nep-mac New Economics Papers
on Macroeconomics
Issue of 2009‒05‒02
sixty-four papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. On the role of money growth targeting under inflation targeting regime. By Meixing DAI
  2. Monetary and Fiscal Policy Options for Dealing with External Shocks: Insights from the GIMF for Colombia By Daniel Leigh; Enrique Flores; Benedict J. Clements
  3. The role of house prices in the monetary policy transmission mechanism in small open economies By Hilde C. Bjørnland; Dag Henning Jacobsen
  4. Central Bank Preferences, Distribution Forecasts and Economic Stability in a Small Open-economy By Alessandro Flamini
  5. A New Keynesian Model of the Armenian Economy By Ara Stepanyan; Ashot Mkrtchyan; Era Dabla-Norris
  6. Locked-in and Sticky Textbooks: Mainstream Teaching of the Money Supply Process By Boermans, Martijn Adriaan; Moore, Basil J
  7. Is Nigeria Ready for Inflation Targeting? By Aliyu, Shehu Usman Rano; Englama, Abwaku
  8. Long waves and short cycles in a model of endogenous financial fragility By Soon Ryoo
  9. The Macroeconomic Effects of Fiscal Policy in Portugal: a Bayesian SVAR Analysis By António Afonso and Ricardo M. Sousa
  10. Household’s Preferences and Monetary Policy Inertia By Alessandro Flamini; Andrea Fracasso
  11. Commodity Price Volatility, Cyclical Fluctuations, and Convergence: What is Ahead for Inflation in Emerging Europe? By Edda Zoli
  12. Fiscal and Monetary Policy During Downturns: Evidence from the G7 By Daniel Leigh; Sven Jari Stehn
  13. Monetary Targeting in Pakistan: A Skeptical Note By Saqib, Omar F; Omer, Muhamad
  14. The Implementation of SNB Monetary Policy By Thomas Jordan; Angelo Ranaldo; Paul Soderlind
  15. Inflation Differentials in the Euro Area and Their Determinants - An Empirical View By Václav Zdárek; Juan Ignacio Aldasoro
  16. Macroeconomic Interdependence in a Two-Country DSGE Model under Diverging Interest-Rate Rules By Ulrich Gunter; Harald Fadinger; Stefan Berger
  17. Business Cycles in the Euro Area Defined with Coincident Economic Indicators and Predicted with Leading Economic Indicators By Ataman Ozyildirim; Brian Schaitkin; Victor Zarnowitz
  18. The Bank Lending Channel: a FAVAR Analysis By Chetan Dave; Scott J. Dressler; Lei Zhang
  19. Transmission Channels Linking Real Estate Shocks with Macroeconomic Performance: Evidence from Malaysia By Hon-Chung Hui
  20. Fiscal Taylor Rules in the Postwar United States By Christopher Reicher
  21. Business cycle causation relations for Mercosur countries By Francesco Grigoli
  22. Fiscal Policy under Imperfect Competition: A Survey By Luís F. Costa and Huw Dixon
  23. The real exchange rate in sticky-price models: does investment matter? By Martinez-Garcia, Enrique; Sondergaard, Jens
  24. Assessing Inflationary Pressures in Colombia By Hernando Vargas; Andrés González; Eliana González; Jose Vicente Romero
  25. Variety of economic judgment and monetary policy-making by committee By Sheila Dow; Matthias Klaes; Alberto Montagnoli
  26. The Role of Media for Inflation Forecast Disagreement of Households and Professionals By Thomas Maag; Michael J. Lamla
  27. Developing a Structured Forecasting and Policy Analysis System to Support Inflation-Forecast Targeting (IFT) By Douglas Laxton; David Rose; Alasdair Scott
  29. Fiscal Behaviour in the European Union: Rules, Fiscal Decentralization and Government Indebtedness By António Afonso and Sebastian Hauptmeier
  30. Capital Inflows: Macroeconomic Implications and Policy Responses By M. Ayhan Kose; Selim Elekdag; Roberto Cardarelli
  31. Life cycle of products and cycles. By Jean De Beir; Mouez Fodha; Francesco Magris
  32. National and International Business Cycle Effects of Housing Crises By Nils Jannsen
  33. Financial Market Participation and the Developing Country Business Cycle By Huseyin Murat Ozbilgin
  34. A win-win measure out of the crisis: A graphical discussion of the tax void By Colignatus, Thomas
  35. Assessing Long-Term Fiscal Developments: a New Approach By António Afonso, Luca Agnello, Davide Furceri and Ricardo M. Sousa
  36. Accounting for Output Drops in Latin America By Ruy Lama
  37. Price flexibility and full employment: a common misconception By Roy H Grieve
  38. From Subprime Loans to Subprime Growth? Evidence for the Euro Area By Martin Cihák; Petya Koeva Brooks
  39. Pitfalls in Estimating Asymmetric Effects of Energy Price Shocks By Kilian, Lutz; Vigfusson, Robert J.
  40. A Primer on Fiscal Analysis in Oil-Producing Countries By Daria Zakharova; Paulo A. Medas
  41. Forces Driving Inflation in the New EU10 Members By Emil Stavrev
  42. Financial Stability Frameworks and the Role of Central Banks: Lessons from the Crisis By Erlend Nier
  43. Monetary Policy Challenges for Emerging Market Economies By Hammond, Gill; Kanbur, Ravi; Prasad, Eswar
  44. Fiscal Rules in a Highly Distorted Economy By L. Marrattin; M. Marzo
  45. The impact of commodity price rises on consumers' food price inflation: Differences among income groups By Stavros Zografakis; Demetrios Damianos; Yiorgos Alexopoulos
  46. Three Epochs of Oil By Eyal Dvir; Kenneth S. Rogoff
  47. Stock Market Returns and Partisan Political Business Cycles By James Cooley
  48. Bringing Growth Theory "Down to Earth" By Lopez, Ramon; Stocking, Andrew
  49. Endogenous technological progress and the cross section of stock returns By Lin, Xiaoji
  50. Risk, Uncertainty and Expectation as language game categories: - what we can still learn from Keynes By Mário Gómez
  51. Credit Market in Morocco: A Disequilibrium Approach By Nada Oulidi; Laurence Allain
  52. One or Two Monies? By Janet Hua, Jiang; Mei, Dong
  53. Non-Existence of Competitive Equilibria with Dynamically Inconsistent Preferences By Gabrieli, Tommaso; Ghosal, Sayantan
  54. An Incentive Theory of Matching By Brown, Alessio J G; Merkl, Christian; Snower, Dennis J.
  55. The Global Financial Crisis and Short-run Prospects for India By Raghbendra Jha
  56. The taxation of capital returns in overlapping generations economies without financial assets. By Julio Davila
  57. The political economy of fiscal deficits and government production By Gisle James Natvik
  58. Câmbio e crescimento: teoria e implicações de política econômica By Fabricio J. Missio; Bernardo P. Schettini; Frederico G. Jayme Jr
  59. The Taxation and Accountancy of Luncheon Voucher By Ciumag, Marin
  61. Wage and (Un-)Employment Effects of an Ageing Workforce By Jochen Michaelis; Martin Debus
  62. Labour market flows: facts from the United Kingdom By Gomes, Pedro
  63. Globalization Dynamics in Latin America: South Cone and Iberian Investments By Mário Gómez, Cezar Guedes
  64. Does Financial Deepening Improve Income Distribution? A Dynamic Panel Analysis on Developing Countries By Hui-Boon Tan; Siong-Hook Law

  1. By: Meixing DAI
    Abstract: The mainstream inflation-targeting literature makes the strong assumption that the central bank can exactly target the interest rate which affects investment and consumption decisions and hence the money supply plays no role in the monetary policy strategy. This assumption is equivalent to admitting the perfect credibility of inflation target announced by the central bank, the perfect functioning of money and financial markets and that the central bank is willing to inject as much liquidity as the economic agents demand. Neither of these assumptions corresponds to the reality. In effect, the inflation expectations can not be easily anchored by the cheap talk of central bankers. On the other hand, the central bank may have many difficulties to target, in a context of financial instability, the interest rates which affect the real and financial decisions of private agents. We suggest that under inflation-targeting regime, money and credit markets vehicle the inflation expectations that can be anchored with a well-specified feedback money growth rule. The latter, in contrast to the Friedman’s k percent money growth rule, can help managing the inflation expectations in a manner to guarantee the dynamic stability of the economy. Furthermore, the model can be easily used to discuss the implications of the zero interest rate policy and the quantitative easing policy.
