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on Macroeconomics |
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Issue of 2010‒01‒23
37 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | Luisa Lambertini (Chair of International Finance, Ecole Polytechnique Federale de Lausanne (EPFL), Switzerland); Caterina Mendicino; Maria Teresa Punzi |
| Abstract: | This paper analyzes housing market boom-bust cycles driven by changes in households' expectations. We introduce expectations-driven fluctuations into the housing-market model developed by Iacoviello and Neri (2009). We find that changes in expectations about the future state of productivity, investment cost, housing supply, inflation, the policy rate and the central bank's inflation target can generate macroeconomic boom-bust cycles in accordance with the data. Contrary to previous literature, we show that a strong anti-inflationary stance is detrimental both in terms of macroeconomic volatility and welfare. We also document that economies subject to a lower degree of credit friction experience higher volatility in both consumption household indebtedness. |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:cif:wpaper:201001&r=mac |
| By: | Yu-chin Chen (University of Washington); Kwok Ping Tsang (Virginia Tech) |
| Abstract: | The nominal exchange rate is both a macroeconomic variable equilibrating international markets, and a financial asset that embodies expectations and prices risks about cross border currency-holdings. Recognizing this, we adopt a joint macro-finance strategy to model the exchange rate. We incorporate into a monetary exchange rate model macroeconomic stabilization through Taylor-rule monetary policy on one hand, and on the other, market expectations and perceived risks embodied in the cross-country yield curves. Using monthly data between 1985 and 2005 for Canada, Japan, the UK and the US, we summarize information in the relative yield curves between country-pairs using the Nelson and Siegel (1987) latent factors, and combine them with monetary policy targets (output gap and inflation) into a Vector Autoregression (VAR) for bilateral exchange rate changes. We find strong evidence that both the financial and macro variables are important for explaining exchange rate dynamics and excess currency returns, especially for the yen and the pound relative to the dollar. By decomposing the yield curves into expected future yields and bond market term premia, we show that both expectations and perceived risks are priced into the currency market. These findings provide support for the view that the nominal exchange rate is determined by both macroeconomic as well as financial forces. |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:udb:wpaper:uwec-2009-24&r=mac |
| By: | Zeno Enders |
| Abstract: | A model of segmented asset markets is developed, in which varieties of consumption bundles are purchased sequentially. By this, a non-degenerate heterogeneity in wealth and the effective elasticity of substitution across households arises, affecting optimal markups chosen by firms. Furthermore, the model features an internal propagation mechanism that stems from the slow dissemination of newly injected money via second-round effects. These mechanisms generate a short-term inflation-output trade-off, a liquidity effect, countercyclical markups, procyclical profits and wages after monetary shocks. Furthermore, the responses of output, inflation, hours worked, velocity, and profits are quantitatively in line with VAR evidence. |
| Keywords: | Limited Participation, Countercyclical Markups, Liquidity Effect, Segmented Asset Markets |
| JEL: | E31 E32 E51 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:bon:bonedp:bgse30_2009&r=mac |
| By: | Pierre-Richard Agenor; Koray Alper |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:0906&r=mac |
| By: | Efrem Castelnuovo (University of Padua); Salvatore Nisticò (Università di Roma "Tor Vergata" and LUISS "Guido Carli") |
| Abstract: | This paper investigates the interactions between stock market fluctuations and monetary policy within a DSGE model for the U.S. economy. First, we design a framework in which fluctuations in households financial wealth are allowed - but not necessarily required - to exert an impact on current consumption. This is due to the interaction, in the financial markets, of long-time traders holding wealth accumulated over time with newcomers holding no wealth at all. Importantly, we introduce nominal wage stickiness to induce pro-cyclicality in real dividends. Additional nominal and real frictions are modeled to capture the pervasive macroeconomic persistence of the observables employed to estimate our model. We fit our model to post-WWII U.S. data, and report three main results. First, the data strongly support a significant role of stock prices in affecting real activity and the business cycle. Second, our estimates also identify a significant and counteractive response of the Fed to stock-price fluctuations. Third, we derive from our model a microfounded measure of financial slack, the "stock-price gap", which we then contrast to alternative ones, currently used in empirical studies, to assess the properties of the latter to capture the dynamic and cyclical implications of our DSGE model. The behavior of our "stock-price gap" is consistent with the episodes of stock-market booms and busts occurred in the post-WWII, as reported by independent analyses, and closely correlates with the current financial meltdown. Typically employed proxies of financial slack such as detrended log-indexes or growth rates show limited capabilities of capturing the implications of our model-consistent index of financial stress. Cyclical properties of the model as well as counterfactuals regarding shocks to our measure of financial slackness and monetary policy shocks are also proposed. |
