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on Macroeconomics |
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Issue of 2009‒10‒24
forty-four papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | Fève, P.; Matheron, J.; Sahuc, J-G. |
| Abstract: | Euro area countries as a whole have experienced a marked downward trend over the 1980s. Over this period, the unemployment rate has increased and economic activity has been sluggish. Changes in the implicit inflation target, viewed as low frequency movements of inflation, might possibly explain these developments. To highlight this issue, the present study estimates the dynamics of the implicit inflation target in the euro zone over the period 1970Q1-2004Q4. Based on a small macroeconometric model, the implicit target, not known by the econometrician, is identified through a minimal set of theoretical restrictions: (i) the inflation target is a non stationary process, (ii) inflation is a monetary phenomenon in the long-run, and (iii) changes in the implicit target have no long-run effects whatsoever on real variables. The model is estimated so as to match output growth, changes in inflation and the ex post real interest rate. Our main results are: (i) inflation target shocks account for the bulk of nominal fluctuations; (ii) due to monetary policy inertia and nominal stickiness, changes in the target generate large swings in the real interest rate translating into substantial short-run effects on real variables; (ii) in spite of this inflation target shocks moderately impact on output dynamics. |
| Keywords: | Implicit inflation target, Macroeconometric modelling, Euro area. |
| JEL: | E31 E32 E52 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:246&r=mac |
| By: | Chiara Forlati (Chair of International Finance, Ecole Polytechnique Federale de Lausanne (EPFL), Switzerland) |
| Abstract: | I develop and analyze a DSGE model of a currency union to revise the question of how to conduct monetary and fiscal policy in countries that share the same currency. In contrast with the previous literature which assumes coordination, this paper analyzes the case where coordination lacks among fiscal authorities as well as between fiscal and monetary authorities. I show that the normative prescriptions emphasized by former analyses are not valid any more once policymakers are not coordinated. Indeed, in that case the common central bank does not stabilize the average union in ation as if it were in a closed economy because it has to take into account the distortions caused by the lack of coordination among fiscal policymakers. At the same time, if there is not a common agreement to coordinate fiscal policies, autonomous governments should use government expenditure as a stabilization tool even if shocks are symmetric. |
| Keywords: | Monetary and Fiscal Policy, Policy Coordination |
| JEL: | E52 E58 E62 F42 |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:cif:wpaper:200904&r=mac |
| By: | Tierney, Heather L.R. |
| Abstract: | Using parametric and nonparametric methods, inflation persistence is examined through the relationship between the exclusions-from-core measure of inflation and total inflation for two sample periods and five in-sample forecast horizons ranging from one to twelve quarters over fifty vintages of real-time data in two measures of inflation: personal consumption expenditure and the consumer price index. This paper finds that core inflation is only able to capture the overall trend of total inflation for the twelve-quarter in-sample forecast horizon using the consumer price index in both the parametric and nonparametric models in the longer sample period. The nonparametric model outperforms the parametric model for both data samples and for all five in-sample forecast horizons. |
| Keywords: | Inflation Persistence; Real-Time Data; Monetary Policy; Nonparametrics; In-Sample Forecasting |
| JEL: | C53 C14 E52 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:17856&r=mac |
| By: | Jan J. J. Groen (Federal Reserve Bank of New York); Richard Paap; Francesco Ravazzolo (Norges Bank (Central Bank of Norway)) |
| Abstract: | This paper revisits ination forecasting using reduced form Phillips curve forecasts, i.e., inflation forecasts using activity and expectations variables. We propose a Phillips curve-type model that results from averaging across different regression specifications selected from a set of potential predictors. The set of predictors includes lagged values of inflation, a host of real activity data, term structure data, nominal data and surveys. In each of the individual specifications we allow for stochastic breaks in regression parameters, where the breaks are described as occasional shocks of random magnitude. As such, our framework simultaneously addresses structural change and model certainty that unavoidably affects Phillips curve forecasts. We use this framework to describe PCE deflator and GDP deflator inflation rates for the United States across the post-WWII period. Over the full 1960-2008 sample the framework indicates several structural breaks across different combinations of activity measures. These breaks often coincide with, amongst others, policy regime changes and oil price shocks. In contrast to many previous studies, we find less evidence for autonomous variance breaks and inflation gap persistence. Through a real-time out-of-sample forecasting exercise we show that our model specification generally provides superior one-quarter and one-year ahead forecasts for quarterly inflation relative to a whole range of forecasting models that are typically used in the literature. |
| Keywords: | Inflation forecasting, Phillips correlations, real-time data, structural breaks, model uncertainty, Bayesian model averaging. |
| JEL: | C11 C22 C53 E31 |
| Date: | 2009–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2009_16&r=mac |
| By: | Vincenzo Cuciniello (Chair of International Finance, Ecole Polytechnique Federale de Lausanne (EPFL), Switzerland) |
| Abstract: | This paper sheds light on the real effects of foreign central bank’s degree of inflation aversion in presence of non-atomistic wage setters. It extends the Lippi’s (2003) framework to an open economy and identifies the key strategic mechanisms between monetary policy and wage-setting decisions so as to assess the real effects of domestic and foreign policy makers’ aversion to inflation. A main finding is that foreign central bank’s aversion to inflation always increases employment. The impact of domestic central bank’s aversion to inflation instead depends on the combination of three strategic effects. |
| Keywords: | Foreign central bank conservatism, centralized wage setting, open-economy macro |
| JEL: | E58 F41 J51 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:cif:wpaper:200908&r=mac |
| By: | Dan Andrews (Reserve Bank of Australia); Daniel Rees (Reserve Bank of Australia) |