    Keywords: Interest rate rule, imperfect money and credit markets, inflation targeting, monetary targeting, inflation expectations, Friedman’s k percent money growth rule, feedback money growth rule, macroeconomic stability, zero interest rate policy, quantitative easing policy.
    JEL: E43 E44 E51 E52 E58
    Date: 2009
  2. By: Daniel Leigh; Enrique Flores; Benedict J. Clements
    Abstract: This paper utilizes an open-economy New Keynesian overlapping generations model, the Global Integrated Monetary and Fiscal Model (GIMF), to assess the macroeconomic effects of external shocks and the impact of various monetary and fiscal policy responses. The simulations assess the effect of shocks to trade, world income, and risk premia for public debt. The results suggest that under Colombia’s inflation targeting regime, which incorporates exchange rate flexibility and a highly responsive monetary policy, the economy is well poised to adjust to different external shocks. They also suggest that the potential role of fiscal policy in responding to shocks depends critically on financing conditions.
    Keywords: Monetary policy , Fiscal policy , External shocks , Colombia , Inflation targeting , Flexible exchange rates , Economic models ,
    Date: 2009–03–19
  3. By: Hilde C. Bjørnland (Norwegian School of Management and Norges Bank (Central Bank of Norway)); Dag Henning Jacobsen (Norges Bank (Central Bank of Norway))
    Abstract: We analyse the role of house prices in the monetary policy transmission mechanism in Norway, Sweden and the UK using structural VARs. A solution is proposed to the endogeneity problem of identifying shocks to interest rates and house prices by using a combination of short-run and long-run (neutrality) restrictions. By allowing the interest rate and house prices to react simultaneously to news, we find the role of house prices in the monetary transmission mechanism to increase considerably. In particular, house prices react immediately and strongly to a monetary policy shock. Furthermore, the fall in house prices seem to enhance the negative response in output and consumer price inflation that has traditionally been found in the conventional literature. Moreover, we find that the interest rate respond systematically to a change in house prices.
    Keywords: VAR, monetary policy, house prices, identification
    JEL: C32 E52 F31 F41
    Date: 2009–04–27
  4. By: Alessandro Flamini (Department of Economics, The University of Sheffield)
    Abstract: This paper relates the central bank's preferences on the inflation index and on the degree of smoothness of the interest rate to the quality of its forecasts and the expected perturbing impact of several shocks. The framework is a Markov jump-linear-quadratic system for optimal policy with model uncertainty in a timeless perspective. Comparing CPI and domestic inflation targeting, the latter implies considerably less variability in the distribution forecast of the economic dynamics. Furthermore, domestic inflation targeting stands out for much less sensitiveness to interest rate smoothing, and for resulting in more expected economic stability. Importantly, domestic inflation targeting allows significantly improving the prediction accuracy of the interest rate behaviour.
    Keywords: Inflation targeting; additive and multiplicative uncertainty; Markov jump linear quadratic systems; small open-economy; optimal monetary policy; central bank preferences
    JEL: E52 E58 F41
    Date: 2009–03
  5. By: Ara Stepanyan; Ashot Mkrtchyan; Era Dabla-Norris
    Abstract: This paper develops a small open economy dynamic stochastic general equilibrium (DSGE) model of the Armenian economy. The structure of the model is largely motivated by recent developments in DSGE modeling, with key extensions to incorporate specific structural characteristics of the Armenian economy. The resultant model can be used to simulate monetary policy paths and help analyze the robustness of policy conclusions. The paper tests the model’s properties on Armenian data, demonstrating that the main stylized features relevant for monetary policy making are well captured by the model.
    Keywords: Monetary policy , Armenia , Inflation targeting , Business cycles , Inward remittances , Transfers of foreigners income , Exchange rate appreciation , Economic models ,
    Date: 2009–03–30
  6. By: Boermans, Martijn Adriaan; Moore, Basil J
    Abstract: Current macro-economic textbooks provide a fatally misleading description of the money supply process in modern economies. Over the past 20 years Post Keynesian authors have established conclusively that despite strictly-enforced cash reserve requirements, changes in the supply of bank deposits are not determined exogenously by central bank open market operations, but are endogenously determined by changes in bank borrowers’ demand for credit. Nevertheless the vast majority of undergraduate macroeconomic textbooks continue to teach the high-powered-base “money-multiplier” paradigm that the supply of money is exogenously determined by the central bank. Few texts recognize that interest rate targeting renders the high-powered base endogenous. This paper summarizes the extent mainstream macroeconomic textbooks are “locked in” and “sticky,” and fail both in the teaching of monetary policy and in proper scientific discourse.
    Keywords: macroeconomic textbooks; money supply; endogenous money paradigm; EMP; Post Keynesian economics; paradigm shift
    JEL: E12 E51 A20 I21 E58 E52 E41 A14 B5
    Date: 2008–11
  7. By: Aliyu, Shehu Usman Rano; Englama, Abwaku
    Abstract: This paper evaluates whether Nigeria is ready to adopt inflation targeting (IT), a monetary policy framework that several emerging markets have adopted over the last one decade. The paper reviewed literature on selected conditions for successful implementation of IT and then focused on whether one specific precondition of an empirically stable monetary transmission mechanism is tenable. Vector autoregressive (VAR) model was applied using select monetary policy and other macroeconomic variables to explore the various channels using the Granger causality tests, impulse responses, and variance decompositions. Results showed that inflation in Nigeria is impassive to monetary transmission variables in the model. Specifically, weak link between prices and credit and interest rate channels were established. However, evidence of strong inverse link between exchange rate and prices was found in the model. This suggests exchange rate pass-through on the level of prices in the economy. The paper, therefore, recommends the pursuance of IT lite in Nigeria.
    Keywords: Inflation targeting; vector autoregressive model; Granger causality test; monetary transmission mechanism; exchange rate pass-through.
    JEL: E31 E37
    Date: 2009–01–03
  8. By: Soon Ryoo (University of Massachusetts, Amherst)
    Abstract: This paper presents a stock-flow consistent macroeconomic model in which fi- nancial fragility in firm and household sectors evolves endogenously through the interaction between real and financial sectors. Changes in firms’ and households’ financial practices produce long waves. The Hopf bifurcation theorem is applied to clarify the conditions for the existence of limit cycles, and simulations illustrate stable limit cycles. The long waves are characterized by periodic economic crises following long expansions. Short cycles, generated by the interaction between effective demand and labor market dynamics, fluctuate around the long waves. JEL Categories: E12, E32, E44
    Keywords: cycles, long waves, financial fragility, stock-flow consistency
    Date: 2009–04
  9. By: António Afonso and Ricardo M. Sousa
    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: 2009–03
  10. By: Alessandro Flamini (Department of Economics, The University of Sheffield); Andrea Fracasso
    Abstract: The estimation of monetary policy rules suggests that the interest rates set by central banks move with a certain inertia. Although a number of hypotheses have been suggested to explain this phenomenon, its ultimate origin is unclear, thus delineating this issue as a modern "puzzle" in monetary economics. We show that household's preferences can play an important role in determining optimal interest rate inertia. Importantly, this can occur even when the central bank has negligible preferences for smoothing the interest rate.
