|
on Macroeconomics |
|
Issue of 2009‒02‒22
sixty-one papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | Marcelo Sánchez (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main.) |
| Abstract: | This paper attempts at characterising South Korean monetary policy in the period of explicit inflation targeting started in 1999. We explain Korean interest rates in relation to an estimated macro-model, assuming that monetary policy is set optimally. This allows us to obtain the central bank’s parameters in the policy objective function. During the IT regime, the data support that the Bank of Korea pursued optimal policy geared towards achieving price stability, with the degree of interest rate smoothing being estimated to be considerable. In addition, the central bank loss function is estimated to include negligible weights on output and exchange rate variability. JEL Classification: E52, E58, E61. |
| Keywords: | inflation targeting, optimal monetary policy, small open economies, South Korea. |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:200901004&r=mac |
| By: | Gregory de Walque (National Bank of Belgium, Boulevard de Berlaimont 14, B-1000 Brussels, Belgium.); Olivier Pierrard (Central Bank of Luxembourg, 2 boulevard Royal, L–2983 Luxembourg, Luxembourg.); Henri Sneessens (Central Bank of Luxembourg, Economics and Research Department, 2 boulevard Royal, L–2983 Luxembourg, Luxembourg.); Raf Wouters (National Bank of Belgium, Boulevard de Berlaimont 14, B-1000 Brussels, Belgium.) |
| Abstract: | We consider a model with frictional unemployment and staggered wage bargaining where hours worked are negotiated every period. The workers’ bargaining power in the hours negotiation affects both unemployment volatility and inflation persistence. The closer to zero this parameter, (i) the more firms adjust on the intensive margin, reducing employment volatility, (ii) the lower the effective workers’ bargaining power for wages and (iii) the more important the hourly wage in the marginal cost determination. This set-up produces realistic labor market statistics together with inflation persistence. Distinguishing the probability to bargain the wage of the existing and the new jobs, we show that the intensive margin helps reduce the new entrants wage rigidity required to match observed unemployment volatility. JEL Classification: E31, E32, E52, J64. |
| Keywords: | DSGE, Search and Matching, Nominal Wage Rigidity, Monetary Policy. |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:200901007&r=mac |
| By: | Fabio Rumler (Oesterreichische Nationalbank, Economic Analysis Division, Otto-Wagner-Platz 3, POB 61, A-1011 Vienna, Austria.); Johann Scharler (Department of Economics, University of Linz, Altenbergerstrasse 69, A-4040 Linz, Austria.) |
| Abstract: | In this paper we analyze empirically how labor market institutions influence business cycle volatility in a sample of 20 OECD countries. Our results suggest that countries characterized by high union density tend to experience more volatile movements in output, whereas the degree of coordination of the wage bargaining system and strictness of employment protection legislation appear to play a limited role for output volatility. We also find some evidence suggesting that highly coordinated wage bargaining systems have a dampening impact on inflation volatility. JEL Classification: E31, E32. |
| Keywords: | Business Cycles, Inflation, Labor Market Institutions. |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:200901005&r=mac |
| By: | Balogun, Emmanuel Dele |
| Abstract: | This paper examines the determinants of output growth differentials from set convergence criteria in a panel of West African Monetary Zone (WAMZ) states. Drawing largely from micro-founded models, rooted in New Keynesian traditions, the study shows that widespread divergence of output growth rates of participating countries from ideal benchmarks calls to question the ability of independent monetary and exchange rates policy as instruments of national/regional macroeconomic stabilization, the preconditions for unionization. Using a stylized 5-country model of WAMZ area, the differences in national output growth/demand is analyzed in the light of country specific shocks or differences in the monetary transmission mechanisms. The main results show that business cycles (output shocks) stabilization around a desired target was not attained. Over the sample period, the un-weighted average regional GDP growth rates were very slow, vary widely among the countries and responded very poorly to independent monetary policy stance. The strong output growth rates divergence among these countries suggest a reconsideration of output convergence as pre-condition for unionization. |
| Keywords: | Growth rates differentials; Output convergence; exchange rate; WAMZ members; and panel data |
| JEL: | E32 C33 F33 |
| Date: | 2009–02–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:13416&r=mac |
| By: | Michael Artis; Christian Dreger; Konstantin A. Kholodilin |
| Abstract: | We examine real business cycle convergence for 41 euro area regions and 48 US states. Results obtained by a panel model with spatial correlation indicate that the relevance of common business cycle factors is rather stable over the past two decades in the euro area and the US. Ongoing business cycle convergence often detected in a country data is not confirmed at the regional level. The degree of synchronization across the euro area is similar to that to be found for the US states. Thus, the lack of convergence does not seem to be an impediment to a common monetary policy. |
| Keywords: | Business cycle convergence, spatial correlation, spatial panel model |
| JEL: | E32 C51 E37 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp859&r=mac |
| By: | Ricardo M. Sousa (Universidade do Minho - NIPE); António Afonso (European Central Bank, Directorate General Economics) |
| Abstract: | In the last twenty years Portugal struggled to keep public finances under control, notably in containing primary spending. We use a new quarterly dataset covering 1979:1-2007:4, and estimate a Bayesian Structural Autoregression model to analyze the macroeconomic effects of fiscal policy. The results show that positive government spending shocks, in general, have a negative effect on real GDP; lead to important "crowding-out" effects, by impacting negatively on private consumption and investment; and have a persistent and positive effect on the price level and the average cost of financing government debt. Positive government revenue shocks tend to have a negative impact on GDP; and lead to a fall in the price level. The evidence also shows the importance of explicitly considering the government debt dynamics in the model. Finally, a VAR counter-factual exercise confirms that unexpected positive government spending shocks lead to important "crowding-out" effects. |
| Keywords: | B-SVAR, fiscal policy, debt dynamics, Portugal. |
| JEL: | E37 E62 H62 G10 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:3/2009&r=mac |
| By: | Ricardo Reis |
| Abstract: | This paper presents a dynamic stochastic general-equilibrium model with a single friction in all markets: sticky information. In this economy, agents are inattentive because of costs of acquiring, absorbing and processing information, so that the actions of consumers, workers and firms are slow to incorporate news. This paper presents the details of how an economy with pervasive inattentiveness functions, and develops a set of algorithms that solve the model quickly. It then applies these to estimate the model using data for the United States post-1986 and for the Euro-area post-1993, and to conduct counterfactual policy experiments. The end result is a laboratory that is rich enough to account for the dynamics of at least five macroeconomic series (inflation, output, hours, interest rates, and wages), and which can be used to inform applied monetary policy. |
| JEL: | E10 E30 E5 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14732&r=mac |
| By: | Christian Dreger; Jürgen Wolters |
| Abstract: | The appropriate design of monetary policy in integrated financial markets is one of the most challenging areas for central banks. One hot topic is whether the rise in liquidity in recent years has contributed to the formation of price bubbles in asset markets. If strong linkages exist, the inclusion of asset prices in the monetary policy rule can eventually limit speculative runs and negative effects on the real economy in the future. We explore the impacts of liquidity shocks on real share and house prices and the influence of wealth prices on liquidity. VAR models are specified for the US and the euro area. To control for international spillovers, global VARs are also considered. Differences in the results can provide a measure on the impact of financial market integration. The specifications point to some impact of liquidity shocks on house prices, while asset prices are not affected. |