| Abstract: | This paper explores the effect of terms of trade volatility on macroeconomic volatility using a panel of 71 countries from 1971–2005. It finds that terms of trade volatility has a statistically significant and positive impact on the volatility of output growth and inflation, although the magnitudes of these effects depend on the policy framework and the structure of markets. Specifically, adopting a more flexible exchange rate tends to ameliorate the effect of terms of trade shocks on macroeconomic volatility. The paper also finds some evidence that a monetary policy regime that focuses on low inflation helps to moderate the volatility of output and inflation in the face of a volatile terms of trade. The same is true of financial market development in the case of output volatility. Using data on the expenditure components of GDP, the channels through which terms of trade shocks affect output are examined. The results suggest that terms of trade volatility has its largest effect on the volatility of consumption, exports and imports. There is evidence to suggest that greater financial market development helps to mitigate the effect of terms of trade volatility on consumption volatility, while monetary policy that focuses on low inflation is associated with lower volatility of imports. |
| Keywords: | terms of trade shocks; growth; inflation; structural reform |
| JEL: | E20 F41 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2009-05&r=mac |
| By: | Diego A. Comin; Norman Loayza; Farooq Pasha; Luis Serven |
| Abstract: | We build a two country asymmetric DSGE model with two features: (i) a product cycle structure determines the range of intermediate goods used to produce new capital in each country and (ii) there are investment flow adjustment costs in the developing economy. We calibrate the model to match the Mexico-US trade and FDI flows. The model is able to explain (i) why US shocks have a larger effect on Mexico than in the US and hence why the Mexican economy is more volatile than the US; (ii) why US business cycles lead over medium term fluctuations in Mexico and (iii) why Mexican consumption is not less volatile than output. |
| JEL: | E3 F1 F2 F4 O3 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15428&r=mac |
| By: | Juan Paez-Farrell (Dept of Economics, Loughborough University) |
| Abstract: | It is often assumed that monetary policy in forward looking models yields higher welfare, measured in terms of the unconditional loss, when it operates under the timeless perspective than under discretion. This paper consider the robustness of such a result in a New Keynesian model when the degree of intrinsic inflation persistence is misperceived by the policymaker. It finds that for reasonable parameter values discretion can be superior to the timeless perspective. The reason for this stems from the fact that the timeless perspective policy varies more with the degree of inflation persistence than does the discretionary policy. |
| Keywords: | discretion, timeless perspective, inflation persistence, uncertainty |
| JEL: | E52 E58 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:lbo:lbowps:2009_14&r=mac |
| By: | Vincenzo Cuciniello (Chair of International Finance, Ecole Polytechnique Federale de Lausanne (EPFL), Switzerland) |
| Abstract: | A two-country general equilibrium model with large wage setters and conservative monetary authorities is employed to investigate the welfare implications of three international monetary regimes: i) non-cooperative, ii) cooperative, and iii) monetary union. The analysis shows that the unions’ wage claims depend on three strategic effects which are substantially different between the international policy arrangements. In contrast with recent studies, a switch from non-cooperation to monetary union is welfare improving with a sufficiently conservative central bank because unions perceive wage hikes as delivering lower terms-of-trade gains; while a switch from non-cooperation to cooperation is always beneficial because wage hikes do not yield any terms-of-trade gain. Finally, the paper qualifies Lippi’s (2003) findings. |
| Keywords: | Central bank conservatism, non-atomistic wage setting, open-economy macro, monetary regime |
| JEL: | E42 E58 F33 F41 J5 |
| Date: | 2009–02 |
| URL: | http://d.repec.org/n?u=RePEc:cif:wpaper:200907&r=mac |
| By: | Fève, P.; Matheron, J.; Sahuc, J-G. |
| Abstract: | The present paper investigates the dynamic effects of disinflation shocks for a number of real macroeconomic variables in the euro area. Using structural VARs, we identify disinflation shocks as the only shocks that can exert a long--run effect on inflation as well as other nominal variables cointegrating with inflation. These shocks are found to generate large recessionary effects, notably when it comes to investment, and triggers a persistent rise in unemployment and in the real interest rate. The analysis is complemented by computing inefficiency measures on goods and labor markets. We show that, after a disinflation shock, inefficiencies in the labor market seem to prevail. These conclusions are robust to modifications of our baseline identification scheme. |
| Keywords: | SVAR, long-run restrictions, disinflation. |
| JEL: | C32 E31 E52 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:247&r=mac |
| By: | Vincenzo Cuciniello (Chair of International Finance, Ecole Polytechnique Federale de Lausanne (EPFL), Switzerland) |
| Abstract: | This paper uses a two-country, sticky-price model with non-atomistic wage setters to study the role of collective wage bargaining in the propagation of monetary shocks. I find that the welfare transmissions of a monetary expansion are reinforced by different labor market structures. Non-atomistic domestic unions anticipate that their wage demands raise real labor income through a movement of the terms of trade. This leads to an additional channel of transmission of monetary policy that goes through aggregate supply. Yet, workers benefit more from a monetary expansion when the exchange rate pass-through is not limited and the elasticity of substitution across traded goods is sizable. It follows that wage mark-ups charged by unions endogenously vary with those structural parameters. In particular, labor and product market distortions are strategic substitute in affecting the perceived labor demand elasticity. |
| Keywords: | non-atomistic agents, interdependence, exchange rate fluctuation, wage setting |
| JEL: | F41 F42 J5 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:cif:wpaper:200906&r=mac |
| By: | Kajal Lahiri; Xuguang Sheng |
| Abstract: | Using a Bayesian learning model with heterogeneity across agents, our study aims to identify the relative importance of alternative pathways through which professional forecasters disagree and reach consensus on the term structure of inflation and real GDP forecasts, resulting in different patterns of forecast accuracy. Forecast disagreement arises from two primary sources in our model: differences in the initial prior beliefs, and differences in the interpretation of new public information. Estimated model parameters, together with two separate case studies on (i) the dynamics of forecast disagreement in the aftermath of the 9/11 terrorist attack in the U.S. and (ii) the successful inflation targeting experience in Italy after 1997, firmly establish the importance of these two pathways to expert disagreement, and help to explain the relative forecasting accuracy of these two macroeconomic variables. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:nya:albaec:0905&r=mac |
| By: | Stephen G. Cecchetti; Craig Hakkio |
