nep-mac New Economics Papers
on Macroeconomics
Issue of 2010‒02‒20
fifty-five papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Exits from Recessions: The U.S. Experience 1920-2007 By Michael D. Bordo; John Landon-Lane
  2. Simple Analytics of the Government Expenditure Multiplier By Michael Woodford
  3. Simple Analytics of the Government Expenditure Multiplier By Michael Woodford
  4. The monetary mechanics of the crisis By Jürgen von Hagen
  5. On the Informational Role of Term Structure in the U.S. Monetary Policy Rule. By Jesús Vázquez; Ramón María-Dolores; Juan M. Londoño
  6. Credit and banking in a DSGE model of the euro area By Andrea Gerali; Stefano Neri; Luca Sessa; Federico M. Signoretti
  7. Monetary Policy Rules and the Effects of Fiscal Policy By Kudoh, Noritaka; Nguyen, Hong Thang
  8. Fiscal and monetary interaction under monetary policy uncertainty By Di Bartolomeo Giovanni; Giuli Francesco
  9. Unions, Monetary Shocks and the Labour Market Cycle. By Gonzalo Fernández-de-Córdoba; Jesús Vázquez
  10. External trade and monetary policy in a currency area By Martina Cecioni
  11. Do bank loans and credit standards have an effect on output? A panel approach for the euro area By Lorenzo Cappiello; Arjan Kadareja; Christoffer Kok Sørensen; Marco Protopapa
  12. Insecurities of the old and marginalized: Inflation, oil shocks, financial crisis and social security By Ashima Goyal
  13. Sacrifice ratio or welfare gain ratio? Disinflation in a DSGE monetary model By Guido Ascari; Tiziano Ropele
  14. Monetary Policy on the Way Out of the Crisis By Jürgen von Hagen
  15. Comment on "Letting different views about business cycles compete" By Jonas D. M. Fisher
  16. The signaling role of policy action. By Romain Baeriswyl; Camille Cornand
  17. Do ECB Council Decisions represent always a Real Euro Consensus? By Sousa, Pedro
  18. ECB Projections: should leave it to the pros? By Pacheco, Luis
  19. Does it matter how aggregates are measured? The case of monetary transmission mechanisms in the euro area By Andreas Beyer; Katarina Juselius
  20. Identifying Shocks in Regionally Integrated East Asian Economies with Structural VAR and Block Exogeneity By Sato, K.; Zhang, Z.; McAleer, M.J.
  21. Alternative Policies for US Economic Recovery By Byron Gangnes
  22. Interest Rate Risk and Other Determinants of Post-WWII U.S. Government Debt/GDP Dynamics By George J. Hall; Thomas J. Sargent
  23. The impact of the crisis on budget policy in Central and Eastern Europe By Zsolt Darvas
  24. A Bird's Eye View of OECD Housing Markets By Christophe André
  25. Testing for Group-Wise Convergence with an Application to Euro Area Inflation By Lopez, Claude; Papell, David
  26. Can A Less Boring ECB Remain Accountable? By Jean Pisani-Ferry; Jakob von Weizsäcker
  27. A European Exit Strategy By Jürgen von Hagen; Jean Pisani-Ferry; Jakob von Weizsäcker
  28. Reconciling VAR-based and Narrative Measures of the Tax-Multiplier By Carlo A. Favero; Francesco Giavazzi
  29. Portfolio and Short-term Capital Inflows to the New and Potential EU Countries: Patterns, Determinants and Policy Responses By Pirovano M.; Vanneste J.; Van Poeck A.
  30. Simulating the U.S. Recession with and without the Obama package: the role of excess capacity By Peter B. Dixon; Maureen T. Rimmer
  31. Are There Political Fiscal Cycles in NMS? By Stanova N.
  32. On the interaction between public investment and private capital in economic growth By Alberto Bucci; Chiara Del Bo
  33. The unemployment challenge: Labour market policies for the recession By Jean-Pierre de Raad
  34. The Global Financial Crisis: Lessons for European Integration By Marek Dabrowski
  35. Asia Confronts the Impossible Trinity By Ila Patnaik; Ajay Shah
  36. Informed trading in the Euro money market for term lending By Zagaglia, Paolo
  37. The Beat of the Economic Heart: Joseph Schumpeter and Arthur Spiethoff on Business Cycles By Kurz, Heinz D.
  38. Handle with care! Post-crisis growth in the EU By Jean Pisani-Ferry; Bruno van Pottelsberghe
  39. Romania's public debts and their consequences upon the economy By Popa, Ionela; Codreanu, Diana; Albici, Mihaela
  40. Bankruptcy and the Collateral Channel By Efraim Benmelech; Nittai K. Bergman
  41. The Cross-Section and Time-Series of Stock and Bond Returns By Ralph S.J. Koijen; Hanno Lustig; Stijn Van Nieuwerburgh
  42. The EU's Role in Supporting Crisis-Hit Countries in Central and Eastern Europe By Zsolt Darvas
  43. The Consumption Response to Income Changes By Tullio Jappelli; Luigi Pistaferri
  44. Liquidity Risk Monitoring Framework: A Supervisory Tool By ?tefan Rychtárik; Franco Stragiotti
  45. Problemas fiscales y redistributivos en Colombia By Fernando, Estrada; Jorge Ivan, Gonzalez; Alberto, Castrillon; Mauricio , Perez
  46. India's Public Finances: Do They Matter By Paul Rawkins
  47. The Cyclically Adjusted Budget Balance in EU Fiscal Policymaking. Love at First Sight Turned into a Mature Relationship By Larch, Martin; Turrini, Alessandro
  48. The interbank market after August 2007: what has changed, and why? By Paolo Angelini; Andrea Nobili; Maria Cristina Picillo
  49. Dutch Disease in Former Soviet Union: Witch-Hunting By Balázs Égert
  50. Sources of Variation in Holding Returns for Fed Funds Futures Contracts By James D. Hamilton; Tatsuyoshi Okimoto
  51. Does the Structure of Banking Markets Affect Economic Growth? Evidence from U.S. State Banking Markets By Kris James Mitchener; David C. Wheelock
  52. Macroeconomic implications of agglomeration By Morris A. Davis; Jonas D. M. Fisher; Toni M. Whited
  53. Vintage Capital and Creditor Protection By Efraim Benmelech; Nittai K. Bergman
  54. Social security driven Tax wedge and its effects on Employment and Shadow Employment By Marek Gora; Oleksandr Rohozynsky; Irina Sinitsina; Mateusz Walewski
  55. China's Labour Market in Transition: Job Creation, Migration and Regulation By Richard Herd; Vincent Koen; Anders Reutersward

  1. By: Michael D. Bordo; John Landon-Lane
    Abstract: In this paper we provide some evidence on when central banks have shifted from expansionary to contractionary monetary policy after a recession has ended—the exit strategy. We examine the relationship between the timing of changes in several instruments of monetary policy and the timing of changes of selected real macro aggregates and price level (inflation) variables across U.S. business cycles from 1920-2007. We find, based on historical narratives, descriptive evidence and econometric analysis, that in the 1920s and the 1950s the Fed would generally tighten when the price level turned up. By contrast, since 1960 the Fed has generally tightened when unemployment peaked and this tightening often occurred after inflation began to rise. The Fed is often too late to prevent inflation.