| Keywords: | Stock Prices, Monetary Policy, Bayesian Estimation, Wealth Effects. |
| JEL: | E30 E52 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0107&r=mac |
| By: | WenShwo Fang (Feng Chia University); Stephen M. Miller (University of Connecticut) |
| Abstract: | The lag in effect of monetary policy contains vital information for the policy evaluation. Allowing for a time-varying treatment effect, we show that inflation targeting effectively lowers inflation for both developed and developing countries. Developed countries reach their targets rapidly with a two-year lag in effect. Developing countries, however, reduce inflation gradually toward their targets and do not reach their ultimate goal by the end year of 2007. |
| Keywords: | time lag, inflation targeting, time-varying treatment effect, policy evaluation |
| JEL: | C52 E31 E52 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2010-01&r=mac |
| By: | Shaikh, Salman |
| Abstract: | This paper reviews limited, but precious academic literature on central banking and monetary management in Islamic finance. It discusses the building blocks of an Islamic monetary system. It discusses how savings would feature despite discontinuation of interest, how inflation will be checked with central banks not having at its disposal conventional OMO, how liquidity will be managed in banking sector when central bank wants to inject liquidity or mop up funds. How and to what extent the institution of Zakat would enable the government to meet its fiscal targets and does not crowd out private sector. How balance of payments and exchange rate stability can be managed in an interest free economy. If in the short term, the government or central bank needs alternative source of revenue other than Zakat, they can issue GDP linked bonds. This could replace T-bill and provide a base instrument for OMO and liquidity management in the banking and financial sector. |
| Keywords: | Islamic corporate finance; pricing of capital; interest free finance; Interest; Interest free economy; Usury; Time value of money; Riba; Musharakah; Mudarabah; Ijara; Salam; Istisna; Qard-e-Hasan; Diminishing Musharakah |
| JEL: | E42 E52 E60 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:20029&r=mac |
| By: | S. Boragan Aruoba (Department of Economics, University of Maryland); Francis X. Diebold (Department of Economics, University of Pennsylvania and NBER) |
| Abstract: | We sketch a framework for monitoring macroeconomic activity in real-time and push it in new directions. In particular, we focus not only on real activity, which has received most attention to date, but also on inflation and its interaction with real activity. As for the recent recession, we find that (1) it likely ended around July 2009; (2) its most extreme aspects concern a real activity decline that was unusually long but less unusually deep, and an inflation decline that was unusually deep but brief; and (3) its real activity and inflation interactions were strongly positive, consistent with an adverse demand shock. |
| Keywords: | Nowcasting, Prices, Wages, Business cycle, Expansion, Contraction, Recession, Turning point, State-space model, Dynamic factor model |
| JEL: | E31 E32 E37 C01 C22 |
| Date: | 2010–01–08 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:10-002&r=mac |
| By: | Roland Beck; Geoff Barnard |
| Abstract: | In the years preceding the onset of the global financial crisis, the Central Bank of Russia (CBR) had two goals: to reduce inflation and limit the real appreciation of the rouble. Given the strength of Russia’s balance of payments during the ten years through the first half of 2008, the de facto tight management of the nominal exchange rate resulted in large interventions which were only partially sterilised. As a result, inflation remained persistently high. During the global financial crisis in 2008-09 Russia’s monetary policy was initially constrained by a large degree of private debt dollarisation. After a gradual adjustment of the exchange rate to the new oil price environment which was costly due to reserve losses, the CBR started to lower interest rates and to allow for a somewhat higher degree of exchange rate flexibility. Looking ahead, even greater exchange rate flexibility should be permitted since (i) commodity exporting countries can successfully run inflation targeting and (ii) we find that exchange rate pass-through has been limited and asymmetric and can be taken into account under inflation targeting. Preparations for inflation targeting should focus on a commitment to price stability as the primary goal of monetary policy. At the same time the authorities should enhance their understanding of how monetary developments affect inflation and financial stability and accelerate financial sector reforms aimed at financial deepening.