| Abstract: | Transparency is one of the biggest innovations in central bank policy of the past quarter century. Modern central bankers believe that they should be as clear about their objectives and actions as possible. However, is greater transparency always beneficial? Recent work suggests that when private agents have diverse sources of information, public information can cause them to overreact to the signals from the central bank, leading the economy to be too sensitive to common forecast errors. Greater transparency could be destabilizing. While this theoretical result has clear intuitive appeal, it turns on a combination of assumptions and conditions, so it remains to be established that it is of empirical relevance. In this paper we study the degree to which increased information about monetary policy might lead to individuals coordinating their forecasts. Specifically, we estimate a series of simple models to measure the impact of inflation targeting on the dispersion of private sector forecasts of inflation. Using a panel data set that includes 15 countries over 20 years we find no convincing evidence that adopting an inflation targeting regime leads to a reduction in the dispersion of private sector forecasts of inflation. While for some specifications adoption of inflation target does seem to reduce the standard deviation of inflation forecasts, the impact is rarely precise and always small. |
| JEL: | E31 E42 E52 E58 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15424&r=mac |
| By: | Monica Billio (University Ca' Foscari of Venice); Laurent Ferrara (Banque de France); Dominique Guegan (Paris School of Economics - Centre d'Economie de la Sorbonne); Gian Luigi Mazzi (Eurostat) |
| Abstract: | In this paper, we aim at assessing Markov-switching and threshold models in their ability to identify turning points of economic cycles. By using vintage data that are updated on a monthly basis, we compare their ability to detect ex-post the occurrence of turning points of the classical business cycle, we evaluate the stability over time of the signal emitted by the models and assess their ability to detect in real-time recession signals. In this respect, we have built an historical vintage database for the Euro area going back to 1970 for two monthly macroeconomic variables of major importance for short-term economic outlook, namely the Industrial Production Index and the Unemployment Rate. |
| Keywords: | Business cycle, Euro zone, Markov switching model, SETAR mpdel, unemployment, industrial production. |
| JEL: | C22 C52 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:09053&r=mac |
| By: | Vincenzo Cuciniello (Chair of International Finance, Ecole Polytechnique Federale de Lausanne (EPFL), Switzerland) |
| Abstract: | This paper presents a simple model of policy coordination in line with the New Open Economy Macroeconomics literature. I extent the analysis on non-cooperative toward cooperative solutions by incorporating a collective wage bargaining system and conservative central banks. It turns out that previous results on international monetary policy cooperation are modified such that cooperation is welfare improving. The finding in the model relies on wage setters’ perceptions about affecting monetary policy. It is shown that under cooperation wage setters perceive a tighter monetary policy, thereby inducing wage restraints. |
| Keywords: | Monetary policy games , International policy coordination , Central bank conservatism, Monopoly unions |
| JEL: | E58 F41 F42 J51 |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:cif:wpaper:200905&r=mac |
| By: | Keqiang Hou; Alok Johri |
| Abstract: | Aggregate corporate profits are highly volatile and procyclical. Most dynamic general equilibrium models of the business cycle cannot deliver these basic features of the data. We develop a model of the U.S. economy in which firms expend resources to create intangible capital (IC), which is an additional input in their production technology. In keeping with the data, the model delivers profits that are many times more volatile than output. An estimated version of the model implies that IC investments are large and pro-cyclical. IC acts as a propaga- tion mechanism, generating inertial responses to shocks. Overall, the model fits the aggregate data much better than a model without IC. |
| Keywords: | Business Cycles; Profits; Bayesian Estimation; Intangible Capital |
| JEL: | E3 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:mcm:deptwp:2009-17&r=mac |
| By: | Andrea de Michelis |
| Abstract: | Monetary and fiscal policies face huge challenges: the banking sector has collapsed; the economy is in the midst of a deep recession; the exchange rate has plunged; capital flows have been frozen; inflation is elevated; public debt has risen; source of revenues have disappeared; social needs have increased; and the unemployment insurance fund has been nearly depleted. Against this difficult background, this paper discusses what policy makers should do in order to restore balance in the Icelandic economy and lay out the foundations for a sustainable recovery. The key recommendations are to seek entry in the euro area and implement the fiscal consolidation measures necessary to comply with the IMF programme.<P>Islande : Une période délicate pour la politique monétaire et budgétaire<BR>La politique monétaire et budgétaire est confrontée à de graves problèmes : le système bancaire s’est effondré ; l’économie traverse une profonde récession ; le taux de change s’est beaucoup déprécié ; les mouvements de capitaux se sont interrompus ; l’inflation est forte ; la dette publique a augmenté ; des sources de recettes ont disparu ; les besoins sociaux se sont accrus ; les ressources du fonds d’assurance chômage sont presque épuisées. Dans ce sombre contexte, cette étude expose ce que les autorités devraient faire pour rétablir l’équilibre de l’économie islandaise et poser les bases d’une reprise durable. Il leur est surtout recommandé de chercher à adhérer à la zone de l’euro et d’appliquer les mesures d’assainissement budgétaire nécessaires pour se conformer au programme du FMI. |
| Keywords: | impôt, Iceland, European Union, Union européenne, zone Euro, fiscal consolidation, euro area, inflation, inflation, inflation expectation, anticipation d'inflation, Islande, tax, assainissement budgétaire, inflation targeting, ciblage de l’inflation, public investment, investissement public, volatility, volatilité, capital controls, contrôle des mouvements de capitaux, efficiency of social spending, efficience des dépenses sociales, exchange rate targeting, objectif de taux de change, fiscal policy framework, cadre de la politique budgétaire, optimal currency area, policy credibility, crédibilité des politiques, producer support in agriculture, soutien aux producteurs dans l’agriculture, public-sector wages, salaires dans le secteur public, student-to-teacher ratio, nombre d’élèves par enseignant |
| JEL: | E21 E42 E52 E62 H51 H52 H60 |
| Date: | 2009–10–09 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:726-en&r=mac |
| By: | Guillermo A. Calvo |