    JEL: N12
    Date: 2010–02
  2. By: Michael Woodford
    Abstract: This paper explains the key factors that determine the effectiveness of government purchases as a means of increasing output and employment in New Keynesian models, through a series of simple examples that can be solved analytically. Delays in the adjustment of prices or wages can allow for larger multipliers than exist in the case of fully flexible prices and wages; in a fairly broad class of simple models, the multiplier is 1 in the case that the monetary authority maintains a constant path for real interest rates. The multiplier can be considerably smaller, however, if the monetary authority raises real interest rates in response to increases in inflation or real activity resulting from the fiscal stimulus. A large multiplier is especially plausible when monetary policy is constrained by the zero lower bound on nominal interest rates; in such a case, expected utility is maximized by expanding government purchases to at least partially fill the output gap that would otherwise exist owing to the central bank's inability to cut interest rates. However, it is important in such a case that neither the increased government purchases nor the increased taxes required to finance them be expected to persist beyond the period over which monetary policy is constrained by the zero lower bound.
    JEL: E62
    Date: 2010–01
  3. By: Michael Woodford (Columbia University - Department of Economics)
    Abstract: This paper explains the key factors that determine the effectiveness of government purchases as a means of increasing output and employment in New Keynesian models, through a series of simple examples that can be solved analytically. Delays in the adjustment of prices or wages can allow for larger multipliers than exist in the case of fully flexible prices and wages; in a fairly broad class of simple models, the multiplier is 1 in the case that the monetary authority maintains a constant path for real interest rates despite the increase in government spending. The multiplier can be considerably smaller, however, if the monetary authority raises real interest rates in response to increases in inflation or real activity resulting from the fiscal stimulus. A large multiplier is especially plausible when monetary policy is constrained by the zero lower bound on nominal interest rates; in this case real interest rates fall as a result of the inflationary effect of the stimulus, and a multiplier well in excess of 1 is possible. In such a case, welfare is maximized by expanding government purchases to at least partially fill the output gap that would otherwise exist owing to the central bank's inability to cut interest rates. However, it is important in such a case that neither the increased government purchases nor the increased taxes required to finance them be expected to persist beyond the period over which monetary policy is constrained by the zero lower bound.
    Date: 2010
  4. By: Jürgen von Hagen
    Abstract: In response to the financial and economic crisis, central banks, unlike in the 1930s, have created enormous amounts of money. There are fears that this will lead to inflation, but it is base money (the central bank's liabilities) that has expanded; total monetary aggregates have not. By contrast, in the 1930s, base money remained stable and monetary aggregates dropped. The reason for this is that in a crisis the relationship between the base money and monetary aggregates is altered. The money multiplier drops. It is therefore necessary to create more base money so that monetary aggregates remain stable. This is what central banks have done in the current crisisand rightly so. They have learned the lessons of the Great Depression. This framework helps understand differences across countries. The crisis affected the euro area money and credit supply process much less than the US and the UK. Therefore, the European Central Bank was right to respond to the crisis with a less expansionary monetary policy than the Bank of England and the Federal Reserve. However, stabilising the money supply may not have been enough to stabilise the supply of credit.
    Date: 2009–08
  5. By: Jesús Vázquez (Universidad del País Vasco); Ramón María-Dolores (Universidad de Murcia); Juan M. Londoño (Tilburg University)
    Abstract: This paper uses a structural approach based on the indirect inference principle to estimate a standard version of the new Keynesian monetary (NKM) model augmented with term structure using both revised and real-time data. The estimation results show that the term spread and policy inertia are both important determinants of the U.S. estimated monetary policy rule whereas the persistence of shocks plays a small but significant role when revised and real-time data of output and inflation are both considered. More importantly, the relative importance of term spread and persistent shocks in the policy rule and the shock transmission mechanism drastically change when it is taken into account that real-time data are not well behaved.
    Keywords: NKM model, term structure, monetary policy rule, indirect inference, real-time
    JEL: C32 E30 E52
    Date: 2010–02–10
  6. By: Andrea Gerali (Bank of Italy); Stefano Neri (Bank of Italy); Luca Sessa (Bank of Italy); Federico M. Signoretti (Bank of Italy)
    Abstract: This paper studies the role of credit-supply factors in business cycle fluctuations. For this purpose, we introduce an imperfectly competitive banking sector into a DSGE model with financial frictions. Banks issue collateralized loans to both households and firms, obtain funding via deposits and accumulate capital from retained earnings. Margins charged on loans depend on bank capital-to-assets ratios and on the degree of interest rate stickiness. Bank balance-sheet constraints establish a link between the business cycle, which affects bank profits and thus capital, and the supply and cost of loans. The model is estimated with Bayesian techniques using data for the euro area. The analysis delivers the following results. First, the existence of a banking sector partially attenuates the effects of demand shocks, while it helps propagate supply shocks. Second, shocks originating in the banking sector explain the largest share of the fall of output in 2008 in the euro area, while macroeconomic shocks played a limited role. Third, an unexpected destruction of bank capital has a substantial impact on the real economy and particularly on investment.
    Keywords: collateral constraints, banks, banking capital, sticky interest rates
    JEL: E30 E32 E43 E51 E52
    Date: 2010–01
  7. By: Kudoh, Noritaka; Nguyen, Hong Thang
    Abstract: We explore the implications of adopting a Taylor-type interest-rate rule in a simple monetary growth model in which budget deficits are financed partly by unbacked government debt. To ensure uniqueness of the steady-state equilibrium, monetary policy cannot be either too "active" or too "passive". The effects of fiscal policy depend crucially on whether monetary policy is active or passive, and are independent of the "tightness" of monetary policy.
    Keywords: monetary policy rules, fiscal policy, overlapping generations,
    JEL: E52 E62 H62 H63
    Date: 2010–02
  8. By: Di Bartolomeo Giovanni; Giuli Francesco
    Abstract: Despite the recent increasing number of studies on monetary policy uncertainty, its role on the strategic interactions between fiscal and monetary policies has not been fully explored. Our paper aims to fill this gap by tackling this issue by evaluating the consequences produced by multiplicative uncertainty in such a context.
    Keywords: Monetary-fiscal policy interactions, paramenter uncertainty, symbiosis, monetary policy attenuation
    JEL: E61 E63
    Date: 2009–12
  9. By: Gonzalo Fernández-de-Córdoba (Universidad de Málaga); Jesús Vázquez (Universidad del País Vasco)
    Abstract: This paper provides a new growth model by considering strategic behaviour in the supply of labour. Workers form a labour union with the aim of manipulating wages in their own benefit. We analyse the implications on labor market dynamics at business cycle frequencies of getting away from the price-taking assumption. A calibrated monetary version of the union model does quite a reasonable job in replicating the dynamic features of labour market variables observed in post-war U.S. data.
