University of Pretoria); Alain Kabundi (Department of Economics and Econometrics, University of Johannesburg) |
| Abstract: | This paper assesses the impact of monetary policy on real house price growth in South Africa using a factor-augmented vector autoregression (FAVAR), estimated based on a large data set comprising of 246 quarterly series over the period 1980:01 to 2006:04. The results based on the impulse response functions indicate that, in general, house price inflation responds negatively to monetary policy shock, but the responses are heterogeneous across the middle-, luxury- and affordable-segments of the housing market. The luxury-, large-middle- and medium-middle-segments are found to respond much more than the small-middle- and the affordable-segments of the housing market. More importantly, we find no evidence of the home price puzzle, observed previously by other studies that analyzed house prices using small-scale models. We put this down to the benefit gained from using a large information set. |
| Keywords: | Monetary Policy; Real House Price Growth; FAVAR |
| JEL: | C32 E52 R2 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:200905&r=mac |
| By: | Piti Disyatat |
| Abstract: | Despite constituting the very heart of the monetary transmission mechanism, widespread misconceptions still exist regarding how monetary policy is implemented. This paper highlights the key misconceptions in this regard and shows how they have compromised the understanding of important aspects of the monetary transmission mechanism. In particular, the misplaced emphasis on open market operations as the means through which monetary policy is implemented can give rise to inappropriate characterizations of monetary policy, as well as to ill-defined discussions of liquidity effects, the bank lending channel, and sterilized exchange rate intervention. |
| Keywords: | Monetary policy implementation, transmission mechanism, interest rates, money, liquidity effect, bank lending channel, sterilized intervention |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:269&r=mac |
| By: | Nir Jaimovich; Seth Pruitt; Henry E. Siu |
| Abstract: | The employment and hours worked of young individuals fluctuate much more over the business cycle than those of prime-aged individuals. Understanding the mechanism underlying this observation is key to explaining the volatility of aggregate hours over the cycle. We argue that the joint behavior of age-specific hours and wages in the U.S. data point to differences in the cyclical characteristics of labor demand. To articulate this view, we consider a production technology displaying capital-experience complementarity. We estimate the key parameters governing the degree of complementarity and show that the model can account for the behavior of age-specific hours and wages while generating a series of aggregate hours that is nearly as volatile as output. |
| JEL: | E0 E32 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14697&r=mac |
| By: | Konstantinos Angelopoulos; George Economides; Vangelis Vassilatos |
| Abstract: | This paper shows that introducing weak property rights in the standard real business cycle (RBC) model can help to explain economic fluctuations. This is motivated by the empirical observation that changes in institutions in emerging markets are related to the evolution of the main macroeconomic variables. In particular, in Mexico, the movements in productivity in the data are associated with changes in institutions, so that we can explain productivity shocks to a large extent as shocks to the quality of institutions. We find that the model with shocks to the degree of protection of property rights only - without technology shocks - can match the second moments in the data for Mexico well. In particular, the fit is better than that of the standard neoclassical model with full protection of property rights regarding the auto-correlations and cross-correlations in the data, especially those related to labor. Viewing productivity shocks as shocks to institutions is also consistent with the stylized fact of falling productivity and non-decreasing labor hours in Mexico over 1980-1994, which is a feature that the neoclassical model cannot match. |
| Keywords: | Economic fluctuations, institutions, property rights. |
| JEL: | E32 E62 D7 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2008_38&r=mac |
| By: | Guillaume Rocheteau |
| Abstract: | This paper offers a monetary theory of asset liquidity—one that emphasizes the role of assets in payment arrangements—and it explores the implications of the theory for the relationship between assets’ intrinsic characteristics and liquidity, and the effects of monetary policy on asset prices and welfare. The environment is a random-matching economy where fiat money coexists with a real asset, and norestrictions are imposed on payment arrangements. The liquidity of the real asset is endogenized by introducing an informational asymmetry in regard to its fundamental value. |
| Keywords: | Money ; Payment systems ; Liquidity (Economics) |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:0901&r=mac |
| By: | Essahbi Essaadi (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines); Zied Ftiti (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines) |
| Abstract: | In this work, we study the inflation targeting effect on the inflation dynamics in the case of four industrial countries. Our objective is to check whether the inflation targeting policy (ITP) has a significant impact on the change of the inflation path. We use a non-parametric approach that doesn’t require any previous modelling. This is the evolutionary spectral analysis, as defined by Priestley (1965-1996). Then, we use a test that can detect many break points on the timeseries. This test is inspired by Subba Rao (1981). We use an extension to this test to allow the detection of multiple breaks. We base this on the extension ofAhamada and Boutahar (2002). This is the first time that this method is used in the case of inflation-targeting countries. We find that the inflation-targeting policyhad a transition period for countries that had a high and volatile inflation experience before the inflation-targeting adoption. There is the case of New Zealand,Canada and Sweden. In these countries, we identify a structural change in the inflation series resulting to the inflation targeting intervention. However, In thecase of other countries like United Kingdom that have a relatively lower inflation rate experience before the ITP adoption, we didn’t find a break point caused by this monetary policy intervention. In this case, the ITP had a role of ensuring this price stability. This result is explained by the fact that the inflation targetingis relevant when the initial inflation to be stabilized is near the target range (Artus, 2004). So, in this paper we justify the intuition of Artus (2004). The second result in our paper consists on the nature of inflation stabilization during the inflation-targeting period. The results proof a long-term stabilization on the inflation dynamic in the period of IT. These results traduce the success of this new framework to anchor the inflation expectation anchoring. So, we can conclude thatthis policy is preferment to ensure price stability in the case of industrials countries. |
| Keywords: | inflation targeting, spectral analysis and structural change |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00355637_v1&r=mac |
| By: | D'Agostino, Antonello (Central Bank and Financial Services Authority of Ireland); McQuinn, Kieran (Central Bank and Financial Services Authority of Ireland); O' Reilly, Gerard (Central Bank and Financial Services Authority of Ireland) |