<P>Vers une politique de taux de change plus flexible en Russie<BR>Pendant les années précédant le déclenchement de la crise financière mondiale, la banque centrale de Russie avait deux objectifs : réduire l’inflation et limiter l’appréciation réelle du rouble. Étant donné le solde très positif de la balance des paiements pendant la décennie se terminant à la première moitié de 2008, la gestion du taux de change nominal a eu pour résultat des interventions importantes qui n’ont été que partiellement stérilisées. L’inflation est donc restée élevée. Pendant la crise financière mondiale en 2008-09 la politique monétaire de la Russie a été contrainte par le niveau élevé de dollarisation de la dette privée. Après un ajustement graduel du taux de change à la situation nouvelle des prix du pétrole qui a été coûteux à cause des pertes de réserves, la banque centrale a commencé à baisser les taux d’intérêt et à permettre plus de flexibilité du taux de change. Dans le futur, la Russie devrait permettre davantage de flexibilité du taux de change puisque (i) les pays exportateurs de matières premières peuvent gérer un régime de ciblage de l’inflation ; et (ii) nous trouvons que la transmission des mouvements du taux de change à l’inflation n’a été que modérée et asymétrique et qu’on peut en tenir compte sous un tel régime. Les préparations pour le ciblage de l’inflation devraient être focalisées sur un engagement à la stabilité des prix comme objectif principal de la politique monétaire. En même temps, les autorités devraient améliorer leur compréhension de la façon dont les développements monétaires affectent l’inflation et la stabilité financière ainsi qu’accélérer les réformes financières visant un approfondissement du secteur financier. |
| Keywords: | economy, exchange rate policy, inflation targeting, inflation, interest rate, monetary policy, Russia, ciblage de l’inflation, économie, inflation, politique de taux de change, politique monétaire, Russie, taux de change, taux d'intérêt |
| JEL: | E31 E5 E52 E58 F31 |
| Date: | 2009–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:744-en&r=mac |
| By: | de Carvalho Filho, Irineu |
| Abstract: | This paper appraises how countries with inflation targeting fared during the current crisis, with the goal of establishing the stylized facts that will guide and motivate future research. We find that relative to other countries, IT countries lowered nominal policy rates by more and this loosening translated into an even larger differential in real interest rates; were less likely to face deflation scares; and saw sharp real depreciations not associated with a greater perception of risk by markets. We also find some weak evidence that IT countries did better on unemployment rates and advanced IT countries have had relatively stronger industrial production performance. Finally, we find that advanced IT countries had higher GDP growth rates than their non-IT peers, but no such difference for emerging countries or the full sample. |
| Keywords: | Inflation targeting; economic crisis; monetary policy |
| JEL: | E00 |
| Date: | 2010–01–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:19960&r=mac |
| By: | Sharon Harrison; Mark Weder |
| Abstract: | We examine a general equilibrium model with collateral constraints and increasing returns to scale in production. The utility function is nonseparable, with no income effect on the consumer’s choice of leisure. Unlike this model without a collateral constraint, we Þnd that indeterminacy of equilibria is possible. Hence, business cycles can be driven by self-fulÞlling expectations. This is the case for more realistic parametrizations than in previous, similar models without these features. |
| Keywords: | Business cycles, Credit markets, Collateral Constraint, Sunspots. |
| JEL: | E32 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmawp:1001&r=mac |
| By: | Musgrave, R.S. |
| Abstract: | The alleged justifications for government borrowing in a country which issues its own currency are examined here. The conclusion is that no justification exists for borrowing money in the normal sense of the phrase “borrow money”: that is, the use by one entity of money loaned by another entity, and so as to fund expenditure by the first entity. In contrast, and where a deflationary stance is required, it is justifiable for government (or as is more usual, the central bank) to borrow in the sense of withdrawing funds from the private sector and purely so as to stop those funds being spent. Moreover, inflation destroys a proportion of the money “borrowed”. Plus government effectively confiscates (via tax) the money needed to pay interest on this “borrowed” money. This is essentially a money shredding operation. This is not the normal meaning of the word borrow. Many of the points made here apply to the central bank of a common currency area. Individual countries within a common currency area are not considered. |
| Keywords: | Abba Lerner; Modern Monetary Theory; government borrowing |
| JEL: | E42 E58 H6 |
| Date: | 2010–01–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:20057&r=mac |
| By: | Dennis Wesselbaum |
| Abstract: | Shocks driving the business cycle have different effects on low-skilled and high-skilled workers. This paper studies the effects of temporary and permanent sector-specific shocks in a New Keynesian matching model. We show that temporary sector-specific shocks have reallaction and aggregate effects. Permanent shocks explain wedges in real wages and different performances in labor markets. Furthermore, the model is able to replicate an aggregate Beveridge curve |
| Keywords: | Beveridge Curve, Matching, Sectoral Productivity Shock |
| JEL: | E24 J24 J41 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1585&r=mac |
| By: | Carsten Hefeker (University of Siegen, Hoelderlinstrasse 3, D-57068 Siegen); Blandine Zimmer (LARGE, University of Strasbourg, 47 avenue de la Forêt Noire, F-67082 Strasbourg Cedex) |
| Abstract: | This paper revisits the trade-off between central bank independence and conservatism using a New Keynesian model with uncertainty about the central banker's output gap target. It is shown that when this uncertainty is high, the trade-off no longer holds. In this case, the optimal combination between independence and conservatism is characterised by complementarity. |
