nep-mac New Economics Papers
on Macroeconomics
Issue of 2009‒05‒30
thirty-two papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Public Debt, Distortionary Taxation, and Monetary Policy By Piergallini, Alessandro; Rodano, Giorgio
  2. How does fiscal policy affect monetary policy in the Southern African Community (SADC)? By Obinyeluaku, Moses; Viegi, Nicola
  3. Determination of Inflation in an Open Economy Phillips Curve Framework: The Case of Developed and Developing Asian Countries By Pami Dua
  4. Wealth Effects on Consumption: Evidence from the euro area. By Ricardo M. Sousa
  5. Fiscal stimulus in a credit crunch: the role of wage rigidity By Francesco Furlanetto
  6. Fiscal behaviour in the European Union: rules, fiscal decentralization and government indebtedness. By António Afonso; Sebastian Hauptmeier
  7. The Cross-Section of Output and Inflation in a Dynamic Stochastic General Equilibrium Model with Sticky Prices By Jörg Döpke; Michael Funke; Sean Holly; Sebastian Weber
  8. Understanding Inflation-Indexed Bond Markets By John Y. Campbell; Robert J. Shiller; Luis M. Viceira
  9. Optimal devaluations By Hevia, Constantino; Nicolini, Juan Pablo
  10. Understanding Inflation-Indexed Bond Markets By John Y. Campbell; Robert J. Shiller; Luis M. Viceira
  11. Insecurities of the Old and Marginalized: Inflation, Oil Shocks, Financial Crisis and Social Security By Ashima Goyal
  12. Technology Innovation and Diffusion as Sources of Output and Asset Price Fluctuations By Diego Comin; Mark Gertler; Ana Maria Santacreu
  13. The Macroeconomics of Money Market Freezes By Bruche, Max; Suarez, Javier
  14. Summary of the Welcome Remarks by Dr.Bimal Jalan, Governor, at the 11th C.D. Deshmukh Memorial Lecture By Dr Bimal Jalan
  15. Fiscal Policy Can Reduce Unemployment: But There is a Less Costly and More Effective Alternative By Roger E. A. Farmer
  16. On the Unstable Relationship between Exchange Rates and Macroeconomic Fundamentals By Bacchetta, Philippe; van Wincoop, Eric
  17. Structural break, stability and demand for money in India By Singh, Prakash; Pandey, Manoj K.
  18. Bidding behaviour in the ECB's main refinancing operations during the financial crisis. By Jens Eisenschmidt; Astrid Hirsch; Tobias Linzert
  19. Risk Aversion, Intertemporal Substitution, and the Term Structure of Interest Rates By René Garcia; Richard Luger
  20. Causes and Consequences of the Oil Shock of 2007-08 By James D. Hamilton
  21. Effects of Japanese Macroeconomic Announcements on the Dollar/Yen Exchange Rate: High-Resolution Picture By Yuko Hashimoto; Takatoshi Ito
  22. Irish Public Capital Spending in a Recession By Edgar Morgenroth
  23. Maintenance and investment: complements or substitutes? A reappraisal By Raouf Boucekkine; Giorgio Fabbri; Fausto Gozzi
  24. Previsão da Curva de Juros: um modelo estatístico com variáveis macroeconômicas By André Luís Leite; Romeu Braz Pereira Gomes Filho; José Valentim Machado Vicente
  25. Optimal Inattention to the Stock Market with Information Costs and Transactions Costs By Andrew B. Abel; Janice C. Eberly; Stavros Panageas
  26. The Multistep Beveridge-Nelson Decomposition By Proietti, Tommaso
  27. Un modèle macroéconomique multi-agents avec monnaie endogène By Pascal Seppecher
  28. The influence of different forms of government spending on distribution and growth By Commendatore, Pasquale; Panico, Carlo; Pinto, Antonio
  29. La question du change et de la devise clé By Pierre Berthaud
  30. Joint-Search Theory: New Opportunities and New Frictions By Bulent Guler; Fatih Guvenen; Giovanni L. Violante
  31. Avaliação dos Impactos Macro-Econômicos e de Bem-Estar da Reforma Tributária no Brasil By Ferreira, Pedro Cavalcanti; Pereira, Ricardo A. de Castro
  32. Wirtschaftskrise: Schnelle Erholung oder lang anhaltende Depression? Bandbreiten der mittelfristigen Wirtschaftsentwicklung in Deutschland By Dr. Christian Lutz; Dr. Marc Ingo Wolter

  1. By: Piergallini, Alessandro; Rodano, Giorgio
    Abstract: Since Leeper's (1991, Journal of Monetary Economics 27, 129-147) seminal paper, an extensive literature has argued that if fiscal policy is passive, that is, guarantees public debt stabilization irrespectively of the inflation path, monetary policy can independently be committed to inflation targeting. This can be pursued by following the Taylor principle, i.e., responding to upward perturbations in inflation with a more than one-for-one increase in the nominal interest rate. This paper considers an optimizing framework in which the government can only finance public expenditures by levying distortionary taxes. It is shown that households' participation constraints and Laffer-type effects may render passive fiscal policies unfeasible. For any given target inflation rate, there exists a threshold level of public debt beyond which monetary policy independence is no longer possible. In such circumstances, the dynamics of public debt can be controlled only by means of higher inflation tax revenues: inflation dynamics in line with the fiscal theory of the price level must take place in order for macroeconomic stability to be guaranteed. Otherwise, to preserve inflation control around the steady state by following the Taylor principle, monetary policy must target a higher inflation rate.