| Abstract: | While increased attention has, of late, focussed on models of house prices, few,if any, studies have examined house prices from a purely forecasting perspective. However, the need for accurate and timely forecasts of house prices has grown as the rate of house price inflation is more and more important to policy discussions such as those governing decisions on inflation. This is further underscored with the development of financial markets products based on houseprice index. In this paper, we propose that a simple univariate moving average (MA) model can provide optimal forecasts of Irish house price inflation when compared with a suite of standard forecasting and structural house price models. This result echoes similar recent findings for forecasts of US inflation rate. |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:3/rt/08&r=mac |
| By: | Tatiana Cesaroni (MEF-Treasury Ministry of Economy); Louis Maccini (John Hopkins University); Marco Malgarini (ISAE - Institute for Studies and Economic Analyses) |
| Abstract: | In recent years a number of studies have investigated stylised facts concerning the most important US macroeconomic time series(Stock and Watson, 2002; McConnell and Perez-Quiros, 2000; Blanchard and Simon, 2001; Arias, Hansen, and Ohanian, 2006); One of the main results of the analysis concerns a marked volatility reduction emerging from the data since the early eighties. In this respect, the aim of this paper is twofold. Firstly, it analyzes the Euro Area business cycle stylised facts in order to gain better understanding of the European economy as compared with that of the US. Secondly, it explores the technological innovation hypothesis as an explanation of the ‘Great Moderation’, focusing on the advances in inventory management techniques due to computerisation. |
| Keywords: | Business cycle stylized facts, European survey data, Inventory behaviour. |
| JEL: | C32 E32 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:isa:wpaper:108&r=mac |
| By: | Richard Dennis (Federal Reserve Bank of San Francisco) |
| Abstract: | In this paper I show that discretionary policymaking can be superior to timeless perspective policymaking and identify model features that make this outcome more likely. Developing a measure of conditional loss that treats the auxiliary state variables that characterize the timeless perspective equilibrium appropriately, I use a New Keynesian DSGE model to show that discretion can dominate timeless perspective policymaking when the Phillips curve is relatively flat, due, perhaps, to firm-specific capital (or labor) and/or Kimball (1995) aggregation in combination with nominal price rigidity. These results suggest that studies applying the timeless perspective might also usefully compare its performance to discretion, paying careful attention to how policy performance is evaluated. |
| Keywords: | Discretion, timeless perspective, policy evaluation. |
| JEL: | C61 E52 E58 |
| Date: | 2009–01–20 |
| URL: | http://d.repec.org/n?u=RePEc:qut:auncer:2009_38&r=mac |
| By: | Andersson, Magnus (European Central Bank); D'Agostino, Antonello (Central Bank and Financial Services Authority of Ireland) |
| Abstract: | This paper evaluates how well sectoral stock prices forecast future economic activity compared to traditional predictors such as the term spread, dividend yield, exchange rates and money growth. The study is applied to euro area financial asset prices and real economic growth, covering the period 1973 to 2006. The paper finds that the term spread is the best predictor of future growth in the period leading up to the introduction of Monetary Union. After 1999, however, sectoral stock prices in general provide more accurate forecasts than traditional asset price measures across all forecast horizons. |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:2/rt/08&r=mac |
| By: | Jonathan A. Parker; Annette Vissing-Jorgensen |
| Abstract: | The consumption of high-consumption households is more exposed to fluctuations in aggregate consumption and income than that of low-consumption households in the Consumer Expenditure (CEX) Survey. The exposure to aggregate consumption growth of households in the top 10 percent of the consumption distribution in the CEX is about five times that of households in the bottom 80 percent. Given real aggregate per capita consumption growth about 3 percentage points less than its historical mean during the past year, these figures predict that the ratio of consumption of the top 10 percent to the bottom 80 percent has fallen by about 15 percentage points (relative to trend). Using income data from Piketty and Saez (2003), we show that the income (especially the wage income) of rich households is more exposed to aggregate fluctuations, so their higher income exposure is a likely contributor to their higher consumption exposure. Finally, we find a striking change in the exposure of the incomes of high-income households: prior to the early 1980's, the incomes of high-income households were not more exposed to aggregate fluctuations. Thus, while high-income households currently bear an inordinately large share of aggregate fluctuations, this is a recent occurrence. |
| JEL: | E21 E32 G1 J31 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14665&r=mac |
| By: | Eric M. Leeper; Todd B. Walker; Shu-Chun Susan Yang |
| Abstract: | Fiscal foresight -- the phenomenon that legislative and implementation lags ensure that private agents receive clear signals about the tax rates they face in the future -- is intrinsic to the tax policy process. This paper develops an analytical framework to study the econometric implications of fiscal foresight. Simple theoretical examples show that foresight produces equilibrium time series with nonfundamental representations, which misalign the agents' and the econometrician's information sets. Economically meaningful shocks to taxes, therefore, cannot generally be extracted from statistical innovations in conventional ways. Econometric analyses that fail to align agents' and the econometrician's information sets can produce distorted inferences about the effects of tax policies. The paper documents the sensitivity of econometric inferences of tax effects to details about how tax information flows into the economy. We show that alternative assumptions about the information flows that give rise to fiscal foresight can reconcile the diverse empirical findings in the literature on anticipated tax changes. |
| JEL: | E3 E6 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14630&r=mac |
| By: | Khan, Safdar Ullah; Saqib, Omar Farooq |
| Abstract: | This study investigates the effects of political instability on inflation in Pakistan. Applying the Generalized Method of Moments and using data from 1951-2007, we examine this link in two different models. The results of the ‘monetary’ model suggest that the effects of monetary determinants are rather marginal and that they depend upon the political environment of Pakistan. The ‘nonmonetary’ model’s findings explicitly establish a positive association between measures of political instability and inflation. This is further confirmed on analyses based on interactive dummies that reveal political instability significantly leading to high (above average) inflation. |
| Keywords: | political instability; inflation; Pakistan |
| JEL: | E31 E63 |
| Date: | 2008–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:13056&r=mac |
| By: | Bettina Becker; Stephen G. Hall |
| Abstract: | We present a common factor framework of convergence which we implement using principal components analysis. We apply this technique to a dataset of monthly inflation rates of EMU and the Eastern European New Member Countries (NMC) over 1996-2007. In the earlier years, the NMC rates moved independently from an average of the three best performing countries over the past twelve months, while they moved somewhat closer in line with them in the later years. Looking at the sample of the EMU and NMC countries as a whole, there is evidence of a formation of convergence clubs across the two groups. |