| Keywords: | Liquidity shocks, asset prices, GVAR analysis, monetary policy |
| JEL: | E44 G10 C32 C52 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp860&r=mac |
| By: | D.M. Nachane (Indira Gandhi Institute of Development Research); Amlendu Kumar Dubey (Indira Gandhi Institute of Development Research) |
| Abstract: | The recent de-emphasizing of the role of "money" in both theoretical macroeconomics as well as in the practical conduct of monetary policy sits uneasily with the idea that inflation is a monetary phenomenon. Empirical evidence has, however, been accumulating, pointing to an important leading indicator role for money and credit aggregates with respect to long term inflationary trends. Such a role could arise from monetary aggregates furnishing a nominal anchor for inflationary expectations, from their influence on the term structure of interest rates and from their affecting transactions costs in markets. Our paper attempts to assess the informational content role of money in the Indian economy by a separation of these effects across time scales and frequency bands, using the techniques of wavelet analysis and band spectral analysis respectively. Our results indicate variability of causal relations across frequency ranges and time scales, as also occasional causal reversals. |
| Keywords: | money, inflation, cointegration, causality, decomposition, band spectra, wavelets |
| JEL: | C32 E51 E52 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2008-022&r=mac |
| By: | Andrés González (Banco de la República, Bogotá and CREATES, University of Aarhus, Denmark); Kirstin Hubrich (European Central Bank, Frankfurt am Main and CREATES, University of Aarhus, Denmark); Timo Teräsvirta (CREATES, University of Aarhus, Denmark) |
| Abstract: | In this work, we make use of the shifting-mean autoregressive model which is a flexible univariate nonstationary model. It is suitable for describing characteristic features in inflation series as well as for medium-term forecasting. With this model we decompose the inflation process into a slowly moving nonstationary component and dynamic short-run fluctuations around it. We fit the model to the monthly euro area, UK and US inflation series. An important feature of our model is that it provides a way of combining the information in the sample and the a priori information about the quantity to be forecast to form a single inflation forecast. We show, both theoretically and by simulations, how this is done by using the penalised likelihood in the estimation of model parameters. In forecasting inflation, the central bank inflation target, if it exists, is a natural example of such prior information. We further illustrate the application of our method by an ex post forecasting experiment for euro area and UK inflation. We find that that taking the exogenous information into account does im- prove the forecast accuracy compared to that of a linear autoregressive benchmark model. |
| Keywords: | Nonlinear forecast, nonlinear model, nonlinear trend, penalised likelihood, structural shift, time-varying parameter |
| JEL: | C22 C52 C53 E31 E47 |
| Date: | 2009–01–28 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2009-03&r=mac |
| By: | Tierney, Heather L.R. |
| Abstract: | Using parametric and nonparametric methods, inflation persistence is examined through the relationship between exclusions-from-core inflation and total inflation for two sample periods and in five in-sample forecast horizons ranging from one quarter to three years over fifty vintages of real-time data in two measures of inflation: personal consumption expenditure and the consumer price index. Unbiasedness is examined at the aggregate and local levels. A local nonparametric hypothesis test for unbiasedness is developed and proposed for testing the local conditional nonparametric regression estimates, which can be vastly different from the aggregated nonparametric model. This paper finds that the nonparametric model outperforms the parametric model for both data samples and for all five in-sample forecast horizons. |
| Keywords: | Real-Time Data; Local Estimation; Nonparametrics; Inflation Persistence; Monetary Policy |
| JEL: | C14 E52 E40 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:13383&r=mac |
| By: | António Afonso; Ricardo M. Sousa |
| Abstract: | Drawing on quarterly data for Portugal, we use a Three-Stage Least Square method and a system of equations to recursively estimate two components of fiscal policy – responsiveness and persistence – and to infer about the sources of fiscal deterioration (improvement). The results suggest that: (i) government spending exhibits higher persistence than government revenue; and (ii) government revenue is more responsive to the business cycle than government spending. |
| Keywords: | Fiscal deterioration; Portugal. |
| JEL: | E62 H50 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:ise:isegwp:wp32009&r=mac |
| By: | Konstantins Benkovskis |
| Abstract: | The goal of this paper is to explore the role of the banking sector in transmission of the Bank of Latvia's monetary policy and to check the existence of the bank lending channel in Latvia. For empirical investigation of the bank lending channel in Latvia, we use the approach that builds on the standard panel regression. The evidence on the bank lending channel is obtained by estimating a bank loan function that takes into account not only the monetary policy indicator and macroeconomic variables, but also bank-specific differences in the lending reaction to monetary policy actions. Empirical analysis shows that some banks in Latvia have statistically significant negative reaction to a domestic monetary shock; however, the weighted average reaction of the total lats loan growth is not statistically significant. A domestic monetary shock has only a distribution effect and affects banks that are small, domestically owned and have lower liquidity or capitalisation. The bank lending channel is limited only for the supply of lats loans, which dramatically reduces the importance of this channel. |
| Keywords: | monetary policy transmission, bank lending channel |
| JEL: | C23 E52 G21 |
| Date: | 2008–04–09 |
| URL: | http://d.repec.org/n?u=RePEc:ltv:wpaper:200801&r=mac |
| By: | Antonio Fatas; Ilian Mihov |
| Abstract: | The paper provides and empirical characterization of fiscal policy in the euro area and in a group of twenty-two OECD economies over the period from 1970 until 2007. Using the cyclically-adjusted fiscal balance we document that policy in the euro area has been mildly pro-cyclical. The adoption of the common currency and the constraints imposed by the Stability and Growth Pact have not had a large impact on the cyclical behavior of the structural balance. In contrast, over the past ten years US fiscal policy has become highly countercyclical, which was due predominantly to discretionary changes in tax policies. However, the component of the budget due to automatic stabilizers reacts stronger in the euro-area countries than in the US. We also document the primary balance in the OECD economies is more sensitive to output growth rather than to the output gap, which calls into question the common practice of adjusting structural balances by using elasticities with respect to the output gap. |
| JEL: | E62 E65 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14722&r=mac |
| By: | Tuomas A. Peltonen (European Central Bank); Ricardo M. Sousa (Universidade do Minho - NIPE); Isabel S. Vansteenkiste (European Central Bank) |
| Abstract: | We build a panel of 14 emerging economies to estimate the magnitude of housing, stock market, and money wealth effects on consumption. Using modern panel data econometric techniques and quarterly data for the period 1990/1-2008/2, we show that; (i) wealth effects are statistically significant and relatively large in magnitude; (ii) housing wealth effects tend to be smaller for Asian emerging markets while stock markets wealth effects are, in general, smaller for Latin American countries; (iii) housing wealth effects have increased for Asian countries in recent years; and (iv) consumption reacts stronger to negative than to positive shocks in housing and financial wealth. |
| Keywords: | wealth effects, consumption, emerging markets. |
| JEL: | E21 E44 D12 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:4/2009&r=mac |
| By: | Ludmila Fadejeva; Aleksejs Melihovs |
