|
on Macroeconomics |
|
Issue of 2009‒08‒22
thirty-one papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | Aleksander Berentsen; Christopher J. Waller |
| Abstract: | We construct a dynamic stochastic general equilibrium model to study optimal monetary stabilization policy. Prices are fully flexible and money is essential for trade. Our main result is that if the central bank pursues a price-level target, it can control inflation expectations and improve welfare by stabilizing short-run shocks to the economy. The optimal policy involves smoothing nominal interest rates which effectively smooths consumption across states. |
| Keywords: | Monetary policy ; Econometric models |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2009-33&r=mac |
| By: | Andrew Ang; Jean Boivin; Sen Dong; Rudy Loo-Kung |
| Abstract: | We estimate the effect of shifts in monetary policy using the term structure of interest rates. In our no-arbitrage model, the short rate follows a version of the Taylor (1993) rule where the coefficients on the output gap and inflation vary over time. The monetary policy loading on the output gap has averaged around 0.4 and has not changed very much over time. The overall response of the yield curve to output gap components is relatively small. In contrast, the inflation loading has changed substantially over the last 50 years and ranges from close to zero in 2003 to a high of 2.4 in 1983. Long-term bonds are sensitive to inflation policy shifts with increases in inflation loadings leading to higher short rates and widening yield spreads. |
| JEL: | E4 E5 G1 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15270&r=mac |
| By: | Eric M. Leeper |
| Abstract: | In this lecture, I argue that there are remarkable parallels between how monetary and fiscal policies operate on the macro economy and that these parallels are sufficient to lead us to think about transforming fiscal policy and fiscal institutions as many countries have transformed monetary policy and monetary institutions. Making fiscal transparency comparable to monetary transparency requires fiscal authorities to discuss future possible fiscal policies explicitly. Enhanced fiscal transparency can help anchor expectations of fiscal policy and make fiscal actions more predictable and effective. As advanced economies move into a prolonged period of heightened fiscal activity, anchoring fiscal expectations will become an increasingly important aspect of macroeconomic policy. |
| JEL: | E52 E63 H60 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15269&r=mac |
| By: | Pierre-Richard Agénor; Koray Alper |
| Abstract: | This paper analyzes the transmission process of monetary policy in a closed-economy New Keynesian model with monopolistic banking, credit market imperfections, and a cost channel. Lending rates incorporate a risk premium, which depends on firms' net worth and cyclical output. The supply of bank loans is perfectly elastic at the prevailing bank rate and so is the provision of central bank liquidity at the official policy rate. The model is calibrated for a middle-income country. Numerical simulations show that credit market imperfections and sluggish adjustment of bank deposit rates (rather than lending rates) may impart a substantial degree of persistence in the response of output and inflation to monetary shocks. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:man:cgbcrp:120&r=mac |
| By: | Xavier Gabaix |
| Abstract: | This paper proposes that idiosyncratic firm-level fluctuations can explain an important part of aggregate shocks, and provide a microfoundation for aggregate productivity shocks. Existing research has focused on using aggregate shocks to explain business cycles, arguing that individual firm shocks average out in aggregate. I show that this argument breaks down if the distribution of firm sizes is fat-tailed, as documented empirically. The idiosyncratic movements of the largest 100 firms in the US appear to explain about one third of variations in output and the Solow residual. This "granular" hypothesis suggests new directions for macroeconomic research, in particular that macroeconomic questions can be clarified by looking at the behavior of large firms. This paper's ideas and analytical results may also be useful to think about the fluctuations of other economic aggregates, such as exports or the trade balance. |
| JEL: | E32 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15286&r=mac |
| By: | Aleksander Berentsen; Christopher J. Waller |
| Abstract: | We study optimal monetary stabilization policy in a dynamic stochastic general equilibrium model where money is essential for trade and firm entry is endogenous. We do so when all prices are flexible and also when some are sticky. Due to an externality affecting firm entry, the central bank deviates from the Friedman rule. Calibration exercises suggest that the nominal interest rate should have been substantially smoother than the data if preference shocks were the main disturbance and much more volatile if productivity was the driving shock. This result is a direct consequence of policy actions to control entry. |