    Keywords: Labour union, productivity versus monetary shocks, business cycle
    JEL: E24 E32
    Date: 2010–02–10
  10. By: Martina Cecioni (Bank of Italy, Economics, Research and International Relations)
    Abstract: For historical and geographical reasons, the member countries of the European Monetary Union (EMU) display different degrees of external trade openness. The paper lays out a model for a currency area composed of two regions. One region is more open to trade with a third country outside the area than the other. Using the utility-based loss function for the currency area, the optimal monetary policy is compared to the one for a homogeneous area. In the model with heterogeneity, the relative competitiveness across regions influences the extent to which shocks are transmitted to the area-wide inflation and output gap. Under a plausible calibration for the EMU, the optimal policy plan exhibits a stronger tendency towards currency area exchange rate stabilization than the one in the homogeneity case. Moreover, it is welfare-improving to forgo some area-wide inflation stabilization to dampen inflation differentials.
    Keywords: Monetary union, optimal monetary policy, loss function
    JEL: E52 F41
    Date: 2010–01
  11. By: Lorenzo Cappiello (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Arjan Kadareja (Bank of Albania, Sheshi “Skënderbej”, No.1 Tirana, Albania.); Christoffer Kok Sørensen (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Marco Protopapa (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: Applying the identification strategy employed by Driscoll (2004) for the United States, this paper provides empirical evidence for the existence of a bank lending channel of monetary policy transmission in the euro area. In addition, and in contrast to recent findings for the US, we find that in the euro area changes in the supply of credit, both in terms of volumes and in terms of credit standards applied on loans to enterprises, have significant effects on real economic activity. This highlights the importance of the monitoring of credit developments in the toolkit of monetary policy and underpins the reasoning behind giving monetary and credit analysis a prominent role in the monetary policy strategy of the ECB. It also points to the potential negative repercussions on real economic growth of bank balance sheet impairments arising in the context of the financial crisis erupting in mid-2007 which led to the need for banks to delever their balance sheets and possibly to reduce their loan supply. JEL Classification: C23, E51, E52, G21.
    Keywords: bank credit, bank lending channel, euro area, panel data.
    Date: 2010–01
  12. By: Ashima Goyal (Indira Gandhi Institute of Development Research)
    Abstract: The paper examines the impact of recent inflation and financial shocks on the vulnerable, and explores policy design to reduce both future shocks and vulnerability to shocks. Inflation affects the typical savings cum pension portfolio and the specific consumption basket of the old, as prices of services rise compared to manufactured goods. Money illusion and habit, which tend to increase with age, aggravate the psychological trauma associated with inflation. The decline of traditional sources of social security marginalizes those without savings, in the context of sustained rural urban and international migration. Trends determining inflation-domestic and global, institutional change, and greater openness explain why inflation has been moderate in India, compared to other emerging markets. Since the polity is averse to high inflation, and commodity price shocks are moderating, high inflation will not persist. But the shocks demonstrate the importance of food price inflation for aggregate inflation in populous South Asia. Therefore improvements in agricultural productivity, with supportive buffer stock, fiscal and monetary policy are critical to lower the level of chronic inflation. Regulatory changes to reduce excessive risktaking in financial markets and the aggravation of inflation from speculation are examined. Finally, other policy measures to improve security for the old and keep them an active, vital part of the community are drawn together.
    Keywords: Aged, Inflation, Oil shocks, Financial crisis, Social security
    JEL: E31 G18 H55
    Date: 2009–03
  13. By: Guido Ascari (University of Pavia and Kiel Institute for the World Economy); Tiziano Ropele (Bank of Italy and Kiel Institute for the World Economy JEL classification: E31, E5)
    Abstract: When taken to examine disinflation monetary policies, the current workhorse DSGE model of business cycle fluctuations successfully accounts for the main stylized facts in terms of recessionary effects and sacrifice ratio. We complement the transitional analysis of the short-run costs with a rigorous welfare evaluation and show that, despite the long-lasting economic downturn, disinflation entails non-zero overall welfare gains.
    Keywords: disinflation, sacrifice ratio, non-linearities
    Date: 2010–01
  14. By: Jürgen von Hagen
    Abstract: Senior Non-Resident Fellow Jürgen von Hagen offers his recommendations for the proper monetary policy to lead the eurozone out of the crisis. He argues that the tentative recovery in the euro area indicates that both monetary and fiscal policy can be normalised soon. However, because delaying fiscal consolidation would result in greater debt burdens whereas monetary policy can be quickly adjusted to respond to unforeseen developments, there is less risk involved if a fiscal exit comes first. In any case, the two strategies must be coordinated and the European Central Bank must be very clear on its interest rate policies. This paper was prepared as part of testimony for the European Parliament's Economic and Monetary Affairs Committee. 
    Date: 2009–12
  15. By: Jonas D. M. Fisher
    Abstract: This comment explains why the findings presented in Beaudry and Lucke (2009) are misleading.
    Keywords: Technology shocks, investment-specific shocks, neutral shocks, news shocks, business cycle
    Date: 2009
  16. By: Romain Baeriswyl; Camille Cornand
    Abstract: This paper analyzes the conduct of the optimal monetary policy with imperfect information on the shocks hitting the economy where firms’ prices are strategic complements. Monetary policy entails a dual stabilizing role, as a policy response that influences directly the economy and as a vehicle for information that shapes firms’ beliefs. In the case where more information is welfare detrimental, the central bank faces a dilemma, for its monetary instrument aimed at stabilizing the economy may harmfully shape firms’ beliefs. Recognizing the signaling role of its instrument, the central bank finds it optimal to distort its policy response in order to mitigate the detrimental information that it may convey.
    Keywords: differential information, monetary policy, transparency.
    JEL: E52 E58 D82
    Date: 2010
  17. By: Sousa, Pedro (Universidade Portucalense)
    Abstract: Since January 1999, according to the law, the common monetary policy for all the Economic and Monetary Union (EMU) Member States should be decided by simple majority in the Governing Council (GC) of the European Central Bank (ECB), regarding the Euro area aggregate conditions. Notwithstanding, no formal vote has been taken until today and a consensus solution has been the officially announced practical rule, hiding different points of view fuelled by national divergences that might exist within Euro area. Assuming that EMU national central bankers take into account national perspectives from their home countries when they vote interest rate decisions in the GC, we try to find whether there have been favourable conditions for the emergence of voting coalitions among them. In order to accomplish that purpose, for every month since January 1999 until August 2003, we applied cluster analysis techniques to national stances before GC meetings, which we describe using three variables. We found high stability in the identified cluster structure, particularly since August 2001, favouring the emergence of alliances between national interests. In spite of that, it is likely that the strong strategic position enjoyed by the Executive Board of the ECB has been sufficient to a priori defeat any coalitions of opposing proposals on the monetary policy for the Euro-area, situation that will change with EMU enlargement.