| Abstract: | This note is motivated by trying to understand the macroeconomic implications of assuming that periods of financial bonanza and turmoil are driven by financial innovation and collapse in line with the “bank run†literature of the Diamond-Dybvig (1983) variety. Bypassing a host of important but, for the present purposes, secondary details the note assumes that the initial effects of financial innovation and crash can be summarized by a parameter that determines the “liquidity†or “moneyness†of land or capital. This simplification helps to shed light on some issues that are at the center of the policy debate. In particular, one can show that preventing price deflation is not enough to offset asset meltdown. Furthermore, lower policy interest rates increase asset prices and steady-state output which, however, gets reversed as liquidity is destroyed. An interesting result is that, in the neighborhood of a first-best capital allocation, an increase in the moneyness of capital may lower the welfare of the representative individual, even if the higher liquidity of capital is sustainable and, hence, not destroyed by future crash. Moreover, an extension of the basic model supports the conjecture that low policy interest rates may have given incentives to the development of “shadow banking.†|
| JEL: | E5 E58 F41 G2 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15425&r=mac |
| By: | Tatiana Damjanovic; Charles Nolan |
| Abstract: | Less is known about social welfare objectives when it is costly to change prices, as in Rotemberg (1982), compared with Calvo-type models. We derive a quadratic approximate welfare function around a distorted steady state for the costly price adjustment model. We highlight the similarities and differences to the Calvo setup. Both models imply inflation and output stabilization goals. It is explained why the degree of distortion in the economy influences inflation aversion in the Rotemberg framework in a way that has no counterpart in the Calvo setup. |
| Keywords: | Price stickiness; Rotember model; costly price adjustment. |
| JEL: | E52 E61 E63 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmawp:0907&r=mac |
| By: | Ormerod, Paul; Rosewell, Bridget; Phelps, Peter |
| Abstract: | Using the statistical technique of fuzzy clustering, regimes of inflation and unemployment are explored for the United States, the United Kingdom and Germany between 1871 and 2009. We identify for each country three distinct regimes in inflation/unemployment space. There is considerable similarity across the countries in both the regimes themselves and in the timings of the transitions between regimes. However, the typical rates of inflation and unemployment experienced in the regimes are substantially different. Further, even within a given regime, the results of the clustering show persistent fluctuations in the degree of attachment to that regime of inflation/unemployment observations over time. The economic implications of the results are that, first, the inflation/unemployment relationship experiences from time to time major shifts. Second, that it is also inherently unstable even in the short run. It is likely that the factors which govern the inflation/unemployment trade off are so multi-dimensional that it is hard to see that there is a way of identifying periods of short run Phillips curves which can be assigned to particular historical periods with any degree of accuracy or predictability. The short run may be so short as to be meaningless. The analysis shows that reliance on any kind of trade off between inflation and unemployment for policy purposes is entirely misplaced. |
| Keywords: | Phillips curve,inflation,structural change,fuzzy clustering |
| JEL: | C19 E31 N10 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:200943&r=mac |
| By: | Maku, Olukayode E.; Atanda, Akinwande A. |
| Abstract: | This study examines the long-run and short-run effect of macroeconomic variables on the Nigerian capital market between 1984 and 2007. The properties of the time series variables are examined using the Augmented Dickey-Fuller (ADF) test and most of the variables have a unit root at level. The Augmented Engle-Granger Cointegration test revealed that macroeconomic variables exert significant long-run effect on stock market performance in Nigeria. Also, the employed Error Correction Model (ECM) showed that macroeconomic variables exert significant short-term shock on stock prices as a result of the stochastic error term mechanisms. However, the empirical analysis showed that the NSE all share index is more responsive to changes in exchange rate, inflation rate, money supply and real output. While, all the incorporated variables which serve as proxies for external shock and other macroeconomic indicators have simultaneous significant impact on the Nigerian capital market both in the short and long-run. |
| Keywords: | Economic Shock; Macroeconomic Variables; Capital Market; Unit root and Cointegration. |
| JEL: | E0 G12 G19 G10 |
| Date: | 2009–09–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:17917&r=mac |
| By: | Max Bruche (CEMFI, Centro de Estudios Monetarios y Financieros); Javier Suarez (CEMFI, Centro de Estudios Monetarios y Financieros) |
| 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 savingsrich 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. |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2009_0901&r=mac |
| By: | Enrique G. Mendoza; Vincenzo Quadrini |
| Abstract: | Two observations suggest that financial globalization played an important role in the recent financial crisis. First, more than half of the rise in net borrowing of the U.S. nonfinancial sectors since the mid 1980s has been financed by foreign lending. Second, the collapse of the U.S. housing and mortgage-backed-securities markets had worldwide effects on financial institutions and asset markets. Using an open-economy model where financial intermediaries play a central role, we show that financial integration leads to a sharp rise in net credit in the most financially developed country and leads to large asset price spillovers of country-specific shocks to bank capital. The impact of these shocks on asset prices are amplified by bank capital requirements based on mark-to-market. |
| JEL: | E44 F36 F41 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15432&r=mac |
| By: | L. Randall Wray |
| Abstract: | This paper contrasts the orthodox approach with an alternative view on finance, saving, deficits, and liquidity. The conventional view on the cause of the current global financial crisis points first to excessive United States trade deficits that are supposed to have "soaked up" global savings. Worse, this policy was ultimately unsustainable because it was inevitable that lenders would stop the flow of dollars. Problems were compounded by the Federal Reserve's pursuit of a low-interest-rate policy, which involved pumping liquidity into the markets and thereby fueling a real estate boom. Finally, with the world awash in dollars, a run on the dollar caused it to collapse. The Fed (and then the Treasury) had to come to the rescue of U.S. banks, firms, and households. When asset prices plummeted, the financial crisis spread to much of the rest of the world. According to the conventional view, China, as the residual supplier of dollars, now holds the fate of the United States, and possibly the entire world, in its hands. Thus, it's necessary for the United States to begin living within its means, by balancing its current account and (eventually) eliminating its budget deficit. I challenge every aspect of this interpretation. Our nation operates with a sovereign currency, one that is issued by a sovereign government that operates with a flexible exchange rate. As such, the government does not really borrow, nor can foreigners be the source of dollars. Rather, it is the U.S. current account deficit that supplies the net dollar saving to the rest of the world, and the federal government budget deficit that supplies the net dollar saving to the nongovernment sector. Further, saving is never a source of finance; rather, private lending creates bank deposits to finance spending that generates income. Some of this income can be saved, so the second part of the saving decision concerns the form in which savings might be held—as liquid or illiquid assets. U.S. current account deficits and federal budget deficits are sustainable, so the United States does not need to adopt austerity, nor does it need to look to the rest of the world for salvation. Rather, it needs to look to domestic fiscal stimulus strategies to resolve the crisis, and to a larger future role for government in helping to stabilize the economy. |