| Keywords: | Monetary policy ; Econometric models |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2009-32&r=mac |
| By: | Heinz-Peter Spahn |
| Abstract: | New Keynesian Macroeconomics (NKM) obeys to the new dogma that macroeconomics should be firmly grounded in First Principles of micro theory. Households are assumed to run an intertemporal optimization calculus with respect to leisure and consumption by making use of perfect financial markets. The supply side is organized so that full employment prevails. Macroeconomic coordination problems between saving and investment are absent. In order to make model predictions more compatible with empirical facts, NKM chooses "ad hoc" microfoundations: utility functions and market structures are designed arbitrarily to allow for persistence of macro variables. NKM's reduced hybrid macro model, with lags and expectational leads, is a useful "work horse", compatible with various micro reasoning. However, NKM's insistence on the representative agent obstructs an understanding of heterogeneous beliefs and learning. |
| Keywords: | Representative Agent, Ramsey Saving, Calvo Pricing, Sticky Information, Rational Expectations, Heterogeneous Beliefs |
| JEL: | B22 E12 E2 E3 E44 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:hoh:hohdip:317&r=mac |
| By: | S. Boragan Aruoba; Christopher J. Waller; Randall Wright |
| Abstract: | We study the effects of money (anticipated inflation) on capital formation. Previous papers on this topic adopt reduced-form approaches, putting money in the utility function or imposing cash in advance, but use otherwise frictionless models. We follow a literature that is more explicit about the frictions making money essential. This introduces several new elements, including a two-sector structure with centralized and decentralized markets, stochastic trading opportunities, and bargaining. We show how these elements matter qualitatively and quantitatively. Our numerical results differ from findings in the reduced-form literature. The analysis reduces the previously large gap between mainstream macro and monetary theory. |
| Keywords: | Money ; Monetary theory ; Capital ; Search theory |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2009-31&r=mac |
| By: | Thórarinn G. Pétursson |
| Abstract: | This paper focuses on two important questions concerning inflation performance in a country sample of forty-two of the most developed countries in the world. The firrst is why inflation tends to be more volatile in some countries than in others, in particular in very small, open economies and emerging market economies compared to the large and more developed ones. The empirical analysis suggests that the volatility of the risk premium in multilateral exchange rates, the degree of exchange rate pass-through to inflation, and monetary policy predictability play a key role in explaining the cross-country variation in inflation volatility. Other variables, related to economic development and size, international trade, output volatility, exposure to external shocks, and central bank independence are not found significant. The second question is what explains the general decline in inflation volatility over the sample period. Using a panel approach, the empirical analysis confirms that the adoption of inflation targeting has played a critical role in this improvement in addition to the three variables found important in the cross-country analysis. Inflation targeting therefore continues to play an important role in reducing inflation volatility even after adding the three controls to the panel analysis. The main conclusions are found to be robust to changes in the country sample and to different estimation methods. |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:ice:wpaper:wp42&r=mac |
| By: | Hussain, Karrar |
| Abstract: | This study attempts to analyze the causal relationship between inflation and productivity of labor and capital, in Pakistan’s economy by covering the period from 1960-M1 to 2007-M12. For this purpose Vector Autoregression (VAR) approach is used, which is based on error correction model (ECM). Using this approach we have showed the causal ordering between inflation and exchange rate management policy controlling for, monetary variables like broad money (M-2) and discount rate, which are endogenous in case of Pakistan. We considered the relationship of inflation with two measures of productivity (average and marginal productivity) of labor and capital controlling for capital labor ratio. The objective of this paper is to identify the relative importance of each of these inflation channels by generating Impulse Response Functions (IRFs) to confirm the response of a shock on a variable upon itself and other variables over the four years of time span. Our study concludes that there is a unidirectional causality from inflation to labor productivity through capital labor ratio. And also, there is bidirectional causality between inflation and capital productivity through capital labor ratio. And lastly each channel takes almost fifteen months (on average) for input productivities to affect or affected by inflation. |