    Keywords: Public Debt; Distortionary Taxation; Monetary and Fiscal Policy Rules.
    JEL: H31 E63 H63
    Date: 2009–05–21
  2. By: Obinyeluaku, Moses; Viegi, Nicola
    Abstract: Fiscal policy can affect monetary policy either through debt monetisation or through a direct effect on price dynamics. The former is the conventional classical view rooted in the quantity theory of money while the latter is the modern view of the Fiscal Theory of Price Determination. Based on the dynamic response of inflation to different shocks, we test the relationship between fiscal balances and monetary stability in 10 SADC countries. Results show that five out of 10 countries considered here were characterised throughout the period 1980-2006 by fiscally dominant regimes, with weak or no response of primary surpluses to public liabilities. The remaining five countries exhibit a monetary dominant regime. The study also finds that changes in primary surpluses affect price variability via aggregate demand, suggesting that fiscal outcomes could be a direct source of inflation variability, hence, the need for policy coordination in the region.
    Keywords: African Economic Integration; Fiscal Monetary Policy Coordination; VAR Analysis.
    JEL: C22 E63 C01
    Date: 2009–05–25
  3. By: Pami Dua
    Abstract: This paper investigates the determination of inflation in the framework of an open economy forward-looking as well as conventional backward-looking Phillips curve for eight Asian countries- Japan, Hong Kong, Korea, Singapore, Philippines, Thailand, China Mainland and India. Using Quarterly data and applying the instrumental variables estimation technique, it is found that the output gap is significant in explaining the inflation rate in almost all the countries. Furthermore, at least one measure of international competitiveness has a statistically significant influence on inflation in all the countries. The differences in the developed and developing world are highlighted by the significance of agriculture related supply shocks in determining inflation in the case of developing countries. For all countries, the forward-looking Phillips curve provides a better fit compared to the backward looking variant.[WP 178]
    Keywords: Inflation; Open Economy; Phillips Curve; Asian economies; inflation rate; supply shocks; monetary variables; demand factors; domestic factors; external factors; supply factors; devloping countries; developed countriesi
    Date: 2009
  4. By: Ricardo M. Sousa (Economic Policies Research Unit (NIPE) and Department of Economics, University of Minho, Campus of Gualtar, 4710-057 Braga, Portugal.)
    Abstract: This paper estimates the wealth effects on consumption in the euro area as a whole. I show that: (i) financial wealth effects are relatively large and statistically significant; (ii) housing wealth effects are virtually nil and not significant; (iii) consumption growth exhibits strong persistence and responds sluggishly to shocks; and (iv) the immediate response of consumption to wealth is substantially different from the long- run wealth effects. By disaggregating financial wealth into its major components, the estimates suggest that wealth effects are particularly large for currency and deposits, and shares and mutual funds. In addition, consumption seems to be very responsive to financial liabilities and mortgage loans. JEL Classification: E21, E44, D12.
    Keywords: consumption, housing wealth, financial wealth.
    Date: 2009–05
  5. By: Francesco Furlanetto (Norges Bank (Central Bank of Norway))
    Abstract: In this paper we study the impact of an expansion in public spending in a credit constrained economy with sticky wages. The flexible wage version of the model implies strong expansionary effects on output and consumption but also a counterfactual increase in real wages. The introduction of sticky wages, besides being a realistic addition, solves these problems and preserves the expansionary effects on output and consumption. Moreover, once we introduce segmentation in the labor market, sticky wages are even essential to obtain expansionary effects.
    Keywords: Sticky wages, rule-of-thumb consumers, fiscal shocks, financial frictions.
    JEL: E32 E62
    Date: 2009–05–18
  6. By: António Afonso (Technical University of Lisbon, Department of Economics; UECE – Research Unit on Complexity and Economics, R. Miguel Lupi 20, 1249-078 Lisbon, Portugal.); Sebastian Hauptmeier (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    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. JEL Classification: C23, E62, H62.