    Keywords: Monetary Policy; European Central Bank; Desired Interest Rate; Cluster Analysis
    JEL: C80 E40 E52
    Date: 2009–07–31
  18. By: Pacheco, Luis (Universidade Portucalense)
    Abstract: Forecasts are an inherent part of economic science and the quest for perfect foresight occupies economists and researchers in multiple fields. The release of economic forecasts (and its revisions) is a popular and often publicized event, with a multitude of institutions and think-tanks devoted almost exclusively to that task. The European Central Bank (ECB) also publishes its forecasts for the euro area, however ECB’s forecast accuracy is not a deeply researched theme. The ECB forecasts’ accuracy is the main point developed in this paper, which tries to contribute to understand the nature of the errors committed by the ECB forecasts and its main differences compared to other projections. What we try to infer is whether the ECB is accurate in its projections, making less errors than the others, maybe due to some informational advantage. We conclude that the ECB seems to consistently underestimate the HICP inflation rate and overestimate GDP growth. Comparing it with the others, the ECB shows a superior performance, committing almost always fewer errors. So, this signals a possible informational advantage from the ECB. Since the forecasting errors could jeopardize ECB’s credibility public criticism could be avoided if the ECB simply let forecasts for the others. Naturally, this change should be weighted against the benefits of publishing forecasts.
    Keywords: European Central Bank; Staff projections; Monetary Policy; Forecasting; Central Bank Communication
    JEL: E52 E58
    Date: 2010–02–08
  19. By: Andreas Beyer (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Katarina Juselius (Department of Economics, University of Copenhagen, Studiestræde 6, 1455 Copenhagen K, Denmark.)
    Abstract: Beyer, Doornik and Hendry (2000, 2001) show analytically that three out of four aggregation methods yield problematic results when exchange rate shifts induce relative-price changes between individual countries and found the least problematic method to be the variable weight method of growth rates. This papers shows, however, that the latter is sensitive to the choice of base year when based on real GDP weights whereas not on nominal GDP weights. A comparison of aggregates calculated with different methods shows that the differences are tiny in absolute value but highly persistent. To investigate the impact on the cointegration properties in empirical modelling, the monetary model in Coenen &Vega (2001) based on fixed weights was re-estimated using flexible real and nominal GDP weights. In general, the results remained reasonably robust to the choice of aggregation method. JEL Classification: C32, C42, E41.
    Keywords: Aggregation, Flexible weights, Eurowide money demand, Cointegration.
    Date: 2010–01
  20. By: Sato, K.; Zhang, Z.; McAleer, M.J. (Erasmus Econometric Institute)
    Abstract: In this paper we use a structural VAR model with block exogeneity to investigate if external shocks originating from the USA played a dominant role in influencing the macroeconomic fluctuations in East Asia during the period 1978-2007. The empirical results show a dynamic effect of external shocks, implying that, even though regional integration appears to be deepening and accelerating, especially after the recent global financial crisis, the influence of US shocks on real output fluctuations in the East Asian region is still very strong. The effects of Chinese shocks show an increasing trend over time, but the impacts are still small and not comparable with those of US shocks. The world oil price shock has become increasingly important in influencing the stability of real output growth in the region. The results from variance decomposition and impulse response analysis confirm the findings. Even though Japanese firms have established production networks in East Asia through trade and investment, and China has also grown rapidly and become a key regional country, the results suggest that US influence in the region is still asymmetric and strong. Therefore, it is difficult to conclude that shocks to the East Asian economies have become more regionally oriented.
    Keywords: structural vector autoregression;block exogeneity;monetary union;external shocks;East Asia
    Date: 2010–02–08
  21. By: Byron Gangnes (Department of Economics, University of Hawaii at Manoa)
    Abstract: Recovery has begun in the United States and global economies. The US recovery is likely to be anemic by historical standards, raising the possibility that additional stimulus may be desirable. The President and Democrats in Congress have called for a “jobs bill,” and the Federal Reserve has demonstrated that it has a flexible toolkit for providing additional liquidity if deemed appropriate. The possible need for such stimulus will come up against the reality of an expanding public debt on the one hand, and inflationary concerns on the other. In this paper, I use simulations of the IHS Global Insight Model to assess the potential impact on the recovery path of alternative macro policies.
    Keywords: United States (US) recession and recovery, fiscal and monetary policy,econometric model forecast simulation, IHS Global Insight model
    JEL: E37 C53
    Date: 2010–02–08
  22. By: George J. Hall; Thomas J. Sargent
    Abstract: This paper uses the sequence of government budget constraints to motivate estimates of interest payments on the U.S. Federal government debt. We explain why our estimates differ conceptually and quantitatively from those reported by the U.S. government. We use our estimates to account for contributions to the evolution of the debt to GDP ratio made by inflation, growth, and nominal returns paid on debts of different maturities.
    JEL: E31 E43 H6
    Date: 2010–01
  23. By: Zsolt Darvas
    Abstract: After drawing some lessons for fiscal policy from previous emerging market crises, Zsolt Darvas concludes with some thoughts on the appropriate policy response from a more normative perspective. The key message of the paper is that the crisis should be used as an opportunity to introduce reforms to avoid future pro-cyclical fiscal policies, to increase the quality of budgeting and to increase credibility. These reforms should include fiscal responsibility laws comprising medium-term fiscal frameworks, fiscal rules, and independent fiscal councils. When fiscal consolidation is accompanied by fiscal reforms that increase credibility, non- Keynesian effects may offset to some extent the contraction caused by the consolidation.
    Date: 2009–07
  24. By: Christophe André
    Abstract: Housing markets have played a prominent role in macroeconomic developments over recent years. For a great part of the 2000s, buoyant housing markets have contributed to sustained economic activity in most OECD countries. But many markets overheated and the collapse of the US subprime mortgage market has been at the epicentre of a deep financial and economic crisis. Against this background, this paper: i) documents housing market developments in 18 OECD countries since the 1970s, putting recent evolutions into historical perspective; ii) examines the drivers of supply and demand for housing; iii) investigates the interactions between housing markets and the wider economy; iv) assesses the responsibilities of housing taxation, monetary policy and financial supervision and regulation in fuelling or amplifying housing booms; v) explores the link between global imbalances and housing booms.<P>Un survol des marchés immobiliers de l’OCDE<BR>Les marchés immobiliers ont joué un rôle important dans les évolutions macroéconomiques de ces dernières années. Durant une grande partie des années 2000, des marchés immobiliers dynamiques ont contribué à une activité économique soutenue dans la plupart des pays de l’OCDE. Mais de nombreux marchés se sont emballés et l’écroulement du marché hypothécaire « subprime » aux États-Unis a été à l’épicentre d’une profonde crise financière et économique. Dans ce contexte, ce document : i) analyse les évolutions des marchés immobiliers dans 18 pays de l’OCDE depuis les années 1970, replaçant les développements récents dans une perspective historique ; ii) examine les déterminants de l’offre et de la demande de logements ; iii) étudie les interactions entre les marchés immobiliers et l’économie dans son ensemble ; iv) évalue les responsabilités de la fiscalité du logement, de la politique monétaire, de la régulation et de la supervision financières dans l’alimentation ou l’amplification des « booms » immobiliers ; v) considère le lien entre déséquilibres mondiaux et envolées immobilières.
