nep-mac New Economics Papers
on Macroeconomics
Issue of 2009‒06‒10
28 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Heterogeneous Beliefs and Housing-Market Boom-Bust Cycles in a Small Open Economy By Hajime Tomura
  2. Time-dependent pricing and New Keynesian Phillips curve By Yao, Fang
  3. Forecasting with a DSGE Model of the term Structure of Interest Rates: The Role of the Feedback By Zagaglia, Paolo
  4. Real Effects of Price Stability with Endogenous Nominal Indexation By Césaire Meh; Vincenzo Quadrini; Yaz Terajima
  5. Inflation Targeting Evaluation: Short-run Costs and Long-run Irrelevance By WenShwo Fang; Stephen M. Miller; ChunShen Lee
  6. Shocks, Monetary Policy and Institutions: Explaining Unemployment Persistence in "Europe" and the United States By Ansgar Rannenberg
  7. Reproducing Business Cycle Features: How Important Is Nonlinearity Versus Multivariate Information? By James Morley; Jeremy Piger; Pao-Lin Tien
  8. Adopting Price-Level Targeting under Imperfect Credibility in ToTEM By Gino Cateau; Oleksiy Kryvtsov; Malik Shukayev; Alexander Ueberfeldt
  9. On Some Neglected Implications of the Fisher Effect By Antonio Ribba
  10. Common and spatial drivers in regional business cycles By Erdenebat Bataa; Denise R. Osborn; Marianne Sensier; Dick van Dijk
  11. Does a Threshold Inflation Rate Exist? Quantile Inferences for Inflation and Its Variability By WenShwo Fang; Stephen M. Miller; Chih-Chuan Yeh
  13. Labor Market Dynamics under Long Term Wage Contracting By Leena Rudanko
  14. Optimal Monetary Policy with Durable Consumption Goods and Factor Demand Linkages By Ivan Petrella; Emiliano Santoro
  15. Caracterización de la Política Fiscal en Colombia y Análisis de su Postura Frente a la Crisis Internacional By Ignacio Lozano
  16. Structural Multi-Equation Macroeconomic Models: Identification-Robust Estimation and Fit By Jean-Marie Dufour; Lynda Khalaf; Maral Kichian
  17. FINANCIAL INSTABILITY PREVENTION By Andrew Hughes Hallett; Jan Libich; Petr Stehlik
  18. Swedish monetary standards in historical perspective By Edvinsson, Rodney
  19. Labour Market Institutions and Structural Reforms: A Source for Business Cycle Synchronisation? By Sachs, Andreas; Schleer, Frauke
  20. Interest rates and convergence across Italian regions By Napolitanoi, Oreste; Montagnoli, Alberto; Dow, Sheila C.
  21. The Effect of Financial Crises on Potential Output: New Empirical Evidence from OECD Countries By Davide Furceri; Annabelle Mourougane
  22. Transmission of Liquidity Shock to Bank Credit: Evidence from the Deposit Insurance Reform in Japan By Masami Imai; Seitaro Takarabe
  23. Return and Volatility Reactions to Monthly Announcements of Business Cycle Forecasts: An Event Study Based on High-Frequency Data By Entorf, Horst; Groß, Anne; Steiner, Christian
  24. Firm Heterogeneity and the Long-Run Effects of Dividend Tax Reform By François Gourio; Jianjun Miao
  25. Foreign exchange rates in Sweden 1658-1803 By Edvinsson, Rodney
  26. Indian Economic Outlook 2008-09 and 2009-10 By Rajiv Kumar; Mathew Joseph; Dony Alex; Pankaj Vashisht
  27. The multiple currencies of Sweden-Finland 1534-1803 By Edvinsson, Rodney
  28. Spillover effects of minimum wages in a two-sector search model By Moser, Christoph; Stähler, Nikolai

  1. By: Hajime Tomura
    Abstract: This paper introduces heterogeneous beliefs among households in a small open economy model for the Canadian economy. The model suggests that simultaneous boom-bust cycles in house prices, output, investment, consumption and hours worked emerge when credit-constrained mortgage borrowers expect that future house prices will rise and this expectation is neither shared by savers nor realized ex-post. With sticky prices and a standard monetary policy rule, the model shows that the nominal policy interest rate and the CPI inflation rate decline during housing booms and rise as house prices fall. These results replicate the stylized features of housing-market boom-bust cycles in industrialized countries. Policy experiments demonstrate that stronger policy responses to inflation amplify housing-market boom-bust cycles. Also, higher loan-to-value ratios amplify housing-market boom-bust cycles by encouraging speculative housing investments by mortgage borrowers during housing booms and increasing liquidation of housing collateral during housing busts.