    Keywords: fiscal regimes, fiscal rules, fiscal decentralization, European Union, panel Data.
    Date: 2009–05
  7. By: Jörg Döpke; Michael Funke; Sean Holly; Sebastian Weber
    Abstract: In a standard dynamic stochastic general equilibrium framework, with sticky prices, the cross sectional distribution of output and inflation across a population of firms is studied. The only form of heterogeneity is confined to the probability that the ith changes its prices in response to a shock. In this Calvo setup the moments of the cross sectional distribution of output and inflation depend crucially on the proportion of firms that are allowed to change their prices. We test this model empirically using German balance sheet data on a very large population of firms. We find a significant counter-cyclical correlation between the skewness of inflation and aggregates, but the relation with output is less sure. Our results can be interpreted as indirect evidence of the importance of price stickiness in macroeconomic adjustments.
    Keywords: New-Keynesian macroeconomics, DSGE, cross-sectional distribution, firm growth
    JEL: D12 E52 E43
    Date: 2009
  8. By: John Y. Campbell (Dept. of Economics, Harvard University); Robert J. Shiller (Cowles Foundation, Yale University); Luis M. Viceira (Harvard Business School)
    Abstract: This paper explores the history of inflation-indexed bond markets in the US and the UK. It documents a massive decline in long-term real interest rates from the 1990's until 2008, followed by a sudden spike in these rates during the financial crisis of 2008. Breakeven inflation rates, calculated from inflation-indexed and nominal government bond yields, stabilized until the fall of 2008, when they showed dramatic declines. The paper asks to what extent short-term real interest rates, bond risks, and liquidity explain the trends before 2008 and the unusual developments in the fall of 2008. Low inflation-indexed yields and high short-term volatility of inflation-indexed bond returns do not invalidate the basic case for these bonds, that they provide a safe asset for long-term investors. Governments should expect inflation-indexed bonds to be a relatively cheap form of debt financing going forward, even though they have offered high returns over the past decade.
    Keywords: Expectations hypothesis, Liquidity, Term premia, TIPS
    JEL: E43 E44 G12
    Date: 2009–05
  9. By: Hevia, Constantino; Nicolini, Juan Pablo
    Abstract: According to the conventional wisdom, when an economy enters a recession and nominal prices adjust slowly, the monetary authority should devalue the domestic currency to make the recession less severe. The reason is that a devaluation of the currency lowers the relative price of non-tradable goods, and this reduces the necessary adjustment in output relative to the case in which the exchange rate remains constant. This paper uses a simple small open economy model with sticky prices to characterize optimal fiscal and monetary policy in response to productivity and terms of trade shocks. Contrary to the conventional wisdom, in this framework optimal exchange rate policy cannot be characterized just by the cyclical properties of output. The source of the shock matters: while recessions induced by a drop in the price of exportable goods call for a devaluation of the currency, those induced by a drop in productivity in the non-tradable sector require a revaluation.
    Keywords: Economic Theory&Research,Debt Markets,Emerging Markets,Currencies and Exchange Rates,Economic Stabilization
    Date: 2009–05–01
  10. By: John Y. Campbell; Robert J. Shiller; Luis M. Viceira
    Abstract: This paper explores the history of inflation-indexed bond markets in the US and the UK. It documents a massive decline in long-term real interest rates from the 1990's until 2008, followed by a sudden spike in these rates during the financial crisis of 2008. Breakeven inflation rates, calculated from inflation- indexed and nominal government bond yields, stabilized until the fall of 2008, when they showed dramatic declines. The paper asks to what extent short-term real interest rates, bond risks, and liquidity explain the trends before 2008 and the unusual developments in the fall of 2008. Low inflation-indexed yields and high short-term volatility of inflation-indexed bond returns do not invalidate the basic case for these bonds, that they provide a safe asset for long-term investors. Governments should expect inflation-indexed bonds to be a relatively cheap form of debt financing going forward, even though they have offered high returns over the past decade.