    Keywords: taxation, wealth, house prices, monetary policy, mortgage markets, housing market, financial regulation, saving, global imbalances, fiscalité, prix des logements, politique monétaire, marchés hypothécaires, marché immobilier, épargne, déséquilibres mondiaux, patrimoine, régulation financière
    JEL: E21 E52 F32 F34 G18 G21 H24 R21 R31
    Date: 2010–01–28
  25. By: Lopez, Claude; Papell, David
    Abstract: We propose a new procedure to increase the power of panel unit root tests when used to study group-wise convergence. When testing for stationarity of the differential between a group of series and their cross-sectional means, although each differential has non-zero mean, the group of differentials has a cross-sectional average of zero for each time period by construction. We incorporate this constraint for estimation and generating finite sample critical values. Applying this new procedure to Euro Area inflation, we find strong evidence of convergence among the inflation rates soon after the implementation of the Maastricht treaty and a dramatic decrease in the persistence of the differential after the occurrence of the single currency.
    Keywords: group wise convergence; inflation; euro
    JEL: C32 E31
    Date: 2010
  26. By: Jean Pisani-Ferry; Jakob von Weizsäcker
    Abstract: Through Bruegel's role on the Monetary Experts Panel for the European Parliament's Committee on Economic and Monetary Affairs, Bruegel scholars contributed to the Committee's Monetary Dialogue with the European Central Bank meeting on 28 September. In this briefing paper for the Panel, Director Jean-Pisani Ferry and Resident Fellow Jakob von Weizsacker point out that, in the wake of the financial crisis, the ECB will take on much more responsibility for macro-prudential supervision of the financial system. With this added responsibility, however, comes serious questions about the mechanisms in place to ensure the ECB's accountability. Previously focused almost solely on price stability, the ECB will now likely be asked to increase its discretionary decision-making, especially in dealing with financial regulation. The accompanying accountability questions, the authors say, need to be addressed proactively.
    Date: 2009–09
  27. By: Jürgen von Hagen; Jean Pisani-Ferry; Jakob von Weizsäcker
    Abstract: This Policy Brief was adapted from a paper written by the three authors and presented by Bruegel Director Jean Pisani-Ferry at the informal ECOFIN Council meetings in Gothenburg, Sweden, on 1 Oct. In the brief, the authors argue that bank recapitalisation and restructuring should be a matter of urgency for EU member states and that governments should not undertake the necessary fiscal and monetary policy exit until problems within the financial sector are addressed. The authors also recommend that European states set debt targets to be reached by the end of 2014 and explain that proper incentives are necessary to ensure that an exit strategy, once implemented, is done so in coordination between various institutional actors. Such a policy framework should be in place by summer 2010, the authors say, in order to avoid a buildup of financial instability during the process.
    Date: 2009–10
  28. By: Carlo A. Favero; Francesco Giavazzi
    Abstract: The currently available empirical evidence shows remarkable differences between various estimates of the effects on U.S output of an exogenous shift in Federal tax liabilities. Shocks identified via the narrative method, imply a multiplier of about three over . an horizon of three years. Tax shocks identified in fiscal VAR models deliver a much smaller multipier of about one. Is this heterogeneity real, or is it simply the result of different approaches to the identification of exogenous shifts in taxes? Or of different specifications of the empirical model used to estimate the tax multiplier? In this paper we reconcile this apparently contradictory evidence by showing that the large multiplier obtained via the narrative identification methods are generated by the choice of a limited information approach in their estimation and not by the different nature of the shocks. Using the shocks identified by a Narrative methods in a multivariate dynamic model delivers estimates of the tax multiplier very much in line with those obtained in the traditional fiscal VAR approach.
    Date: 2010
  29. By: Pirovano M.; Vanneste J.; Van Poeck A.
    Abstract: In this paper we estimate a dynamic panel model (Arellano-Bond GMM) explaining the volume of portfolio and short-term capital inflows (predominantly bank loans) in the new and potential EU member States as a function of a set of variables representing macroeconomic fundamentals (both domestic and foreign), macroeconomic policies and development of the financial sector. We find that while inflows of short-term bank loans are significantly explained by macroeconomic factors, exchange rate regime and liquidity of the banking sector, portfolio inflows seem to be meaningfully influenced only by the level of foreign GDP. We suggest two explanations for the latter result. First, the inability of aggregate data to capture the risk and expected profitability dimensions that typically underlie portfolio decisions. Second, portfolio capital in the form of bonds might react to interest rates other than the domestic and the European ones. During the last decade, the volume of short-term capital in the form of bank loans to the New and potential member States increased (with some heterogeneity across countries). In light of the econometric results, their vulnerability to reversals could be mitigated by adequate macroeconomic policies and further improvement of their financial sector.
    Date: 2009–12
  30. By: Peter B. Dixon; Maureen T. Rimmer
    Abstract: Simulations with dynamic, single-country, CGE models typically imply that reductions in domestic demand, e.g. a cut in investment, generate increases in exports and reductions in imports facilitated by real depreciation. However, currently in the U.S. a large reduction in investment is occurring simultaneously with a contraction in exports and little movement in the real exchange rate. We show that to describe this situation it is necessary to drop the standard CGE assumption that capital is always fully employed in every industry. After introducing an excess-capacity specification, we simulate the U.S. recession with and without the Obama stimulus package.
    Keywords: U S recession CGE modelling excess capacity sticky rents mark-up pricing
    JEL: C68 D50 E30 E60
    Date: 2010–01
  31. By: Stanova N.
    Abstract: It is a generally documented fact that political cycles are a phenomenon of new democracies. In this paper we deepen the evidence for the new EU member countries that are a prominent example of recently established democratic systems. We show that, in line with the opportunistic theory, primary balances tended to deteriorate in the years of elections, if taking NMS ’en bloc’. This was mainly driven by the cycle in government expenditures. However, careful cross-country and cross-time analysis challenges the general view. It turns out that the political cycle cannot be attributed to all new European democracies, in particular, not to those that made long-run attempts to integrate into EMU. Moreover, we document that with the time passing, opportunism has evaporated from the overall sample of the NMS. This comes from the fact that the political cycle has diminished in countries that were prone to opportunistic manipulation in the initial period.
    Date: 2009–12
  32. By: Alberto Bucci (University of Milan); Chiara Del Bo (University of Milan)
    Abstract: This paper examines two possible sources of interaction between private and public capital in an endogenous growth model with productive public investment, which is used as an input both in the production of final output and in the production of new public capital. On the one hand ,public investment and private capital are complementary with each other in the production of goods. On the other, they can be either complementary or substitutes in the production of new productive public capital .In our model private and public capital are two reproducible productive inputs interacting with each other in goods production and in productive public capital investment. The share of public capital devoted to output production can be exogenous or endogenous, and we consider a Cobb-Douglas and a more general CES aggregate production function. Our main results are that, when the share of public capital devoted to output production is exogenous along the balanced growth path equilibrium the common growth rate is a negative function of this share and a positive function of the degree of complementarity between the two forms of capital in infrastructure capital investment. When the sectoral allocation of productive public capital is endogenous, the main determinant of the economy's long run growth rate is, along with the model's preferences parameters, the public capital's share in GDP. Unlike existing literature (notably, Barro 1990), we find that the relationship linking the economy's growth rate and the public capital's share in GDP is U-shaped, rather than monotonically decreasing.