| Keywords: | Convergence; inflation rates; European Monetary Union; principal components analysis |
| JEL: | C22 F31 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:lec:leecon:09/1&r=mac |
| By: | Selahattin Togay (Gazi University); Nezir Kose (Gazi University) |
| Abstract: | In this study, the endogenous money hypothesis is examined for the Argentinean economy employing exogeneity tests by using monthly data for the time period 1991-2001 within the frame of money and price relationship in a Currency Board-like system. Empirical results support the hypothesis which suggests that money supply is endogenous. |
| Keywords: | Currency Board, Argentina, Money Supply Endogeneity, Exogeneity Test |
| JEL: | C12 C22 E51 E58 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:tek:wpaper:2009/1&r=mac |
| By: | John J. Seater (North Carolina State University, USA) |
| Abstract: | A transactions model of the demand for multiple media of exchange is developed. Some results are expected, and others are both new and surprising. There are both extensive and intensive margins to currency substitution, and inflation may affect the two margins differently, leading to subtle incentives to adopt or abandon a substitute currency. Variables not previously considered in the literature affect currency substitution in complex and somewhat unexpected ways. In particular, the level of income and the composition of consumption expenditures are important, and they interact with the other variables in the model. Independent empirical work provides support for the theory. |
| Keywords: | Currency substitution, Dollarization |
| JEL: | E41 E42 E31 |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:voj:wpaper:200841&r=mac |
| By: | Craig S. Hakkio |
| Abstract: | This paper examines the dynamics of various measures of national, regional, and global inflation. The paper calculates the first two common factors for four measures of industrial country inflation rates: total CPI, core CPI, cyclical total CPI, and cyclical core CPI. The paper then demonstrates that the first common factor is sometimes helpful in forecasting national inflation rates. It also shows that the second common factor and the first common factor for cyclical inflation is sometimes helpful in forecasting national CPI inflation rates. Finally, the paper suggests that the commonality of industrial inflation rates reflects the commonality of the determinants of inflation. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp09-01&r=mac |
| By: | Dubravko Mihaljek; Marc Klau |
| Abstract: | This paper estimates the Balassa-Samuelson effects for 11 countries in central and eastern Europe on a disaggregated set of quarterly data covering the period from the mid-1990s to the first quarter of 2008. The Balassa-Samuelson effects are clearly present and explain around 24% of inflation differentials vis-à-vis the euro area (about 1.2 percentage points on average); and around 84% of domestic relative price differentials between non-tradables and tradables; or about 16% of total domestic inflation (about 1.1 percentage points on average). The paper presents mixed evidence on whether the Balassa-Samuelson effects have declined since 2001 compared with the second half of the 1990s. |
| Keywords: | Balassa-Samuelson effect, productivity, inflation, transition, convergence, European monetary union, Maastricht criteria |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:270&r=mac |
| By: | Keeney, Mary J. (Central Bank and Financial Services Authority of Ireland) |
| Abstract: | In this paper we represent structural unemployment by relating observed unemployment to wage inflation. An estimated series for the non-accelerating wage rate of unemployment (NAWRU) shows that the unemployment gap between observed unemployment and the structural rate provides an intuitive account of prevailing aggregate demand conditions within the Irish economy over the period 1980 to 2005. This indicates that the estimated NAWRU series is a good measure of Irish structural unemployment over the period. The estimated NAWRU was at a high level throughout the 1980s and declined over time such that any excess labour slack was dissipated by the mid-1990s. Between 1994 and 2001, the observed unemployment rate was below the estimated NAWRU indicating that the substantial inflationary pressure on wages was justified for the period. Since then, the gap between the estimate of the structural rate and observed rates of unemployment was not that substantial and reflects a healthier situation vis-à-vis wage inflationary pressure. The situation may have been helped by significant inward migration and productivity increases becoming embedded in the Irish economy. |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:7/rt/08&r=mac |
| By: | Massimo Cingolani (European Investment Bank) |
| Abstract: | In two recent contributions Alain Parguez and Jean-Gabriel Bliek argued in favour of assigning a full employment objective to European economic policies and their coordination (Bliek and Parguez (2007) and Parguez (2007b)). Their argument is based on the approach of the monetary circuit, whose treatment of full employment is the object of this article. The approach is presented here as emblematic of out of equilibrium models, i.e. models where the equilibrium conditions of pure competition are not fulfilled. A forthcoming contribution will show how the description of economic reality suggested by the circuit can help interpreting recent macroeconomic developments in the US, Canada, Japan and the EU and will discuss some empirical studies confirming its relevance for policy analysis. |
| Keywords: | Unemployment, Capacity Utilisation, Circuit, Disequilibrium, Investment, Savings, Price Equation |
| JEL: | D5 E12 H5 H6 E4 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:voj:wpaper:200814&r=mac |
| By: | Hubert Kempf (Paris School of Economics - Centre d'Economie de la Sorbonne); Leopold von Thadden (European Central Bank) |
| Abstract: | This paper offers a framework to study commitment and cooperation issues in games with multiple policymakers. To reconcile some puzzles in the recent literature on the nature of policy interactions among nations, we prove that games characterized by different commitment and cooperation schemes can admit the same equilibrium outcome if certain spillover effects vanish at the common solution of these games. We provide a detailed discussion of these spillovers, showing that, in general, commitment and cooperation are non-trivial issues. Yet, in linear-quadratic models with multiple policymakers commitment and cooperation schemes are shown to become irrelevant under certain assumptions. The framework is sufficiently general to cover a broad range of results from the recent literature on policy interactions as special cases, both within monetary unions and among fully sovereign nations. |
| Keywords: | Credibility, commitment, monetary policy, fiscal policy, policy mix. |
| JEL: | E52 E63 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:v08071&r=mac |
| By: | Martin S. Feldstein |
| Abstract: | As recently as two years ago there was a widespread consensus among economists that fiscal policy is not useful as a countercyclical instrument. Now governments in Washington and around the world are developing massive fiscal stimulus packages, supported by a wide range of economists in universities, governments, and businesses. Why has this change occurred? What are the principles for designing a potentially useful fiscal stimulus? And what will happen if the current fiscal stimulus fails? |
| JEL: | E6 E62 H3 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14684&r=mac |
| By: | Guido Menzio (Department of Economics, University of Pennsylvania); Shouyong Shi (Department of Economics, University of Toronto) |