    JEL: E43 E44 G12
    Date: 2009–05
  11. By: Ashima Goyal
    Abstract: The paper examines the impact of recent inflation and financial shocks on the vulnerable, and explores policy design to reduce both future shocks and vulnerability to shocks. Inflation affects the typical savings cum pension portfolio and the specific consumption basket of the old, as prices of services rise compared to manufactured goods. Money illusion and habit, which tend to increase with age, aggravate the psychological trauma associated with inflation. The decline of traditional sources of social security marginalizes those without savings, in the context of sustained rural-urban and international migration. Trends determining inflation-domestic and global, institutional change, and greater openness explain why inflation has been moderate in India, compared to other emerging markets. Since the polity is averse to high inflation, and commodity price shocks are moderating, high inflation will not persist. But the shocks demonstrate the importance of food price inflation for aggregate inflation in populous South Asia. Therefore improvements in agricultural productivity, with supportive buffer stock, fiscal and monetary policy are critical to lower the level of chronic inflation. Regulatory changes to reduce excessive risk-taking in financial markets and the aggravation of inflation from speculation are examined. Finally, other policy measures to improve security for the old and keep them active, vital part of the community are drawn together.[ WP
    Keywords: Aged; Inflation; Oil shocks; Financial Crisis; Social security; Fixed Income
    Date: 2009
  12. By: Diego Comin (Harvard Business School, Business, Government and the International Economy Unit); Mark Gertler (New York University, Department of Economics); Ana Maria Santacreu (New York University, Department of Economics)
    Abstract: We develop a model in which innovations in an economy's growth potential are an important driving force of the business cycle. The framework shares the emphasis of the recent "new shock" literature on revisions of beliefs about the future as a source of fluctuations, but differs by tieing these beliefs to fundamentals of the evolution of the technology frontier. An important feature of the model is that the process of moving to the frontier involves costly technology adoption. In this way, news of improved growth potential has a positive effect on current hours. As we show, the model also has reasonable implications for stock prices. We estimate our model for data post-1984 and show that the innovations shock accounts for nearly a third of the variation in output at business cycle frequencies. The estimated model also accounts reasonably well for the large gyration in stock prices over this period. Finally, the endogenous adoption mechanism plays a significant role in amplifying other shocks.
    Keywords: Business Cycles, Endogenous Technology Adoption, News Shocks, Stock Market.
    JEL: E3 O3
    Date: 2009–06
  13. By: Bruche, Max; Suarez, Javier
    Abstract: This paper develops a tractable general equilibrium model in which money markets provide structural funding to some banks. When bank default risk becomes significant, retail deposit insurance creates an asymmetry between banks that operate in savings-rich regions, which can remain financed at cheap risk-free rates, and in savings-poor regions, which have to pay either large spreads in money markets or high rates for the scarce regional savings. We show that this asymmetry can cause a severe distortion of the aggregate allocation of credit. When interdependencies across borrowers are large (e.g., via demand externalities), output and welfare losses are also large and can be dramatically reduced by an aggressive subsidization of money market borrowing. The analysis offers some insights on the rationale for responding to a money markets freeze with full-allotment fixed-rate lending policies by central banks or the extension of government guarantees on non-deposit liabilities.
    Keywords: deposit insurance; financial crisis; money markets; spreads
    JEL: E44 G15 G21
    Date: 2009–05
  14. By: Dr Bimal Jalan
    Abstract: Dr. Bimal Jalan, Governor gave a welcome remark to Prof. Charles Goodhart on his 11th C. D. Deshmukh Memorial Lecture on 'Whither Central Banking ?' This paper revolves around Dr. Jalan's summary and Prof.Goodhart's lecture on central banking. [RBI CD Deshmukh]
    Keywords: RBI; inflation; C. D. Deshmukh; Norman Sosnow Professor of Banking and Finance; monetary policy; delegate; Choice ; Trade off; open economy; asset price; regulation; supervision; domestic inflation
    Date: 2009
  15. By: Roger E. A. Farmer
    Abstract: This paper uses a model with a continuum of equilibrium unemployment rates to explore the effectiveness of fiscal policy. The existence of multiple steady state unemployment rates is explained by the absence of markets for the inputs to a search technology for matching unemployed workers with vacant jobs. I explain the current financial crisis as a shift to a high unemployment equilibrium, induced by the self-fulfilling beliefs of market participants about asset prices. Using this model, I ask two questions. 1) Can fiscal policy help us out of the crisis? 2) Is there an alternative to fiscal policy that is less costly and more effective? The answer to both questions is yes.
    JEL: E2 E24
    Date: 2009–05
  16. By: Bacchetta, Philippe; van Wincoop, Eric
    Abstract: It is well known from anecdotal, survey and econometric evidence that the relationship between the exchange rate and macro fundamentals is highly unstable. This could be explained when structural parameters are known and very volatile, neither of which seems plausible. Instead we argue that large and frequent variations in the relationship between the exchange rate and macro fundamentals naturally develop when structural parameters in the economy are unknown and change very slowly. We show that the reduced form relationship between exchange rates and fundamentals is driven not by the structural parameters themselves, but rather by expectations of these parameters. These expectations can be highly unstable as a result of perfectly rational "scapegoat" effects. This happens when parameters can potentially change much more in the long run than the short run. This generates substantial uncertainty about the level of parameters, even though monthly or annual changes are small. This mechanism can also be relevant in other contexts of forward looking variables and could explain the widespread evidence of parameter instability found in macroeconomic and financial data. Finally, we show that parameter instability has remarkably little effect on the volatility of exchange rates, the in-sample explanatory power of macro fundamentals and the ability to forecast out of sample.
