|
on Macroeconomics |
|
Issue of 2010‒02‒27
thirty papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | Takatoshi Ito |
| Abstract: | Japan suffered a very high inflation rate in 1973-74. The CPI inflation rate rose to near 30% in 1974, the highest rate in the postwar Japanese history after the chaotic hyperinflation following the end of the Second World War. Traditionally, the oil crisis is blamed for the 1973-74 high inflation. However, due to monetary policy decisions in 1972-73, the inflation rate had already exceeded 10% before the onset of the oil crisis in October 1973. These decisions include the interest rate cut of June 1972 and the interest rate hike of April 1973, which in retrospect proved too small. Concern about the rapid yen appreciation produced political pressure on the Bank of Japan to continue easing. The Bank of Japan came out of the Great Inflation of 1973 with a stronger voice. The Bank successfully argued that its recommendation to tighten monetary policy should not be overruled or the high inflation would be repeated. By this logic, the Bank of Japan obtained /de facto/ independence after 1975. When faced with the next economic recovery in 1979, again accompanied by oil price increases, the Bank of Japan was able to tighten monetary policy and to contain the inflation rate under 10 percent. The interest rate in the 1972-75 period was well below, by as much as 25 percentage points in 1973, the interest rate suggested by a modified monthly Taylor rule regression. |
| JEL: | E31 E58 N15 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15726&r=mac |
| By: | Javier Andrés (Universidad de Valencia); Óscar Arce (CNMV); Carlos Thomas (Banco de España) |
| Abstract: | We analyze optimal monetary policy in a model with two distinct financial frictions. First, borrowing is subject to collateral constraints. Second, credit flows are intermediated by monopolistically competitive banks, thus giving rise to endogenous lending spreads. We show that, up to a second order approximation, welfare maximization is equivalent to stabilization of four goals: inflation, output gap, the consumption gap between constrained and unconstrained agents, and the distribution of the collateralizable asset between both groups. Following both financial and non-financial shocks, the optimal monetary policy commitment implies a short-run trade-off between stabilization goals. Such policy tradeoffs become amplified as banking competition increases, due to the fall in lending spreads and the resulting increase in financial leveraging. |
| Keywords: | banking competition, lending spreads, collateral constraints, monetary policy, linear-quadratic method |
| JEL: | E32 E52 G10 G21 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1001&r=mac |
| By: | Ansgar Belke; Daniel Gros |
| Abstract: | The global imbalances of the 2000s and the recent global financial crisis are intimately connected. Both originate in the combination of economic policies adopted by the two key economies, the US and China. Global financial markets served as a transmission belt, both during the boom as during the bust. In the US, the interaction among the Fed's monetary stance, global real interest rates, distorted incentives in credit markets, and financial innovation created the mix of conditions which first drove growth, but then made the US the epicenter of the global financial crisis. Exchange rate and other economic policies followed by emerging markets such as China and the oil-exporting countries contributed to the US ability to borrow cheaply abroad and thereby finance its unsustainable housing bubble during the upswing. But we find that the key drivers of asset prices are global liquidity conditions. Central banks flooded the markets with ample liquidity. Mopping up this excess liquidity will be one major task for central banks worldwide, which needs to be done in a coordinated fashion. Moreover, our analysis has shown that liquidity will first show up in asset price inflation and only later in consumer goods inflation. This renders it difficult for central bank to exit from their current very expansive monetary policy stance if they continue to focus only on price stability. |
| Keywords: | Asset prices, China, current account adjustment, global liquidity, oil prices,<br /> savings glut, monetary policy, policy coordination |
| JEL: | E21 E43 E52 F32 F42 Q43 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp973&r=mac |
| By: | Ansgar Belke; Ingo G. Bordon; Torben W. Hendricks |