| Keywords: | Central bank independence, Conservatism, Transparency of monetary policy |
| JEL: | E52 E58 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201001&r=mac |
| By: | Antonio Mele |
| Abstract: | Does capital markets uncertainty affect the business cycle? We find that financial volatility predicts 30% of post-war economic activity in the United States, and that during the Great Moderation, aggregate stock market volatility explains, alone, up to 55% of real growth. In out-of-sample tests, we find that stock volatility helps predict turning points over and above traditional financial variables such as credit or term spreads, and other leading indicators. Combining stock volatility and the term spread leads to a proxy for (i) aggregate risk, (ii) risk-premiums and (iii) monetary policy, which is found to track, and anticipate, the business cycle. At the heart of our analysis is a notion of volatility based on a slowly changing measure of return variability. This volatility is designed to capture long-run uncertainty in capital markets, and is particularly successful at explaining trends in the economic activity at horizons of six months and one year. |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:fmg:fmgdps:dp642&r=mac |
| By: | Totzek, Alexander |
| Abstract: | When the current financial crisis has widened to a global economic crisis an urgent call for implementing financial markets and financial institutions in business cycle models emerged. By modelling commercial banks as a third type of economic agent, we are able to implement the feature of early deposit withdrawals in a New Keynesian model and to investigate the resulting implications for the real sector. The main results are that an extended withdrawal rate leads to persistent stagflationary effects which are dampened by reducing the refinancing costs of the banking sector and by increasing the loan rate stickiness. -- |
| Keywords: | commercial banks,financial crises,deposit withdrawal |
| JEL: | E12 E44 E50 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:200908&r=mac |
| By: | Petr Rozmahel (University of Brno) |
| Abstract: | The adoption of the Euro by Slovakia as of January 2009 and the current world economic crises revived a debate on timing of the Euro adoption in the Czech Republic and other CEECs. The purpose of the paper is to contribute to a discussion on the process of joining the Eurozone by the Czech Republic and other candidate countries. The paper provides an analysis of some business cycle similarity and convergence measures using different indicators and detrending techniques. Measures of business cycle similarity are ordinarily used to evaluate preparedness of candidate countries to join the Eurozone. The results indicate continuing convergence of the business cycle similarity between the candidate and Eurozone member countries. The paper also sheds some light on the possible influence of selected detrending techniques on the resulting correlations. It gives a recommendation to interpret the results of business cycle correlation measuring in the close context with used methodology. A short note on a regional approach to analyse the GDP cycles is also included in the text. |
| Keywords: | business cycle, convergence, correlation, eurozone, optimum currency area |
| Date: | 2009–10–20 |
| URL: | http://d.repec.org/n?u=RePEc:wfo:wpaper:y:2009:i:346&r=mac |
| By: | Kobayashi, Teruyoshi |
| Abstract: | Many empirical studies argue that the inertial behavior of the policy rates in industrialized countries can be well explained by a linear partial adjustment version of the Taylor rule. However, the explanatory power of the lagged interest rate has been questioned from various points of view. This paper formally examines a situation in which a central bank has an aversion for frequent policy reversals. Imposing an irreversibility constraint on the control space makes the lagged interest rate a state variable, but the policy function cannot then be expressed as a partial adjustment form even if the original Taylor rule is the correct policy function in the absence of the constraint. The simulation results reveal that the conventional regression tends to falsely support the functionally misspecified partial adjustment model. This implies that the significant role of the lagged interest may simply reflect the central banks’ reversal aversion. |
| Keywords: | gradualism; interest rate smoothing; irreversibility; Taylor rule. |
| JEL: | E58 E52 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:19931&r=mac |
| By: | Ferre de Graeve; Maarten Dossche; Marina Emiris; Henri Sneessens; Raf Wouters (CREA, University of Luxembourg) |
| Abstract: | We analyze financial risk premiums and real economic dynamics in a DSGE model with three types of agents - shareholders, bondholders and workers - that differ in participation in the capital market and in attitude towards risk and intertemporal sub- stitution. Aggregate productivity and distribution risks are transferred across these agents via the bond market and via an efficient labor contract. The result is a combi- nation of volatile returns to capital and a highly cyclical consumption process for the shareholders, which are two important ingredients for generating high and counter- cyclical risk premiums. These risk premiums are consistent with a strong propagation mechanism through an elastic supply of labor, rigid real wages and a countercyclical la- bor share. Based on the empirical estimates for the two sources of real macroeconomic risk, the model generates significant and plausible time variation in both bond and equity risk premiums. Interestingly, the single largest jump in both the risk premium and the price of risk is observed during the current recession. |