| Abstract: | In this paper, we develop a general stochastic model of directed search on the job. Like in the analogous models of random search on the job, the state of the economy in our model includes the infinite-dimensional distribution of workers across different employment states (unemployment, and employment at different wages). Unlike the analogous models of random search on the job, our model admits an equilibrium in which the agents’ value and policy functions does not depend on the distribution of workers. We refer to this type of equilibrium as a Block Recursive Equilibrium. Therefore, while solving the equilibrium of a random search model in a stochastic environment is a difficult task both analytically and computationally, solving the Block Recursive Equilibrium of our model is as easy as solving a representative agent model. |
| Keywords: | Directed Search, On the Job Search, Heterogeneity, Aggregate Fluctuations |
| JEL: | E24 E32 J64 |
| Date: | 2009–01–26 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:09-005&r=mac |
| By: | Michael G. Palumbo; Jonathan A. Parker |
| Abstract: | The initial implementation of the System of National Accounts (1993) for the United States by the Bureau of Economic Analysis and the Federal Reserve Board has two significant advantages for economists. First, the SNA are organized according to sectors of the economy defined by economic agents: firms, financial institutions, consumers, governments and the rest of the world. Second, the accounts integrate real and financial information, so that one can track not only production of, income from, and use of output, but also net lending, net borrowing, and net worth by sector. We exploit these two features in the SNA accounts to examine US economic history leading up to the financial crisis of 2007 and recession of 2008. First, the SNA data show recent increases in leverage in the household sector. We track the household shift to a net lending position through the capital and current accounts of the household sector and then the other SNA sectors. Second, in the financial businesses sector, the accounts largely miss the rise in exposure to the US housing market as well as the critical factors that significantly spread and amplified the housing-market related changes throughout the financial system and the real economy. Finally we present three ways in which SNA-type accounts could be improved to presage a similar future crisis. |
| JEL: | E01 E21 E32 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14663&r=mac |
| By: | Giancarlo Corsetti (Department of Economics, European University Institute); Panagiotis Th. Konstantinou (Department of Economics, University of Macedonia) |
| Abstract: | The joint dynamics of US net output, consumption, and (valuation-adjusted) foreign assets and liabilities, characterized empirically following Lettau and Ludvigson [2004], is shown to be strikingly consistent with current account theory. While US consumption is virtually insulated from transitory shocks, these contribute considerably to the variation in net output and, even more so, in gross foreign positions, arguably smoothing temporary variations in returns. A single permanent shock – naturally interpreted as a productivity shock – raises consumption swiftly while causing net output to adjust only gradually. This leads to persistent, procyclical external deficits but, interestingly, moves gross assets and liabilities in the same direction. |
| Keywords: | Current Account; Net ForeignWealth; Consumption Smoothing; Intertemporal Approach to the Current Account; International Adjustment Mechanism; Permanent-Transitory Decomposition. |
| JEL: | C32 E21 F32 F41 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:mcd:mcddps:2009_03&r=mac |
| By: | Don Harding (La Trobe University); Adrian Pagan (QUT) |
| Abstract: | Macroeconometric and financial researchers often use secondary or constructed binary random variables that differ in terms of their statistical properties from the primary random variables used in micro-econometric studies. One important difference between primary and secondary binary variables is that, while the former are, in many instances, independently distributed (i.d.), the latter are rarely i.d. We show how popular rules for constructing the binary states interact with the stochastic processes for of the variables they are constructed from, so that the binary states need to be treated as Markov processes. Consequently, one needs to recognize this when performing analyses with the binary variables, and it is not valid to adopt a model like static Probit which fails to recognize such dependence. Moreover, these binary variables are often censored, in that they are constructed in such a way as to result in sequences of them possessing the same sign. Such censoring imposes restrictions upon the DGP of the binary states and it creates difficulties if one tries to utilize a dynamic Probit model with them. Given this we describe methods for modeling with these variables that both respects their Markov process nature and which explicitly deals with any censoring constraints. An application is provided that investigates the relation between the business cycle and the yield spread. |
| Keywords: | Business cycle; binary variable, Markov process, Probit model, yield curve |
| JEL: | C22 C53 E32 E37 |
| Date: | 2009–01–21 |
| URL: | http://d.repec.org/n?u=RePEc:qut:auncer:2009_39&r=mac |
| By: | Jean-Jacques Friboulet (Chaire d'histoire économique et d'économie du développement) |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:fri:fribow:404&r=mac |
| By: | Alberto Martin |
| Abstract: | This paper characterizes the relationship between entrepreneurial wealth and aggregate investment under adverse selection. Its main finding is that such a relationship need not be monotonic. In particular, three results emerge from the analysis: (i) pooling equilibria, in which investment is independent of entrepreneurial wealth, are more likely to arise when entrepreneurial wealth is relatively low; (ii) separating equilibria, in which investment is increasing in entrepreneurial wealth, are most likely to arise when entrepreneurial wealth is relatively high and; (iii) for a given interest rate, an increase in entrepreneurial wealth may generate a discontinuous fall in investment. |
| Keywords: | Adverse Selection, Collateral, Investment, Lending Standards, Screening |
| JEL: | D82 E44 G10 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1136&r=mac |
| By: | Sudipto Bhattacharya; Willem Buiter; Sergei Guriev |
| Abstract: | The paper draws lessons from the experience of the past year for the conduct of central banks in the pursuit of macroeconomic and financial stability. Macroeconomic stability is defined as either price stability or as price stability and sustainable output or employment growth. Financial stability refers to (1) the absence of asset price bubbles, (2) the prevention or mitigation of systemically significant funding illiquidity and market illiquidity and (3) the prevention of insolvency of systemically important financial institutions. The performance of the Fed, the ECB and the Bank of England is evaluated in terms of these criteria. The Fed is judged to have done worst both as regards macroeconomic stability and as regards one of the two time dimensions of financial stability: minimizing the likelihood and severity of future financial crises. As regards ‘putting out fires’ (dealing with the immediate crisis), the Bank of England gets the wooden spoon for its early failure to perform the lender of last resort and market maker of last resort roles. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:fmg:fmgdps:dp619&r=mac |
| By: | Ozlem Tasseven (Okan University, banking and Finance Department, Istanbul Turkey) |