    Keywords: Credit and credit aggregates; Financial stability; Inflation targets
    JEL: E44 E52
    Date: 2009
  2. By: Yao, Fang
    Abstract: This paper explores what can be lost when assuming price adjustment is a time - independent (memoryless) process.I derive a generalized NKPC in an optinizing model with the non- constant hazard function and trend inflation. Memory emerges in the resulting Phillips curve through the presence of lagged inflation and lagged expectations. It nests the Calvo NKPC as a limitting case in the sense that the effect of both terms are canceled out by one another under the constant-hazard assumption. Furthermore, I find lagged inflation always has negative coefficients, thereby making it impossible to interpret inflation persistence as intrinsic to the model. The numerical evaluation shows that introducing trend inflation strengthens the effects of the increasing hazard function on the inflation dynamics . The model can jointly account for persistent dynamics of inflation and output, hump-shaped impulse responses of inflation to monetary shocks, and the fact that high trend inflation leads to more persistence in inflation but not for real variables.
    Keywords: Intrinsic inflation persistance, Hazard function, New Keynesian Phillips Curve
    JEL: E12 E31
    Date: 2009
  3. By: Zagaglia, Paolo (Dept. of Economics, Stockholm University)
    Abstract: This paper studies the forecasting performance of the general equilibrium model of bond yields of Marzo, Söderström and Zagaglia (2008), where long-term interest rates are an integral part of the monetary transmission mechanism. The model is estimated with Bayesian methods on Euro area data. I investigate the out-of-sample predictive performance across different model specifications, including that of De Graeve, Emiris and Wouters (2009). The accuracy of point forecasts is evaluated through both univariate and multivariate accuracy measures. I show that taking into account the impact of the term structure of interest rates on the macroeconomy generates superior out-of-sample forecasts for both real variables, such as output, and inflation, and for bond yields.
    Keywords: Monetary policy; yield curve; general equilibrium; bayesian estimation
    JEL: E43 E44 E52
    Date: 2009–05–20
  4. By: Césaire Meh; Vincenzo Quadrini; Yaz Terajima
    Abstract: We study a model with repeated moral hazard where financial contracts are not fully indexed to inflation because nominal prices are observed with delay as in Jovanovic & Ueda (1997). More constrained firms sign contracts that are less indexed to the nominal price and, as a result, their investment is more sensitive to nominal price shocks. We also find that the overall degree of nominal indexation increases with the uncertainty of the price level. An implication of this is that economies with higher price-level uncertainty are less vulnerable to a price shock of a given magnitude, that is, aggregate investment and output respond to a lesser degree.
    Keywords: Economic models; Monetary policy framework; Financial markets; Transmission of monetary policy
    JEL: E21 E31 E44 E52
    Date: 2009
  5. By: WenShwo Fang (Department of Economics, Feng Chia University); Stephen M. Miller (Department of Economics, University of Nevada, Las Vegas); ChunShen Lee (Department of Economics, Feng Chia University)
    Abstract: Recent studies evaluate the effectiveness of inflation targeting through the average treatment effect and generally conclude the window-dressing view of the monetary policy for industrial countries. This paper argues that the evidence of irrelevance emerges because of a time-varying relationship (treatment effect) between the monetary policy and its effects on economic performance over time. Targeters achieve lower inflation immediately following the adoption of the policy as well as temporarily slower output growth and higher inflation and output growth variability. But these short-run effects will eventually disappear in the long run. This paper finds substantial empirical evidence for the existence of such intertemporal tradeoffs for eight industrial inflation-targeting countries. That is, targeting inflation significantly reduces inflation at the costs of a lower output growth and higher inflation and growth variability in the short-run, but no substantial effects in the medium to the long-run.