| Keywords: | Finance; Saving; Budget Deficits; Current Account Deficits; Financial Crisis |
| JEL: | E12 E21 E22 E42 E63 F32 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_580&r=mac |
| By: | Fève, P.; Matheron, J.; Sahuc, J-G. |
| Abstract: | The quantitative and dynamic consequence of a social VAT reform, i.e. a fiscal reform consisting in substituting VAT for social contributions, is assessed using two general equilibrium models. The first one is a Walrasian model with no other frictions than distortionary taxation of labor and capital incomes and consumption. The second one introduces in addition matching frictions in the labor market. Two alternative financing schemes are considered for the practical details of implementing the social VAT. In all cases, the fiscal reform turns out to generate a small, positive long--run effect on aggregate variables and yields a modest welfare gain. In the no--friction model, this welfare gain is substantially reduced when the reform is pre--announced six quarters prior to implementation. The effect of such a pre-announced reform are smaller when labor market frictions are taken into account. |
| Keywords: | social VAT, DGE, pre-announced fiscal reform. |
| JEL: | E10 E20 G12 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:244&r=mac |
| By: | Davide Ferrari; Barbara Pistoresi; Francesco Salsano |
| Abstract: | We build on earlier studies regarding Central Bank independence (CBI) by relating it to political, institutional and economic variables. The data suggest that CBI is positively related to the presence of federalism, the features of the electoral system and parties, the correlation between the shocks to the level of economic activity in the countries included in the sample and, for a sub-sample of economies, the convergence criteria to join the European Monetary Union (EMU). |
| Keywords: | ICentral Bank independence; institutional systems; variable selection |
| JEL: | E5 |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:mod:depeco:616&r=mac |
| By: | Greg Hannsgen; Dimitri B. Papadimitriou |
| Abstract: | Since the current recession began in December 2007, New Deal legislation and its effectiveness have been at the center of a lively debate in Washington. This paper emphasizes some key facts about two kinds of policy that were important during the Great Depression and have since become the focus of criticism by new New Deal critics: (1) regulatory and labor relations legislation, and (2) government spending and taxation. We argue that initiatives in these policy areas probably did not slow economic growth or worsen the unemployment problem from 1933 to 1939, as claimed by a number of economists in academic papers, in the popular press, and elsewhere. To substantiate our case, we cite some important economic benefits of New Deal–era laws in the two controversial policy areas noted above. In fact, we suggest that the New Deal provided effective medicine for the Depression, though fiscal policy was not sufficiently countercyclical to conquer mass unemployment and prevent the recession of 1937–38; 1933's National Industrial Recovery Act was badly flawed and poorly administered, and the help provided by the National Labor Relations Act of 1935 came too late to have a big effect on the recovery. |
| Keywords: | New Deal; Public Works Projects; NIRA; NLRA; Cartelization; Unions; Labor Relations Policy; Fiscal Policy; Fiscal Stimulus; Unemployment; Great Depression |
| JEL: | E20 E62 J58 L43 N12 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_581&r=mac |
| By: | Francesco Busato; Bruno Chiarini (-; -) |
| Abstract: | This paper studies equilibrium effects of fiscal policy within a dynamic general equilibrium model where tax evasion and underground activities are explicitly incorporated. In particular, we show that a dynamic general equilibrium with tax evasion may give a rational justification for a variant of the Laffer curve for a plausible parameterization. In this respect, the paper also identifies the different parameterization of the model formulation with tax evasion under which a Laffer curve exist. From a revenue maximizing perspective, the key policy messages are that bringing tax payers to compliance would be better than announcing to punish them if convicted, and that an economy without problems of compliance is much more sensitive to myopic behavior. |
| Keywords: | Two-sector Dynamic General Equilibrium Models, Fiscal Policy, Tax Evasion and Underground Activities. |
| JEL: | E32 E13 H20 E26 |
| Date: | 2009–10–06 |
| URL: | http://d.repec.org/n?u=RePEc:prt:dpaper:2_2009&r=mac |
| By: | Alastair R. Hall; Sanggohn Han; Otilia Boldea |
| Abstract: | We are grateful to Denise Osborn and Eric Renault for valuable comments and to Nikolaos Sakkas for assistance with the computations. The paper has also benefited from the comments of a co-editor and three anonymous referees. An earlier version of this paper was circulated under the title “Inference regarding multiple structural changes in linear models estimated via 2SLS” which was presented at the World Congress of the Econometric Society, London, August 19-24, 2005, the Triangle Econometrics Conference, RTP, NC, December 2, 2005, CIREQ Conference on Generalized Method of Moments, Montreal, November 16-17, 2007, the ESRC Econometrics group seminar at the Institute of Fiscal Studies, London, the London-Oxbridge Time Series Workshop and at seminars at Erasmus University and the Universities of Birmingham and Warwick. We are also very grateful to Chengsi Zhang and Denise Osborn for providing us with the data used in the empirical example. The first author acknowledges the support of the ESRC grant RES-062-23-1351. |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:man:cgbcrp:125&r=mac |
| By: | Steffen Ahrens; Dennis Wesselbaum |
| Abstract: | This paper provides a survey of the recent literature about firing costs and discusses the transmission channels of firing costs in a partial equilibrium context. In addition, we expand our analysis two types of firing costs in a New Keynesian model with purely endogenous separations. We further distinguish between the effects resulting from respecting and non-respecting the bonding critique. We find that the two types of firing costs do not show significant differences. However, respecting the bonding critique enhances the overall performance of the model |
| Keywords: | Beveridge Curve, Endogenous Separations, Firing Costs |