| Abstract: | This paper aims at characterising fluctuations of economic activity that are common for the Baltic States, CEE countries, euro area countries and Russia. The real standardised GDP quarterly growth is chosen as an indicator of economic development of the countries. Three methods are employed: static factor analysis, dynamic factor model and dynamic correlation. Special attention is given to the analysis of Latvian economy. The results of the study show that the Baltic economies are similar in economic development and share a common factor. After 2000, the real standardised GDP growth in the Baltic States became more correlated with the GDP growth of the main euro area countries indicating growing synchronisation of economic development between these country groups. The role of the main final demand components (exports, consumption and investment) in explaining common fluctuations in the real standardised GDP growth in the Baltic States is evaluated by analysing common factors for each component and dynamic correlation between components for each country. |
| Keywords: | business cycle synchronisation, dynamic factor model, dynamic correlation |
| JEL: | E32 F20 C10 |
| Date: | 2008–05–05 |
| URL: | http://d.repec.org/n?u=RePEc:ltv:wpaper:200803&r=mac |
| By: | Ashima Goyal (Indira Gandhi Institute of Development Research) |
| Abstract: | The paper gives a simplified version of a typical dynamic stochastic open economy general equilibrium models used to analyze optimal monetary policy. Then it outlines the chief modifications when dualism in labour and in consumption is introduced to adapt the model to a small open emerging market such as India. The implications of specific labour markets, and the structure of Indian inflation and its measurement are examined. Simulations give the welfare effects of different types of inflation targeting. Flexible CPI inflation targeting (CIT) without lags works best, especially if the economy is more open. But volatile terms of trade make the supply curve even steeper than in a small open economy despite specific labour markets and higher labour supply elasticity. Exchange rate intervention limits the volatility of the terms of trade and improves outcomes, making the supply curve flatter. As long as such intervention is required, domestic inflation targeting (DIT) continues to be more robust and effective. The welfare losses from the lags in CPI, which prevent the implementation of CIT, are low as long as the dualistic structure dominates. As the economy becomes more open, however, the loss from not being able to use CIT rises. The lags in CPI therefore need to be reduced, making its future use possible. |
| Keywords: | small open emerging market, optimal monetary policy, dualistic labour markets, inflation, measurement lags, specific labour markets |
| JEL: | E52 F41 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2008-010&r=mac |
| By: | Ashima Goyal (Indira Gandhi Institute of Development Research) |
| Abstract: | An optimizing model of a small open emerging market economy (SOEME) with dualistic labour markets and two types of consumers, is used to derive the natural interest rate, terms of trade and potential output. Shocks are classified into generic types that affect the natural interest rates. Since parameters depend on features of the labour market and on consumption inequality, the natural rates and the impact of shocks differ from those in a mature small open economy. Subsistence consumption is found to have the largest effect on the natural rates. It reduces the interest rate, raises natural output and the terms of trade. Technology and infrastructure backwardness reduce natural output. The implications for monetary policy are derived. The effect of managed exchange rates combined with different types of inflation targeting is examined through simulations. Endogenous terms of trade make the supply curve steeper in a SOEME, so partial stickiness of the real exchange rate can be beneficial. In general, domestic inflation targeting, with some weight on the output gap, delivers lower volatility. Output response is higher and volatility lower with fixed terms of trade, demonstrating the flatter supply curve. CPI inflation targeting also does well when terms of trade are credibly fixed. |
| Keywords: | small open emerging market, optimal monetary policy, dualistic labour markets, natural interest rates, terms of trade, natural output |
| JEL: | E52 F41 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2008-014&r=mac |
| By: | Casey Mulligan |
| Abstract: | A labor market tautology says that any change in labor usage can be decomposed into a movement along a marginal productivity schedule and a shift of the schedule. I calculate this decomposition for the recession of 2008, assuming an aggregate Cobb-Douglas marginal productivity schedule, and find that all of the decline in employment and hours since December 2007 is a movement along the schedule. This finding suggests that a reduction in labor supply and/or an increase in labor market distortions are major factors in the 2008 recession. The decline in aggregate consumption suggests that the reduction in labor supply (if any) is neither a wealth nor an intertemporal substitution effect. "Sticky real wages" or the emergence of significant work disincentives are possible explanations for these findings. |
| JEL: | E24 E32 J22 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14729&r=mac |
| By: | Cândida Ferreira |
| Abstract: | This paper confirms the importance of the financial systems behaviour conditions to the credit channel of monetary policy in the entire European Union (EU). It uses panel fixedeffect estimations and quarterly data for 26 EU countries for the period from Q1 1999 to Q3 2006 in an adaptation of the Bernanke and Blinder (1988) model. The findings also reveal the high degree of foreign dependence and indebtedness of the EU banking institutions and their similar reactions to the macroeconomic and the monetary policy environments. |
| Keywords: | European integration; bank credit; monetary policy transmission; panel estimates. |
| JEL: | E4 E5 G2 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:ise:isegwp:wp82009&r=mac |
| By: | Giuseppe Moscarini; Fabien Postel-Vinay |
| Abstract: | We provide new evidence that large firms or establishments are more sensitive than small ones to business cycle conditions. Larger employers shed proportionally more jobs in recessions and create more of their new jobs late in expansions, both in gross and net terms. We employ a variety of measures of relative employment growth, employer size and classification by size, and a variety of U.S. datasets, both repeated cross-sections and job flows with employer longitudinal information, starting in the mid 1970's and now spanning four business cycles. We revisit two statistical fallacies, the Regression and Reclassification biases, and show empirically that they are quantitatively modest given our focus on relative cyclical behavior. The differential growth rate of employment between large (>1000 employees) and small (<50) firms varies by about 5% over the business cycle, and is strongly negatively correlated with the unemployment rate. This pattern occurs within, not across broad industries, regions and states, and is robust to different treatments of entry and exit. It appears to be partly driven by excess (mass) layoffs by large employers during and just after recessions, and by excess poaching by large employers late in expansions. We find the same qualitative pattern in longitudinal censuses of employers from Denmark and Brazil, and in other countries. Finally, we sketch a simple firm-ladder model of turnover that can shed light on these facts, and that we analyze in detail in companion papers. |
| JEL: | E24 E32 J23 J63 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14740&r=mac |
| By: | Juan Carlos Cuestas; Estefanía Mourelle |
| Abstract: | In this paper we aim at testing the inflation persistence hypothesis as well as modelling (using logistic smooth transition autoregressive, LSTAR, models) the long run behaviour of inflation rates in a pool of African countries. In order to do so, we rely on unit root tests applied to nonlinear models, i.e. Kapetanios et al. (2003). The results point to the non-persistence of inflation hypothesis for most of the countries. In addition, the estimated models are stable in the sense that the variable tends to remain in the regime (low inflation or high inflation) once reached and changes between regimes are only achieved after a shock. |
| Keywords: | Inflation, Persistence, Unit Roots, Nonlinearities. |
| JEL: | C32 E31 F15 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbs:wpaper:2009/2&r=mac |