    Keywords: Optimal monetary policy; interest rate smoothing; household's preferences
    JEL: E52 E58
    Date: 2009–02
  11. By: Edda Zoli
    Abstract: This paper assesses the role of international commodity prices, cyclical fluctuations, and convergence in driving inflation in 18 European emerging economies. Country specific VARs and panel estimates indicate that international commodity price shocks have a significant impact on domestic inflation, but the inflation response is asymmetric for positive and negative shocks. Cyclical fluctuations explain a relative small share of inflation variability, and the inflation response is asymmetric during upturns and downturns. Price convergence is estimated to add nearly 3 percentage points to headline inflation, for the average country whose price level is about 50 percent relative to the EU-15 average.
    Keywords: Commodity prices , Emerging markets , Commodity price fluctuations , Inflation , Economic models , Time series , Cross country analysis ,
    Date: 2009–03–17
  12. By: Daniel Leigh; Sven Jari Stehn
    Abstract: This paper analyzes how fiscal and monetary policy typically respond during downturns in G7 countries. It evaluates whether discretionary fiscal responses to downturns are timely and temporary, and compares the response of fiscal policy to that of monetary policy. The results suggest that while responding more weakly and less quickly than monetary policy, discretionary fiscal policy is more timely than conventional wisdom would suggest, particularly in “Anglo-Saxon†countries, but the response differs substantially across fiscal instruments. Both fiscal and monetary policy are found to be subject to an easing bias, with more easing during downturns than tightening during upturns; and liable to easing in response to erroneously perceived downturns, many of which are subsequently revised to expansions.
    Keywords: Fiscal policy , Group of seven , Monetary policy , Government expenditures , Revenues , Economic stabilization , Economic models , Cross country analysis ,
    Date: 2009–03–19
  13. By: Saqib, Omar F; Omer, Muhamad
    Abstract: The objective of this study is to evaluate monetary targeting strategy in Pakistan by testing the Quantity Theory of Money and the income velocity of money stated by Monetarists and the endogenous money hypothesis postulated by the Post Keynesians. Our tests on the Pakistani data covering about thirty years reveal that the quantity theory is an inadequate explanation of inflation, income velocity of money is unstable, and money is endogenous. These results suggest rethinking on monetary targeting strategy in Pakistan.
    Keywords: Monetary Targeting; QTM; Income Velocity of Money; Endogenous Money
    JEL: E58 E52 E5
    Date: 2008–06–05
  14. By: Thomas Jordan; Angelo Ranaldo; Paul Soderlind
    Abstract: We use a regime switching approach to model the implementation of the SNB monetary policy. The regime switching technique is crucial to assess the flexibility inherent in the SNB's monetary policy concept. The empirical findings support the idea that repo operations are instrumental in smoothing the implementation of monetary policy in normal times while changes in the official operational target accompanied by the accommodating use of repo operations produce the aimed effects in distressed periods. A significant contribution also came from some new measures designed to improve liquidity in the Swiss franc money market during the financial crisis in 2007- 8.
    Keywords: implementation of monetary policy, Libor, repo, Swiss franc money market, regime switching model
    JEL: E5 G15
    Date: 2009–04
  15. By: Václav Zdárek; Juan Ignacio Aldasoro
    Abstract: In this paper, we present evidence on the statistical features of observed dispersion in HICP inflation rates in the Euro area. Our descriptive exercise shows that there is still a remarkable dispersion of HICP inflation rates across the member countries. We find that most of dispersion originates in the non-traded categories of the HICP. This suggests that the main source of dispersion in countries’ headline inflation rates is in those components of the HICP where non-traded goods (services, (public) goods with regulated and administered prices) are more intensely represented. We then examine the determinants of inflation differentials in a panel of the states of the Euro area in 1999–2007 using alternative classifications of this group and three different datasets. The evidence presented shows that output gaps and a proxy for price level convergence were statistically significant. On the other hand, some determinants that were found significant in previous studies (for example Honohan and Lane 2003, 2004; ECB, 2003) has no impact on inflation in our expanded time span (e.g. exchange rate movements) The dispersion of HICP inflation is expected to increase in the coming years as the new EU member states will join the Euro area. There are some risks for these countries connected with the common monetary policy, which is adjusted more to the conditions of stabilized advanced economies forming the core of the Euro area. This creates potential problems for the EU common monetary policy (ECB), in particular negative (positive) interest rates, their repercussions on investment processes, consumption and the possibility of creating asset bubbles.
    Keywords: inflation differentials, price convergence, exchange rate, panel data
    JEL: C23 E31 F15 F41
    Date: 2009–03
  16. By: Ulrich Gunter; Harald Fadinger; Stefan Berger
    Abstract: The present article extends a variant of the Obstfeld/Rogoff (2001) two-country DSGE model by introducing Calvo (1983) pricing. It is possible to collapse the model into a canonical log-linear representation consisting of two dynamic IS and two New Keynesian Phillips curves. Re°ecting the di®ering statutes of the ECB and the Fed, two diverging interest-rate rules are introduced. For a sensible calibration of the model we can derive a locally unique rational expectations equilibrium. Furthermore, we ¯nd that aggregate productivity shocks, which are assumed to be positively correlated across countries, have a negative impact on domestic and foreign output, a phenomenon already described for the closed economy by Gal¶³ (2002). Cost-push as well as contractionary monetary policy shocks, which are assumed to be country-speci¯c, also have a negative impact on domestic and foreign output since the economies are interdependent due to terms-of-trade externalities. Contrary to Corsetti/Pesenti (2001), expansionary monetary policy shocks always have a "prosper thyself" and "beggar thy neighbor" e®ect since they in°uence the terms of trade bene¯cially for the respective country's resident households. Finally, if the ECB implemented the interest-rate rule proposed in the present article, it would encounter lower °uctuations in European producer price in°ation compared to an interest-rate rule as proposed for the Fed. This is consistent with the ECB's paramount objective of price stability. However, this advantage only holds at the expense of relatively high °uctuations in the European output gap.
    JEL: E12 E52 E58 F41 F42 F47
    Date: 2009–04
  17. By: Ataman Ozyildirim (The Conference Board); Brian Schaitkin (The Conference Board); Victor Zarnowitz (The Conference Board)
    Abstract: Clusters of cyclical turning points in the coincident indicators help us identify and date Euro Area recessions and recoveries in the past several decades. In the U.S. and some other countries, composite indexes of coincident indicators (CEI) are used to date classical business cycle turning points; also indexes of leading indicators (LEI) are used to help in the difficult task of predicting these turning points. This paper reviews a selection of the available data for monthly and quarterly Euro Area coincident and leading indicators. From these data, we develop composite indexes using methods analogous to those tested in the U.S. CEI and LEI published by The Conference Board. We compare the resulting business cycle chronology with the existing alternatives and evaluate our selection of leading indicators in the context of how well they predict current economic activity and its major fluctuations for the Euro Area.
    Keywords: Business Cycle; Indicators; Leading Index; Times Series; Forecasting
    JEL: E32 C52 C53 C22
    Date: 2008–11
  18. By: Chetan Dave (School of Economic, Political and Policy Sciences at the University of Texas at Dallas); Scott J. Dressler (Department of Economics and Statistics, Villanova School of Business, Villanova University); Lei Zhang (School of Economic, Political and Policy Sciences at the University of Texas at Dallas)
    Abstract: We examine the role of commercial banks in monetary transmission in a factor-augmented vector autoregression (FAVAR). A FAVAR exploits a large number of macroeconomic indicators to identify monetary policy shocks, and we add commonly used lending aggregates and lending data at the bank level. While our results suggest that the bank lending channel (BLC) is stronger than previously thought, this feature is not robust. In addition, our results indicate a diffuse response to monetary innovations when individual banks are grouped according to asset sizes and loan components. This suggests that other bank characteristics could improve the identification of the BLC.