| Keywords: | Productivity, Inflation, Vector Autoregression |
| JEL: | C32 B22 C01 |
| Date: | 2009–08–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:16486&r=mac |
| By: | Dino Martellato (Department of Economics, University Of Venice Cà Foscari) |
| Abstract: | This paper examines the likely direction of real interest rates in the Euro area and the United States from April 2009 on. It is argued that the crisis that began in 2007 and the ensuing recession changed the descending trend in real interest rates which started a long time ago. If real interest rates were to rise too much, private and public finances, housing markets and stock markets would suffer particularly in the countries where the past credit binge and the crisis response has made debts mount, thus prolonging the current crisis. Economic theory should help shed light on the likely future direction of long-term real interest rates. In the paper, growth models are briefly discussed and shown to offer disparate predictions about the level of real interest rates in a growing economy and little practical guidance. Monetary theories, i.e. theories explicitly focused on the role of interest rates in balancing supply and demand in the single markets of the economy, make reference to some normal or natural level of real interest rate but obviously suffer from the difficulties of estimating such normal or natural levels both in general and particularly in a unusually dynamic and uncertain situation such as the current one. The more pragmatic approach, consisting in the assessment of the relevant single components of the long-term real nominal interest rate over the cycle, points to the risks of a surge in the risk premium as well as in expected short-term real interest rates and thus to a prolongation of the current economic contraction. |
| Keywords: | Interest rates |
| JEL: | E4 E5 E1 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2009_14&r=mac |
| By: | J. James Reade; Ulrich Volz |
| Abstract: | This paper considers the costs and benefits of Sweden joining the European Economic and Monetary Union (EMU). We pay particular attention to the costs of abandoning the krona in terms of a loss of monetary policy independence. For this purpose, we apply a cointegrated VAR framework to examine the degree of monetary independence that the Sveriges Riksbank enjoys. Our results suggest that Sweden has in fact relatively little to lose from joining EMU, at least in terms of monetary independence. We complement our analysis by looking into other criteria affecting the cost-benefit calculus of monetary integration, which, by and large, support our positive assessment of Swedish EMU membership. |
| Keywords: | Swedish EMU membership, Monetary policy independence, European monetary integration, Cointegrated VAR method |
| JEL: | E52 E58 F41 F42 C32 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:442&r=mac |
| By: | Christopher J. Waller |
| Abstract: | The objective of this paper is to study optimal fiscal and monetary policy in a dynamic Mirrlees model where the frictions giving rise to money as a medium of exchange are explicitly modeled. The framework is a three period OLG model where agents are born every other period. The young and old trade in perfectly competitive centralized markets. In middle age, agents receive preference shocks and trade amongst themselves in an anonymous manner. Since preference shocks are private information, in a record-keeping economy, the planner's constrained allocation trades off efficient risk sharing against production efficiency in the search market. In the absence of record-keeping, the government uses flat money as a substitute for dynamic contracts to induce truthful revelation of preferences. Inflation affects agents' incentive constraints and so distortionary taxation of money may be needed as part of the optimal policy even if lump-sum taxes are available. |
| Keywords: | Money ; Taxation |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2009-35&r=mac |
| By: | Katsuhito Iwai (Faculty of Economics, University of Tokyo) |