| By: | Zsolt Darvas (Institute of Economics - Hungarian Academy of Sciences); Gyorgy Szapary (Central European University) |
| Abstract: | The paper discusses the risks and challenges faced by the new members on the road to the euro and the strategies for and timing of euro adoption. We investigate the real-nominal convergence nexus from the perspective of euro area entry. We argue that the initial level of economic development as measured by per capita income and the speed of real convergence have a bearing on the strategies to follow and on the timing of entry into euro area. This is because the lower is the per capita income, the larger is the price level gap to close and the greater is the danger of credit booms and overheating. We argue that inflation targeting with floating rates is better suited than hard pegs to manage the price level catching-up process. We suggest a modification in the Maastricht inflation criterion which as currently defined has lost its economic logic. |
| Keywords: | euro area, convergence, exchange rate, inflation |
| JEL: | E31 E52 E60 F30 |
| Date: | 2008–11 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:0824&r=mac |
| By: | Maximilian J. B. Hall (Dept of Economics, Loughborough University) |
| Abstract: | On 14 September 2007, after failing to find a 'White Knight' to take over its business, Northern Rock bank turned to the Bank of England ('the Bank') for a liquidity lifeline. This was duly provided but failed to quell the financial panic, which manifested itself in the first fully-blown nationwide deposit run on a UK bank for 140 years. Subsequent provision of a blanket deposit guarantee duly led to the (eventual) disappearance of the depositor queues from outside the bank's branches but only served to heighten the sense of panic in policymaking circles. Following the Government's failed attempt to find an appropriate private sector buyer, the bank was then nationalised in February 2008. Inevitably, post mortems ensued, the most transparent of which was that conducted by the all-party House of Commons' Treasury Select Committee. And a variety of reform proposals are currently being deliberated at fora around the globe with a view to patching up the global financial system to prevent a recurrence of the events which precipitated the bank's illiquidity and the wider financial instability which set in towards the end of 2008. This article briefly explains the background to these extraordinary events before setting out, in some detail, the tensions and flaws in UK arrangements which allowed the Northern Rock spectacle to occur. None of the interested parties – the Bank, the Financial Services Authority (FSA) and the Treasury – emerges with their reputation intact, and the policy areas requiring immediate attention, at both the domestic and international level, are highlighted. A review and assessment of both the House of Commons Treasury Committee's Report on Northern Rock and the Tripartite Authorities' proposals for reform are also provided before analysis of the subsequent measures taken to stabilise the UK financial sector – involving further nationalisation of banks, the brokering of takeover rescues of banks and building societies, a £400 billion bailout of the deposit-taking sector and a subsequent bank bailout scheme – is undertaken. Accordingly, this paper represents an update, covering developments until end-January 2009, of my earlier paper on the Northern Rock affair (Working Paper No. WP 2008-09), which was published in September 2008. Specifically, it covers the latest domestic (i.e. UK) developments on a number of fronts. The text, for example, provides updates on the reform proposals of the Tripartite Authorities, amendments to deposit protection arrangements, and the emergency funding initiatives adopted by the Bank of England. Table 2 (where, along with Table 1, most of the new material is located), meanwhile, provides updates and analysis of the following: the latest developments in the UK housing market; the latest developments in the real economy; the latest financial statements of the major banks; the latest nationalisation moves;* the latest inflation figures and interest rate decisions of the MPC; the latest government bailout plans for deposit-takers; the latest official support packages introduced for the housing market, mortgage borrowers and small businesses; the latest fiscal stimulus plans (e.g. as contained in the Pre-Budget Report of November 2008); and the latest domestic financial and regulatory developments. Meanwhile, Table 1 provides up-to-date information on: emergency funding initiatives undertaken by the Fed, the ECB and other major central banks; financial institution takeovers/bailouts in the US and Europe; interest rate developments in the major economies; financial and regulatory developments in the US and Europe; developments in the real economies of the US and Europe; the financial statements of banks in the USA and Europe; the evolution of official bailout plans in the US ('TARP') and Europe; deposit protection developments in the US and Europe; fiscal stimulus packages adopted in the US, Europe and the wider international community; G7/EU plans to tackle the worsening financial crisis; IMF 'bailouts' of beleaguered countries; and the Basel Committee's proposals for revamping Basel II in the light of the crisis. *A more detailed discussion of these developments is provided in Hall (2008). |
| Keywords: | Sub-prime crisis; credit crunch; banking regulation and supervision; failure resolution; central banking; deposit protection. |
| JEL: | E53 E58 G21 G28 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:lbo:lbowps:2009_03&r=mac |
| By: | Guido Menzio; Shouyong Shi |
| Abstract: | In this paper, we develop a general stochastic model of directed search on the job. Analogous to 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 models of random search on the job, our model admits an equilibrium in which agents' value and policy functions do not depend on the distribution of workers. We refer to this type of equilibrium as a Block Recursive Equilibrium (BRE). 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. We prove existence of a BRE under various specifications of workers' preferences and contractual environments, including dynamic contracts and fixed-wage contracts. |
| Keywords: | Directed Search; On the Job Search; Heterogeneity; Aggregate Fluctuations |
| JEL: | E24 E32 J64 |
| Date: | 2009–02–13 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-347&r=mac |
| By: | Davide Furceri; Annabelle Mourougane |
| Abstract: | This overview paper examines the financial crisis in light of past country experience and economic theory and sets out some preliminary policy recommendations. A number of facets of the crisis are detailed, including its origins and spreading factors as well as crisis resolution policies and their associated gross and net fiscal costs. The implications of the crisis on key macro-economic variables are subsequently presented. Finally, policy recommendations for both addressing the economic downturn and enhancing the resilience of the economies over the medium to long-term are discussed.<P>Crises financières : leçons du passé et implications de politiques économiques<BR>Cet article donne une vue d'ensemble de la crise financière à la lumière des expériences passées et de la théorie économique et tire des recommandations préliminaires de politiques économiques. De nombreuses facettes de la crise sont détaillées, notamment ses origines et ses facteurs de propagation, de même que les politiques de résolution de crises et leur coût budgétaire (brut et net). Les répercussions de la crise sur les variables macro-économiques clefs sont ensuite présentées. Au final, des recommandations de politiques économiques sont discutées pour à la fois répondre au retournement économique et accroître la résilience des économies sur le moyen et le long terme. |
| Keywords: | macroeconomic policies, politique macro-économique, financial crisis, crise financière, fiscal costs, coûts budgétaires |
| JEL: | E44 E6 G1 |
| Date: | 2009–02–17 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:668-en&r=mac |
| By: | António Afonso; Christophe Rault |
| Abstract: | We investigate the existence of Granger-causality between current account and government budget balances over the period 1970-2007, for different EU and OECD country groupings. We use a panel-data approach based on SUR systems and Wald tests with country specific bootstrap critical values. Our results show a causal relation from budget deficits to current account deficits for several EU countries: Bulgaria, Czech Republic, Estonia, Finland, France, Italy, Hungary, Lithuania, Poland, and Slovakia, along the lines of the so-called twin-deficit relationship. Considering the effective real exchange rate in the SUR system does not substantially alter the results. |