| Abstract: | In this paper the HEGY testing procedure (Hylleberg et al. 1990) of analyzing seasonal unit roots is tried to be re-examined by allowing for seasonal mean shifts with exogenous break points. Using some Monte Carlo experiments the distribution of the HEGY and the extended HEGY tests for seasonal unit roots subject to mean shifts and the small sample behavior of the test statistics have been investigated. Based on an empirical analysis upon the conventional money demand relationships in the Turkish economy, our results indicate that seasonal unit roots appear for the GDP deflator, real M2 and the expected inflation variables while seasonal unit roots at annual frequency seem to be disappear for the real M1 balances when the possible structural changes in one or more seasons at 1994 and 2001 crisis years have been taken into account. |
| Keywords: | HEGY Seasonal unit root test, Deterministic seasonality, Structural breaks, Money demand, Turkish economy |
| JEL: | C01 C15 C51 C88 E41 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:voj:wpaper:200843&r=mac |
| By: | Michael Burda; Daniel S. Hamermesh |
| Abstract: | Using time-diary data from four countries we show that the unemployed spend most of the time not working for pay in additional leisure and personal maintenance, not in increased household production. There is no relation between unemployment duration and the split of time between household production and leisure. U.S. data for 2003-2006 show that almost none of the lower amount of market work in areas of long-term high unemployment is offset by additional household production. In contrast, in those areas where unemployment has risen cyclically reduced market work is made up almost entirely by additional time spent in household production. |
| JEL: | D13 E24 J22 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14676&r=mac |
| By: | Reinhart, Carmen |
| Abstract: | Financial crises are historically associated with the “4 deadly D’s”: Sharp economic downturns follow banking crises; with government revenues dragged down, fiscal deficits worsen; deficits lead to debt; as debt piles up rating downgrades follow. For the most fortunate countries, the crisis does not lead to the deadliest D: default, but for many it has. |
| Keywords: | financial crises; unemployment; debt; deficit; housing prices |
| JEL: | F0 E6 |
| Date: | 2009–01–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:13025&r=mac |
| By: | Massimo Cingolani (European Investment Bank) |
| Abstract: | A contribution appeared in the previous issue of Panoeconomicus reviewed the theoretical arguments brought by Alain Parguez and Jean Gabriel Bliek in support of their idea of assigning a full employment objective to European economic policies and their coordination (Bliek and Parguez (2007) and Parguez (2007b)). Without pretending at exhaustiveness, this contribution reviews and partly extends the empirical evidence they presented in support of their argument with reference to selected macroeconomic developments in several countries and different historical periods, in particular for the US, Canada, Japan and the EU. It confirms the descriptive power of the circuit and its relevance for the discussion of alternative economic policies, in particular in the field of employment. Together with the previous article, it shows that the circuit can be used to update economic policy thinking, nourishing also the necessary democratic debate amongst policy alternatives. |
| Keywords: | Unemployment, Capacity utilisation, Circuit, Long-term interest rates, Disequilibrium |
| JEL: | D5 E12 H5 H6 E4 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:voj:wpaper:200823&r=mac |
| By: | Diewert, Erwin; Huwiler, Marco; Kohli, Ulrich |
| Abstract: | The consumer price index (CPI) is usually computed as a fixed-weighted Laspeyres price index, with the weights updated at discrete intervals only. It is well known that the Laspeyres functional form entails a substitution bias. One way to reduce it would be to use chained indices, and superlative ones if possible. Unfortunately, the necessary data are often missing. This paper proposes a simple method to retroactively compute the CPI once updated weights become available. The proposed index has the Fisher form. This makes it possible to assess the size of the substitution bias. An application to Swiss data is provided. |
| Keywords: | price index, inflation, superlative indices, substitution bias |
| JEL: | C43 E31 |
| Date: | 2009–01–20 |
| URL: | http://d.repec.org/n?u=RePEc:ubc:bricol:erwin_diewert-2009-4&r=mac |
| By: | Rangan Gupta (University of Pretoria); Stephen M. Miller (University of Connecticut and University of Nevada, Las Vegas) |
| Abstract: | We examine the time-series relationship between housing prices in Los Angeles, Las Vegas, and Phoenix. First, temporal Granger causality tests reveal that Los Angeles housing prices cause housing prices in Las Vegas (directly) and Phoenix (indirectly). In addition, Las Vegas housing prices cause housing prices in Phoenix. Los Angeles housing prices prove exogenous in a temporal sense and Phoenix housing prices do not cause prices in the other two markets. Second, we calculate out-of-sample forecasts in each market, using various vector autoregessive (VAR) and vector error-correction (VEC) models, as well as Bayesian, spatial, and causality versions of these models with various priors. Different specifications provide superior forecasts in the different cities. Finally, we consider the ability of theses time-series models to provide accurate out-of-sample predictions of turning points in housing prices that occurred in 2006:Q4. Recursive forecasts, where the sample is updated each quarter, provide reasonably good forecasts of turning points. |
| Keywords: | Ripple effect, housing prices, forecasting |
| JEL: | C32 R31 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2009-05&r=mac |
| By: | Domenico Depalo (Università di Roma “Tor Vergata”) |
| Abstract: | Many economic time series exhibit important systematic fluctuations within the year, i.e., seasonality. Differently from usual practice, we argue that using original data should always be considered, although an unadjusted data process is more complicated than that of seasonally adjusted data. Motivations to use not-adjusted data come from the information contained in their peak and trough and from economic theory. One major complication is the unit root at seasonal frequencies. In this paper, we tackle this complication by implementing a test to identify the source of seasonality. In particular, we follow Hylleberg et al. (1993) for quarterly data. A practical example from Permanent Income Hypothesis emphasizes the utility of the command with macroeconomic time series. |
| Date: | 2009–01–19 |
| URL: | http://d.repec.org/n?u=RePEc:boc:isug08:07&r=mac |
| By: | Burda, Michael C. (Humboldt University, Berlin); Hamermesh, Daniel S. (University of Texas at Austin) |
| Abstract: | Using time-diary data from four countries we show that the unemployed spend most of the time not working for pay in additional leisure and personal maintenance, not in increased household production. There is no relation between unemployment duration and the split of time between household production and leisure. U.S. data for 2003-2006 show that almost none of the lower amount of market work in areas of long-term high unemployment is offset by additional household production. In contrast, in those areas where unemployment has risen cyclically reduced market work is made up almost entirely by additional time spent in household production. |
| Keywords: | unemployment, time use, household production, paid work |
| JEL: | E24 J22 D13 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp3955&r=mac |
| By: | Benjamin Eden (Department of Economics, Vanderbilt University) |