    Keywords: Exchange rate; Time-varying coefficients
    JEL: F31 F37
    Date: 2009–05
  17. By: Singh, Prakash; Pandey, Manoj K.
    Abstract: This paper attempts to take a meticulous look on stability of money demand in India Using annual data for period 1953-2007 and the Hansen (1992) and Gregory Hansen (1996) co-integration approaches with structural break. Results of the Gregory Hansen (1996) cointegration analysis show the presence of cointegration in demand for money, real GDP and nominal interest rate with structural break at 1965. Further, study also suggests for downward shift of about 0.33 % around 1965 in the demand for money function and put forward that demand for money is stable except for the period of 1975-1998.
    Keywords: Money Demand; Cointegration with Structural Break; Stability; Choice of Monetary Instrument
    JEL: E52 E41
    Date: 2009–03–05
  18. By: Jens Eisenschmidt (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Astrid Hirsch (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Tobias Linzert (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: Liquidity provision through its repo auctions has been one of the main instruments of the European Central Bank (ECB) to address the recent tensions in financial markets since summer 2007. In this paper, we analyse banks’ bidding behaviour in the ECB’s main refinancing operations (MROs) during the ongoing turmoil in money and financial markets. We employ a unique data set comprising repo auctions from March 2004 to October 2008 with bidding data from 877 counterparties. We find that increased bid rates during the turmoil can be explained by, inter alia, the increased individual refinancing motive, the increased attractiveness of the ECB’s tender operations due to its collateral framework and banks’ bidding more aggressively, i.e. at higher rates to avoid being rationed at the marginal rate in times of increased liquidity uncertainty. JEL Classification: E52, D44, C33, C34.
    Keywords: Central Bank Auctions, Financial Market Turmoil, Panel Sample Selection Model, Bidding Behavior, Monetary Policy Instruments.
    Date: 2009–05
  19. By: René Garcia; Richard Luger
    Abstract: We build and estimate an equilibrium model of the term structure of interest rates based on a recursive utility specification. We contrast it with an arbitrage-free model, where prices of risk are estimated freely without preference constraints. In both models, nominal bond yields are affine functions of macroeconomic state variables. The equilibrium model accounts for the tent-shaped pattern and magnitude of coefficients from predictive regressions of excess bond returns on forward rates and the hump-shaped pattern in the term structure of volatilities, while the reduced-form no-arbitrage model does not account for these important features of the yield curve. <P>Nous construisons et évaluons un modèle d’équilibre de la structure par terme des taux d’intérêt, fondé sur une caractéristique de la fonction d’utilité récursive. Nous le comparons à un modèle caractérisé par l’absence d’arbitrage, dans lequel les prix du risque sont estimés librement sans contrainte de préférence. Dans les deux modèles, les rendements des obligations nominales sont des fonctions affines des variables d’état macroéconomique. Le modèle d’équilibre prend en compte le profil en forme de tente (tent-shaped) et l’ampleur des coefficients de régression prédictive relatifs aux rendements des obligations excédant les taux d’intérêt à terme, de même que le profil en forme de bosse (hump-shaped) dans la structure par terme des volatilités, tandis que le modèle à forme réduite et caractérisé par l’absence d’arbitrage ne tient pas compte de ces caractéristiques importantes de la courbe de rendement.
    Keywords: Recursive utility, Yield curve, Affine macro-finance model, Bond risk premium, Expectations puzzle, Utilité récursive, courbe de rendement, modèle macrofinancier affine, prime de risque liée aux obligations, perplexité des attentes
    JEL: E43 E44 G12
    Date: 2009–05–01
  20. By: James D. Hamilton
    Abstract: This paper explores similarities and differences between the run-up of oil prices in 2007-08 and earlier oil price shocks, looking at what caused the price increase and what effects it had on the economy. Whereas historical oil price shocks were primarily caused by physical disruptions of supply, the price run-up of 2007-08 was caused by strong demand confronting stagnating world production. Although the causes were different, the consequences for the economy appear to have been very similar to those observed in earlier episodes, with significant effects on overall consumption spending and purchases of domestic automobiles in particular. In the absence of those declines, it is unlikely that we would have characterized the period 2007:Q4 to 2008:Q3 as one of economic recession for the U.S. The experience of 2007-08 should thus be added to the list of recessions to which oil prices appear to have made a material contribution.