| Keywords: | panel causality tests; budget deficit; external imbalance; real exchange rates; EU; OECD. |
| JEL: | C23 E62 F32 H62 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:ise:isegwp:wp22009&r=mac |
| By: | Colignatus, Thomas |
| Abstract: | The steps in this paper are: (1) to recall the S = I relation and its position in macro-economics, (2) to observe how this equation is very relevant again with the renewed relunctance of banks to finance investments, (3) to point out that consumer durables are investments too, (4) to highlight how such durables fit into the macro-economic theory of slumps, (5) to suggest that consumer durables in various cases are easier targets for banks and policy making than industrial outlays. |
| Keywords: | financial crisis; economic crisis; stagflation; inflation; unemployment; Phillipscurve; taxes |
| JEL: | E0 A1 P16 |
| Date: | 2009–02–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:13382&r=mac |
| By: | Alan J. Auerbach |
| Abstract: | To many observers, the current recession provides compelling circumstances for renewed fiscal policy activism. But the strong support for fiscal policy intervention reflects a renewed belief in policy activism that had already appeared before the present crisis. However, the recent debate about possible fiscal policy interventions suggests that we are still relying on the approaches to discretionary policy used in past periods of policy activism. It is not surprising that there have been few advances in discretionary policy design, given the lack of favor such policy suffered over many years. But if we are going to practice fiscal discretionary policy on a large scale, then more attention to policy design is sorely needed. |
| JEL: | E62 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14725&r=mac |
| By: | Eliana González; Luis F. Melo; Viviana Monroy; Brayan Rojas |
| Abstract: | ABSTRACT. We use a dynamic factor model proposed by Stock and Watson [1998, 1999, 2002a,b] to forecast Colombian inflation. The model includes 92 monthly series observed over the period 1999:01-2008:06. The results show that for short-run horizons, factor model forecasts significantly outperformed the auto-regressive benchmark model in terms of the root mean squared forecast error statistic. |
| Date: | 2009–02–09 |
| URL: | http://d.repec.org/n?u=RePEc:col:000094:005273&r=mac |
| By: | Konstantins Benkovskis |
| Abstract: | The conjunctural information from monthly indicators, e.g. industrial production, retail trade turnover, M3, confidence indicators, etc. could partly replace GDP data before the first official release is published. It is possible to incorporate monthly indicators into short-term forecasting models of GDP using quarterly bridge equations or state space models. In many cases monthly indicators are released with a lag, and GDP forecasts based on actual figures are available only shortly before the official release. To eliminate this drawback, missing observations of monthly indicators could be forecasted using simple univariate time-series models. To perform real-time analysis of the forecasting performance of bridge equations and state space models, a real-time database containing real GDP series with 28 vintages of quarterly real GDP was created. According to calculations, only bridge equations and state space models containing M3 monthly data perform better than the benchmark ARIMA model. Both model types using M3 provide valuable information forecast for the first and final releases of GDP. This does not mean, however, that other conjunctural indicators should not be used in forecasting, as the analysis does not take into account possible future changes in links between monthly indicators and quarterly GDP growth. |
| Keywords: | bridge equations, state space model, out-of-sample forecasting, real-time database, interpolation |
| JEL: | C22 C53 E37 |
| Date: | 2008–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:ltv:wpaper:200805&r=mac |
| By: | Holden , Steinar (Dept. of Economics, University of Oslo); Wulfsberg, Fredrik (Norges Bank) |
| Abstract: | A number of recent studies have documented extensive downward nominal wage rigidity (dnwr) for job stayers in many oecd countries. However, DNWR for individual workers may induce downward rigidity or “a floor” for the aggregate wage growth at positive or negative levels. Aggregate wage growth may be below zero because of compositional effects, for example that old, high-wage workers are replaced by young low-wage workers. dnwr may also lead to a positive growth in aggregate wages because of changes in relative wages. We explore industry data for 19 oecd countries, over the period 1971–2006. We find evidence for floors on nominal wage growth at 6 percent and lower in the 1970s and 1980s, at one percent in the 1990s, and at 0.5 percent in the 2000s. Furthermore, we find that dnwr is stronger in country-years with strict employment protection legislation, high union density, centralised wage setting and high inflation. |
| Keywords: | OECD; wage setting |
| JEL: | C14 C15 E31 J30 J50 |
| Date: | 2009–01–22 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:osloec:2009_003&r=mac |
| By: | Jess Benhabib; Alberto Bisin |
| Abstract: | We study the dynamics of the distribution of overlapping generation economy with finitely lived agents and inter-generational transmission of wealth. Financial markets are incomplete, exposing agents to both labor income and capital income risk. We show that the stationary wealth distribution is a Pareto distribution in the right tail and that it is capital income risk, rather than labor income, that drives the properties of the right tail of the wealth distribution. We also study analytically the dependence of the distribution of wealth, of wealth inequality in particular, on various fiscal policy instruments like capital income taxes and estate taxes. We show that capital income and estate taxes can significantly reduce wealth inequality. Finally, we characterize optimal redistributive taxes with respect to a utilitarian social welfaremeasure. Social welfare is maximized short of minimal wealth inequality and with zero estate taxes. Finally, we study the effects of different degrees of social mobility on the wealth distribution. |
| JEL: | E21 E25 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14730&r=mac |
| By: | Isabelle TERRAZ |
| Abstract: | Market power of workers on wages is bound to affect economic performances. This paper focuses on this issue and analyse the influence of bargaining structures on growth and labor market functioning. To achieve this, we construct an endogenous growth model where growth appears as the result of a learning-by-doing process whereas imperfect information in the labor market implies matching frictions in the hiring process. If investment occurs before wage bargaining, the growth process can be durably altered. In this case, a higher bargaining power of worker does not give a clear-cut effect on growth. |
| Keywords: | Bargaining structures; Equilibrium Unemployment; Endogenous growth; Learning-by-doing. |
| JEL: | E24 J50 J64 O40 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2009-03&r=mac |
| By: | Kühn Stefan; Muysken Joan; Veen Tom van (METEOR) |
| Abstract: | Empirical evidence shows that government spending crowds in private consumption, a Keynesian phenomenon. The current state of the art, New Keynesian models based on optimising households and _rms, is not able to predict such a result. We show with a graphical framework as well as a formal model why the basic New Keynesian model fails at this. We also show the weaknesses of extensions aimed at generating crowding in like useful government spending or rule of thumb consumers. Finally, we argue that introducing productivity enhancing government spending could potentially lead to crowding in. |
| Keywords: | macroeconomics ; |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umamet:2009004&r=mac |
| By: | Maximilian J. B. Hall (Dept of Economics, Loughborough University) |
| Abstract: | On 19 January 2009, the UK Government unveiled a second comprehensive bank bailout plan. This followed the failure of its October bailout package to stimulate domestic lending, as intended. The various components of the new "rescue package" are duly explained and analysed in this article, which also addresses the likely future course of policy should the Government fail in its latest ambitions to stimulate lending and thereby revive the flagging economy. |