    Keywords: Bank Lending Channel, FAVAR, Monetary Policy
    JEL: E51 E52 C32
    Date: 2009–04
  19. By: Hon-Chung Hui (Nottingham University Business School - Malaysia Campus)
    Abstract: This paper examines the transmission channels through which property markets propagate shocks to the real economy. Using a four-equation model which portrays the theoretical inter-linkages between real estate value and other components of the economy, our findings suggest that in the short run, negative real estate shocks affect GDP by dampening construction, bank lending activities and to a certain extent, consumption. The impact of shocks on investment is harder to decipher given the complicated dynamics arising from an almost instantaneous adjustment process towards equilibrium each time the system is perturbed. In the long run, there is no evidence of positive wealth effects on consumption while sustained depressions in property markets could be harmful to future economic growth.
    Keywords: Real estate shocks; Transmission channels; Macroeconomic performance
    JEL: C32 E20
    Date: 2008–06
  20. By: Christopher Reicher
    Abstract: Recent research and events have brought fiscal policy back into the spotlight. Fiscal Taylor rules and error correction models have represented two different ways of quantifying the feedbacks from fiscal and economic conditions to fiscal policy decisions. This paper synthesizes these two ideas, estimating a fiscal Taylor rule as a special case of an error correction model. Using quarterly postwar U.S. data, estimates of a fiscal Taylor rule find that the government sector has sought to stabilize its debt through adjustments to purchases and taxes, in that order, with very little stabilization coming through adjustments to transfer payments. Since 1981, the debt-stabilization motive has almost vanished, while the cyclical behavior of fiscal variables has not changed. This provides indirect evidence that fiscal policy may have become “non-Ricardian” in the US during recent decades
    Keywords: Taxation, government spending, transfer payments, fiscal policy, deficits, fiscal Taylor, Rule
    JEL: E62 E63 H62 H63
    Date: 2009–04
  21. By: Francesco Grigoli
    Abstract: This paper aims at investigating business cycle interdependences among Mercosur countries over the period 1991-2006. In particular, it analyses the causation relationships among the aforementioned countries’ business cycles, and the impact of the EU and US shocks on them. The estimated VAR model points out that some causation relations are present among the former, and that, conversely, the latter do not play a relevant role in determining the fluctuations of their economies.
    Date: 2009–04
  22. By: Luís F. Costa and Huw Dixon
    Abstract: This paper surveys the link between imperfect competition and the e¤ects of fiscal policy on output, employment and welfare. We examine static and dynamic models, with and without entry under a variety of assumptions using a common analytical framework. We find that in general there is a robust relationship between the fiscal multiplier and welfare, the tantalizing possibility of Pareto improving fiscal policy is much more elusive. In general, the mechanisms are supply side, and so welfare improving policy, whilst possible, is not a general result. Key words: Fiscal Policy; Imperfect Competition.
    JEL: E62
    Date: 2009–03
  23. By: Martinez-Garcia, Enrique (Federal Reserve Bank of Dallas); Sondergaard, Jens (Bank of England)
    Abstract: This paper re-examines the ability of sticky-price models to generate volatile and persistent real exchange rates. We use a DSGE framework with pricing to market to illustrate the link between real exchange rate dynamics and what the model assumes about physical capital. We show that adding capital accumulation to the model facilitates consumption smoothing and significantly impedes the model's ability to generate volatile real exchange rates. Our analysis, therefore, caveats earlier work that has shown how real shocks in a sticky-price model without capital can replicate the observed real exchange rate dynamics. Finally, we find that so-called persistence anomaly remains robust to several alternative capital specifications including set-ups with variable capital utilisation and investment adjustment costs. In summary, the PPP puzzle is still very much alive and well.
    Keywords: Real exchange rates; capital accumulation; Taylor rules.
    JEL: F11 F42 F43
    Date: 2009–04–27
  24. By: Hernando Vargas; Andrés González; Eliana González; Jose Vicente Romero
    Abstract: The assessment of inflationary pressures in Colombia has faced two important challenges in the present decade. The …rst one occurred in 2006 and consisted of detecting an overheating economy in the midst of fast growing investment and increasing measured productivity. The second challenge took place in 2007-2008, when the economy was hit by a number of "supply" shocks and core inflation indicators sent diverging signals about the transmission of those shocks to macroeconomic in‡ation. An evaluation of the …rst episode shows that traditional indicators of productivity and unit labor costs were not su¢ cient to identify "supply" and "demand" movements. Thus, policymakers had to rely on a wider array of variables to gauge the state of the economy. Regarding the second episode, an evaluation of core in‡ation indicators according to stan- dard criteria suggests that no particular measure seems to be clearly superior to the others. Hence, the assessment of inflationary pressures should not rely only on one or few core in‡ation indicators, since some signals could be picked by some measures and not by others. Moreover, this result suggests that the analysis of core in‡ation measures must be complemented with a careful examination of the persistence of the shocks and a close monitoring of their impact on inflation expectations. It is found that the latter are formed on the basis of past inflaation, but that the inflation target also plays a role. In addition, in‡ation expectations partially move with "supply" shocks, an outcome that re‡ects a degree of credibility of monetary policy.
    Date: 2009–04–21
  25. By: Sheila Dow (University of Stirling); Matthias Klaes (Keele University); Alberto Montagnoli (University of Stirling)
    Abstract: With the increasing attention to how monetary policy is communicated has come a focus on the scope for diverse messages to arise from the committee making the decisions. While the existing literature sees the source of such diversity in relation to a 'correct' decision based on one 'true' model, we explore the implications of diversity as being instead the norm within a pluralist approach to knowledge. By considering judgment as the core of decision-making and uncertainty as conditioning judgment, we develop a theory of decision-making by committee under uncertainty. our case study is the Monetary Policy Committee of the Bank of England. We conclude with a hypothesis about the tendency to policy inaction in different circumstances, notably where there are confident but conflicting judgments within the committee, on the one hand, and where there is agreement that a high level of uncertainty clouds judgment, on the other. This contrasts with the conventional association of diversity of MPC opinion with uncertainty (both as cause and effect).
    Keywords: uncertainty, judgement, ambiguity, central bank communication, monetary policy
    JEL: B41 B50 E58
    Date: 2008–12
  26. By: Thomas Maag (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Michael J. Lamla (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: This paper investigates the effects of media coverage and macroeconomic con- ditions on inflation forecast disagreement of German households and professional forecasters. We adopt a Bayesian learning model in which media coverage of infla- tion affects forecast disagreement by influencing information sets as well as predictor choice. Our empirical results show that disagreement of households depends on the content of news stories (tone) but is unaffected by reporting intensity (volume) and by the heterogeneity of story content (information entropy). Disagreement of pro- fessionals does not depend on media coverage. With respect to the influence of macroeconomic variables we provide evidence that disagreement of households and professionals primarily depends on the current rate of inflation.
    Keywords: forecast disagreement, inflation expectations, media coverage, Bayesian learning
    JEL: E31 E37 D83
    Date: 2009–04
  27. By: Douglas Laxton; David Rose; Alasdair Scott
    Abstract: This paper presents a basic plan for developing a Forecast and Policy Analysis System designed to support an inflation-forecast targeting regime at a central bank. It includes discussion of the development of data management and reporting processes; the creation of a forecast team and the development of human capital; the implementation of a simple model, plus possible extensions; and the management of regular economic projections. We emphasize that it is better to implement simple models earlier and use them well, rather than wait in an attempt to develop an all-encompassing model.