| JEL: | E24 E32 J64 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1559&r=mac |
| By: | Claudia R. Sahm; Matthew D. Shapiro; Joel B. Slemrod |
| Abstract: | Only about one-fifth of respondents in the Reuters/University of Michigan survey report that the 2008 tax rebates led them to mostly increase spending, while over half said it would lead them to mostly pay off debt. Of those in the mostly-spend category, the response was swift, with over 80 percent reporting increasing their spending within three months of receiving their rebate. Older households, households with higher wealth and higher income, and those expecting future income growth were generally more likely to spend the rebates. A review of other surveys confirms the general pattern of results and suggests that small changes in survey design do not have a major effect on the distribution of responses. The distribution of survey answers corresponds to an aggregate MPC after one year of about one-third. The paper combines this survey-based estimate of the MPC and the survey-based estimate of the timing of spending to show that the rebates help explain the aggregate movements in saving, spending, and debt in 2008. Because the rebate was large and distributed over a short period, it had a non-trivial effect on total spending in the second and third quarters of 2008. Nonetheless, the results imply that the rebates provided only a modest stimulus to spending per dollar of rebate. |
| JEL: | E21 E62 E65 H31 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15421&r=mac |
| By: | Martinoia, Michela |
| Abstract: | TThis paper has a double goal. On one side we want to evaluate the effect of economic integration on migration flows moving from the enlargement countries towards the EU-15; on the other, we want to analyse whether the migration flows had any impact over employment, real wages and labour force in the receiving countries of the European labour market. Due to the fact that economic integration can be observed in different real, monetary and financial phenomena, we refer to three of these to measure integration: trade openness, trade integration and financial market integration. These indicators have been inserted in a theoretical model that tries to explain labour market dynamics. The theoretical context that seemed the most suitable one to summarise European labour market characteristics is a modified version of the insider/outsider model proposed by Layard, Nickell and Jackman (LNJ, 1991). Another innovative contribution is the introduction of an equation modelling migration flows, whose creation is inspired to the neo-classic approach to the migration theory (Harris-Todaro, 1970). The model based on rational expectations is solved to find the equilibrium solution and the impact multipliers. Subsequently we estimated a structural VAR with the aim of both evaluating the impact that different shocks on integration measures have on migration flows, and measuring the type of effects that an increase in migration flows causes on the labour market. The estimates show that economic integration generate relevant effects on migration flows from the enlargement countries towards the EU-15 countries. Moreover, from the results emerge that migration flows generate an effect on the labour market. |
| Keywords: | European economic integration, labour market effects, migration |
| JEL: | E24 F15 F22 J61 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:uca:ucapdv:136&r=mac |
| By: | João Prates Romero (Cedeplar-UFMG); Frederico G. Jayme Jr. (Cedeplar-UFMG) |
| Abstract: | This paper discusses and assesses the features of the Brazilian Financial System, as well as the impacts of Liquidity Preference on Credit and Regional Development in Brazil. Precisely, we test the relationship between credit and development, and the role of banks in regional development. We estimate a panel across states in Brazil in order to test the impact of liquidity preference and other financial variables on Brazilian states credit level. We have also tested the relationship between liquidity preference and other financial variables across states and the number of patents, aiming at testing the importance of technology and innovation on regional development by means of bank system. Conclusions confirm both hypotheses. |
| Keywords: | Monetary System, National Innovation System, Credit |
| JEL: | E50 O16 O33 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:cdp:texdis:td357&r=mac |
| By: | Roberto Santolin (Cedeplar-UFMG); Mariângela Furlan Antigo (Cedeplar-UFMG) |
| Abstract: | This work estimates elasticity wage/long-term unemployment and checking which individuals groups are more affected by unemployment hysteresis phenomenon, using Household Sample National Survey (PNAD) published by the Brazilian Bureau of Geography and Statistics (IBGE) of six metropolitan regions - São Paulo, Rio de Janeiro, Recife, Salvador, Belo Horizonte e Porto Alegre – between 1997 and 2005. Behind of model of Dynamic Wage Curve, the results show strong wage flexibility in labor market. However, analyzing only formal workers, this result show that hysteresis originates of wage rigidity. In addition, it was observed that men, whites and individuals with higher education levels are less affected by long-term unemployment caused of wage flexibility these groups, among other reasons. |
| Keywords: | Labor Market, Dynamic Wage Curve, Unemployment, Hysteresis |
| JEL: | E24 J51 J60 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:cdp:texdis:td368&r=mac |
| By: | Peter Howitt; Ömer Özak |
| Abstract: | This paper proposes and studies a theory of adaptive consumption behavior under income uncertainty and liquidity constraints. We assume that consumption is governed by a linear function of wealth, whose coefficients are revised each period by a procedure, which, although sophisticated, places few informational or computational demands on the consumer. We show that under a variety of settings, our procedure converges quickly to a set of coefficients with low welfare cost relative to a fully optimal nonlinear consumption function. |
| JEL: | E21 C63 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15427&r=mac |
| By: | David Carey |
| Abstract: | The global financial and economic crisis has struck Iceland with extreme force. Iceland’s three main banks, accounting for almost all of the banking system, failed in October 2008. They were unable to resist the deterioration in global financial markets following the failure of Lehman Brothers. The banks had pursued risky expansion strategies – notably borrowing in foreign capital markets to finance the aggressive international expansion of Icelandic investment companies – that made them vulnerable to the deterioration in global financial markets. They had also grown to be too big for the government to rescue. When access to foreign capital eventually closed, the banks failed. Non-financial firms and households were also vulnerable to the deterioration in global financial conditions, having taken on a lot of debt in recent years based on inflated collateral values. In some cases, the debt was foreign-currency denominated, without matching foreign-currency assets or revenues. In the wake of the banking crisis, the government obtained an IMF Stand-By Arrangement to provide favourable access to foreign capital markets and creditability for the recovery programme. Even so, the recession is likely to be deeper in Iceland than in most other OECD countries owing to the seriousness of the banking crisis and the weakness of private sector balance sheets. Reforms are needed to strengthen prudential regulation and supervision. This Working Paper relates to the 2009 Economic Survey of Iceland.