    Keywords: inflation targeting, time-varying treatment effects, short-run costs, long-run irrelevance
    JEL: C23 E52
    Date: 2009–06
  6. By: Ansgar Rannenberg
    Abstract: This paper examines the rise in European unemployment since the 1970s by introducing endogenous growth into an otherwise standard New Keynesian model with capital accumulation and unemployment. We subject the model to an uncorrelated cost push shock, in order to mimic a scenario akin to the one faced by central banks at the end of the 1970s. Monetary policy implements a disin?ation by following an interest feedback rule calibrated to an estimate of a Bundesbank reaction function. 40 quarters after the shock has vanished, unemployment is still about 1.8 percentage points above its steady state. Our model also broadly reproduces cross country differences in unemployment by drawing on cross country di¤erences in the size of cost push shock and the associated disinflation, the monetary policy reaction function and the wage setting structure.
    Date: 2009–05
  7. By: James Morley (Washington University in St. Louis); Jeremy Piger (University of Oregon); Pao-Lin Tien (Department of Economics, Wesleyan University)
    Abstract: In this paper, we consider the ability of time-series models to generate simulated data that display the same business cycle features found in U.S. real GDP. Our analysis of a range of popular time-series models allows us to investigate the extent to which multivariate information can account for the apparent univariate evidence of nonlinear dynamics in GDP. We find that certain nonlinear specifications yield an improvement over linear models in reproducing business cycle features, even when multivariate information inherent in the unemployment rate, inflation, interest rates, and the components of GDP is taken into account.
    JEL: E30 C52
    Date: 2009–05
  8. By: Gino Cateau; Oleksiy Kryvtsov; Malik Shukayev; Alexander Ueberfeldt
    Abstract: Using the Bank of Canada's main projection and policy-analysis model, ToTEM, this paper measures the welfare gains of switching from inflation targeting to price-level targeting under imperfect credibility. Following the policy change, private agents assign a probability to the event that the policy-maker will revert to inflation-targeting next period. As this probability decreases and imperfect credibility abates, inflation expectations in the economy become consistent with price-level targeting. The paper finds a large welfare gain when imperfect credibility is short-lived. The gain becomes smaller with persisting imperfect credibility, turning to a loss if it lasts more than 13 years.
    Keywords: Monetary policy framework; Monetary policy implementation
    JEL: E31 E52
    Date: 2009
  9. By: Antonio Ribba
    Abstract: Following the lead of Fama [American Economic Review 65 (1975) 269-282] and of other influential papers, such as Mishkin [Journal of Monetary Economics 30 (1992) 195-215], it has become standard to interpret the Fisher effect as the ability of short-term interest rate to predict future inflation. However, in this paper we demonstrate that by restricting to zero the instantaneous response of expected inflation to an interest rate shock, one can identify a disturbance that economic agents, according to the Fisherian framework, should evaluate as transitory. An important implication of this result is that short-term nominal interest rates cannot be interpreted as predictors, at least not long-run predictors, of inflation. We illustrate this result with an empirical application to US postwar data.
    Keywords: Fisher Effect; Identification; Structural Cointegrated VARs
    JEL: E40 C32
    Date: 2009–05
  10. By: Erdenebat Bataa; Denise R. Osborn; Marianne Sensier; Dick van Dijk
    Abstract: To shed light on changes in international inflation, this paper proposes an iterative procedure to discriminate between structural breaks in the coefficients and the disturbance covariance matrix of a system of equations, allowing these components to change at different dates. Conditional on these, recursive procedures are proposed to analyze the nature of change, including tests to identify individual coefficient shifts and to discriminate between volatility and correlation breaks. Using these procedures, structural breaks in monthly cross-country inflation relationships are examined for major G-7 countries (US, Euro area, UK and Canada) and within the Euro area (France, Germany and Italy). Overall, we find few dynamic spillovers between countries, although the Euro area leads inflation in North America, while Germany leads France. Contemporaneous inflation correlations are generally low in the 1970s and early 1980s, but inter-continental correlations increase from the end of the 1990s, while Euro area countries move from essentially idiosyncratic inflation to co-movement in the mid-1980s.