| Keywords: | UK banks; banking regulation and supervision; central banking; failure resolution. |
| JEL: | E53 E58 G21 G28 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:lbo:lbowps:2009_01&r=mac |
| By: | Cândida Ferreira |
| Abstract: | Using pooled panel OLS estimations and dynamic Arellano-Bond GMM estimations with quarterly data for 26 EU countries for the period from Q1 1999 to Q3 2006 this paper confirms the high degree of integration between the EU financial systems, as well as the importance of bank performance conditions to the credit-lending channel of monetary policy in the EU. Furthermore, it demonstrates not only the quite high degree of openness of the financial markets but also their indebtedness and the dependence of the EU banking institutions on the financial resources of other countries. |
| Keywords: | European integration; bank credit; monetary policy transmission; panel estimates. |
| JEL: | E4 E5 G2 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:ise:isegwp:wp72009&r=mac |
| By: | Mitchell William; Muysken Joan (METEOR) |
| Abstract: | This paper briefly analyses the shifts in economic theory that have moved policy makers from unambiguously pursuing full employment, to the current state where full employability is justified as being optimal. We also explore how these theoretical developments translated in practice, culminating in the 1994 OECD Jobs Study which eschewed a role for macroeconomic policy in reducing unemployment. The final sections of the paper outline an alternative view of macroeconomic theory and policy opportunities. We argue that a central plank in modern macroeconomic policy settings should be the introduction of employment guarantees, which we term the Job Guarantee (JG). |
| Keywords: | Economics (Jel: A) |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umamet:2009006&r=mac |
| By: | Joseph G. Altonji; Anthony Smith; Ivan Vidangos |
| Abstract: | In this paper we use indirect inference to estimate a joint model of earnings, employment, job changes, wage rates, and work hours over a career. Our model incorporates duration dependence in several variables, multiple sources of unobserved heterogeneity, job-specific error components in both wages and hours, and measurement error. We use the model to address a number of important questions in labor economics, including the source of the experience profile of wages, the response of job changes to outside wage offers, and the effects of seniority on job changes. We provide estimates of the dynamic response of wage rates, hours, and earnings to various shocks and measure the relative contributions of the shocks to the variance of earnings in a given year and over a lifetime. We find that human capital accounts for most of the growth of earnings over a career although job seniority and job mobility also play significant roles. Unemployment shocks have a large impact on earnings in the short run as well a substantial long long-term effect that operates through the wage rate. Shocks associated with job changes and unemployment make a large contribution to the variance of career earnings and operate mostly through the job-specific error components in wages and hours. |
| JEL: | D31 E21 J3 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14743&r=mac |
| By: | Olli Castrén (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main.); Trevor Fitzpatrick (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main.); Matthias Sydow (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | In terms of regulatory and economic capital, credit risk is the most significant risk faced by banks. We implement a credit risk model - based on publicly available information - with the aim of developing a tool to monitor credit risk in a sample of large and complex banking groups (LCBGs) in the EU. The results indicate varying credit risk profiles across these LCBGs and over time. Furthermore, the results show that large negative shocks to real GDP have the largest impact on the credit risk profiles of banks in the sample. Notwithstanding some caveats, the results demonstrate the potential value of this approach for monitoring financial stability. JEL Classification: C02, C19, C52, C61, E32. |
| Keywords: | Portfolio credit risk measurement, stress testing, macroeconomic shock measurement. |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:200901002&r=mac |
| By: | Chollete, Lorán (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration) |
| Abstract: | What drives extreme economic events? Motivated by recent theory, and events in US subprime markets, we begin to open the black box of extremes. Specifically, we extend standard economic analysis of extreme risk, allowing for dynamics and endogeneity. We explain how endogenous extremes may arise in an economy of individuals who engage in resource transfers. Our model suggests that susceptibility to extremes depends on differences in marginal substitution rates. Using over a century of daily stock price data, we construct empirical probabilities of extremes, and document interesting dynamic behavior. We find evidence that extremes are endogenous. This latter finding raises the possibility that control of extremes is a public good, and that extreme events may be an important market failure for regulators and central banks to correct. |
| Keywords: | Extreme Event; Subprime Market; Dynamics; Endogeneity; Public Good; Central Bank Policy |
| JEL: | C10 D62 E44 E51 G18 H23 H41 |
| Date: | 2009–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2008_025&r=mac |
| By: | Jesús Fernández-Villaverde (Department of Economics, University of Pennsylvania) |
| 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. |
| Keywords: | DSGE Models, Likelihood Estimation, Bayesian Methods |
| JEL: | C11 C13 E30 |
| Date: | 2009–01–19 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:09-008&r=mac |
| By: | Taisuke Uchino |
| JEL: | E51 E52 |
| Date: | 2009–01 |
| URL: | http://d.repec.org/n?u=RePEc:hst:ghsdps:gd08-027&r=mac |
| By: | Popa, Catalin C. |
| Abstract: | The U.S. sub-prime crise developed in the last few months as a dangerous syncope for the entire international financial system, recall for the rethinking of market functionality, revealing the international institutional weakness in financial system supervision on global scale. The mortgage volatility induced by the international dereglementation and derivates contemporary burst, correlated with a relaxed supervision framework, transformed progressively the credit market into a system “bubble”, making possible the distortion of real estates values toward those levels forced by creditors. Throughout a weakness chain, many financial institutions, determined by a savage competition on this sector, left away the prudence and borrowed money from different investors, guarantying the long terms transactions, with short time derivates from speculative short-term market, supplying the bubble. In this context, the paperwork is meant to recall for reinventing the risks models, so that the crises to be anticipated earlier than its development moment. |
| Keywords: | globalization; financial crise; global economy; monetary system; international management |
| JEL: | F59 E52 F41 G32 F36 |
| Date: | 2008–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:13368&r=mac |
| By: | Leandro M. Magnusson (Department of Economics, Tulane University); Sophocles Mavroeidis (Department of Economics, Brown University) |
| Abstract: | Limited-information identification-robust methods on the indexation and price rigidity parameters of the new Keynesian Phillips curve yield very wide confidence intervals. Full-information methods impose more restrictions on the reduced-form dynamics, and thus make more efficient use of the information in the data. We propose identification-robust minimum distance methods for exploiting these additional restrictions and show that they yield considerably smaller confidence intervals for the coefficients of the model compared to their limited-information GMM counterparts. In contrast to previous studies that used GMM, we find evidence of partial but not full indexation, and we obtain sharper inference on the degree of price stickiness. |
| Keywords: | weak identification, minimum distance, GMM, Phillips curve |
| JEL: | C22 E31 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:0904&r=mac |
| By: | Zagaglia, Paolo (Dept. of Economics, Stockholm University) |