| Abstract: | Why do people hold dollar denominated assets when higher rate of return alternatives are available? Can a country collect seigniorage payments from other countries in the long run? Does the supplier of the international currency benefit from doing so? I provide qualitative answers to these related questions in terms of a model with price dispersion, heterogeneous agents and two government-backed assets (interest-bearing monies). In the steady state one of the assets is used primarily in low price transactions and earns a relatively low (measured) real rate of return. The stable demand country that issues the relatively liquid asset gets seigniorage but its welfare may be less than under autarky because trade increases the uncertainty about demand in the relevant markets and uncertainty sometimes leads to ex-post pricing mistakes and waste. |
| Keywords: | Liquidity, sequential trade, international currency, currency substitution, the Friedman rule, seigniorage <br><br> |
| JEL: | E42 G12 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:0901&r=mac |
| By: | Reinhart, Carmen; Reinhart, Vincent |
| Abstract: | Why are investors rushing to purchase US government securities when the US is the epicentre of the financial crisis? This column attributes the paradox to key emerging market economies’ exchange practices, which require reserves most often invested in US government securities. America’s exorbitant privilege comes with a cost and a responsibility that US policy makers should bear in mind as they handle the crisis. |
| Keywords: | financial crisis; exchange rates; reserves;government |
| JEL: | F2 F3 E6 |
| Date: | 2008–11–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:12976&r=mac |
| By: | Monika Piazzesi; Martin Schneider |
| Abstract: | This paper studies household beliefs during the recent US housing boom. The first part presents evidence from the Michigan Survey of Consumers. To characterize the heterogeneity in households' views about housing and the economy, we perform a cluster analysis on survey responses at different stages of the boom. The estimation always finds a small cluster of households who believe it is a good time to buy a house because house prices will rise further. The size of this "momentum" cluster doubled towards the end of the boom. The second part of the paper provides a simple search model of the housing market to show how a small number of optimistic investors can have a large effect on prices without buying a large share of the housing stock. |
| JEL: | E0 G1 G12 R2 R21 R31 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14669&r=mac |
| By: | Jesús Fernández-Villaverde |
| Abstract: | In this paper, I review the literature on the formulation and estimation of dynamic stochastic general equilibrium (DSGE) models with a special emphasis on Bayesian methods. First, I discuss the evolution of DSGE models over the last couple of decades. Second, I explain why the profession has decided to estimate these models using Bayesian methods. Third, I briefly introduce some of the techniques required to compute and estimate these models. Fourth, I illustrate the techniques under consideration by estimating a benchmark DSGE model with real and nominal rigidities. I conclude by offering some pointers for future research. |
| JEL: | C11 C13 E10 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14677&r=mac |
| By: | D'Agostino, Antonello (Central Bank and Financial Services Authority of Ireland); McQuinn, Kieran (Central Bank and Financial Services Authority of Ireland); O'Brien, Derry (Central Bank and Financial Services Authority of Ireland) |
| Abstract: | In this paper we present "now-casts" of Irish GDP using timely data from a panel data set of 41 different variables. The approach seeks to resolve two issues which commonly confront forecastors of GDP - how to parsimoniously avail of the many different series, which can potentially influence GDP and how to reconcile the within-quarterly release of many of these series with the quarterly estimates of GDP? The now-casts in this paper are generated by firstly, using dynamic factor analysis to extract a common factor from the panel data set and, secondly, through use of bridging equations to relate the monthly data to the quarterly GDP estimates. We conduct an out-of-sample forecasting simulation exercise, where the results of the now-casting exercise are compared with those of a standard benchmark model. |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:9/rt/08&r=mac |
| By: | Suciu, Marta Cristina |
| Abstract: | The main aim of the chapter is to provide the readers with a synthesis of the new international framework of debate dedicated to the topics of intangible assets and intellectual capital. Considering the topics of the whole book, this chapter is focussed on the role played by intangible assets and intellectual capital for attaining convergence and for increasing competitiveness. * Study within the CEEX Programme – Project No. 220/2006 “Economic Convergence and Role of Knowledge in Relation to the EU Integration”. |
| Keywords: | convergence, knowledge-based economy, competitiveness, competitive advantage, intangible assets, intellectual capital |
| JEL: | E24 I23 I28 J24 O15 O47 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:ror:wpince:090109&r=mac |
| By: | Julian Emami Namini (Erasmus University Rotterdam); Enrico Pennings (Erasmus University Rotterdam) |
| Abstract: | We build a dynamic general equilibrium model with 2 countries, horizontal and vertical multinational activity and endogenous domestic and foreign investment. It is found that horizontal multinational activity always leads to a complementary relationship between domestic and foreign investment. Vertical multinational activity, in contrast, leads to either a substitutional or complementary relationship between domestic and foreign investment, depending on the firms' technologies. We test the theoretical implications with a panel of U.S. multinationals and find empirical support. |
| Keywords: | Horizontal multinational firms; vertical multinational firms; domestic investments; neoclassical growth model |
| JEL: | E22 F21 F23 |
| Date: | 2009–01–15 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20090004&r=mac |
| By: | Reinhart, Carmen; Felton, Andrew |
| Abstract: | Global financial markets are showing strains on a scale and scope not witnessed in the past three-quarters of a century. What started with elevated losses on U.S.-subprime mortgages has spread beyond the borders of the United States and the confines of the mortgage market. Many risk spreads have ballooned, liquidity in some market segments has dried up, and large complex financial institutions have admitted significant losses. Bank runs are no longer the subject exclusively of history.These events have challenged policymakers, and the responses have varied across region. The European Central Bank has injected reserves in unprecedented volumes. The Bank of England participated in the bail-out and, ultimately, the nationalization of a depository, Northern Rock. The U.S. Federal Reserve has introduced a variety of new facilities and extended its support beyond the depository sector. These events have also challenged economists to explain why the crisis developed, how it is unfolding, and what can be done. This volume compiles contributions by leading economists in VoxEU over the past year that attempt to answer these questions. We have grouped these contributions into three sections corresponding to those three critical questions. |
| Keywords: | sub-prime; financial crises; monertary policy; real estate prices;default |
| JEL: | E4 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:11862&r=mac |
| By: | Dietz Vollrath (Department of Economics, University of Houston) |