| Abstract: | "Globalization" can be interpreted as a grand experiment of the laissez-faire doctrine of neoclassical economics that the wider and the deeper markets cover the capitalist economy, the more efficient and the more stable it would become. The "once a hundred years" global economic crisis of 2007-9 demonstrated the grand failure of this grand experiment. Following the lead of Wicksell and Keynes, this article argues that capitalist economy is subject to an inevitable trade-off between efficiency and stability because of its essentially "speculative" nature. First, financial markets need, for their risk-diversifying function, the participation of a large number of risk-taking speculators. But competition among professional speculators is like a Keynesian beauty-contest that constantly exposes financial markets to risks of bubble and bust. Second and more fundamentally, the article maintains that "money" that is the capitalist economy's ultimate source of efficiency is also its ultimate source of instability. Indeed, Wicksell's Interest and Prices showed how a monetary disequilibrium sets off cumulative inflation or deflation, and Keynes' General Theory then pointed out that it is the stickiness of money wage that saves capitalist economy from its inherent instability, albeit at the expense of full employment. This article also contends that such monetary instability has manifested itself in the current crisis in the forms of the collapse of liquidity in the whole financial markets as well as of the decline of confidence on dollar as the global capitalism's key currency. |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2009cf646&r=mac |
| By: | Christopher J. Waller |
| Abstract: | I use the monetary version of the neoclassical growth model developed by Aruoba, Waller and Wright (2008) to study the properties of the model when there is exogenous growth. I first consider the planner's problem, then the equilibrium outcome in a monetary economy. I do so by first using proportional bargaining to determine the terms of trade and then consider competitive price taking. I obtain closed form solutions for the balanced growth path of all variables in all cases. I then derive closed form solutions for the transition paths under the assumption of full depreciation and, in the monetary economy, a non-stationary interest rate policy. |
| Keywords: | Monetary policy ; Econometric models |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2009-34&r=mac |
| By: | Tokel, O. Emre; Yucel, M. Eray |
| Abstract: | This study examines the online access statistics of the Central Bank of Turkey’s Electronic Data Delivery System within an event study framework. The comparisons of pre-event and post-event statistics suggest that announcements of both the policy interest rates and the consumer price data considerably affect society’s data access behavior. The timing and amplitude of these effects are further studied with respect to inflation expectations and surprise content of events; yet no solid pattern was revealed. |
| Keywords: | Data access; Macroeconomic data; Market efficiency; Event study |
| JEL: | G14 C50 G10 |
| Date: | 2009–08–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:16833&r=mac |
| By: | Chia-Lin Chang (Department of Applied Economics, National Chung Hsing University); Philip Hans Franses (Econometric Institute, Erasmus School of Economics); Michael McAleer (Econometric Institute, Erasmus School of Economics Erasmus University Rotterdam and Tinbergen Institute and Center for International Research on the Japanese Economy (CIRJE), Faculty of Economics, University of Tokyo) |
| Abstract: | A government's ability to forecast key economic fundamentals accurately can affect business confidence, consumer sentiment, and foreign direct investment, among others. A government forecast based on an econometric model is replicable, whereas one that is not fully based on an econometric model is non-replicable. Governments typically provide non-replicable forecasts (or, expert forecasts) of economic fundamentals, such as the inflation rate and real GDP growth rate. In this paper, we develop a methodology to evaluate non-replicable forecasts. We argue that in order to do so, one needs to retrieve from the non-replicable forecast its replicable component, and that it is the difference in accuracy between these two that matters. An empirical example to forecast economic fundamentals for Taiwan shows the relevance of the proposed methodological approach. Our main finding is that it is the undocumented knowledge of the Taiwanese government that reduces forecast errors substantially. |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2009cf637&r=mac |
| By: | Martins, Pedro S. (Queen Mary, University of London); Snell, Andy (University of Edinburgh); Thomas, Jonathan P. (University of Edinburgh) |
| Abstract: | Following insights by Bewley (1999a), this paper analyses a model with downward rigidities in which firms cannot pay discriminate based on a year of entry to a firm, and develops an equilibrium model of wages and unemployment. We solve for the dynamics of wages and unemployment under conditions of downward wage rigidity, where forward looking firms take into account these constraints. Using simulated productivity data based on the post-war US economy, we analyse the ability of the model to match certain stylised labour market facts. |