    JEL: E32 Q43
    Date: 2009–05
  21. By: Yuko Hashimoto; Takatoshi Ito
    Abstract: Market impacts of Japanese macroeconomic announcements within minutes on the dollar/yen foreign exchange are analyzed. High-frequency data collected from the actual trading platform, EBS, are used. First, impacts on returns are analyzed. Macroeconomic statistics releases that consistently had significant effects on exchange rate returns include Tankan survey (a short-term business survey conducted by Bank of Japan), GDP, industrial production (preliminary), PPI, CPI (Tokyo area), the unemployment rate and Balance of Payment statistics. Macroeconomic statistics releases that did not have impacts on returns include Trade Balance, Retail Sales and Housing start indicators. Second, for most of macroeconomic news items whose surprise components have return impacts also have impacts on deals and volatility. The announcement itself, in addition to the magnitude of surprise, is found to increase the deals and price volatility in the immediately after the announcement. In addition, some other items have no return impacts but deals and volatility impacts. These facts are consistent with a view that market participants have heterogeneous information, so that even without any price change, trades take place. Price discovery process may require some transactions with price fluctuations around new price level consistent with statistical announcement
    JEL: E44 F31 F41 G15
    Date: 2009–05
  22. By: Edgar Morgenroth (ESRI)
    Abstract: In the past the first expenditure to be cut during an economic downturn was capital expenditure. However, the cuts in capital expenditure of the late 1980?s and 90?s had left Ireland with an infrastructure deficit. This note highlights a number of important issues, which should be considered before decisions to spend tax payer?s money to support the construction sector are taken. Overall the paper concludes that in the context of a relatively high cost per job created via public investment, public capital projects should be undertaken on the basis that they have a long-run return to the whole economy.
    Date: 2009–05
  23. By: Raouf Boucekkine; Giorgio Fabbri; Fausto Gozzi
    Abstract: A benchmark AK optimal growth model with maintenance expenditures and endogenous utilization of capital is considered within an explicit vin- tage capital framework. Scrapping is endogenous, and the model allows for a clean distinction between age and usage dependent capital deprecia- tion and obsolescence. It is also shown that in this set-up past investment profile completely determines the size of current maintenance expendi- tures. Among other findings, a closed-form solution to optimal dynam- ics is provided taking advantage of very recent development in optimal control of infinite dimensional systems. More importantly, and in con- trast to the pre-existing literature, we study investment and maintenance co-movements without any postulated ad-hoc depreciation function. In particular, we find that optimal investment and maintenance do move to- gether in the short-run in response to neutral technological shocks, which seems to be more consistent with the data.
    Keywords: Maintenance, investment, optimal control, dynamic program- ming, infinite dimensional problem
    JEL: E22 E32 O40
    Date: 2009–04
  24. By: André Luís Leite; Romeu Braz Pereira Gomes Filho; José Valentim Machado Vicente
    Abstract: A variety of models has been proposed for yield curve forecasting. In this paper we present a dynamic latent factor model for Brazilian interest rate term-structure forecasting, based in three major information sources: macroeconomic variables, surveys and risk premium. We use the proposed model to produce forecasts six month ahead and we compare the results with the well known Diebold and Li (2006) and a random walk. Our forecasts appear much more accurate than the alternative models.
    Date: 2009–05
  25. By: Andrew B. Abel; Janice C. Eberly; Stavros Panageas
    Abstract: Recurrent intervals of inattention to the stock market are optimal if consumers incur a utility cost to observe asset values. When consumers observe the value of their wealth, they decide whether to transfer funds between a transactions account from which consumption must be financed and an investment portfolio of equity and riskless bonds. Transfers of funds are subject to a transactions cost that reduces wealth and consists of two components: one is proportional to the amount of assets transferred, and the other is a fixed resource cost. Because it is costly to transfer funds, the consumer may choose not to transfer any funds on a particular observation date. In general, the optimal adjustment rule---including the size and direction of transfers, and the time of the next observation---is state-dependent. Surprisingly, unless the fixed resource cost of transferring funds is large, the consumer's optimal behavior eventually evolves to a situation with a purely time-dependent rule with a constant interval of time between observations. This interval of time can be substantial even for tiny observation costs. When this situation is attained, the standard consumption Euler equation holds between observation dates if the consumer is sufficiently risk averse.
    JEL: E21 G11
    Date: 2009–05
  26. By: Proietti, Tommaso
    Abstract: The Beveridge-Nelson decomposition defines the trend component in terms of the eventual forecast function, as the value the series would take if it were on its long-run path. The paper introduces the multistep Beveridge-Nelson decomposition, which arises when the forecast function is obtained by the direct autoregressive approach, which optimizes the predictive ability of the AR model at forecast horizons greater than one. We compare our proposal with the standard Beveridge-Nelson decomposition, for which the forecast function is obtained by iterating the one-step-ahead predictions via the chain rule. We illustrate that the multistep Beveridge-Nelson trend is more efficient than the standard one in the presence of model misspecification and we subsequently assess the predictive validity of the extracted transitory component with respect to future growth.