| Abstract: | This paper examines the interactions between money, interest rates, goods and commodity prices at a global level. For this purpose, we aggregate data for major OECD countries and follow the Johansen/Juselius cointegrated VAR approach. Our empirical model supports the view that, when controlling for interest rate changes and thus different monetary policy stances, money (defined as a global liquidity aggregate) is still a key factor to determine the long-run homogeneity of commodity prices and goods prices movements. The cointegrated VAR model fits with the data for the analysed period from the 1970s until 2008 very well. Our empirical results appear to be overall robust since they pass inter alia a series of recursive tests and are stable for varying compositions of the commodity indices. The empirical evidence is in line with theoretical considerations. The inclusion of commodity prices helps to identify a significant monetary transmission process from global liquidity to other macro variables such as goods prices. We find further support of the conjecture that monetary aggregates convey useful information about variables such as commodity prices which matter for aggregate demand and thus inflation. Given this clear empirical pattern it appears justified to argue that global liquidity merits attention in the same way as the worldwide level of interest rates received in the recent debate about the world savings and liquidity glut as one of the main drivers of the current financial crisis, if not possibly more. |
| Keywords: | Commodity prices, cointegration, CVAR analysis, global liquidity, inflation, international spillovers |
| JEL: | E31 E52 C32 F42 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp971&r=mac |
| By: | Ansgar Belke; Jens Klose |
| Abstract: | We assess differences that emerge in Taylor rule estimations for the Fed and the ECB before and after the start of the subprime crisis. For this purpose, we apply an explicit estimate of the equilibrium real interest rate and of potential output in order to account for variations within these variables over time. We argue that measures of money and credit growth, interest rate spreads and asset price inflation should be added to the classical Taylor rule because these variables are proxies of a change in the equilibrium interest rate and are, thus, also ikely to have played a major role in setting policy rates during the crisis. Our empirical results gained from a state-space model and GMM estimations reveal that, as far as the Fed is concerned, the impact of consumer price inflation, and money and credit growth turns negative during the crisis while the sign of the asset price inflation coefficient turns positive. Thus we are able to establish significant differences in the parameters of the reaction functions of the Fed before and after the start of the subprime crisis. In case of the ECB, there is no evidence of a change in signs. Instead, the positive reaction to credit growth, consumer and house price inflation becomes even stronger than before. Moreover we find evidence of a less inertial policy of both the Fed and the ECB during the crisis. |
| Keywords: | Subprime crisis, Federal Reserve, European Central Bank, equilibrium real interest rate, Taylor rule |
| JEL: | E43 E52 E58 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp972&r=mac |
| By: | William Barnett (Department of Economics, The University of Kansas); ; |
| Abstract: | An independent institute for monetary statistics is needed in the United States, says William Barnett in paper to appear in the journal, Central Banking. Expanded Congressional audit would be a second best alternative, but would not fully address the needs and would carry risks. |
| Keywords: | Central banking, Federal Reserve, data institute, monetary aggregation, monetary policy, audit, GAO. |
| JEL: | C82 E01 E41 E50 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:kan:wpaper:201001&r=mac |
| By: | Michael J. Lamla (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Sarah M. Lein (Swiss National Bank, Zurich) |
| Abstract: | In the aftermath of the euro cash changeover consumers’ inflation perceptions rose substantially in the euro area countries while actual inflation figures remained almost unchanged. During that period media reporting on the potentially large inflationary effect of the euro introduction intensified. In this paper we argue that the information set of the public has been distorted through the significant slant in the media. Employing an unique dataset for Germany, we provide evidence that media reporting has a statistically significant and economically meaningful impact on inflation perceptions and contributed to their sharp rise in the aftermath of the euro cash changeover. |
| Keywords: | Monetary policy, inflation perceptions, media coverage, media bias |
| JEL: | E52 D83 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:10-254&r=mac |
| By: | Muhammad Mahboob Ali (Atish Dipankar University of Science and Technology; Bangladesh); Victoria Wise (Central Queensland University, Australia) |