    Date: 2009
  11. By: WenShwo Fang (Department of Economics, Feng Chia University); Stephen M. Miller (Department of Economics, University of Nevada, Las Vegas); Chih-Chuan Yeh (Department of Finance, The Overseas Chinese Institute of Technology)
    Abstract: Using quantile regressions and cross-sectional data from 152 countries, we examine the relationship between inflation and its variability. We consider two measures of inflation – the mean and median – and three different measures of inflation variability – the standard deviation, relative variation, and median deviation. All results from the mean and standard deviation, the mean and relative variation, or the median and the median deviation support both the hypothesis that higher inflation creates more inflation variability and that inflation variability raises inflation across quantiles. Moreover, higher quantiles in both cases lead to larger marginal effects of inflation (inflation variability) on inflation variability (inflation). We particularly consider whether thresholds for inflation rate or inflation variability exist before finding such positive correlations. We find evidence of thresholds for inflation rates below 3 percent, but mixed results for thresholds for inflation variability. Finally, a series of robustness checks, including a set of additional explanatory variables as well as controlling for potential endogeneity with instrumental variables, leaves our findings generally unchanged.
    Keywords: inflation, inflation variability, inflation targeting, threshold effects, quantile regression
    JEL: C21 E31
    Date: 2009–06
  12. By: Renee A. Fry; Vance L. Martin; Nicholas Voukelatos
    Abstract: A 7 variate SVAR model is used to identify the presence and causes of overvaluation in real house prices in Australia from 2002 to 2008. An important feature of the model is the development of a housing sector where long-run restrictions are derived from economic theory to identify housing demand and supply shocks. The empirical results show that real house prices were overvalued during the period, reaching a peak of nearly 20% by the end of 2003. Important factors driving the observed overvaluation are housing demand shocks prior to 2006, and macroeconomic shocks in the goods market post 2006. Wealth effects from portfolio shocks in equity markets are also found to be an important driver. The results also suggest that monetary policy is not an important contributing factor in the overvaluation of house prices.
    JEL: E21 E44 C32 R21
    Date: 2009–03
  13. By: Leena Rudanko (Boston University)
    Abstract: Recent research seeking to explain the strong cyclicality of US unemployment emphasizes the role of wage rigidity. This paper proposes a micro-founded model of wage rigidity – an equilibrium business cycle model of job search, where risk neutral firms post optimal long-term contracts to attract risk averse workers. Equilibrium contracts feature wage smoothing, limited by the inability of parties to commit to contracts. The model is consistent with aggregate wage data if neither worker nor firm can commit, producing too rigid wages otherwise. Wage rigidity does not lead to a substantial increase in the cyclical volatility of unemployment.
    Keywords: wage rigidity, unemployment fluctuations, long-term wage contracts, limited commitment, directed search
    JEL: E24 E32 J41 J64
    Date: 2008–12
  14. By: Ivan Petrella (University of Cambridge); Emiliano Santoro (Department of Economics, University of Copenhagen)
    Abstract: This paper deals with the implications of factor demand linkages for monetary policy design. We develop a dynamic general equilibrium model with two sectors that produce durable and non-durable goods, respectively. Part of the output produced in each sector is used as an intermediate input of production in both sectors, according to an input-output matrix calibrated on the US economy. As shown in a number of recent contributions, this roundabout technology allows us to reconcile standard two-sector New Keynesian models with the empirical evidence showing co-movement between durable and non-durable spending in response to a monetary policy shock. A main result of our monetary policy analysis is that strategic complementarities generated by factor demand linkages amplify social welfare loss. As the degree of interconnection between sectors increases, the cost of misperceiving the correct production technology of each sector can rise substantially. In addition, the transmission of different sources of exogenous perturbation is altered, compared to what is commonly observed in standard two-sector models without factor demand linkages. In this respect, the role of the relative price of non-durable goods is crucial, as this does not only influence the user cost of durables through the conventional demand channel, but also affects in opposite directions the real marginal cost of production in either sector through the intermediate input channel.