    Keywords: Trend and Cycle; Forecasting; Filtering.
    JEL: E32 E31 C52 C22
    Date: 2009–04–02
  27. By: Pascal Seppecher (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales - CNRS : UMR6579)
    Abstract: Nous présentons un modèle macroéconomique multi-agents dans lequel la création et la destruction de monnaie résultent des interactions entre les agents. Il est l'ébauche d'un modèle plus complet, destiné à évaluer par la simulation l'impact économique et social des politiques macroéconomiques. Dans ce modèle simplifié, toute la monnaie est une monnaie scripturale créée par le crédit bancaire pour le financement de la production. Nous trouvons que ce modèle rend compte de certains traits essentiels d'une économie capitaliste industrielle et en particulier de la possibilité de la réalisation en monnaie d'un profit macroéconomique.
    Keywords: systèmes dynamiques complexes ; économie computationnelle ; macroéconomie multi-agents ; économie monétaire de production ; crédits bancaires et création monétaire
    Date: 2009–03–01
  28. By: Commendatore, Pasquale; Panico, Carlo; Pinto, Antonio
    Abstract: This paper deals with the influence of different types of government expenditure on growth. It widens that proposed by the literature which follows the lines set by Barro (1990) because it adds the changes working through the demand side, generated by the variations in the distribution of the net income of the economy, to those working through the supply side, generated by the variations in factor productivity. The analysis considers a government sector with a balanced budget and an autonomous and nonlinear investment function, interpreted along a Kaleckian and a Classical-Harrodian line. It shows under which conditions different types of government expenditure are beneficial or detrimental for economic growth, comparing some results with those reached by Barro (1990) and points out the emergence of phenomena like multiple equilibria, hysteresis and low growth traps.
    Keywords: Distribution; Growth; Government expenditure; post-Keynesian theory; Nonlinearity
    JEL: E62 E12 E25 O41
    Date: 2009–05–02
  29. By: Pierre Berthaud (LEPII - Laboratoire d'Économie de la Production et de l'Intégration Internationale - CNRS : UMR5252 - Université Pierre Mendès-France - Grenoble II)
    Abstract: Les déséquilibres monétaires majeurs qui se sont accumulés depuis de nombreuses années ont en effet permis - sinon causé - le développement de la "grosseur" qui a conduit à la crise actuelle. L'angle d'attaque monétaire nous plonge donc aux racines du mal quand bien même les symptômes les plus spectaculaires se limitent encore aujourd'hui à la finance et à l'économie dite "réelle". Il nous permet aussi de jauger la portée des réponses qui sont apportées à la crise et qui pourraient l'être une fois passée la phase de traitement des symptômes par les nécessaires plans d'urgence. On revient en premier lieu sur l'énigme qui demeure et qui s'amplifie dans le contexte actuel au sujet des variations de changes entre les grandes devises. L'analyse s'élève ensuite par crans successifs sur terrain de la macroéconomie internationale jusqu'à introduire le triangle d'incompatibilités auquel renvoie la question du change. On décèle à ce stade une tension majeure entre les besoins du monde en devise clé (le dollar seul jusqu'à ce jour) et la stabilité macro-économique de l'économie américaine. Nous serons alors mieux armés pour envisager ce que les États pourraient et devraient entreprendre sur le terrain monétaire afin de pouvoir encore traiter le problème "à froid".
    Keywords: crise économique ; crise financière ; dollar ; politique monétaire ; système monétaire international
    Date: 2009–05–14
  30. By: Bulent Guler; Fatih Guvenen; Giovanni L. Violante
    Abstract: Search theory routinely assumes that decisions about the acceptance/rejection of job offers (and, hence, about labor market movements between jobs or across employment states) are made by individuals acting in isolation. In reality, the vast majority of workers are somewhat tied to their partners--in couples and families--and decisions are made jointly. This paper studies, from a theoretical viewpoint, the joint job-search and location problem of a household formed by a couple (e.g., husband and wife) who perfectly pools income. The objective of the exercise, very much in the spirit of standard search theory, is to characterize the reservation wage behavior of the couple and compare it to the single-agent search model in order to understand the ramifications of partnerships for individual labor market outcomes and wage dynamics. We focus on two main cases. First, when couples are risk averse and pool income, joint search yields new opportunities--similar to on-the-job search--relative to the single-agent search. Second, when the two spouses in a couple face job offers from multiple locations and a cost of living apart, joint-search features new frictions and can lead to significantly worse outcomes than single-agent search.