    Keywords: Inflation , Forecasting models , Data analysis , Databases , Monetary policy , Central banks , Human capital ,
    Date: 2009–03–24
  28. By: Andrés González Gómez; Lavan Mahadeva; Diego Rodríguez; Luis Eduardo Rojas
    Abstract: If theory-consistent models can ever hope to forecast well and to be useful for policy, they have to relate to data which though rich in information is uncertain, unbalanced and sometimes forecasts from external sources about the future path of other variables. One example from many is financial market data, which can help but only after smoothing out irrelevant short-term volatility. In this paper we propose combining different types of useful but awkward data set with a linearised forward-looking DSGE model through a Kalman Filter fixed-interval smoother to improve the utility of these models as policy tools. We apply this scheme to a model for Colombia.
    Date: 2009–04–21
  29. By: António Afonso and Sebastian Hauptmeier
    Abstract: We assess the fiscal behaviour in the European Union countries for the period 1990- 2005 via the responsiveness of budget balances to several determinants. The results show that the existence of effective fiscal rules, the degree of public spending decentralization, and the electoral cycle can impinge on the country’s fiscal position. Furthermore, the results also support the responsiveness of primary balances to government indebtedness. Key words: fiscal regimes, fiscal rules, fiscal decentralization, European Union, panel data
    JEL: C23 E62 H62
    Date: 2009–03
  30. By: M. Ayhan Kose; Selim Elekdag; Roberto Cardarelli
    Abstract: This paper examines the macroeconomic implications of, and policy responses to surges in private capital inflows across a large group of emerging and advanced economies. In particular, we identify 109 episodes of large net private capital inflows to 52 countries over 1987-2007. Episodes of large capital inflows are often associated with real exchange rate appreciations and deteriorating current account balances. More importantly, such episodes tend to be accompanied by an acceleration of GDP growth, but afterwards growth has often dropped significantly. A comprehensive assessment of various policy responses to the large inflow episodes leads to three major conclusions. First, keeping public expenditure growth steady during episodes can help limit real currency appreciation and foster better growth outcomes in their aftermath. Second, resisting nominal exchange rate appreciation through sterilized intervention is likely to be ineffective when the influx of capital is persistent. Third, tightening capital controls has not in general been associated with better outcomes.
    Keywords: Capital inflows , Emerging markets , Current account deficits , Exchange rate policy , Fiscal policy , Capital controls , Cross country analysis ,
    Date: 2009–03–17
  31. By: Jean De Beir (EPEE - Université d'Evry-Val-d'Essonne); Mouez Fodha (Paris School of Economics - Centre d'Economie de la Sorbonne); Francesco Magris (EPEE - Université d'Evry-Val-d'Essonne)
    Abstract: The aim of this paper is to examine whether the development of waste recycling activities can be a source of economic fluctuation. We assume that the recycling sector has four fundamental characteristics. (i) The production factors are restricted by the production of the last period. (ii) These production factors are waste for which the price determination is non-competitive. (iii) It produces a recycled good, which is a perfect substitute to th primary good. (iv) It reduces waste stream. We consider the simplest economy with an infinitely lived agent and a life cycle hypothesis for the goods. We show that the equilibrium is unique and is always determinate. In spite of the lack of indeterminacy, however, our system can display cyclical behavior, depending on some usual conditions on parameters. Namely, the steady-state may undergo a Flip and a Hopf bifurcation.
    Keywords: Cycles, recycling, waste.
    JEL: E32 Q53
    Date: 2008–05
  32. By: Nils Jannsen
    Abstract: Housing crises usually go hand in hand with a long lasting recession and a considerable loss in output. We first re-examine the effects of a housing crises on the business cycle based on historical crises. Then we estimate the international spill-over-effects if several huge industrial countries face a housing crisis simultaneously. While the economic impact of the housing crisis in the United States, from a historical perspective, should have bottomed out at the end of 2008 and the business cycle pattern differed significantly from that in a typical crisis, house prices in Great Britain, Spain and France just started to drop at the end of 2007. If we assume that a typical housing crisis occurs in all of these three countries, international transmission effects then would lead to significant losses of GDP growth in several other countries, notably in Europe
    Keywords: Housing Crisis, Business Cycle, International Transmission, Global VAR
    JEL: C50 E32 F42
    Date: 2009–04
  33. By: Huseyin Murat Ozbilgin
    Date: 2009
  34. By: Colignatus, Thomas
    Abstract: A win-win measure that will contribute to getting us out of the crisis is the abolition of the tax void in OECD countries. The tax void is explained with graphics and it is shown how it can be eliminated for free. Adjustment costs will lie in understanding and adaptation of administrative procedure and not in the real economy.
    Keywords: financial crisis; economic crisis; stagflation; inflation; unemployment; Phillipscurve; taxes; tax void; optimal taxation
    JEL: E0 A1 P16
    Date: 2009–04–23
  35. By: António Afonso, Luca Agnello, Davide Furceri and Ricardo M. Sousa
    Abstract: We use a new approach to assess long-term fiscal developments. By analyzing the timevarying behaviour of the two components of government spending and revenue – responsiveness and persistence – we are able to infer about the sources of fiscal behaviour. Drawing on quarterly data we estimate recursively these components within a system of government revenue and spending equations using a Three-Stage Least Square method. In this way we track fiscal developments, i.e. possible fiscal deteriorations and/or improvements for eight European Union countries plus the US. Results suggest that positions have not significantly changed for Finland, France, Germany, Spain, the United Kingdom and the US, whilst they have improved for Belgium, Italy, and the Netherlands.. KEY Words: Fiscal Deterioration, Fiscal Sustainability
    JEL: E62 H50
    Date: 2009–03
  36. By: Ruy Lama
    Abstract: This paper evaluates what type of models can account for the recent episodes of output drops in Latin America. I develop an open economy version of the business cycle accounting methodology (Chari, Kehoe, and McGrattan, 2007) in which output fluctuations are decomposed into four sources: total factor productivity (TFP), a labor wedge, a capital wedge, and a bond wedge. The paper shows that the most promising models are the ones that induce fluctuations of TFP and the labor wedge. On the other hand, models of fnancial frictions that translate into a bond or capital wedge are not successful in explaining output drops in Latin America. The paper also discusses the implications of these results for policy analysis using alternative DSGE models.
    Keywords: Accounting , Latin America , Emerging markets , Business cycles , Labor productivity , Economic models , Cross country analysis ,
    Date: 2009–03–27
  37. By: Roy H Grieve (Department of Economics, University of Strathclyde)
    Abstract: This paper highlights and builds upon Michio Morishima’s sadly neglected thesis that multi-market economies should be envisaged, and modelled, as over-determined systems, in that the number of conditions to be satisfied for equilibrium exceeds the number of unknowns (equilibrium prices and quantities) to be discovered. This understanding undermines the comfortable supposition (underpinning both New Keynesian and New Classical theoretical approaches) that, even when the economy is not in a position of full employment, a potential equilibrium solution does exist which - if not instantly, at least eventually – will be achieved by market forces. In other words, contrary to the conventional view, observed price and wage stickiness should be considered as contributing to macroeconomic stability rather than inhibiting adjustment to full employment equilibrium. A further casualty of the Morishima perspective is the common textbook rationalisation that the Keynes theory applies only in the short run (with sticky prices) while the classical analysis comes into its own (with flexible prices) in the longer term.
    Keywords: Price flexibility; General equilibrium (macro) models; Walras' Law and Say's Law; Over-determined systems
    JEL: E11
    Date: 2009–04
  38. By: Martin Cihák; Petya Koeva Brooks
    Abstract: The global financial crisis has highlighted the potential of financial conditions for influencing real economic activity. We examine the linkages between the financial and real sectors in the euro area, finding that (i) bank loan supply responds negatively to declines in bank soundness; (ii) a cutback in bank loan supply has a negative impact on economic activity; (iii) a positive shock to the corporate bond spread lowers industrial output; and (iv) risk indicators for the banking, corporate, and public sectors show an improvement beginning in 2002–03, followed by a major deterioration since 2007. These estimates imply that the currently estimated bank losses would subtract some 2 percentage points from the euro area output (but with considerable uncertainty around the estimates).