| Keywords: | labour contracts, business cycle, unemployment, equal treatment, downward rigidity, cross-contract restrictions |
| JEL: | E32 J41 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4346&r=mac |
| By: | Costain, James (Banco de Espana); Jansen, Marcel (Universidad Carlos III de Madrid) |
| Abstract: | This paper studies the cyclical dynamics of Mortensen and Pissarides' (1994) model of job creation and destruction when workers' effort is not perfectly observable, as in Shapiro and Stiglitz (1984). An occasionally-binding no-shirking constraint truncates the real wage distribution from below, making firms' share of surplus weakly procyclical, and may thus amplify fluctuations in hiring. It may also cause a burst of inefficient firing at the onset of a recession, separating matches that no longer have sufficient surplus for incentive compatibility. On the other hand, since marginal workers in booms know firms cannot commit to keep them in recessions, they place little value on their jobs and are expensive to motivate. For a realistic calibration, this last effect is by far the strongest; even a moderate degree of moral hazard can eliminate all fluctuation in the separation rate. This casts doubt on Ramey and Watson's (1997) "contractual fragility" mechanism, and means worker moral hazard only makes the "unemployment volatility puzzle" worse. However, moral hazard has potential to explain other labor market facts, because it is consistent with small but clearly countercyclical fluctuations in separation rates, and a robust Beveridge curve. |
| Keywords: | job matching, shirking, efficiency wages, endogenous separation, contractual fragility |
| JEL: | C78 E24 E32 J64 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4344&r=mac |
| By: | Ansgar Belke; Daniel Gros |
| Abstract: | The purpose of this contribution is to illustrate the mechanism by which higher oil prices might lead to lower interest rates in the context of a simple model that takes into account the global external savings equilibrium. The simple model has interesting implications for how one views the huge US current account deficit and how the emergence of China’s savings surplus and oil supply shocks impact the global economy.We show that the new equilibrium is located at a lower interest rate but also at a lower income level than without the China effect. Moreover, we argue that the lower real interest rates resulting from excess OPEC savings have facilitated the adjustment to the subprime crisis. |
| Keywords: | China factor, current account adjustment, interest rate, oil prices, saving glut |
| JEL: | E21 E43 F32 Q43 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0128&r=mac |
| By: | Parantap Basu; Christoph Thoenissen |
| Abstract: | Is the relative price of investment goods a good proxy for investment frictions? We model this relative price in a flexible price international economy with two fundamental shocks, namely the total factor productivity (TFP) shock and the investment specific technology (IST) shock. The paper argues that the one-to-one correspondence between investment friction and the relative price of investment goods breaks down in an international economy because of the short run correlation between the terms of trade and the relative price of investment goods. The data congruent negative correlation between the investment rate and the relative price of investment goods thus does not necessarily reflect decline in investment frictions (rise in IST) as suggested by many studies. A calibration experiment with the US data demonstrates that such an inverse relation between rate of investment and the relative price of investment goods basically reflects the positive effect of TFP on the terms of trade for a broad range of econ mies where the home bias in consumption exceeds investment and there is a sizable adjustment cost of investment. A regression experiment with major OECD countries provided empirical support of the fact that terms of trade effect on the relative price of investment is important |
| Keywords: | Investment frictions, investment specific technological progress, total factor productivity, relative price of investment goods terms of trade |
| JEL: | E22 E32 F41 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmawp:0905&r=mac |
| By: | Giuliano, Paola (University of California, Los Angeles); Spilimbergo, Antonio (International Monetary Fund) |
| Abstract: | Do generations growing up during recessions have different socio-economic beliefs than generations growing up in good times? We study the relationship between recessions and beliefs by matching macroeconomic shocks during early adulthood with self-reported answers from the General Social Survey. Using time and regional variations in macroeconomic conditions to identify the effect of recessions on beliefs, we show that individuals growing up during recessions tend to believe that success in life depends more on luck than on effort, support more government redistribution, but are less confident in public institutions. Moreover, we find that recessions have a long-lasting effect on individuals' beliefs. |