    Keywords: input-output interactions, durable goods, optimal monetary policy
    JEL: E23 E32 E52
    Date: 2009–05
  15. By: Ignacio Lozano
    Abstract: En este documento se caracteriza la política fiscal en Colombia a partir de la valoración de los tres aspectos más relevantes desde la perspectiva macroeconómica: su posición frente al ciclo, su volatilidad y la sostenibilidad de la deuda. Los resultados encontrados se comparan a nivel internacional. Adicionalmente se analiza la postura de la autoridad fiscal frente a la crisis internacional y se evalúan dos escenarios sobre sus posibles repercusiones. Utilizando una regla de política se encuentra que la política discrecional del gobierno ha sido procíclica en el mediano y largo plazo, que ha reducido su volatilidad en los últimos años y que ha sido consecuente con la condición de sostenibilidad. La evidencia indica que hasta ahora la autoridad fiscal no ha diseñado un programa contra-cíclico para compensar los efectos de la crisis y que espera que operen los estabilizadores automáticos en la recuperación para superar los desajustes que se presenten en la actual coyuntura. En el corto y mediano plazo las finanzas del gobierno nacional sufrirán un apreciable deterioro, por la caída en la actividad económica: sus ingresos se podrían contraer, en términos reales, entre -3% y -4,5% en 2010, el balance primario será negativo hasta 2011 (oscilará entre -0,8% y -1,5% del PIB) y la deuda alcanzaría niveles cercanos a los registrados a comienzos de la década.
    Keywords: Ciclos económicos, política fiscal, déficit y superávit, pronósticos de déficit y deuda. Classification JEL: E32, E62, H62, H68
  16. By: Jean-Marie Dufour; Lynda Khalaf; Maral Kichian
    Abstract: Weak identification is likely to be prevalent in multi-equation macroeconomic models such as in dynamic stochastic general equilibrium setups. Identification difficulties cause the breakdown of standard asymptotic procedures, making inference unreliable. While the extensive econometric literature now includes a number of identification-robust methods that are valid regardless of the identification status of models, these are mostly limited-information-based approaches, and applications have accordingly been made on single-equation models such as the New Keynesian Phillips Curve. <br><br> In this paper, we develop a set of identification-robust econometric tools that, regardless of the model's identification status, are useful for estimating and assessing the fit of a system of structural equations. In particular, we propose a vector auto-regression (VAR) based estimation and testing procedure that relies on inverting identification-robust multivariate statistics. The procedure is valid in the presence of endogeneity, structural constraints, identification difficulties, or any combination of these, and also provides summary measures of fit. Furthermore, it has the additional desirable features that it is robust to missing instruments, errors-in-variables, the specification of the data generating process, and the presence of contemporaneous correlation in the disturbances. <br><br> We apply our methodology, using U.S. data, to the standard New Keynesian model such as the one studied in Clarida, Gali, and Gertler (1999). We find that, despite the presence of identification difficulties, our proposed method is able to shed some light on the fit of the considered model and, particularly, on the nature of the NKPC. Notably our results show that (i) confidence intervals obtained using our system-based approach are generally tighter than their single-equation counterparts, and thus are more informative, (ii) most model coefficients are significant at conventional levels, and (iii) the NKPC is preponderantly forward-looking, though not purely so.