    Keywords: Economic Growth; Complementarity; Productive Public Investment; Private Capital,
    Date: 2009–11–03
  33. By: Jean-Pierre de Raad (New Zealand Institute of Economic Research)
    Abstract: Over the next year another 50,000 people will become unemployed. The number of unemployed will surpass that of the last recession of 1997-98. To address the unemployment challenge New Zealand needs to supplement existing job search assistance with investment in training and business capital to push long term productivity growth. Subsidies to prop up jobs and firms should be avoided. The April 2009 QSBO found that a net 36% of firms intend to cut staff numbers in the next three months. Unemployment will be the worst we have faced since the 1991 global recession. With the peak in unemployment approaching, attention needs to shift now to the challenge of getting the unemployed into work. The temptation will be to artificially protect jobs. But this is short-sighted. The economic imperative should be to ensure New Zealand has the right human capital to prosper when the economy picks up. At first glance, recent initiatives (temporary top-up support for those made redundant and the 9 day fortnight) appear sensible. But they have downsides and should be removed after the crisis has passed. Also, because they are tightly targeted they will have little impact, and do not cater well for many of the 50,000 or so extra unemployed. These will be new entrants to the labour market or those employed by small firms. This policy gap needs to be filled to avoid high and long-term unemployment.
    Keywords: Recession, unemployment, New Zealand, labour economics
    JEL: J21 J22
    Date: 2009
  34. By: Marek Dabrowski
    Abstract: The purpose of this paper is to analyze the various challenges facing European integration and the EU institutional architecture as result of the global financial crisis. The European integration process is not yet complete, both in terms of its content and geographical coverage. It can be viewed as a kind of intermediate hybrid between an international organization and a federation, subject to further evolution. This is also true of the Single European Market and the Economic and Monetary Union, which form the core of the EU economic architecture. Certain policy prerogatives (such as external trade, competition, and the Common Agriculture Policy) are delegated to the supranational level while others (such as financial supervision or fiscal policy) remain largely in the hands of national authorities.
    Keywords: financial crisis, European integration, European Union, Economic and Monetary Union, fiscal policy, financial supervision, global financial architecture, IMF
    JEL: F33 F42 G15 G18 H87
    Date: 2009
  35. By: Ila Patnaik; Ajay Shah
    Abstract: Capital account openness and exchange rate flexibility in 11 Asian countries are examined. Asia has made slow progress on de jure capital account openness, but has made much more progress on de facto capital account openness. While there is a slow pace of increase in exchange rate flexibility, most Asian countries continue to have largely inflexible exchange rates. This combination { of moving forward with de facto capital account integration without bringing in exchange rate flexibility { has lead to procyclicality of monetary policy when capital flows are procyclical. The paper emphasizes the case for a consistent monetary policy framework. [NIPFP WP No. 2010-64].
    Keywords: Korea, capital, account, monetary policy, Asian countries, Asia, China, defacto, exchange rate flexibility, de jure, India, industrial countries, Chinn-Ito measure,
    Date: 2010
  36. By: Zagaglia, Paolo
    Abstract: I address the role of information heterogeneity in the Euro interbank market for unsecured term lending. I use high-frequency quotes of bid and ask prices to estimate probabilities of informed trading for contract maturities from one month to one year. The dataset spans from November 2000 to March 2008, and includes the relevant events that characterize the developments of the Euro area money market. I obtain four main results. First, I show that the loose supply of liquidity of the ECB has not dampened the distortions arising from asymmetric information in the unsecured money market. I also find that the probability of trading with a better informed bank is higher on days when open market operations take place, and at the end of the maintenance period. This effect has strengthened during the turmoil. The results indicate that information is segmented, in the sense that heterogenous knowledge among banks is maturity-specific. Finally, the paper presents some evidence suggesting that the risk of trading with a counterparty that enjoys an enhanced information set is priced.
    Keywords: Market microstructure; PIN model; money markets; term structure
    JEL: G14 E52
    Date: 2010–02–03
  37. By: Kurz, Heinz D.
    Abstract: The paper discusses the relationship between Arthur Spiethoff and Joseph A. Schumpeter, the men and their works. Had it not been for Spiethoff Schumpeter would in all probability have forever been lost to scientific work. It was Spiethoff who brought the Austrian back to academia and research after a sequence of serious mishaps in politics and banking. Spiethoff's contribution to an analysis of business cycles is then summarized and important similarities and some differences between it and Schumpeter's are pointed out. The view of Spiethoff and Schumpeter that cycles are endogenous and cannot possibly be eliminated without at the same time eliminating the dynamism of the capitalist economy is then couterposed with views of some of their contemporaries and particularly modern mainstream macroeconomics that this is not so.
    Keywords: Schumpeter; Spiethoff; business cycles; innovations; creative destruction
    JEL: B31 E32 O31 O12
    Date: 2010–01
  38. By: Jean Pisani-Ferry; Bruno van Pottelsberghe
    Abstract: In this policy brief, Jean Pisani-Ferry and Bruno van Pottelsberghe show that although the crisis originated in the US, Europe's outlook has deteriorated faster and more sharply leading to the worst crisis observed during the post-war era. However, the length of the crisis matters at least as much at its depth, and policymakers should not overlook the medium term consequences of their actions.
    Date: 2009–04
  39. By: Popa, Ionela; Codreanu, Diana; Albici, Mihaela
    Abstract: In June 2009, Romania’s public debts rose by 12.6% more than late last year, that is up to 123.61 billion Lei (29.4 billion Euros), meaning 23.27% of the gross domestic product originally estimated for this year. Foreign loans are not a new phenomenon. Yet, in the current economic context, it is the consequences which might occur that bother most of us as a result of the (significant) increase of public debts. Concluding a loan agreement with the International Monetary Fund is « necessary evil » because it has both advantages and disadvantages. This paper aims at analyzing aspects regarding the benefits, direct and indirect costs, and social effects of such a loan.
    Keywords: public debts; elbows; benefits; economy
    JEL: F34 G38 H63
    Date: 2010–02–09
  40. By: Efraim Benmelech; Nittai K. Bergman
    Abstract: Do bankrupt firms impose negative externalities on their non-bankrupt competitors? We propose and analyze a collateral channel in which a firm’s bankruptcy reduces collateral values of other industry participants, thereby increasing the cost of external debt finance industry wide. To identify this collateral channel, we use a novel dataset of secured debt tranches issued by U.S. airlines which includes a detailed description of the underlying assets serving as collateral. Our estimates suggest that industry bankruptcies have a sizeable impact on the cost of debt financing of other industry participants. We discuss how the collateral channel may lead to contagion effects which amplify the business cycle during industry downturns.