    Keywords: Credit risk , Euro Area , Financial sector , Real sector , Banking , Demand for money , Interest rates , Financial risk , Economic models ,
    Date: 2009–03–27
  39. By: Kilian, Lutz; Vigfusson, Robert J.
    Abstract: A common view in the literature is that the effect of energy price shocks on macroeconomic aggregates is asymmetric in energy price increases and decreases. We show that widely used asymmetric vector autoregressive models of the transmission of energy price shocks are misspecified, resulting in inconsistent parameter estimates, and that the implied impulse responses have been routinely computed incorrectly. As a result, the quantitative importance of unanticipated energy price increases for the U.S. economy has been exaggerated. In response to this problem, we develop alternative regression models and methods of computing responses to energy price shocks that yield consistent estimates regardless of the degree of asymmetry. We also introduce improved tests of the null hypothesis of symmetry in the responses to energy price increases and decreases. An empirical study reveals little evidence against the null hypothesis of symmetry in the responses to energy price shocks. Our analysis also has direct implications for the theoretical literature on the transmission of energy price shocks and for the debate about policy responses to energy price shocks.
    Keywords: Asymmetry; Energy price; Impulse response; Net increase; Oil price; Propagation; Shock; Transmission; Vector autoregression
    JEL: C32 E37 Q43
    Date: 2009–04
  40. By: Daria Zakharova; Paulo A. Medas
    Abstract: This paper proposes an integrated approach to fiscal policy analysis in oil producing countries (OPCs) geared towards addressing their unique and complex policy challenges. First, an accurate assessment of the fiscal stance in OPCs can be obscured by large and volatile oil revenue flows. Second, uncertain and volatile oil revenue flows can complicate the management of macroeconomic policies in these countries. Third, given the exhaustibility of oil reserves, OPCs need to address longer-term sustainability and intergenerational equity issues. The use of non-oil fiscal indicators, stress tests, medium-term frameworks, and permanent oil income models can greatly aid in addressing these challenges.
    Keywords: Fiscal policy , Oil producing countries , Oil revenues , Commodity price fluctuations , Nonoil sector , Revenue sources , Cross country analysis ,
    Date: 2009–03–19
  41. By: Emil Stavrev
    Abstract: The paper analyzes the forces driving inflation in the new EU10 member countries. A significant part of headline inflation in these countries is due to common factors, such as price level convergence and EU integration. However, idiosyncratic factors have also played a role in the inflation process. These factors are related to the country-specific financial conditions, pass-through from foreign prices, and demand-supply situation in each country, although administered price adjustments and increases of indirect taxes associated with EU accession are also likely to have played a role.
    Keywords: Inflation , European Union , Economic integration , Economic models , Cross country analysis ,
    Date: 2009–03–19
  42. By: Erlend Nier
    Abstract: This paper sets out general principles for the design of financial stability frameworks, starting from an analysis of the objectives and tools of financial regulation. The paper then offers a comprehensive analysis of the costs and benefits of the two main models that have emerged for modern financial systems: the integrated model, with a single supervisor outside of the central bank, and the twin-peaks model, with a systemic risk regulator (central bank) on the one hand and a conduct of business regulator on the other. The paper concludes that the twin-peaks model may become more attractive when regulatory structures are geared more explicitly towards the mitigation of systemic risk-including through the introduction of new macroprudential tools that could be used alongside monetary policy to contain macro-systemic risks; through enhanced regulation and special resolution regimes for systemically important institutions; and a more holistic approach to the oversight of clearing and settlement systems. Since the optimal solution may well be path-dependent and specific to the development of financial markets in any given country, a number of hybrid models are also discussed.
    Keywords: Central banks , Financial crisis , Monetary policy , Financial stability , Financial systems , Financial sector , Bank supervision , Bank regulations , Bank resolution , Credit risk , Risk management ,
    Date: 2009–04–10
  43. By: Hammond, Gill; Kanbur, Ravi; Prasad, Eswar
    Abstract: This paper introduces a significant new collection of papers on monetary policy in emerging market economies, written by leading analysts and policy makers. Does existing economic theory provide lessons that are pertinent for designing effective monetary policy frameworks in emerging markets? What can be learned from cross-country studies and from experiences of individual countries that have adopted different approaches? While country-specific circumstances and initial conditions matter a great deal in formulating suitable frameworks, are there clear general principles that can serve as a guide in this process? These are among the issues addressed in the dialogue between academics and policy makers represented in this volume. In this paper, we provide an overview of the main issues, linking them to broader debates in the academic literature as well as an assessment of how individual countries have chosen to respond to specific policy challenges and what the consequences have been. We discuss many controversies where there are still sharp differences in views between and amongst theorists and practitioners. We also delineate a few key analytical issues where there is still a yawning gap between theory and practice. In the process, we set out a broad agenda for further research in this area.
    Keywords: Emerging Markets, Monetary Policy, Economies, International Development, International Relations/Trade, Political Economy, Public Economics,
    Date: 2009–02
  44. By: L. Marrattin; M. Marzo
    Date: 2008–10
  45. By: Stavros Zografakis (Department of Agricultural Economics & Rural Development Agricultural University of Athens); Demetrios Damianos (Department of Agricultural Economics & Rural Development Agricultural University of Athens); Yiorgos Alexopoulos (Department of Agricultural Economics & Rural Development Agricultural University of Athens)
    Abstract: "The substantial rise of world prices of agricultural products due to a host of mutually supporting factors that influenced both their supply and demand between 2005 and the first half of 2008 led to a subsequent increase in the price of food at the retail level. Although this trend has reversed recently, official views and researchers stress that within the next ten years the real term prices of important agricultural products are expected to increase substantially to the detriment of, mainly the lower income, consumers. This paper examines the impact of commodity price rises on consumers' food price inflation. It searches among the differences in the composition of food expenses and presents indicative results of a quite different food consumption pattern among EU member states' consumers and within countries. It highlights the impacts of the observed food price increases not only upon low income households, which were found to be relatively more affected than their higher income counterparts, but upon member states with a lower level of economic development as well, which seemed to have lost their price convergence pace. Hence, it stresses the importance of adequate and prompt policy design to alleviate the consequences of future negative price developments."
    Keywords: Agricultural Products, Prices, Inflation, Food Policy
    JEL: D12 Q11 Q18
    Date: 2009
  46. By: Eyal Dvir; Kenneth S. Rogoff
    Abstract: We test for changes in price behavior in the longest crude oil price series available (1861-2008). We find strong evidence for changes in persistence and in volatility of price across three well defined periods. We argue that historically, the real price of oil has tended to be highly persistent and volatile whenever rapid industrialization in a major world economy coincided with uncertainty regarding access to supply. We present a modified commodity storage model that fully incorporates demand, and further can accommodate both transitory and permanent shocks. We show that the role of storage when demand is subject to persistent growth shocks is speculative, instead of its classic mitigating role. This result helps to account for the increased volatility of oil price we observe in these periods.
    JEL: E0 L7 N5 Q4
    Date: 2009–04
  47. By: James Cooley (Southern Methodist University)
    Abstract: Excess returns in the stock market are significantly higher during Democratic presidential administrations. Previous research concludes that partisan return differentials are anomalous since they are not due to differences in required returns. We find that partisan return differentials are, instead, likely due to differences in cash flows - capital income growth - during the first years of presidential administrations as predicted by the rational partisan model of the business cycle. The first major finding of this paper is that there is a statistically and economically significant partisan difference in capital income growth in the first year of presidential terms. The second finding of the paper is that significant partisan differences in excess returns are also found only in the first year of presidential terms. Further, it is differences in unexpected returns during that first year that is the source of partisan return differentials. We find no statistically significant partisan differences in unexpected returns during the rest of the term. This result holds across market capitalization deciles and book-to-market value deciles. The third finding is that there is a positive and statistically significant relationship between unexpected returns and capital income growth and real GDP growth one and two quarters ahead. Lastly, we find that the unexpected returns are related to the degree of electoral surprise as predicted by the rational partisan model. We conclude that that there is strong evidence in favor of the rational partisan model as an explanation for partisan return differences in the stock and bond markets.