<P>Islande : La crise économique et financière<BR>La crise économique et financière mondiale a frappé l’Islande avec une violence extrême. Les trois principales banques du pays, qui représentaient pratiquement l’ensemble du système bancaire, ont fait faillite en octobre 2008. Elles n’ont pas réussi à résister à la détérioration des marchés de capitaux mondiaux dans le sillage de la faillite de Lehman Brothers. Les banques avaient suivi des stratégies de développement risquées – empruntant notamment sur des marchés financiers étrangers pour soutenir une expansion internationale dynamique des sociétés d’investissement islandaises – ce qui les a rendues vulnérables à la détérioration des marchés de capitaux mondiaux. Elles avaient également atteint une taille trop importante pour que le gouvernement puisse venir à leur rescousse. Lorsque l’accès aux capitaux étrangers a été finalement fermé, les banques ont fait faillite. Les entreprises non financières et les ménages – qui s’étaient massivement endettés ces dernières années profitant de la forte valorisation de leurs garanties – étaient aussi vulnérables à la détérioration de la situation financière mondiale. Dans certains cas, la dette était libellée en devises sans que les emprunteurs n’aient d’actifs ou de revenus dans ces devises susceptibles de compenser le risque de change. À la suite de la crise du système bancaire, les pouvoirs publics ont conclu un accord de confirmation avec le FMI pour assurer des conditions d’accès favorables aux marchés de capitaux étrangers et soutenir la crédibilité du programme de redressement économique. Malgré cela, il est probable que la récession sera plus profonde en Islande que dans la plupart des autres pays de l’OCDE en raison de la gravité de la crise bancaire et de la faiblesse des bilans des entreprises et des patrimoines des ménages dans le secteur privé. Des réformes sont nécessaires pour renforcer la réglementation et la surveillance prudentielle. |
| Keywords: | currency crisis, Islande, Iceland, financial crisis, crise financière, deleveraging, réduction de l’effet de levier, banking crisis, crise bancaire, IMF stand-by arrangement, accord de confirmation avec le FMI, envolée du cours des actions induite par le crédit, position d’investissements internationaux, crise monétaire, sociétés d’investissement, surveillance et réglementation prudentielle, micro-prudential supervision, surveillance micro-prudentielle, macro-prudential supervision, surveillance macro-prudentielle, credit-induced asset price boom, foreign exchange exposure, investment companies, international investment position, prudential supervision and regulation |
| JEL: | E44 G21 G24 G28 R21 |
| Date: | 2009–10–09 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:725-en&r=mac |
| By: | Andrés Gutiérrez (Autoridad de Supervisión del Sistema Financiero (ASFI), Bolivia) |
| Abstract: | En este documento, se analiza empíricamente, la administración del tipo de cambio con el objetivo de control de inflación del BCB, dada la experiencia de los últimos veinte años. La evidencia presentada muestra que la política cambiaria en Bolivia influye en el control de inflación, así como en la determinación de la competitividad externa. Así el proceso de hiperinflación de mediados de los ochenta fue estabilizado con una política cambiaria restrictiva entre 1986 y 1996, que sirvió como señal para reducir la inflación, para posteriormente alinearla con tasas más moderadas. Sin embargo, a medida que la tasa de inflación cayó y se estabilizó, la política cambiaria mostró un sesgo expansivo a favor de la competitividad cambiara, lo cual habría generado un desalineamiento del tipo de cambio de sus niveles de equilibrio, acelerando la tasa de inflación con carácter permanente. En esa línea, el análisis de la función de reacción, muestra que la política cambiaria en Bolivia habría privilegiado en mantener el valor real de la paridad cambiaria. Los resultados señalan que el nivel de actividad económica, el desalineamiento del tipo de cambio real habrían tenido mayor relevancia que el control de la inflación. Finalmente, los resultados reafirman que los movimientos cambiarios han sido suaves, esto debido al entorno de dolarización financiera, razón que explica por qué el BCB opera bajo un régimen cambiario deslizante (Crawling Peg). |
| Keywords: | Política Cambiaria, Control de Inflación, Inconsistencia Dinámica, Reglas Monetarias |
| JEL: | E31 E52 E61 C50 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:adv:wpaper:200909&r=mac |
| By: | Saint-Paul, Gilles (University of Toulouse I) |
| Abstract: | Much of the political economy analysis of reform focuses on the conflict of interest between groups that stand to gain or lose from the competing policy proposals. In reality, there is also a lot of disagreement about the working of the policy: in addition to conflicting interests, conflicting views play an important role. Those views are shaped in part by an educational bureaucracy. It is documented that the beliefs of that bureaucracy differ substantially from those of the broader constituency. I analyse a model where this effect originates in the self-selection of workers in the educational occupation, and is partly reinforced by the insulation of the educational profession from the real economy (an effect which had been discussed by Hayek). The bias makes it harder for the population to learn the true parameters of the economy if these are favourable to the market economy. Two parameters that govern this capacity to learn are social entropy and heritability. Social entropy defines how predictable one's occupation is as a function of one's beliefs. Heritability is the weight of the family's beliefs in the determination of the priors of a new generation. Both heritability and social entropy reduce the bias and makes it easier to learn that the market economy is "good", under the assumption that it is. Finally I argue that the capacity to learn from experience is itself affected by economic institutions. A society which does not trust markets is more likely to favour labour market rigidities that in turn reduces the exposure of individuals to the market economy, and thus their ability to learn from experience. This in turn reinforces the weight of the educational system in the formation of beliefs, thus validating the initial presumption against the market economy. This sustains an equilibrium where beliefs and institutions reinforce each other in slowing or preventing people from learning the correct underlying parameters. |
| Keywords: | ideology, beliefs, political economy, labor market reform, occupational choice, education, employment protection, civil service, market economy, unemployment |
| JEL: | E24 I21 I28 J22 J23 J24 J45 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4468&r=mac |
| By: | Hashiguchi, Yoshihiro |