| JEL: | E32 E44 G12 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:09-17&r=mac |
| By: | Scarlat, Valentin |
| Abstract: | Talking about the economic growth, is to be stressed the essential contribution of the investment to a country economic development, role which is unanimously recognized and accepted. It is well-known that even the most developed market economies were built up with notable investment efforts, in order to enable a high efficiency of the fixed assets and to ensure a rational use of the natural resources and of the labour force. The investment process is mainly conditioned by the imprevisible action of certain elements, both immanent to the economic system and exogenous to it, as well, such as: technology, politics, optimistic and pessimistic forecasting, population confidence, taxes and government expenditures, monetary base fluctuation etc. |
| Keywords: | economic growth; investment; high efficiency; taxes and government expenditures; monetary policy |
| JEL: | E42 E52 F43 |
| Date: | 2009–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:19849&r=mac |
| By: | Bormotov, Michael |
| Abstract: | The core problem in focus of this paper is studying how modern economy can keep sustained growth in terms of increasing reliance on both knowledge and human capitals and dependence on continuously depleting non-renewable natural resources. The aim of this paper is to bridge in some way the gap between macroeconomic growth models and models of technological evolution. The ultimate goal of this work is to determine the optimal rate of savings and the optimal, i.e. delivering maximum cumulative consumption during given period , total investment allocation among physical capital, human capital, natural capital and knowledge capital, all subject of endogenous growth, for the modern knowledge based economy where savings are the unique source of investments. The neo-classical CES production function extended to four factors including physical capital K, human capital L, raw materials (natural capital) R and knowledge capital A in three different forms: for perfect substitution, for the case of no substitution and for the case of unit elasticity of substitution, is accepted as the basic growth model. There are four most important features which distinguish our all-factors endogenous growth model from basic endogenous growth model: 1.The total national capital stock which reflects the growth potential of economy is considered consisting of four parts: physical capital, human capital, natural capital and knowledge capital. Therefore our model embeds all four factors of production (physical capital, human capital, natural capital and knowledge capital) as opposed to three factors (physical capital, labour and knowledge) included in Romer model. 2. The labour, represented by Human capital, is not assumed equal to population and is measured in money units (total earnings of qualified labour which is considered equal to total household income). Investments in Education system transform Population in Human capital. Therefore in our model labour supply grows proportionally investments in human capital, whine the path of population growth is given exogenously according to exponential or logistics curves. 3. Marginal rate of consumption and consequently marginal rate of savings are assumed constant during exploring period; they are not given as initial conditions but are subject of optimisation inside the model. 4. Growth of every of four employed factors is considered depending on investments in corresponding sector of economy only. It is assumed that investments, measured in money units, absorb and exhaustively represent all underlying resources (physical capital, labour, raw materials). A three steps algorithm for finding the optimum solution is created. The first step defines in general an optimum structure of investment allocation among K, L and R. The second step defines optimum investment allocation between A from one hand and all other factors from the other hand. The third step applies defined optimum value on optimum structure. |
| Keywords: | knowledge based economy; economic cycles; endogenous growth; investment; optimization; knowledge capital; human capital; natural resources. |
| JEL: | E32 O30 E21 |
| Date: | 2010–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:19932&r=mac |
| By: | Matías Vernengo |
| Abstract: | The current economic global crisis has thrown fiscal policy onto the center stage. However, the current crisis episode has not produced any change regarding the standing role and function of fiscal policy in developed and developing market economies that has dominated the economics profession for decades. In fact, the uncertain prospects for recovery underscore the fact that free market economies lack the mechanisms to bring about and maintain full employment. Full employment requires designing and making operational institutions at the national and global levels that can manage aggregate demand. This paper reviews the evidence on current fiscal efforts around the world. |
| Keywords: | Fiscal Policy, Fiscal Deficit |
| JEL: | E62 H62 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:uta:papers:2010_01&r=mac |
| By: | Totzek, Alexander |
| Abstract: | As GDP is highly correlated with both entering and exiting firms, we develop a totally microfounded DSGE model with endogenous firms entry as well as exit decisions. We show that the simplifying assumption of a constant firms' death rate made by the recent literature on DSGE modelling can lead to counterfactual implications of the resulting dynamics. We further demonstrate that the feature of endogenous exits significantly improves the performance of the resulting model when comparing the generated second moments with those of existing models assuming exogenous exits and with the data. Moreover, we estimate the resulting Phillips curve which turns out to be also a function of the change in the mass of producers using the generalized method of moments. -- |