| Abstract: | I study the dynamics of oil futures prices in the NYMEX using a large panel dataset that includes global macroeconomic indicators, financial market indices, quantities and prices of energy products. I extract common factors from these series and estimate a Factor-Augmented Vector Autoregression for the maturity structure of oil futures prices. I find that latent factors generate information that, once combined with that of the yields, improves the forecasting performance for oil prices. Furthermore, I show that a factor correlated to purely financial developments contributes to the model performance, in addition to factors related to energy quantities and prices. |
| Keywords: | Crude Oil; Futures Markets; Factor Models |
| JEL: | C53 D51 E52 |
| Date: | 2009–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sunrpe:2009_0007&r=mac |
| By: | Coccia Mario (Ceris - Institute for Economic Research on Firms and Growth, Moncalieri (Turin), Italy) |
| Abstract: | Governments in modern economies devote much policy attention to enhancing productivity and continue to emphasize its drivers such as investment in R&D. This paper analyzes the relationship between productivity growth and levels of public and private R&D expenditures. The economic analysis shows that the magnitude of R&D expenditure by business enterprise equal to 1.58% (% of GDP) and R&D expenditure of government and higher education of 1.06 (% of GDP) maximize the long-run impact on productivity growth. These optimal rates are the key to sustain productivity and technology improvements that are more and more necessary to modern economic growth. |
| Keywords: | R&D investment, Productivity growth, Optimization |
| JEL: | E60 H50 O40 O57 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:csc:cerisp:200805&r=mac |
| By: | Jin Feng; Lixin He; Hiroshi Sato |
| Abstract: | We relate household saving to pension reform, to explain the high household saving rates in urban China from a new perspective. We use the exogenous-policy induced-variation in pension wealth to explicitly estimate the impact of pension wealth on household saving, and obtain a significant offset effect of pension wealth on household saving. Our estimations show that pension reform boosted the household saving rate in 1999 by about 6 percentage points for cohort aged 25-29 and by about 3 percentage points for cohort aged 50-59. Our results also indicate that declining pension wealth reduces expenditure on education and health more than on other consumption items. |
| Keywords: | pension reform, pension wealth, household saving rate, urban China |
| JEL: | E21 H55 P43 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:hst:ghsdps:gd08-030&r=mac |
| By: | Azomahou, Theophile (UNU-MERIT); Diene, Bity (CREA, University of Luxembourg); Soete, Luc (UNU-MERIT, Maastricht University) |
| Abstract: | We study the behavior of consumption and health investment resulting from shocks undermining health capital accumulation. We examine the effects on subsequent life cycle of long-lived shocks undermining health with either an acceleration of health capital deterioration, or a decrease in health investment efficiency. We also address the issue of the financing of health investment. We provide new evidence based on nonparametric estimations which show complex non-linear interplay between life expectancy and health expenditure. We then develop a benchmark model where consumption and health capital enter additively in the utility function, featuring independence between the returns from ordinary consumption and health. Then, we depart from this setup by assuming non-additive preferences meaning that ordinary consumption also is crucial for health. We show that a shock undermining health which increases health expenditures and weakens the income base, not only affects savings but also compromises the consumption capacity, the human and physical capital of the economy, and undercuts the process of economic development. We also show that the magnitude of the effects strongly depends on the assumed preferences. |
| Keywords: | consumption, health investments, savings, non-parametric estimation |
| JEL: | E21 I12 O10 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:unumer:2009006&r=mac |
| By: | Gautam Gowrisankaran; Marc Rysman |
| Abstract: | This paper specifies and estimates a dynamic model of consumer preferences for new durable goods with persistent heterogeneous consumer tastes, rational expectations about future products and repeat purchases over time. Most new consumer durable goods, particularly consumer electronics, are characterized by relatively high initial prices followed by rapid declines in prices and improvements in quality. The evolving nature of product attributes suggests the importance of modeling dynamics in estimating consumer preferences. We estimate the model on the digital camcorder industry using a panel data set on prices, sales and characteristics. We find that dynamics are a very important determinant of consumer preferences and that estimated coefficients are more plausible than with traditional static models. We use the estimates to evaluate cost-of-living indices for new consumer goods and dynamic demand elasticities. |
| JEL: | C23 E31 L1 L13 L68 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14737&r=mac |
| By: | Gabriella Berloffa; Francesca Modena |
| Abstract: | Using the Indonesian Family Life Survey, this study investigates whether Indonesian farmers respond differently to income shocks (crop loss) depending on the level of their asset ownership, and whether their responses are aimed at preserving consumption levels or at accumulating assets. We consider a framework in which assets contribute directly to the income generation process. In this context the need to accumulate assets to ensure future income may lead poor farmers (those with a low level of productive assets) to behave quite differently in terms of both their responses to shocks and their consumption decisions. For them transitory shocks may have long term consequences when the income loss leads to changes in their asset investment decisions. Our results suggest that while non-poor farmers smooth consumption relative to income, poor households use labor supply to compensate the income loss and, on average, they save half of this extra income. These results confirm the importance of savings for poor households, and highlight a crucial role for policies that support savings or, more precisely, the accumulation of productive assets. |
| Keywords: | income shocks, consumption smoothing, asset smoothing |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:trn:utwpde:0901&r=mac |
| By: | Xu, Yingfeng (University of Alberta, Department of Economics); Yan, Xiaoyi (Department of Human Resources and Social Development Canada) |
| Abstract: | It is widely accepted that China needs to shift from its past mode of export-led growth and start to rely more on domestic demand. What role could the real appreciation of the Chinese yuan play in this regard? We attempt to quantify the impact on the structure of the Chinese economy of the real appreciation of the Chinese yuan. We argue that the potential of the service sector to generate income and jobs may be significantly under-estimated by official statistics, as a result of the under-estimation of household consumption of services. While there is no evidence of large under-valuation for the Chinese yuan, we do find that a real appreciation in the order of 20% would bring the Chinese price level in line with the world average level, after the Balassa-Samuelson effect is factored in. In turn, such a real appreciation could increase the service share of employment by 7%. |
| Keywords: | China; real exchange rate; service sector |
| JEL: | E01 E21 F31 O53 |
| Date: | 2009–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2009_011&r=mac |
| By: | Popa, Catalin C. |
| Abstract: | Over viewing the most recently evolutions throughout global economy, we can easily conceive that the collateral effects of economical globalization and market integration, represents the main issues debated in specialized professional or political circles. The unanimous impression underlines the fact that integration in contemporary global market development exceeded too much and to profound the conceptual frame formulated as work hypothesis for the beginning of ’80’s the realities evolving radically uncontrolled. In this case, the free capital global running is no longer a factor for market equilibrium as “market fundamentalists” predicted, financial integration as global process creating and forcing gradually the market bubbles in lack of an efficient frame of global supervision. In this context, the international effort should be oriented toward remodeling the fundamental global structures implicated in globalization process. |
| Keywords: | monetary system; financial system; globalization; global economy; international finance |