| Abstract: | The development of the financial system is shown, both historically and in contemporary data, to be adversely affected by inequality in the distribution of land. To accommodate these empirical findings, a theory is developed that highlights the incentives of landowners to oppose competition in the financial sector. The theory provides an explanation for the co-incident development of the financial sector and overall economy. |
| Keywords: | Land distribution, financial development, overlapping generations, financial institutions |
| JEL: | E25 G18 N2 O4 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:hou:wpaper:2008-02&r=mac |
| By: | Iancu, Aurel (Romanian Academy, National Institute of Economic Research) |
| Abstract: | The study is based on the critical observations that competitive market forces alone are not able to assure convergence with the developed countries. These observations are grounded on the results of the computation of the marginal rate of return to capital (which contradict the neoclassical model hypotheses), as well as on the real process of polarisation of the economic activities, taking place worldwide and in accordance with the law of competition. Unlike those who trust the perfect competitive market virtues, the EU’s economic policy is realistic as it is based on the harmonisation of the market forces with an economic policy based on the principle of cohesion, which supports, by means of economic levers, the less developed regions and member countries. Our paper deals with the evolution of the EU cohesion funds, as well as with the results of convergence. * Study within the CEEX Programme – Project No. 220/2006 “Economic Convergence and Role of Knowledge in Relation to the EU Integration”. |
| Keywords: | neoclassical model, marginal rate of return to capital, polarisation, convergence, divergence, cohesion, cohesion among countries, cohesion funds, structural funds, variation coefficient. |
| JEL: | C21 E22 O41 O47 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:ror:wpince:090102&r=mac |
| By: | Giorgio Calcagnini (Dipartimento di Economia e Metodi Quantitativi, Università di Urbino); Germana Giombini (Dipartimento di Economia e Metodi Quantitativi, Università di Urbino (Italy)); Enrico Saltari (Dipartimento di Economia Pubblica, Università di Roma “La Sapienza”) |
| Abstract: | This paper analyses how financial and labor market imperfections jointly influence investment. The contemporaneous presence of imperfections in both markets gives rise to a negative correlation between EPL and investment: firms facing negative shocks see their financial constraints worsen in countries with greater labor market rigidities. Internal funds have an overall positive impact on investment, notwithstanding the presence of labor market rigidities acts as a disincentive to the use internal funds for financing new projects. If capital is sunk and the legal environment favors ex-post profit appropriation by workers, firms use internal funds for ends alternative to fixed investment. Our results support the effort put forward by European institutions to reform both markets. |
| Keywords: | Investment Models, Financing Constraints, Labor Protection Legislation, Panel Data Models |
| JEL: | E2 G31 J50 C33 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:urb:wpaper:09_01&r=mac |
| By: | Ricardo J. Caballero; Arvind Krishnamurthy |
| Abstract: | The U.S. is currently engulfed in the most severe financial crisis since the Great Depression. A key structural factor behind this crisis is the large demand for riskless assets from the rest of the world. In this paper we present a model to show how such demand not only triggered a sharp rise in U.S. asset prices, but also exposed the U.S. financial sector to a downturn by concentrating risk onto its balance sheet. In addition to highlighting the role of capital flows in facilitating the securitization boom, our analysis speaks to the broader issue of global imbalances. While in emerging markets the concern with capital flows is in their speculative nature, in the U.S. the risk in capital inflows derives from the opposite concern: capital flows into the U.S. are mostly non-speculative and in search of safety. As a result, the U.S. sells riskless assets to foreigners, and in so doing, it raises the effective leverage of its financial institutions. In other words, as global imbalances rise, the U.S. increasingly specializes in holding its "toxic waste." |
| JEL: | E44 F32 F37 G12 G15 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14688&r=mac |
| By: | Menzie Chinn (University of Wisconsin); Jeffrey Frankel (Harvard University) |
| Abstract: | The euro has arisen as a credible eventual competitor to the dollar as leading international currency, much as the dollar rose to challenge the pound 70 years ago. This paper uses econometrically-estimated determinants of the shares of major currencies in the reserve holdings of the world’s central banks. Significant factors include: size of the home country, rate of return, and liquidity in the relevant home financial center (as measured by the turnover in its foreign exchange market). There is a tipping phenomenon, but changes are felt only with a long lag (we estimate a weight on the preceding year’s currency share around .9). The equation correctly predicts out-of-sample a (small) narrowing in the gap between the dollar and euro over the period 1999-2007. This paper updates calculations regarding possible scenarios for the future. We exclude the scenario where the United Kingdom joins euroland. But we do take into account of the fact that London has nonetheless become the de facto financial center of the euro, more so than Frankfurt. We also assume that the dollar continues in the future to depreciate at the trend rate that it has shown on average over the last 20 years. The conclusion is that the euro may surpass the dollar as leading international reserve currency as early as 2015. |
| Keywords: | Foreign exchange market, Euro, Dollar, Reserve currency |
| JEL: | E42 F0 F02 F31 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:voj:wpaper:200831&r=mac |
| By: | Diewert, Erwin |
| Abstract: | The paper reviews and extends the theory of exact and superlative index numbers. Exact index numbers are empirical index number formula that are equal to an underlying theoretical index, provided that the consumer has preferences that can be represented by certain functional forms. These exact indexes can be used to measure changes in a consumer’s cost of living or welfare. Two cases are considered: the case of homothetic preferences and the case of nonhomothetic preferences. In the homothetic case, exact index numbers are obtained for square root quadratic preferences, quadratic mean of order r preferences and normalized quadratic preferences. In the nonhomothetic case, exact indexes are obtained for various translog preferences. |
| Keywords: | Exact index numbers, superlative index numbers, flexible functional forms, Fisher ideal index, normalized quadratic preferences, mean of order r index |
| JEL: | C43 D11 D12 E31 |
| Date: | 2009–01–21 |
| URL: | http://d.repec.org/n?u=RePEc:ubc:bricol:erwin_diewert-2009-6&r=mac |
| By: | Hanno Lustig; Chad Syverson; Stijn Van Nieuwerburgh |
| Abstract: | Three of the most fundamental changes in US corporations since the early 1970s have been (1) the increased importance of organizational capital in production, (2) the increase in managerial income inequality and pay-performance sensitivity, and (3) the secular decrease in labor market reallocation. Our paper develops a simple explanation for these changes: a shift in the composition of productivity growth away from vintage-specific to general growth. This shift has stimulated the accumulation of organizational capital in existing firms and reduced the need for reallocating workers to new firms. We characterize the optimal managerial compensation contract when firms accumulate organizational capital but risk-averse managers cannot commit to staying with the firm. A calibrated version of the model reproduces the increase in managerial compensation inequality and the increased sensitivity of pay to performance in the data over the last three decades. |