| Keywords: | Heterogeneity,Producer entry and exit,Business cycles,GMM |
| JEL: | E32 E31 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:200911&r=mac |
| By: | Agnes Benassy-Quere; Benoit Coeure; Pierre Jacquet; Jean Pisani-Ferry |
| Abstract: | We review the competing explanations of the 2007-2008 global crisis, recall how governments around the world had to depart from established policy stances, and reflect on the legacy of the crisis both in terms of future challenges and changes in policy doctrine. The G-20 has addressed important regulatory and macro-financial dimensions of the crisis, but it has left difficult questions unanswered. We review some of these incoming challenges such as moral hazard in the post-bail-out world, the trade-off between financial stability and the cost of capital, the feasibility for central banks to manage their new financial stability mandate, and the effectiveness of peer review to address global imbalances. |
| Keywords: | Global financial crisis; economic policy; financial regulation; black swan |
| JEL: | E50 E6 F02 F36 G18 G28 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2009-28&r=mac |
| By: | Jambu, Marc-Antoine |
| Abstract: | Globalisation have generated a more or less competetive market according to the kind of rms. The Great moderation has structural causes such as market power, which is possible to study through the reduced form of the NKPC obtained with the Calvo and Rotemberg price setting assumptions. The Calvo model fails to predict the increase of price volatility on Business to Business (BotB) product markets where competition has denitively increased. By using a model with upstream and downstream rms, according to the Theory of rm Literature, where both are constraint by the Rotemberg price setting assumption, the model predicts the Great Moderation in OECD economies only if the hypothesis of an increase in the global markup is kept. Simulations replicate NKPC slope empirical estimations. This unusual hypothesis is supported by the increasing share of prot in value added, by the development of credit market in OECD countries and by the american increasing revenues inequalities. The model produces endogeneous incentives to a more exible labor market and the development of credit market. A global decreased competetive market gives an explanation of the barely growth of median wage, compare to the growth of global productivity during the period of the Great Moderation. |
| Keywords: | Great Moderation; New keynesian model; Market structure |
| JEL: | E32 F23 E23 F01 E20 |
| Date: | 2010–01–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:19974&r=mac |
| By: | Estrada, Fernando |
| Abstract: | This article describes the argumentative structure of Hayek on the relationship between tax policy and redistribution. It is observed throughout its work giving special attention to two of his works: The Constitution of Liberty (1959) and Law, Legislation and Liberty, Vol. 3, The Political Order of Free People af University of Chicago Press, Chicago, (1979) Hayek describes one of the most complete allegations on the SFP progressive tax system (progressive tax). According to the author the history of the tax system works against such a tax model. The author displays a variety of arguments on the ground preferred by his critics of liberal democracy |
| Keywords: | Tax Fiscal; Hayek; Buchanan; Political Economy |
| JEL: | E62 E64 E65 E60 |
| Date: | 2010–01–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:20094&r=mac |
| By: | Cao, Jin; Illing, Gerhard |
| Abstract: | The paper provides a baseline model for regulatory analysis of systemic liquidity shocks. We show that banks may have an incentive to invest excessively in illiquid long term projects. In the prevailing mixed strategy equilibrium the allocation is inferior from the investor’s point of view since some banks free-ride on the liquidity provision as a result of limited liability. The paper compares different regulatory mechanisms to cope with the externalities. It is shown that the combination of liquidity regulation ex ante and lender of last resort policy ex post is able to implement the outcome maximizing investor’s payoff. In contrast, both “narrow banking” and imposing equity requirements as buffer are inferior mechanisms for coping with systemic liquidity risk. |
| Keywords: | Liquidity Regulation; Systemic risk; Lender of last resort; Financial Stability |
| JEL: | E5 G21 G28 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:11306&r=mac |
| By: | Virginie Coudert; Cyril Pouvelle |
| Abstract: | Strong credit growth rates in transition countries may result from a normal catching-up process in a framework of financial development. However, as elsewhere, they can also pertain to a “credit boom”, paving the way to future “credit crunches”. We try to disentangle these two types of situation for the central and eastern European countries (CEECs) by applying a number of methods. First, we consider the gap between current credit and its longterm trend and we find some signs of credit booms, in several CEECs in 2005-2007. Second, we assess the “normal” growth of credit with regard to fundamentals through econometric estimations. Credit growth is also shown to have been excessive in several countries just before the 2008-2009 financial crisis. |