    Keywords: Political business cycle, stock market returns, rational partisan model.
    JEL: G12 G19 E39
    Date: 2009–04
  48. By: Lopez, Ramon; Stocking, Andrew
    Abstract: Explicitly accounting for certain basic physical laws governing the âearthâ sector dramatically enriches our ability to explain a high degree of diversity in observed patterns of economic growth. We provide a theoretical explanation of why some countries have been able to sustain a more or less constant and positive rate of economic growth for many decades while so many others have failed to do so. The analysis predicts that countries that have an over abundance of physical capital (a concept that is precisely defined in the text) may be unable to sustain a positive rate of economic growth over the long run. Too much physical capital may affect the dynamics of the economy ultimately leading to stagnation. The plausibility of the growth model introduced here is demonstrated by its ability to predict some important stylized facts for which standard endogenous growth models generally cannot account.
    Keywords: endogenous growth theory, unbalanced growth, structural change, stagnation, Environmental Economics and Policy, International Development, Labor and Human Capital, Political Economy, E22, Q01, O41,
    Date: 2009
  49. By: Lin, Xiaoji
    Abstract: I study the cross sectional variation of stock returns and technological progress using a dynamic equilibrium model with production. In the model, technological progress is endogenously driven by R&D investment and is composed of two parts. One part is product innovation devoted to creating new products; the other part is dedicated to increasing the productivity of physical investment and is embodied in new tangible capital (e.g., structures and equipment). The model breaks the symmetry assumed in standard models between intangible capital and tangible capital, in which the accumulation processes of tangible capital stock and intangible capital stock do not affect each other. The model explains qualitatively and in many cases quantitatively well-documented empirical regularities: (i) the positive relation between R&D investment and the average stock returns; (ii) the negative relation between physical investment and the average stock returns; and (iii) the positive relation between book-to-market ratio and the average stock returns.
    Keywords: Technological Progress; R&D Investment; Physical Investment; Stock Return
    JEL: E6
    Date: 2009–01–15
  50. By: Mário Gómez
    Abstract: In this paper we will discuss the relation between the rationality of the agents, and the probability context that involves them in the decision process made by Keynes but considering categories such as expectation as language game, in the sense that Roger Koppl understand it as-if rationalizations. In this sense Keynes’s expectations can be understand and see as only a very particular category: cognitive expectation and the uncertain situation as a very specific circumstance in production process. If expectation theory is one of the crucial issues in economic theory, a language game theory of expectation provide a more general case that need to be re-examinate as a stimulating approach
    Keywords: history of the economic ideas in Latin America, economic theory, expectations, theory of expectations.
    JEL: B5 O3 O4
    Date: 2009–03
  51. By: Nada Oulidi; Laurence Allain
    Abstract: In this paper we use a disequilibrium framework common in the “credit crunch†literature, first to examine whether the slow credit growth in Morocco during the rapid expansion of liquidity in the first half of the decade can be attributed to credit rationing, and second to investigate the role of asset price increases in the recent acceleration of credit growth. Our results do not support the credit rationing hypothesis in the first half of the decade. They do however, show that the recent increase in real estate prices stimulated credit supply and demand, with a stronger effect on the latter.
    Keywords: Credit expansion , Morocco , Asset prices , Real estate prices , Credit demand , Credit controls , Economic models ,
    Date: 2009–03–25
  52. By: Janet Hua, Jiang; Mei, Dong
    Abstract: We investigate whether money constitutes a perfect substitute for the missing record-keeping technology in a quasi-linear environment, where private information and limited commitment are present. We adopt the mechanism design approach and solve a social planners problem subject to the resource constraint, the incentive constraints imposed by the existing frictions, and the available memory technologies. The result is that when money is divisible, concealable and in variable supply, a single money may or may not be su¢ cient to replace the record-keeping technology. We further show that two monies serve as a perfect substitute for the record-keeping technology so that there is no need for a third money.
    Keywords: Record-keeping; Money; Private Information; Limited Commit- ment; Mechanism Design
    JEL: F30 D82 E40
    Date: 2008–09–21
  53. By: Gabrieli, Tommaso (Department of Economics, City University London and Institute of Economic Policy Catholic University of Milan); Ghosal, Sayantan (Department of Economics, University of Warwick)
    Abstract: This paper shows the robust non existence of competitive equilibria even in a simple three period representative agent economy with dynamically inconsistent preferences. We distinguish between a sophisticated and naive representative agent. Even when underlying preferences are monotone and convex, we show by example that the induced preferences, at given prices, of the sophisticated representative agent over choices in first period markets are both non convex and satiated. Therefore, even allowing for negative prices, the market clearing allocation is not contained in the convex hull of demand. Finally, with a naive representative agent, we show that perfect foresight is incompatible with market clearing and individual optimization at given prices.
    Keywords: dynamically inconsistent preferences ; competitive equilibrium ; existence ; satiation ; non convexity
    JEL: D50 D91
    Date: 2009
  54. By: Brown, Alessio J G; Merkl, Christian; Snower, Dennis J.
    Abstract: This paper presents a theory explaining the labor market matching process through microeconomic incentives. There are heterogeneous variations in the characteristics of workers and jobs, and firms face adjustment costs in responding to these variations. Matches and separations are described through firms' job offer and firing decisions and workers' job acceptance and quit decisions. This approach obviates the need for a matching function. On this theoretical basis, we argue that the matching function is vulnerable to the Lucas critique. Our calibrated model for the U.S. economy can account for important empirical regularities that the conventional matching model cannot.
    Keywords: Adjustment costs; employment; Firing; Incentives; Job acceptance; Job offers; Matching; quits; unemployment
    JEL: E24 E32 J63 J64
    Date: 2009–04
  55. By: Raghbendra Jha
    Abstract: This paper provides an overview of the impact of the global financial crisis (GFC) on the Indian economy. It identifies the channels through which the GFC has impacted the Indian economy and evaluates the stimulus packages that have been put in place by the government of India. Finally, the paper examines short run prospects for the Indian economy in light of the GFC and the economy's recent dynamism.
    Keywords: Global Financial crisis, Economic downturn, Stimulus packages, India
    JEL: E20 E66 F43 O11
    Date: 2009
  56. By: Julio Davila (Paris School of Economics - Centre d'Economie de la Sorbonne)
    Abstract: I show in this paper that in an overlapping generations economy with production à la Diamond (1970) in which the agents can only save in terms of capital (i.e. with not asset bubbles à la Tirole (1985) or public debt as in Diamond (1965)), there is a period-by-period balanced fiscal policy supporting a steady state allocation that Pareto-improves upon the laissez-faire competitive equilibrium steady state (whithout having to resort to intergenerational transfers) if there is no first generation or the economy starts there. A transition from the competitive equilibrium steady state to this other allocation is also Pareto-improving if the former is dynamically inefficient, but even in the dynamically efficient case if the elasticity of output to capital is high enough. This intervention allows every subsequent generation to attain, as a competitive equilibrium outcome, the highest utility attainable at a steady state through the existing markets for the consumption good and the production factors. The active fiscal policy consists of taxing (or subsidizing, in the dynamically efficient case) linearly the returns to capital, while balancing the budget period by period through a lump-sum transfer (or tax, respectively) on second period income. This policy does not finance any public spending, since there is none in the model. The only purpose of the intervention is to decentralize as a competitive equilibrium the steady state allocation that maximizes the utility of the representative agent among all steady state allocations attainable through the existing markets.