| Abstract: | This paper used regional panel data for Chinese provinces from 1979 to 2003, and for Japanese prefectures from 1955 to 1998, to estimate the spatial externalities (or spatial multiplier effects) using a production function and Bayesian methodology, and to investigate the long-run behavior of the spatial externalities of each country. According to the estimation results, China's spatial externalities increased its domestic production significantly after 1994, which tended to increase until 2003. Before 1993, however, its spatial externalities were not significant. Japan's spatial externalities showed fluctuating values throughout the sample period. Furthermore, the movement of the spatial externalities was correlated with Japan's business conditions: the externalities showed a high value in the economic boom, and a low value in the economic depression. This could mean that spatial externalities depend mainly on business conditions. |
| Keywords: | Spatial Externalities; Bayesian Estimation; Production Function |
| JEL: | E23 N95 C11 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:17902&r=mac |
| By: | Mühlemann, Samuel (University of Bern); Wolter, Stefan (University of Bern); Wüest, Adrian (affiliation not available) |
| Abstract: | Dual apprenticeship training is a market-driven form of education at the upper secondary level, taking place in firms as well as in vocational schools. So far, little is known about the impact of the business cycle on the number of apprenticeship programs offered by firms. Using panel-data of Swiss cantons from 1988-2004, we find that the influence of the business cycle is statistically significant, but small in size. Instead, supply of apprenticeship programs is driven to a much greater extent by demographic change. Conversely, the number of first-year high school students is not affected by the business cycle. We find, however, that enrollment increases if the population at age 16 grows, but access to high schools does not become more restricted in times of negative growth. |
| Keywords: | apprenticeship training, business cycle, high school enrollment |
| JEL: | E24 I21 J18 J44 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4460&r=mac |
| By: | Berthold Herrendorf; Richard Rogerson; Ãkos Valentinyi |
| Abstract: | We ask what specification of preferences can account for the changes in the expenditure shares of broad sectors that are associated with the process of structural transformation in the U.S. since 1947. Following the tradition of the expenditure systems literature, we first calibrate utility function parameters using NIPA data on final consumption expenditure. We find that a Stone-Geary specification fits the data well. While useful, this exercise does not tell the researcher what utility function to use in a model that posits sectoral production functions in value added form. We therefore develop a method to calculate the value added components of consumption categories that are consistent with value added production functions, and use these data to calibrate a utility function over sectoral consumption value added. We find that a Leontief specification fits the data well. Interestingly, the two specifications display very different properties: for final consumption expenditure income effects are the dominant force behind changes in expenditure shares whereas for consumption value added relative price effects are dominant. |
| JEL: | E20 O14 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15416&r=mac |
| By: | Cette, G.; Lopez, J. |
| Abstract: | This study aims to provide some empirical explanations for the gaps in ICT diffusion between industrialized countries, especially European countries vis-à-vis the United States. The panel data cover eleven OECD countries: Austria, Denmark, Finland, France, Germany, Italy, Japan, the Netherlands, Spain, the United Kingdom and the United States. These annual macroeconomic data span the 1981-2005 period.The analysis provides some original results: (i) the impact on ICT diffusion of the level of education and market rigidities has changed over time. The correlation of ICT diffusion, positive with the level of education and negative with market rigidities, increased over time (in absolute terms) until the middle of the 1990s; (ii) In each country, the estimates show a decrease over time of the price-elasticity of demand for ICT (in absolute terms). More precisely, the elasticity of substitution of ICT vis-à-vis all production factors are close to or greater than 2 at the beginning of the 1980s and close to 1 in the middle of the 2000s; (iii) The estimates confirm the positive impact of the share of the population with a higher education and the negative impact of market rigidities on ICT diffusion. These effects are heightened when ICT diffusion is already substantial |
| Keywords: | ICT, investment, factor demand, productivity. |
| JEL: | E22 O47 O57 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:252&r=mac |
| By: | Marjit, Sugata; Chaudhuri, Sarbajit; Kar, Saibal |
| Abstract: | Global recession is likely to hit the skilled sector or the so-called white goods, white collared sector in a typical developing economy. In this paper we try to analyze the impact of such an event on informal wage as the vast majority of the workforce in the developing world is employed in the unorganized or informal sector. In particular, we demonstrate the analytical possibility that a recession in the skilled sector will actually increase real informal wage. |
| Keywords: | Recession; skill; capital-labor ratio; informal wage; general equilibrium |
| JEL: | E31 J31 J21 |
| Date: | 2009–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:18003&r=mac |
| By: | Christian Friedrich; Václav Zdárek |
| Abstract: | This paper examines how international investors evaluate the change in the risk-return profile of ten Central and Eastern European countries that recently entered the European Union (EU). By supplement- ing international investment position data provided by IMF’s International Financial Statistics with data obtained from Lane and Milesi-Ferretti’s External Wealth of Nations Mark II Database, we create a unified data set of external assets and liabilities for new EU member states (NMS) ranging from 1993 to 2007. Drawing from the so called ‘push-pull’ factor approach and the achievements of Modern Portfolio Theory, we then collect an extensive set of international controls and a number of local risk-return variables that served as transmission channels for the benefits of EU integration and hence, potentially attracted foreign capital. These variables finally enter a panel data model with the Feasible Generalized Least Squares, (FGLS) and linear regression method with panel-corrected standard errors (PCSE) as proposed by Beck and Katz (1995). Our results indicate that convergence towards the EU has had a significant impact on the liability side of international investment positions in NMS. Especially for debt and portfolio equity liabilities, the region’s affiliation with the EU has mitigated the negative evaluation of local macroeconomic risk factors by international investors. Nevertheless, also global forces turned out to be important drivers of the recent build-up in external liabilities and show that the region’s capital supply still depends on actions taken in other parts of the world. |
| Keywords: | capital flows, push-pull factor approach, EU enlargement, new EU member states |
| JEL: | E31 F15 F21 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieasw:454&r=mac |