| Keywords: | beliefs formation, macroeconomic shocks |
| JEL: | P16 E60 Z13 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4365&r=mac |
| By: | Francisco J. Buera; Yongseok Shin |
| Abstract: | Why doesn’t capital flow into fast-growing countries? In this paper, we provide a quantitative framework incorporating heterogeneous producers and underdeveloped domestic financial markets to study the joint dynamics of total factor productivity (TFP) and capital flows. When an unexpected once-and-for-all reform eliminates non-financial distortions and liberalizes capital flows, the TFP of our model economy rises gradually and capital flows out of it. The rise in TFP reflects efficient reallocation of capital and talent, a process drawn out by frictions in domestic financial markets. The concurrent capital outflows are driven by the positive response of domestic saving to higher returns, and by the sluggish response of domestic investment to the higher TFP—the latter being another ramification of domestic financial frictions. We use our model to analyze the welfare consequences of opening up capital accounts. We find that the marginal welfare effect of capital account liberalization is negative for workers and positive for entrepreneurs and wealthy individuals. |
| JEL: | E44 F21 F32 F43 O16 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15268&r=mac |
| By: | Chen, Yan; Zhang, Yan |
| Abstract: | This paper introduces endogenous capital income tax rates as in Schmitt-Grohe and Uribe (1997), into the overlapping generations model with endogenous labor and consumption in both periods of life (e.g., Cazzavillan and Pintus, 2004). In contrast with the previous result that the existence of endogenous labor income taxes raises the possibility of local indeterminacy (Chen and Zhang 2009), it shows that increasing the size of capital income taxes can make shrink the range of values of the consumption--to--wage ratio associated with local indeterminacy, because of two conflicting effects on savings that operate through wage and interest rate. |
| Keywords: | Indeterminacy; Endogenous capital income tax rate. |
| JEL: | E32 C62 |
| Date: | 2009–08–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:16824&r=mac |
| By: | Jacob Funk Kirkegaard (Peterson Institute for International Economics) |
| Abstract: | This paper expands on the methodology of Groshen and Potter (2003) for studying cyclical and structural changes in the US economy and analyzes the net structural and cyclical employment trends in the US economy during the last 10 trough-to-trough business cycles from 1949 to the present. It illustrates that the US manufacturing sector and an increasing number of services sectors, including parts of the financial services sector, are experiencing structural employment declines. Structural employment gains in the US labor market are increasingly concentrated in the healthcare, education, food, and professional and technical services sectors and in the occupations related to these industries. The paper concludes that the improved operation of the US labor market during the 1990s has reversed itself in the 2000s, with negative long-term economic effects for the United States. |
| Keywords: | Business cycles, structural change, unemployment duration, occupational/sectoral employment shifts, labor turnover, Okun’s Law relationship, Beveridge curves. |
| JEL: | J21 J24 J62 J63 J64 O14 O51 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:iie:wpaper:wp09-5&r=mac |
| By: | Casey B. Mulligan |
| Abstract: | This paper uses the theories of price discrimination and optimal taxation to investigate effects of underwater mortgages on foreclosures and the incentives to earn income, and the degree to which those effects are shaped by public policy. I find that the federal government’s means-tested mortgage modification plan creates a massive implicit tax that may be significant even from a macroeconomic perspective. An alternative of modifying mortgages to maximize lender collections would also feature means tests, but with less effort distortion and perhaps fewer foreclosures. The paper also considers the consequences of a public policy that left mortgage modification to lenders, subject to a requirement that modification would not be conditioned on borrower income. |
| JEL: | E24 H21 L11 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15281&r=mac |
| By: | Pablo Guerron-Quintana; Atsushi Inoue; Lutz Kilian |