    Keywords: Taxation of capital, overlapping generations.
    JEL: E62 E21 E22 H21
    Date: 2008–11
  57. By: Gisle James Natvik (Norges Bank (Central Bank of Norway))
    Abstract: This paper analyzes a framework where policymakers decide how to spend public resources on physical capital and labor in order to produce two public goods. Candidate policymakers disagree about which goods to produce, and may alternate in office due to elections. When capital and labor are complementary inputs to the production of public goods, the anticipation of political turnover reduces public savings in physical capital rather than finnancial assets. Political turnover renders the stock of physical capital for public production too low and ine¢ ciently combined with labor.
    Keywords: Political economics, budget deficits, public investment
    JEL: E6 H4 H54 H6
    Date: 2009–03–30
  58. By: Fabricio J. Missio (Cedeplar-UFMG); Bernardo P. Schettini (Cedeplar-UFMG); Frederico G. Jayme Jr (Cedeplar-UFMG)
    Abstract: This paper aims to analyze the relation among exchange rate, distribution and economic growth from a short-term Keynesian-structuralist perspective. The domestic absorption is the cornerstone of the analysis, inasmuch as an exchange rate devaluation leads to an expansionist result in the profit-led accumulation regime and a contractionist outcome in the wage-led case in the traditional approach. The sophistication of the model proposed in this paper comprises the introduction of indirect effects upon the investment function which emanate from distributional shifts. Besides the accelerator effect and the profit share, capital accumulation also responds to the innovation rate, credit availability and expectations regarding the price level. Nevertheless, the introduction of new mechanisms led to ambiguous results. Since the analytical solution turned out to be quite complex, numerical simulation seemed appropriate. This method revealed that devaluation may have positive effects upon the economic performance in the wage-led case. Thus it was possible to reconcile the available empirical evidence with a consistent theoretical model. This result in turn has important implications for the conduction of economic policy.
    Keywords: exchange rate, distribution, accumulation regime, economic growth
    JEL: E22 E24 O24
    Date: 2009–04
  59. By: Ciumag, Marin
    Abstract: Accounting represent a privilege source of information for the fiscal bodies, the majority of fiscal obligations are being established on the basis of accounting data. There is interdependency between accounting and taxation, which is defining in the fiscal management of the enterprise. The accountancy is an element intended for obtaining pure and objective information, and therefore the intervention of taxation in accounting procedures is unacceptable. But accounting isn't perfect and therefore the fiscal body proposes itself t, as a user of the same information, to interpret them according to own interests
    Keywords: lucheon voucher; taxation; accountancy; fiscal obligations; fiscal management
    JEL: E62 O23 M41 H87 E63
    Date: 2008–04–20
  60. By: Salvatore Michele De Marco
    Abstract: Il fenomeno dell’indebitamento, insolvenza e crisi economica nel capitalismo è interpretato dall’ortodossia economica secondo la logica speculativa. La nostra intenzione, invece, è interpretare il fenomeno dell’indebitamento, insolvenza e crisi economica nel capitalismo secondo la logica allocativa. Si tratta di due approcci teorici contrapposti che portano a spiegazioni inconciliabili a riguardo delle criticità che avanzano sul mercato del credito, davanti ai quali, però, non si può rimanere imparziali, ma preferire quello allocativo allo speculativo per il suo maggiore spessore scientifico. Da un punto di visto empirico, l’insolvenza del comparto privato titolare del debito privato, sia nella forma del credito al consumo sia nella forma dei mutui subprime, che si sta imponendo per grandezza sull’insolvenza del comparto pubblico titolare del debito pubblico e sull’insolvenza del comparto estero titolare del debito estero, causa della crisi economica iniziata nell’estate 2007, si spiega proprio utilizzando la logica allocativa.
    Keywords: Attività allocativa, Bolla speculativa, Credito al consumo, Crisi economica, Debito privato, Insolvenza bancaria, Mercato del credito, Mutui subprime.
    JEL: E44 E52 E58
    Date: 2009–01
  61. By: Jochen Michaelis (University of Kassel, Nora-Platiel-Str. 4, D-34127 Kassel); Martin Debus (University of Kassel, Nora-Platiel-Str. 4, D-34127 Kassel)
    Abstract: In almost all Western economies the median age of the workforce is increasing due to demographic factors. Given the empirical fact that workers of different ages are not perfect substitutes in production, this paper explores how change in the age pattern affects wages and (un)employment. We develop a general equilibrium model where wages for young and old workers are set by monopoly unions at the firm-level. Contrary to the common wisdom on this topic, we show that an increase in the relative number of older workers for a given labor force size has no effect on young and old unemployment. If, however, unions attach a higher weight to the wishes of the old, the unemployment rate of the old (young) will increase (decrease). In this case we observe a redistribution of wage income from the young to the old.
    Keywords: workforce ageing, unemployment, wage bargaining
    JEL: E2 J2 J5
    Date: 2009
  62. By: Gomes, Pedro (London School of Economics & Political Science)
    Abstract: In this paper I use the Labour Force Survey to obtain stylised facts about worker gross flows in the United Kingdom. I analyse the size and cyclicality of the flows between employment, unemployment and inactivity. I also examine job-to-job flows, employment separations by reason, flows between inactivity and the labour force, flows into and out of public sector employment and flows by education. I decompose contributions of job-finding and job-separation rates to fluctuations in the unemployment rate. Although the job-finding rate has been more relevant over the past ten years, the job-separation rate was particularly important during the early 1990s recession.
    Keywords: Worker gross flows; job-finding rate; job-separation rate.
    JEL: E24 J60
    Date: 2009–04–27
  63. By: Mário Gómez, Cezar Guedes
    Abstract: This paper analyzes in perspective the integration process through which Latin America, specially the South Cone, went through during the long formation process of the world economy, since the expansion that brought Latin America to capitalist development until the early XXI century. It emphasizes the 1980’s, when a new form of integration begun, marked by trade and financial liberalization and an increasing market integration combined by the formation of trading blocks both in at world and regional levels. It studies deeper the special logics and the relations of South Cone as destiny of Spanish and Portuguese foreign direct investment. The article is structured in two parts: the first one analysis the Latin American integration process with the world economy since its origins, markedly the colonial period. The second part studies some results and disjunctives of this new period, characterized by the increasing presence of large multinational and Iberian companies in Latin America. Keywords: modelo de desarrollo, macroeconomía, politica económica, desarrollo, politica monetária, ética politica, investimento.
    JEL: E0 E6
    Date: 2009–03
  64. By: Hui-Boon Tan (Nottingham University Business School - Malaysia Campus); Siong-Hook Law (University Putra Malaysia - Department of Economics)
    Abstract: This study examines the dynamic effects of financial deepening on income distribution of 35 developing countries during the past two decades of 1980-2000. For this purpose, three existing alternative hypotheses concerning the finance-inequality nexus are tested based on the newly assembled measure of income distribution. The empirical results based on the dynamic panel data technique of General Method of Movement (GMM) suggest that financial deepening significantly reduces income inequality in developing countries. This evidence supports the hypothesis of inequality-narrowing in general. Nonetheless, income inequality responds differently to different financial factors. While the impact is significant from the banking sector, the equity market has no important role to play in this regard. The inverted U-shape finance-inequality relationship is not observed in these nations; instead, a U-shape relationship is detected. These results show that financial deepening reduces income inequality when the private sector credit of the country is below a threshold level. Countries with private sector credit higher than the threshold, on the other hand, will tend to experience a deterioration of their income inequality.
    Keywords: Financial deepening; Income inequality; Gini coefficient; Dynamic panel analysis; GMM
    JEL: E0 G0 O15
    Date: 2009–04

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