    JEL: E32 E44 G12 G33 L93
    Date: 2010–01
  41. By: Ralph S.J. Koijen; Hanno Lustig; Stijn Van Nieuwerburgh
    Abstract: We propose an arbitrage-free stochastic discount factor (SDF) model that jointly prices the cross-section of returns on portfolios of stocks sorted on book-to-market dimension, the cross-section of government bonds sorted by maturity, the dynamics of bond yields, and time series variation in expected stock and bond returns. Its pricing factors are motivated by a decomposition of the pricing kernel into a permanent and a transitory component. Shocks to the transitory component govern the level of the term structure of interest rates and price the cross-section of bond returns. Shocks to the permanent component govern the dividend yield and price the average equity returns. Third, shocks to the relative contribution of the transitory component to the conditional variance of the SDF govern the Cochrane-Piazzesi (2005, CP) factor, a strong predictor of future bond returns. These shocks price the cross-section of book-to-market sorted stock portfolios. Because the CP factor is a strong predictor of economic activity one- to two-years ahead, positive shocks to CP signal improving economic conditions, leading to a positive price of risk. Value stocks are riskier and carry a return premium because they are more exposed to such shocks.
    JEL: E21 E43 G00 G12
    Date: 2010–01
  42. By: Zsolt Darvas
    Abstract: The crisis has hit central and eastern European countries harder than other regions of the world. In this policy contribution Resident Scholar Zsolt Darvas looks at the role of the EU and its institutions in supporting crisis-hit CEE countries; the stabilising effects of the EU's coordinated multilateral financial assistance; and the commitment shown by Western European banks to the region. However Darvas argues that there were certain actions, or failures to act, on the part of EU institutions and governments, that have amplified the effects on CEE countries of the crisis. The European Central Bank has given little direct support to non-euro-area countries, and the EU has done little for EU neighbourhood countries. Meanwhile, euro-area membership has shielded from the crisis some countries with worse fundamentals than certain CEE countries.
    Date: 2009–12
  43. By: Tullio Jappelli; Luigi Pistaferri
    Abstract: We review different empirical approaches that researchers have taken to estimate how consumption responds to income changes. We critically evaluate the empirical evidence on the sensitivity of consumption to predicted income changes, distinguishing between the traditional excess sensitivity tests, and the effect of predicted income increases and income declines. We also review studies that attempt to estimate the marginal propensity to consume out of income shocks, distinguishing between three different approaches: identifying episodes in which income changes unexpectedly, relying on the covariance restrictions that the theory imposes on the joint behavior of consumption and income growth, and combining realizations and expectations of income or consumption in surveys where data on subjective expectations are available.
    JEL: D91 E21
    Date: 2010–02
  44. By: ?tefan Rychtárik; Franco Stragiotti
    Abstract: Over the last 12 months, the supervision of liquidity has become one of the most discussed issues by the central banks and the financial market authorities. The objective of this paper is to describe the off-site liquidity monitoring framework recently implemented as one of the supervisory tools of the Banque centrale du Luxembourg. In our approach, the liquidity position of every bank is described by two different scores that take into account the bank?s liquidity position across ?peer? banks as well as over time. The framework has three major outputs. First of all, it helps supervisors to identify banks with weaker liquidity positions. Secondly, the scores can be decomposed among 21 risk factors. Finally, the framework creates a basis to draw conclusions about the general trends within the Luxembourg banking sector for the purpose of ensuring financial stability. Unlike common supervisory scoring systems generally based on banks? balance sheet and profit and loss data, our framework integrates on- and off-balance sheet data and general and idiosyncratic market data as well as macroeconomic data.
    Keywords: Liquidity risk, Stress-test, Banking sector, Prudential supervision, Scoring system, Off-site supervision
    JEL: G21
    Date: 2009–12
  45. By: Fernando, Estrada; Jorge Ivan, Gonzalez; Alberto, Castrillon; Mauricio , Perez
    Abstract: From a general perspective, one could argue that large State transformations are reflect-ed in income, expenditure and employment. The information that the National Bureau of Statistics (Dane) have on income (tax and nontax) is accessible and more orderly than spending and employment. This difference is explained, in part because the collection of taxes is more centralized (national, municipal and departmental), and while expenditure on transfers is diversified.
    Keywords: Tax Power; Colombia; State; Latin American; Fairness.
    JEL: E62 E0 A1 C0 E01 E6
    Date: 2010
  46. By: Paul Rawkins
    Abstract: India’s general government deficits and public debt have remained high despite faster economic growth in recent years and periodic attempts to instil greater fiscal discipline. Modest fiscal tightening at the centre has been offset by significant fiscal slippages at the states level, leaving the general government deficit largely unchanged as a percentage of GDP.
    Keywords: fiscal, India, government, deficits, GDP, public debt
    Date: 2010
  47. By: Larch, Martin; Turrini, Alessandro
    Abstract: The cyclically adjusted budget balance (CAB) plays a key role in the EU fi scal surveillance framework. It started off in a supporting role in the shadow of the headline defi cit and, before long, turned into the linchpin of the rules of the Stability and Growth Pact. The steep ascent was driven by high expectations which, with the passing of time, were only partly met. The everyday practice of the EU fi scal surveillance rapidly revealed a number of caveats of the CAB which, at times, hampered the effectiveness of fi scal surveillance. This paper provides a comprehensive review of the changing fortunes of the CAB in the EU fi scal surveillance framework. It portrays its main shortcomings and the way they are dealt with in practice.
    Keywords: Cyclically adjusted budget balance; Stability and Growth Pact; Fiscal Policy
    JEL: E62 H60 H30 E61
    Date: 2009
  48. By: Paolo Angelini (Bank of Italy); Andrea Nobili (Bank of Italy); Maria Cristina Picillo (Bank of Italy)
    Abstract: The outbreak of the financial crisis coincided with a sharp increase of worldwide interbank interest rates. We analyze the micro and macroeconomic determinants of this phenomenon, finding that before August 2007 interbank rates were insensitive to borrower characteristics, whereas afterwards they became reactive to borrowers’ creditworthiness. At the same time, conditions for large borrowers became relatively more favorable, both before and after the failure of Lehman Brothers. This suggests that banks have become more discerning in their lending, a welcome change, but that moral hazard considerations related to the â€too big to fail†argument should remain a main concern for central banks.
    Keywords: Interbank markets, Spreads, Financial crisis
    JEL: E43 E52
    Date: 2009–10
  49. By: Balázs Égert
    Abstract: This study seeks to determine the extent to which countries of the former Soviet Union are "infected" by the Dutch Disease. We take a detailed look at the functioning of the transmission mechanism of the Dutch Disease, i.e. the chains that run from commodity prices to real output in manufacturing. We complement this with two econometric exercises. First, we estimate nominal and real exchange rate models to see whether commodity prices are correlated with the exchange rate. Second, we run growth equations to analyse the possible effects of commodity prices and the dependency of economic growth on natural resources.
    Keywords: Dutch disease, exchange rate, growth, oil, commodity prices, CIS, transition
    JEL: E31 F31 O11 P17
    Date: 2009
  50. By: James D. Hamilton; Tatsuyoshi Okimoto
    Abstract: This paper relates predictable gains from positions in fed funds futures contracts to violations of the expectations hypothesis of the term structure of interest rates. Although evidence for predictable gains from positions in short-horizon contracts is mixed, we find that gains in longer horizon contracts can be well described using Markov-switching models, with predictability associated with particular episodes in which economic activity was weak and variability in the returns to these contracts was quite high.