| Abstract: | The authors show that in weakly identified models (1) the posterior mode will not be a consistent estimator of the true parameter vector, (2) the posterior distribution will not be Gaussian even asymptotically, and (3) Bayesian credible sets and frequentist confidence sets will not coincide asymptotically. This means that Bayesian DSGE estimation should not be interpreted merely as a convenient device for obtaining asymptotically valid point estimates and confidence sets from the posterior distribution. As an alternative, the authors develop a new class of frequentist confidence sets for structural DSGE model parameters that remains asymptotically valid regardless of the strength of the identification. The proposed set correctly reflects the uncertainty about the structural parameters even when the likelihood is flat, it protects the researcher from spurious inference, and it is asymptotically invariant to the prior in the case of weak identification. |
| Keywords: | Stochastic analysis ; Macroeconomics - Econometric models |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:09-13&r=mac |
| By: | Alok Johri (McMaster University) |
| Abstract: | This appendix provides simulation results for consumption, invest- ment and hours series for the "full model" discussed in the paper. The graphs also plot the relevant data for the US. |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:red:append:07-131&r=mac |
| By: | Atif R. Mian; Amir Sufi |
| Abstract: | Using individual-level data on homeowner debt and defaults from 1997 to 2008, we show that borrowing against the increase in home equity by existing homeowners is responsible for a significant fraction of both the sharp rise in U.S. household leverage from 2002 to 2006 and the increase in defaults from 2006 to 2008. Employing land topology-based housing supply elasticity as an instrument for house price growth, we estimate that the average homeowner extracts 25 to 30 cents for every dollar increase in home equity. Money extracted from increased home equity is not used to purchase new real estate or pay down high credit card balances, which suggests that borrowed funds may be used for real outlays (i.e., consumption or home improvement). Home equity-based borrowing is stronger for younger households, households with low credit scores, and households with high initial credit card utilization rates. Homeowners in high house price appreciation areas experience a relative decline in default rates from 2002 to 2006 as they borrow heavily against their home equity, but experience very high default rates from 2006 to 2008. Our estimates suggest that home equity-based borrowing is equal to 2.8% of GDP every year from 2002 to 2006, and accounts for at least 34% of new defaults from 2006 to 2008. |
| JEL: | E0 E00 E2 E3 E5 E6 G21 G3 G32 G33 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15283&r=mac |
| By: | Paula Neto (ISCA, University of Aveiro); António Brandão (FEP, University of Porto); António Cerqueira (FEP, University of Porto) |
| Abstract: | When a company decides to invest abroad, it can do it through the establishment of a new firm (greenfield investment) or by the purchase of an already existing firm. Although there is a vast empirical literature on the macroeconomic determinants of aggregate FDI, there are just a few studies examining the location-specific determinants of each entry mode. The aim of this study is to extend the previous work by Globerman and Shapiro (2005) through the analysis of panel data of 53 countries over the period 1996-2006, in order to identify the potential location-specific determinants of both M&A and greenfields. We have found evidence that there is a group of mode-encompassing variables which are common to all entry modes (such as economy’s size, openness, governance and human development index) and mode-specific variables. Investor’s protection and cultural variables seem to play an important role in the explanation of M&A and greenfields, respectively. |
| Keywords: | Foreign Direct Investment, Cross Border Mergers and Acquisitions, Greenfield Investments. |
| JEL: | F23 F40 G34 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:mde:wpaper:0017&r=mac |
| By: | Rania Antonopoulos; Taun N. Toay |
| Abstract: | This paper considers public employment guarantee programs in the context of South Africa as a means to address the nexus of poverty, unemployment, and unpaid work burdens--all factors exacerbated by HIV/AIDS. It further discusses the need for genderinformed public job creation in areas that mitigate the "time-tax" burdens of women, and examines a South African initiative to address social sector service delivery deficits within the government's Expanded Public Works Programme. The authors highlight the need for well-designed employment guarantee programs--specifically, programs centered on community and home-based care--as a potential way to help offset the destabilizing effects of HIV/AIDS and endemic poverty. The paper concludes with results from macroeconomic simulations of such a program, using a social accounting matrix framework, and sets out implications for both participants and policymakers. |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_570&r=mac |