| Keywords: | Credit boom; transition; financial development |
| JEL: | E30 E51 G21 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2009-33&r=mac |
| By: | Victoria Dobrynskaya; Edouard Turkish |
| Abstract: | Despite impressive economic growth between 1999 and 2007, there is a fear that Russia may suffer the Dutch disease, which predicts that a country with large natural resource rents may experience a de-industrialisation and a lower long term economic growth. We study whether there are symptoms of the Dutch disease in Russia. Using Rosstat and CHELEM databases, we analyse the trends in production, wages and employment in the Russian manufacturing industries, and we study the behaviour of Russian imports and exports. We find that, while Russia exhibited some symptoms of the Dutch disease, e.g. a real appreciation of the rouble, a rise in real wages, a decrease in employment in manufacturing industries and the development of the services sector, manufacturing production nonetheless increased, contradicting the theory of the Dutch disease. These trends can be explained by the gains in productivity and the recovery after the disorganisation in the 1990s, by new market opportunities for Russian products in the European Union and in CIS countries, by a growing Chinese demand for some products and by a booming internal market. Finally, investments in many manufacturing industries were largely encouraged, whereas those in the energy sector were strongly regulated, which contributed to economic diversification. |
| Keywords: | Russia; Dutch disease; competitiveness; monetary policy |
| JEL: | E23 E58 F43 P24 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2009-20&r=mac |
| By: | Monga, Celestin |
| Abstract: | Traditional narratives of external imbalances have focused on the analysis of national accounts, trade flows, and financial flows. They have generated two opposing views of the current situation of the world economy: on one side, a prudent, if not pessimistic view considers large imbalances as evidence of problems with the international monetary and financial system, and symptoms of domestic distortions (mainly in the United States and China). On the other side, a relaxed, if not optimistic view suggests that global imbalances are not anomalies but simply the predictable outcome of a world with increasingly globalized financial flows in search of the right mix of risks and returns. The former view prescribes that the two largest countries in the world rebalance their economies to avoid the potentially painful cost of disruption and adjustment. The latter contends that global imbalances will be corrected through time by the normal functioning of market forces. This paper offers a critical analysis of these competing explanations of the United States-China imbalances and suggests a way of reconciling them. Starting with an exploration of the accounting frameworks that underpin any discussion of current account deficits and surpluses, the paper argues that China and the United States have become economically so interdependent that fears of any abrupt change in their current Nash equilibrium situation may be exaggerated. The paper also uses Hegel’s parable of the development of self-consciousness to explain the dynamics between the two countries. Hegel may not have been a great philosopher of history but his analysis of lordship and bondage (also known as the master-slave dynamics) provides a good framework for analyzing the dialectics of recognition and acknowledgement that currently characterizes the macroeconomic relationships between the United States and China. |
| Keywords: | Currencies and Exchange Rates,Debt Markets,Economic Theory&Research,Emerging Markets,Access to Finance |
| Date: | 2010–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5175&r=mac |
| By: | Sandra Poncet; Walter Steingress; Hylke Vandenbussche |
| Abstract: | This paper uses a unique micro-level data-set over the period 1998-2005 on Chinese firms to test for the existence of a "political-pecking order" in the allocation of credit. Our findings are threefold. Firstly, private Chinese firms are credit constrained while State-owned firms and foreign-owned firms in China are not; Secondly, the geographical and sectoral presence of foreign capital alleviates credit constraints faced by private Chinese firms. Thirdly, geographical and sectoral presence of state firms aggravates financial constraints for private Chinese firms (“crowding out”). Therefore it seems that ongoing restructuring of the state-owned sector and further liberalization of foreign capital inflows in China can help to circumvent financial constraints and can boost the investment of private firms. |
| Keywords: | Investment-cashflow sensitivity; China; firm level data; foreign direct investment |
| JEL: | E22 G32 |
| Date: | 2009–11 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2009-29&r=mac |
| By: | Helmers, Christian (University of Oxford); Schulte, Christian (Ludwig-Maximilians-Universität München); Strauss, Hubert (European Investment Bank, Economic and Financial Studies) |
| Abstract: | This study presents new estimates of business R&D capital stocks for 22 countries at the aggregate and industry levels. At 9 percent of GDP, the EU business R&D capital stock falls short of its US and Japanese counterparts. Within the EU, R&D capital stocks are much lower in the southern and the new member states, reflecting large and persistent disparities in R&D expenditure. There was hardly any convergence over the past decade. The R&D capital stock is concentrated on three technologyintensive manufacturing industries and is positively correlated with growth in total factor productivity across countries and industries. Finally, the ratios between the stocks of R&D capital and tangible capital suggest marked differences in how R&D and tangible capital are combined in production. |