| JEL: | E2 G3 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14661&r=mac |
| By: | Stefania Lionetti (IRE, Facolta' di Scienze Economiche, University of Lugano, Switzerland); Juan Gabriel Brida (School of Economics and Management - Free University of Bolzano, Italy); Wiston Adrián Risso (Department of Economics - University of Siena, Italy) |
| Abstract: | Argentina is the principal source of tourism in Uruguay. This paper analyzes the effects in the long run of tourism from Argentina on the economic growth of Uruguay. Using quarterly data from 1987.I to 2006.IV, the study uses co-integration analysis and shows the existence of one cointegrated vector among Uruguayan real per capita GDP, Argentinean tourism expenditure, and real exchange rate between Uruguay and Argentina, and tests that the causality relationship positively goes in one way from Argentinean tourism expenditure to real per capita GDP of Uruguay. |
| Keywords: | economic growth, tourism earnings, Johansen cointegration test, Granger causality |
| JEL: | C22 E01 F43 L83 O54 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:lug:wpaper:0901&r=mac |
| By: | Iqbal Syed (School of Economics, University of New South Wales); Daniel Melser (Department of Economics, Monash University) |
| Abstract: | This paper explores the extent to which goods follow systematic pricing patterns over their life cycle. The theoretical literature, and anecdotal evidence, suggests that new products are often introduced at high prices which decline as the good ages while, older goods exit the market at a discount. We outline and apply a smoothing-spline approach to the estimation of life cycle pricing effects using data on two different types of goods; supermarket products (beer, canned soup and cereals) and high-tech goods (desktop and laptop computers, and personal digital assistants). We interpret these results within a simple conceptual framework and find evidence for the existence of significant life cycle pricing effects. This implies that hedonic pricing functions which exclude age are misspecified. Furthermore, in order to eliminate bias price index samples must be constructed carefully. Using a simulation we show that the bias introduced by the traditional match-model method may be non-trivial. |
| Keywords: | Product life cycle; Hedonic regression; Price index; Spline smoothing |
| JEL: | C43 C50 D00 E31 |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:swe:wpaper:2008-25&r=mac |
| By: | Scoppa, Vincenzo |
| Abstract: | We investigate whether Italian regions have converged in terms of output per worker because of physical capital accumulation, human capital accumulation or thanks to technological catch-up. In order to identify channels of convergence we adopt the methodology recently proposed by Wong (2007) and Feyrer (2007) which combine growth accounting with convergence regressions. Merging two datasets of regional economic accounts (ISTAT and CRENoS) to obtain longer time series, we show that convergence has been realized mainly thanks to technological catch-up and, to some extent, through human capital accumulation. On the other hand, physical capital has been a factor of divergence. These results are robust to model specifications, sets of data and alternative assumptions on parameters value. |
| Keywords: | Absolute and Conditional Convergence; Channels of Convergence Technological Catch-up; Capital Accumulation; Italian regions |
| JEL: | O47 E23 E13 |
| Date: | 2009–01–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:13051&r=mac |
| By: | Iancu, Aurel (Romanian Academy, National Institute of Economic Research) |
| Abstract: | Real convergence is an essential objective of Romania’s integration into the EU. Bridging the development gaps between Romania and the EU as soon as possible cannot be achieved exclusively through market forces, since they rather tend to cause divergence and polarization. For this purpose, special tools and mechanisms are required; e.g., cohesion. The study deals with the economic convergence of the European countries, and especially the convergence of the CEE countries, including Romania. Models are used to assess the economic growth, approximate the period of real convergence of Romania to the EU, as well as to estimate the σ- and σ-convergence, and the main shortcomings of the last indicator. * Study within the CEEX Programme – Project No. 220/2006 “Economic Convergence and Role of Knowledge in Relation to the EU Integration”. |
| Keywords: | real convergence, divergence, cohesion, club convergence, polarization, regression method, return to capital, σ-convergence, σ-convergence |
| JEL: | C21 E22 O41 O47 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:ror:wpince:090104&r=mac |
| By: | Horgos, Daniel (Helmut Schmidt University, Hamburg) |
| Abstract: | Considering the sector bias of International Outsourcing within a 2x2 framework, four different scenarios appear. Each industry can either relocate its high or its low skill intensive production fragment. Traditionally, depending on the superiority of a wage vs. an outsourcing-effect, general equilibrium effects of two scenarios are assumed to be ambiguous. Applying a formal duality approach and a calibration exercise for the German economy, this contribution shows that a focus on the elasticity of substitution can solve the puzzle. With the elasticity exceeding a critical value, unambiguous results in all four scenarios appear, supporting the sector bias of International Outsourcing.Finally, the introduction of distributional constraints into the allocative decisions leads to a decisive worsening in the supply of the public good. |
| Keywords: | International Outsourcing; Sector Bias; Elasticity of Substitution |
| JEL: | E25 F16 F41 |
| Date: | 2009–01–29 |
| URL: | http://d.repec.org/n?u=RePEc:ris:vhsuwp:2009_088&r=mac |
| By: | Duduiala-Popescu, Lorena |
| Abstract: | The priorities of the EU budget for 2009 are: economic growth, employment, climate, strengthening security and safety of European citizens, the social dimension of the EU. Divided into areas, the EU provides for sustainable development, regional education and research 45.9 billion for natural resources 52.58 billion euros for EU citizenship, justice and home affairs 1.3 billion, and for expenses Board 7.64 billion. |
| Keywords: | growth; employment; security; EU budget; europeans |
| JEL: | G31 F59 F43 A11 F15 H11 E24 F01 E61 |
| Date: | 2009–01–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:12995&r=mac |
| By: | Ronald Heijmans |
| Abstract: | This paper presents an analysis on the sensitivity of the Dutch interbank payment system with respect to the value transferred and the amount of available collateral. The Dutch system can be characterised as a system with a few large and many relatively small participants.Historical data has been used and modified to create a stress scenario. The changes with respect to the historical data are either an increase or a decrease of payment values of one of the large participants. This change of the payment value has been applied to the three large banks in the Dutch system. The collateral level has also been modified between the different stress scenarios. In total four levels of collateral are investigated of which 2 are based on historical data and 2 on theoretical calculated values, the upper and lower bound. The results of this paper are both in terms of number of banks affected and the amount of unsettled values by the end of the day. |
| Keywords: | interbank; payment system; operational disruption; liquidity; stress simulations; TOP; TARGET |
| JEL: | C88 E58 G21 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:199&r=mac |