    Keywords: Inflation and prices; Econometric and statistical methods
    JEL: C52 C53 E37
    Date: 2009
  17. By: Andrew Hughes Hallett; Jan Libich; Petr Stehlik
    Abstract: The paper attempts to assess to what extent the central bank or the government should respond to developments that cause ?financial instability, such as housing or asset bubbles, overextended fi?scal policies, or excessive public or household debt. To analyze this question we set up a simple reduced-form model in which mone- tary and fi?scal policy interact, and consider several scenarios with both benevolent and idiosyncratic policymakers. The analysis shows that the answer depends on certain characteristics of the economy, as well as on the degree of ambition and con- servatism of the two policymakers. Speci?fically, we identify circumstances under which fi?nancial instability prevention is best carried out by: (i) both monetary and ?fiscal policy ("sharing"), (ii) only one of the policies ("specialization"), and (iii) nei- ther policy ("indifference"). In the former two cases there are circumstances under which either policy should be more pro-active than the other, and also circum- stances under which fi?scal policy should be ultra-active: ie care about nothing but the prevention of ?financial instability. These results are important in the context of the current crisis. We also show that neither the government nor the central bank should be allowed to freely select the degree of their activism in regard to fi?nancial instability threats. This is because of a moral hazard problem: both policymakers have an incentive to be insufficiently pro-active, and shift the responsibility to the other policy. Such behaviour has strong implications for the optimal design of the delegation process.
    JEL: E42 E61
    Date: 2009–06
  18. By: Edvinsson, Rodney (Dept. of Economic History, Stockholm University)
    Abstract: This paper classifies the monetary standards in Sweden from the Middle Ages to the present, and gives an overview of the various currencies that were in use. During most of Sweden’s history, a commodity standard was in place, while the fiat standard is a rather late innovation. The classification into monetary standards is also related to the issue of debasement under the commodity standard and the mechanisms behind the rise of multiple currencies.
    Keywords: monetary history; monetary standard; Sweden
    JEL: E42 N13 N14 N23 N24
    Date: 2009–05–24
  19. By: Sachs, Andreas; Schleer, Frauke
    Abstract: We focus on the influence of institutional variables on business cycle synchronisation for 20 OECD countries from 1979 to 2003. More precisely, this paper derives measures for similarity of institutions and structural reforms, and investigates direct and delayed reform effects on synchronisation by applying robustness tests to a panel data framework with bilateral data. Our findings indicate a strong instantaneous relationship between both similarity of institutions as well as common structural reforms and business cycle correlation.
    Keywords: Business cycle synchronisation, Institutions, Structural reforms, Robustness test
    JEL: E32 F42
    Date: 2009
  20. By: Napolitanoi, Oreste; Montagnoli, Alberto; Dow, Sheila C.
    Abstract: The purpose of this paper is to investigate the evidence for economic convergence across Italian regions using trends in interest rate spreads and premia as indicators of regional credit conditions. Our results indicate the presence of persistent interest rate differentials, and thus an absence of convergence across the twenty political regions, but we observe a high degree of convergence within the four macroeconomic areas. On the other hand we find evidence of a strong level of homogeneity in credit conditions within each of the four macroeconomic regions.
    Keywords: Italy; convergence; panel data; unit root; interest rates
    Date: 2009–05
  21. By: Davide Furceri; Annabelle Mourougane
    Abstract: The aim of this paper is to assess the impact of financial crises on potential output. For this purpose a univariate autoregressive growth equation is estimated on an unbalanced panel of OECD countries over the period 1960 to 2007. Our results suggest that the occurrence of a financial crisis negatively and permanently affects potential output. In particular, financial crises are estimated to lower potential output by around 1.5 to 2.4% on average. The magnitude of the effect increases with the severity of the crisis. The occurrence of a deep crisis is found to decrease potential output by nearly 4%, almost twice the amount observed for the average of crises. These results are robust to the use of an alternative measure of potential output, changes in the methodology and in the sample periods.<P>L’effet des crises financières sur la production potentielle : nouvelle analyse empirique sur les pays de l’OCDE<BR>L’objectif de ce papier est d’estimer l’effet des crises financières sur la production potentielle. A cette fin, une équation de croissance univariée est estimée sur un panel non cylindré de données sur les pays de l’OCDE sur la période 1960-2007. Nos analyses suggèrent que l’occurrence d’une crise affecte négativement et de façon persistante la production potentielle. En particulier, les crises financières diminueraient d’après nos estimations la production potentielle d’environ 1.5 à 2.4% en moyenne. L’amplitude de cet effet augmente avec la sévérité de la crise. L’éclatement d’une crise profonde est estimé réduire la production potentielle d’un peu moins de 4%, presque deux fois la taille de l’effet moyen observé sur les crises. Ces résultats sont robustes à l’utilisation d’une mesure alternative de la production potentielle, à des changements dans la méthodologie et dans la période d’estimation.