| Keywords: | R&D capital stock; R&D expenditure; tangible capital stock; R&D intensity; high-tech manufacturing |
| JEL: | E22 L60 O30 O47 |
| Date: | 2009–12–23 |
| URL: | http://d.repec.org/n?u=RePEc:ris:eibpap:2009_002&r=mac |
| By: | Yamamura, Eiji; Shin, Inyong |
| Abstract: | This paper uses panel data from Japan to decompose productivity growth measured by the growth of output per labor unit into three components of efficiency improvement, capital accumulation and technological progress. It then examines their determinants through a dynamic panel model. In particular, this paper focuses on the question of how inequality, trust and humans affect the above components. The main findings derived from empirical estimations are: (1) Inequality impedes not only improvements in efficiency but also capital accumulation. (2) A degree of trust promotes efficiency improvements and capital accumulation at the same time. However, human capital merely enhances improvements in efficiency. |
| Keywords: | Heterogeneity; Inequality; Trust; Data envelopment analysis |
| JEL: | E25 O15 O40 |
| Date: | 2010–01–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:20083&r=mac |
| By: | Raghav Gaiha; Katsushi S. Imai; Ganesh Thapa; Woojin Kang |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:man:sespap:1001&r=mac |
| By: | Szarowska, Irena |
| Abstract: | Enlargement of the European Union and the globalization process significantly affect tax systems and fiscal policies of individual countries. The level and structure of tax burden is often discussed in the European Union, as well as what is more profitable – keeping tax competition or tax harmonization. Tax environment and tax burden are significant factors when deciding about investment allocation. For international comparison, the easiest way is to use statutory tax rates but the result may be rather inaccurate. More convenient way of comparison is comparing implicit rates where we may express impact of taxes on economic activities according to their functions. The paper first summarizes basic theoretic approaches to tax competition. Then it is followed by an analysis of level and structure of tax burden in the European Union in the period of 1995 to 2006. There is emphasis on the dissimilarity of results depending on the type of tax rates used, namely statutory and implicit. The aim is to verify the hypothesis that value of tax burden (measured by tax quota) falls in time and that indirect taxes outweigh direct taxes in the tax burden of the European Union. |
| Keywords: | tax competition; tax burden; tax quota; implicit tax rate |
| JEL: | E62 F2 H2 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:19934&r=mac |
| By: | Mc Morrow, Kieran (European Commission); Röger, Werner (European Commission) |
| Abstract: | This paper reviews the empirical literature on rates of return on R&D and interprets the economic significance of these estimates using a semi-endogenous growth model with a calibrated knowledge production sector. We analyse how R&D subsidies, a reduction of entry barriers for start-ups and increasing high-skilled labour would contribute towards raising productivity and knowledge investment in the EU. The simulation results show that substantial efforts will have to be made if Europe wants to come close to achieving the Lisbon productivity and knowledge-investment targets. Achieving US standards in all three areas would reduce the productivity gap by about 50 percent. Improving the quality of tertiary education and increasing competition in non-manufacturing sectors would also help the EU to get to the productivity frontier. |
| Keywords: | Productivity differences; endogenous growth; R&D; DSGE models |
| JEL: | E10 O20 O30 O41 |
| Date: | 2009–12–23 |
| URL: | http://d.repec.org/n?u=RePEc:ris:eibpap:2009_004&r=mac |
| By: | Lehmann, Hartmut (University of Bologna); Muravyev, Alexander (IZA) |
| Abstract: | This paper offers a first comprehensive study of the relationship between labor market institutions and policies and labor market performance in the countries of Eastern Europe and Central Asia, which in the last two decades experienced radical economic and institutional transformations. Based on a new and unique hand-collected dataset, the paper first documents the evolution of labor market institutions and policies in the transition region. The data show a clear trend towards liberalization of labor markets, especially in the countries of the former Soviet Union, but also substantial differences across the countries studied. Second, the paper takes advantage of the large variation in the key economic and institutional variables to test several predictions concerning the role of institutions and polices in explaining labor market outcomes. The results of our econometric analysis are generally consistent with the view that institutions matter for labor market outcomes, and that deregulation of the labor markets improves their performance. The analysis also suggests several significant interactions between different institutions, which are in line with the idea of reform complementarity and broad reform packages. We also show that there are important advantages of focusing on a broader set of labor market outcomes, and not only on the unemployment rate, which until now has been the main approach in the empirical literature. |
| Keywords: | labor market institutions, unemployment, transition economies |
| JEL: | E24 J21 P20 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4673&r=mac |