    JEL: E40 E50 G13
    Date: 2010–02
  51. By: Kris James Mitchener; David C. Wheelock
    Abstract: This paper examines the relationship between the structure of banking markets and economic growth using a new dataset on manufacturing industry-level growth rates and banking market concentration for U.S. states during 1899-1929—a period when the manufacturing sector was expanding rapidly and restrictive branching laws segmented the U.S. banking system geographically. Unlike studies of modern developing and developed countries, we find that banking market concentration had a positive impact on manufacturing sector growth in the early twentieth century, with little variation across industries with different degrees of dependence on external financing or access to capital. However, because regulations affecting bank entry varied considerably across U.S. states and the industrial organization of the U.S. banking system differs markedly from those of other countries, we also examine the impact of other aspects of banking market structure and policy on growth. We continue to find that banking market concentration boosted industrial growth. In addition, we find evidence that a greater prevalence of branch banking and more banks per capita increased the growth of industries that rely relatively heavily on external financing or have greater access to external funding sources, while deposit insurance depressed growth in the manufacturing sector. Regulations on bank entry and other banking market characteristics thus appear to exert an independent influence on manufacturing growth in geographically fragmented banking markets.
    JEL: E44 G21 G38 N11 N12 N21 N22 O16 O47
    Date: 2010–01
  52. By: Morris A. Davis; Jonas D. M. Fisher; Toni M. Whited
    Abstract: The authors construct a dynamic general equilibrium model of cities and use it to estimate the effect of local agglomeration on per capita consumption growth. Agglomeration affects growth through the density of economic activity: higher production per unit of land raises local productivity. Firms take productivity as given; produce using a technology that has constant returns in developed land, capital, and labor; and accumulate land and capital. If land prices are rising, as they are empirically, firms economize on land. This behavior increases density and contributes to growth. They use a panel of U.S. cities and our model's predicted relationship among wages, output prices, housing rents, and labor quality to estimate the net effect of agglomeration on local wages. The impact of agglomeration on the level of wages is estimated to be 2 percent. Combined with their model and observed increases in land prices, this estimate implies that agglomeration raises per capita consumption growth by 10 percent.
    Keywords: Balanced Growth, Economic Growth, Productivity, Externalities, Increasing Returns, Agglomeration, Density
    Date: 2010
  53. By: Efraim Benmelech; Nittai K. Bergman
    Abstract: We provide novel evidence linking the level of creditor protection provided by law to the degree of usage of technologically older, vintage capital in the airline industry. Using a panel of aircraft-level data around the world, we find that better creditor rights are associated with both aircraft of a younger vintage and newer technology as well as firms with larger aircraft fleets. We propose that by mitigating financial shortfalls, enhanced legal protection of creditors facilitates the ability of firms to make large capital investments, adapt advanced technologies and foster productivity.
    JEL: E22 E44 G32 G33 L93
    Date: 2010–02
  54. By: Marek Gora; Oleksandr Rohozynsky; Irina Sinitsina; Mateusz Walewski
    Abstract: The aim of this paper was to analyse possible directions and magnitudes of the relationship between the social security driven tax wedge, employment and shadow employment in Russia and Ukraine. Previous results suggest a limited positive relationship between the size of the tax wedge and shadow employment and in recent years both analysed countries undertook serious steps in order to reform and to simplify their payroll tax system and consequently to reduce shadow employment. Our result suggest that the unskilled persons engaged in unregistered jobs in Ukraine and Russia are not "rewarded" with higher net earnings. It seems that, in their case, shadow employment is the way to escape unemployment and resulting poverty, rather than to evade taxes. Hence, it seems that, in this case, broadening of general employment opportunities for this group would result in a decrease in shadow employment. We also found that the effect of the SSN benefits on shadow employment was rather low in both countries. One of the explanations is the fact that SSN benefits remain largely universal, and are not sufficiently tied to former employment history and social security contribution paid.
    Keywords: tax wedge, employment, shadow employment, transition economies
    JEL: E24 J3 H21 O17
    Date: 2009
  55. By: Richard Herd; Vincent Koen; Anders Reutersward
    Abstract: Over the past decade, the share of jobs not controlled by the state has increased considerably, whilst employment in agriculture has declined, against the backdrop of ongoing urbanisation. Over 200 million people have been drawn into urban areas through official or unofficial migration, despite various obstacles to labour mobility, including the registration system and the associated restrictions to social service access. New labour laws were introduced in 2008 to better protect employees in a market now dominated by private-sector employers, notably via more systematic use of and adherence to written labour contracts, in particular of indefinite duration ones. To what extent the new legislation and implementing regulations will be enforced remains to be seen. For the time being, de facto employment protection is far less than de jure, with an enduring preponderance of fixed-term contracts, involving few restrictions. Minimum wages are set locally and have not kept up with average wages, nor are they effectively enforced. During the recent slowdown, average wages adjusted rapidly and employment was soon on the rise again. However, this episode also highlighted the need to integrate migrants better, not least by relaxing registration rules.<P>Le marché du travail chinois en transition : création d’emplois, migrations et régulation<BR>Au cours des dix dernières années, la proportion d’emplois non contrôlés par l’État a augmenté considérablement, tandis que les possibilités de travail dans le secteur de l’agriculture s’amenuisaient sur fond d’urbanisation ininterrompue. Plus de 200 millions de personnes ont migré – officiellement ou non – vers des zones urbaines, en dépit des nombreux obstacles qui freinent la mobilité de la main-d’oeuvre, notamment le système d’enregistrement et les contraintes qu’il impose en matière d’accès aux services sociaux. Depuis 2008, le marché du travail est soumis à de nouvelles réglementations, visant à assurer aux employés une meilleure protection sur un marché aujourd’hui dominé par les employeurs du secteur privé : on soulignera le recours plus systématique au contrat de travail écrit, et en particulier au contrat de durée indéterminée. On ignore encore dans quelle mesure seront respectées la nouvelle législation et les modalités d’application. Pour l’heure, la protection réelle des employés est très inférieure à ce que prévoit le droit, et les contrats les plus répandus restent les contrats de durée déterminée qui offrent peu de protection. Le montant du salaire minimum est fixé au niveau local, sans référence au salaire moyen, et n’est d’ailleurs pas effectivement respecté. Dans la récente période de ralentissement économique, les salaires moyens ont été ajustés rapidement et l’emploi a connu une embellie. Toutefois, cet épisode a également mis en lumière la nécessité d’une meilleure intégration des migrants, notamment par un assouplissement des modalités d’enregistrement.
    Keywords: unemployment, employment, social services, China, minimum wage, labour market, access, hukou, contracts, urbanisation, chômage, marché du travail, emploi, salaire minimum, Chine, hukou, contrats, urbanisation, accès aux services sociaux
    JEL: E24 J21 J23 J24 J31 J41 J42 J61 J63 J65 J71 J82 J83 K31 O53 P23 R23
    Date: 2010–02–01

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