    JEL: E24 J61 J64
    Date: 2009–05
  31. By: Ferreira, Pedro Cavalcanti; Pereira, Ricardo A. de Castro
    Abstract: Este artigo avalia o impacto sobre a economia brasileira de uma reforma trib- utária que reduza distorções e cumulatividade, utilizando para tal experimento a atual proposta do Ministério da Fazenda. Utiliza-se um modelo recursivo dinâmico padrão calibrado de forma a se aproximar o máximo possível da economia brasileira hoje. A simulações são implementadas ao se introduzir parâmetros correspon- dentes à reforma tributária: desoneração da folha de pagamentos, redução da cumulatividade com introdução do IVA-F e a desoneração dos investimentos com a redução do prazo de restituição de créditos de ICMS. Estima-se que a reforma tributária proposta provocaria um aumento de 1,5 pontos percentuais na taxa de crescimento do produto nos oito anos seguintes a sua implementação e um ganho de longo prazo de 16%. O impacto sobre o nível de investimento seria muito ex- pressivo, 40% no mesmo período, de modo que a taxa de investimento saltaria dos atuais 20% para quase 24%. Os ganhos de consumo e bem-estar também foram estimados como bastante signi cativos.
    Date: 2009–05–20
  32. By: Dr. Christian Lutz (GWS - Institute of Economic Structures Research); Dr. Marc Ingo Wolter (GWS - Institute of Economic Structures Research)
    Abstract: Angesichts der globalen Finanz- und Wirtschaftskrise ist die Unsicherheit über die zukünftige Entwicklung der deutschen Volkswirtschaft verglichen mit der Vergangenheit außerordentlich hoch. Langfristige Projektionen der wirtschaftlichen Entwicklung sind heute nur unter erheblichem Aufwand seriös möglich. Vor diesem Hintergrund zielt dieser Beitrag darauf, Leitplanken im Prognosenebel zu beschreiben. Mit dem Modell INFORGE werden auf Basis einer Prognose für das Jahr 2009, die die Konjunkturpakete der Bundesregierung berücksichtigt, zwei denkbare mittelfristige Entwicklungslinien in einem konsistenten gesamtwirtschaftlichen Rahmen beschrieben, die sich nur durch Annahmen über die weltwirtschaftliche Entwicklung in den Jahren 2010 bis 2013 unterscheiden. Das optimistische Szenario geht davon aus, dass sich die Weltwirtschaft im Jahr 2010 durch die massiven Konjunkturprogramme der führenden Industrienationen und durch Etablierung einer neuen Finanzmarktarchitektur schnell erholen wird und damit auch die deutschen Exporte wieder deutlich wachsen werden. In der pessimistischen Variante vertieft sich die Weltwirtschaftskrise im kommenden Jahr weiter. Selbst wenn die Weltwirtschaft danach langsam wieder Tritt fasst, wird es bis 2014 dauern, bis die deutschen Exporte wieder das Niveau des Jahres 2008 erreicht haben werden. Die untersuchte Fragestellung ist so komplex, dass intuitive Erklärungen durch „scharfes Nachdenken“ nicht mehr möglich sind. Nur umfassende und zugleich ausreichend differenzierte Totalmodelle wie INFORGE stellen sicher, dass die wesentlichen Zusammenhänge und Rückkopplungsschleifen erfasst und nachvollzogen werden können. Die Ergebnisse sind einerseits ernüchternd und andererseits beruhigend: Auch im besten Fall ist Deutschland massiv von der Krise betroffen. Alle Bemühungen zur Konsolidierung der öffentlichen Haushalte sind durch die Krise zunichte gemacht. Für Wahlgeschenke ist kein Spielraum. Vielmehr ist es Aufgabe der Politik in der kommenden Legislaturperiode, die Binnennachfrage zu stärken und trotzdem die Verschuldung zurückzuführen. Umgekehrt droht in Deutschland selbst unter sehr ungünstigen Bedingungen keine unbeherrschbare Situation. Auf dem Arbeitsmarkt ist kein dramatischer Anstieg der Arbeitslosigkeit über das noch vor wenigen Jahren erreichte Niveau hinaus zu erwarten. Die Neuverschuldung erreicht, bezogen auf das Bruttoinlandsprodukt, keine neuen Höchststände, sodass die Regierung auch im kommenden Jahr mit einem Konjunkturpaket III noch einmal handeln könnte.
    Keywords: Wirtschaftskrise, Erholung oder Drepression?, Wirtschaftsentwicklung, Deutschland
    JEL: E32 E66 F01
    Date: 2009

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