| JEL: | F42 E66 F02 F53 E60 |
| Date: | 2008–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:13367&r=mac |
| By: | Helmuts Azacis (Cardiff Business School); Max Gillman (Cardiff Business School, Institute of Economics - Hungarian Academy of Sciences) |
| Abstract: | The paper presents an endogenous growth economy with a representation of the tax rate system in the Baltic countries. Assuming that government spending is a given fraction of output, the papershows how a flat tax system balanced between labor and corporate tax rates can be second best optimal. It then computes how actual Baltic tax reforms from 2000 to 2007 affect the growth rate and welfare, including transition dynamics. Comparing the actual reform effects to hypothetical tax experiments, it results that equal flat tax rates on personal and corporate income would have increased welfare in all three Baltic countries by 24% more on average than the actual reforms. This shows how equal, balanced, flat rate taxes can be optimal in both theory and practice. Further, movement towards a more equal balance between labor and capital tax rates, through changing just one tax rate, achieved almost as high or higher utility gains as in actual law for all three countries under both open and closed economy cases. This shows benefits of moving towards the optimum. |
| Keywords: | tax reform, endogenous growth, transitional dynamics, flat taxes |
| JEL: | E13 H20 O11 O14 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:0825&r=mac |
| By: | Popa, Catalin C. |
| Abstract: | Over viewing the most recently evolutions throughout global economy, we can easily conceive that the collateral effects of economical globalization and market integration, represents the main issues debated in specialized professional or political circles. The first step toward regain the global markets functionality is to review as a sine-qua-non condition, the institutional and functional structure of financial system and global economy system as well. In such context, this paperwork is meant to propose a new architecture of economies’ typology, reflecting in fact the most recently particularities of markets’ function. The criteria took under consideration has been the relevancy related to commercial and financial flows. Even the parameters presented here are quite abstracts in lack of detailed statistical data are important to reflect the new causality tied between economies in the new context of globalization. |
| Keywords: | monetary system; global economy |
| JEL: | E0 F02 F41 |
| Date: | 2009–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:13364&r=mac |
| By: | Kamila Fialová (Komerční Banka, Prague; Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Martina Mysíková (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Institute of Sociology of the Academy of Sciences, Prague) |
| Abstract: | This paper aims to quantify the impact of the minimum wage on labour market performance in the Czech Republic. Using regional data for 1995-2004, it estimates the effect of the minimum wage adjusted for regional wage differential on the regional unemployment. Consequently, using detail individual data from 2004/2005, we analyze the annual hikes in the minimum wage that allow us to estimate employment probabilities for workers with wage level at, or close to, the new minimum wage. The aim is to reveal whether the most endangered groups of workers exhibited significantly different employment probabilities. Our results reveal that the minimum wage has had a significant impact on increasing regional unemployment and reducing the employment probabilities of low-paid workers. |
| Keywords: | minimum wage, employment probability, unemployment |
| JEL: | E24 J38 J64 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2009_06&r=mac |
| By: | Silvia Ardagna; Annamaria Lusardi |
| Abstract: | We use two micro data sets that collect harmonized data across countries to investigate the effects of regulation on new businesses. We are able to distinguish between two types of entrepreneurs: those who start a business to pursue a business opportunity and those who start a business because they could not find better work. Irrespective of the measure of regulation we use, we always find a detrimental effect of regulation on entrepreneurship. While women are overall less likely to start new businesses, in more regulated countries women are pulled into entrepreneurship not to pursue a business opportunity but because they could not find better work. Moreover, regulation dampens the effects of self-assessed business skills and social networks. In more regulated economies, those with better business skills and those who know other entrepreneurs are less likely to become entrepreneurs to pursue a business opportunity. Tighter regulation also exacerbates fear of failure, further discouraging business start-up. All our estimates point to a negative effect of regulation. |
| JEL: | E0 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14747&r=mac |
| By: | Viktors Ajevskis; Gundars Davidsons |
| Abstract: | The study aims at evaluating how useful the application of models using large panels of data in forecasting Latvia's GDP is. Two factor models have been used: the Stock-Watson factor model and the generalised dynamic factor model. The forecast findings by the two models have been compared with the results obtained by the benchmark autoregressive model. The results suggest that compared with simpler autoregressive models both the Stock-Watson factor model and the generalised dynamic factor model ensure forecast improvement, which, however, has not been statistically significant if statistical tests are used. |
| Keywords: | forecasting, factor models, large cross section |
| JEL: | C32 C33 E53 |
| Date: | 2008–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:ltv:wpaper:200802&r=mac |
| By: | Graziella Bertocchi; Marianna Brunetti; Costanza Torricelli |
| Abstract: | We study the joint impact of gender and marital status on financial decisions. First, we test the hypothesis that marriage represents - in a portfolio framework - a sort of safe asset, and that this effect is stronger for women. Controlling for a number of observable characteristics, we show that single women have a lower propensity to invest in risky assets than married females and males. Second, we show that the differential behavior of single women evolves over time, reflecting the increasing incidence of divorce and the expansion of female labor market participation. In particular, towards the end of our sample period, we observe a reduction in the gap between women with different family status, which can be attributed to the gradual erosion of the perception of marriage as a sort of safe asset. Our results therefore suggest that the differential behavior of single vs. married women is explained more accurately by the evolution of gender roles in society, rather than by exogenous and time invariant risk attitudes. Our empirical investigation is based on a dataset drawn from the 1989-2006 Bank of Italy Survey of Household Income and Wealth. |
| Keywords: | portfolio choice; marriage; divorce; labor force participation |
| JEL: | G11 E21 J12 J21 |
| Date: | 2008–12 |
| URL: | http://d.repec.org/n?u=RePEc:mod:depeco:0606&r=mac |
| By: | Douglas W. Diamond; Raghuram Rajan |
| Abstract: | What caused the financial crisis that is sweeping across the world? What keeps asset prices and lending depressed? What can be done to remedy matters? While it is too early to arrive at definite answers to these questions, it is certainly time to offer informed conjectures, and these are the focus of this paper. |
| JEL: | E52 F33 G21 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14739&r=mac |
| By: | Kitov, Ivan |
| Abstract: | A microeconomic model is developed, which accurately predicts the shape of personal income distribution (PID) in the United States and the evolution of the shape over time. The underlying concept is borrowed from geo-mechanics and thus can be considered as mechanics of income distribution. The model allows the resolution of empirical and definitional problems associated with personal income measurements. It also serves as a firm fundament for definitions of income inequality as secondary derivatives from personal income distribution. It is found that in relative terms the PID in the US has not been changing since 1947. Effectively, the Gini coefficient has been almost constant during the last 60 years, as reported by the Census Bureau. |
| Keywords: | personal income; modelling; mechanics; the US |
| JEL: | D31 E01 C81 D01 O12 |
| Date: | 2009–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:13422&r=mac |