    Keywords: potential output, production potentielle, financial crisis, crise financière
    JEL: E6 H10
    Date: 2009–05–19
  22. By: Masami Imai (Department of Economics, Wesleyan University); Seitaro Takarabe
    Abstract: Finding the causal effects of liquidity shocks on credit supply is complicated by the endogenous relation between loan demand and liquidity position of banks. This paper attempts to overcome this problem by exploiting, as a natural experiment, the exogenous deposit outflow prompted by the removal of a blanket deposit guarantee on time deposits in Japan. We find that just as the government placed a cap on insurance for time deposits in 2002, weak banks suffered from a large outflow of partially insured time deposits. More importantly, we find that those weak banks were not able to raise a sufficient amount of fully insured ordinary deposits to make up for the loss of time deposits, which, consequently, forced them to cut back on loan supply. These results are consistent with the theory that the imperfect substitutability of insured deposits and uninsured deposits affects the tightness of banks’ financing constraints and ultimately the supply of bank loans.
    Keywords: Deposit Insurance, Bank Lending Channel, Japan, Natural Experiment
    JEL: E44 G21
    Date: 2009–05
  23. By: Entorf, Horst; Groß, Anne; Steiner, Christian
    Abstract: This article contributes to the literature on macroeconomic announcements and their impact on asset prices by investigating how the 15-second Xetra DAX returns reflect the monthly announcements of the two best known business cycle forecasts for Germany, i.e. the ifo Business Climate Index and the ZEW Indicator of Economic Sentiment. From the methodological point of view, the main innovation lies in disentangling ‘good’ macroeconomics news from ‘bad’ news, and, simultaneously, considering time intervals with and without confounding announcements from other sources. Releases from both institutes lead to an immediate response of returns occurring 15 seconds after the announcements, i.e. within the first possible time interval. Announcements of both institutes are also clearly and immediately reflected in the volatility, which remains at a significantly higher level for approximately two minutes slightly elevated for approximately 15 minutes. Combining returns and volatility in a GARCH(1,1)-model, the paper reveals that significant increases in volatility only show up in the presence of simultaneous news released by other sources, whereas return reactions can be observed irrespective of whether confounding announcements are published or not.
    Keywords: event study, announcement effect, high-frequency data, intraday data
    JEL: E44 G12 G14
    Date: 2009
  24. By: François Gourio (Department of Economics, Boston University); Jianjun Miao (Department of Economics, Boston University)
    Abstract: To study the long-run effect of dividend taxation on aggregate capital accumulation, we build a dynamic general equilibrium model in which there is a continuum of firms subject to idiosyncratic productivity shocks. We find that a dividend tax cut raises aggregate productivity by reducing the frictions in the reallocation of capital across firms. Our baseline model simulations show that when both dividend and capital gains tax rates are cut from 25 and 20 percent, respectively, to the same 15 percent level permanently, the aggregate long-run capital stock increases by about 4 percent.
    Keywords: firm heterogeneity, finance regime, dividend tax reform, general equilibrium
    JEL: E22 E62 G31 G35 H32
    Date: 2008–11
  25. By: Edvinsson, Rodney (Dept. of Economic History, Stockholm University)
    Abstract: This paper deals with foreign exchange rates in Sweden 1658-1803. Foreign currencies played a crucial role in Sweden. Most of the domestic currency units were, in fact, originally imported. In the 18th century, the exchange rates most quoted in Sweden were the ones on Amsterdam, Hamburg, London, Paris, Copenhagen, Gdansk and Swedish Pomerania. The primary data are bills of various durations. To estimate spot rates, an assumption must be made of an interest rate on these bills. In the period 1662-1669 the estimated median shadow interest rate on bills of exchange was as high as 12.5 percent, while it most likely decreased substantially in the 18th century.
    Keywords: monetary history; foreign exchange; reichstaler; guilder; pound; taler; zloty; florin; Sweden
    JEL: E42 N13 N23
    Date: 2009–05–26
  26. By: Rajiv Kumar (Indian Council for Research on International Economic Rela); Mathew Joseph (Indian Council for Research on International Economic Rela); Dony Alex (Indian Council for Research on International Economic Rela); Pankaj Vashisht
    Abstract: This paper provides an outlook for the Indian economy in the light of theextraordinary global financial crisis, that started in the US, but which has nowtransformed into the worst economic downturn since the Great Depression. TheIndian economy was slowing down even before the onset of global crisis and so thetiming of this external shock could not have been worse. The analysis undertaken forthis paper shows that the global crisis is likely to bring the Indian GDP growth ratedown considerably. This will pose a big challenge requiring urgent and sustainedpolicy attention to prevent this downturn from becoming unnecessarily prolonged.There is real downside risk that the growth rate could plummet to the pre-1980s levelsif appropriate countercyclical measures are not taken immediately and are noturgently followed by necessary structural reforms. The paper provides a short-termforecast for GDP growth based on a model of leading economic indicators. Wepresent three scenarios in the paper assuming differentiated impact of the externalcrisis. Finally the paper suggests a set of policy measures to get the Indian economyback on the path of sustained rapid and inclusive growth.
    Keywords: Forecasting, Indian economic growth, Economic outlook and conditions, Financial crises
    JEL: E17 E66
  27. By: Edvinsson, Rodney (Dept. of Economic History, Stockholm University)
    Abstract: This paper deals with the exchange rates between the domestic currencies of Sweden-Finland in 1534-1803. In 1534, the first silver daler coins were minted in Sweden, which existed alongside the main silver coins at a fluctuating exchange rate. In 1624, a copper standard was introduced. However, the silver standard continued to exist alongside the copper standard. A distinctive feature of the multi-currency standard in Sweden-Finland during the 17th and 18th centuries, was that there was not only a fluctuating market exchange rate between the copper and silver currencies, but also between various silver currencies. At least five or six currency units were used, three based on silver, one or two based on copper and one based on gold. In 1776 a mono-currency, silver standard was reintroduced, with the riksdaler as the main unit. However, montery stability was not long-lasting. In 1789-1803 two different currencies existed, one fiat currency based on riksdaler riksgälds notes and one based on the riksdaler banco that continued to be convertible into silver coins by the Riksbank. In 1803 the relation 1 riksdaler banco = 1.5 riksdaler riksgälds was fixed, which basically ended the period of multiple currencies.
    Keywords: monetary history; bimetallism; debasement; copper standard; Sweden
    JEL: E42 N13 N23
    Date: 2009–05–26
  28. By: Moser, Christoph; Stähler, Nikolai
    Abstract: Labor market studies on the effects of minimum wages are typically confined to the sector or worker group directly affected. We present a two-sector search model in which one sector is more productive than the other one and thus, pays higher wages. In such a framework, setting a minimum wage in the unproductive sector to reduce the wage gap causes a negative spillover effect on the productive sector. While the effect on job creation in the (targeted) unproductive sector is ambiguous, job creation in the (non-targeted) productive sector unambiguously decreases. This is driven by the fact that a minimum wage increases the outside option of unemployed workers - contributing to wage determination in the productive sector. Welfare effects are ambiguous. In principle, we cannot exclude that a minimum wage in a two-sector search model is welfare enhancing due to the possibility of an above optimal level of productive employment since firms do not take into account the effects of their individual job creation on aggregated search costs.
    Keywords: minimum wages, matching models, two sectors, unemployment, welfare
    JEL: E24 J31 J60 J64
    Date: 2009

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