| Abstract: | Bangladesh is one of the least developed countries. The economy of Bangladesh suffers from both supply side and demand side problems. This study has been undertaken with a view to investigate macro economic conditions of the country over the two sub periods period a) Sub period-1: Macroeconomic policy under administrative control i.e. 1976-77 to 1989-90; b) Sub period-2: Macroeconomic policy under reform measures i.e. 1990-91 to 2004-05. The study doesn’t find full applicability of either Keynesian or Monetarist view of the macro model for this country. Authors’ suggested that the performance of the Bangladesh economy is a mixture of accomplishment and failure, not significantly different from that of the majority of poor less developed countries and thus a coordinated approach to fiscal, monetary and exchange rate and debt management policy is required to achieve the long-term goal and sustainable economic growth with inflation within control. The first section of the paper provides the background to the literature review. Section two outlines the objective and explains the research methodology applied by gathering quantitative data. Section three explains the analysis of the data and results and section four provides policy implications and finally concluding comments. |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:aiu:abewps:82&r=mac |
| By: | Williamson, Stephen |
| Abstract: | A model of monetary exchange with private financial intermediation is constructed. Claims on financial intermedaries of two types are traded in transactions: circulating notes and deposits. There can be a role for the government in supplying liqudity, and level changes in the money supply accomplished through open market operations can be nonneutral. A Friedman rule is suboptimal, due to costs of maintaining the stock of currency. The model is used to address some issues related to current monetary policy in the United States. |
| Keywords: | Monetary policy; financial intermediation; financial crisis |
| JEL: | E5 E4 |
| Date: | 2009–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:20692&r=mac |
| By: | Andres Frick (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Michael Graff (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Jochen Hartwig (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Boriss Siliverstovs (KOF Swiss Economic Institute, ETH Zurich, Switzerland) |
| Abstract: | In the aftermath of the euro cash changeover consumers’ inflation perceptions rose substantially in the euro area countries while actual inflation figures remained almost unchanged. During that period media reporting on the potentially large inflationary effect of the euro introduction intensified. In this paper we argue that the information set of the public has been distorted through the significant slant in the media. Employing an unique dataset for Germany, we provide evidence that media reporting has a statistically significant and economically meaningful impact on inflation perceptions and contributed to their sharp rise in the aftermath of the euro cash changeover. |
| Keywords: | Anti-cyclical fiscal policy, international, simulations, multiplier, free-riding |
| JEL: | E17 E32 E62 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:10-253&r=mac |
| By: | Athanasios Orphanides; Min Wei |
| Abstract: | We explore the role of evolving beliefs regarding the structure of the macroeconomy in improving our understanding of the term structure of interest rates within the context of a simple macro-finance model. Using quarterly vintages of real-time data and survey forecasts for the United States over the past 40 years, we show that a recursively estimated VAR on real GDP growth, inflation and the nominal short-term interest generates predictions that are more consistent with survey forecasts than a benchmark fixed-coefficient counterpart. We then estimate a simple term structure model under the assumption that the investors' risk attitude is driven by near-term expectations of the three state variables. When we allow for evolving beliefs about the macroeconomy, the resulting term structure model provides a better fit to the cross section of yields than the benchmark model, especially at longer maturities, and exhibits better performance in out-of-sample predictions of future yield movements. |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2010-01&r=mac |
| By: | Williamson, Stephen; Sanches, Daniel |
| Abstract: | We study the interplay among imperfect memory, limited commitment, and theft, in an environment that can support monetary exchange and credit. Imperfect memory makes money useful, but it also permits theft to go undetected, and therefore provides lucrative opportunities for thieves. Limited commitment constrains credit arrangements, and the constraints tend to tighten with imperfect memory, as this mitigates punishment for bad behavior in the credit market. Theft matters for optimal monetary policy, but at the optimum theft will not be observed in the model. The Friedman rule is in general not optimal with theft, and the optimal money growth rate tends to rise as the cost of theft falls. |
| Keywords: | Money; Credit; Limited Commitment; Monetary Policy |
| JEL: | E5 E4 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:20690&r=mac |
| By: | Ester Faia; Wolfgang Lechthaler; Christian Merkl |
| Abstract: | Several contributions have recently assessed the size of fiscal multipliers both in RBC models and New Keynesian models. None of the studies considers a model with frictional labour markets which is a crucial element, particularly at times in which much of the fiscal stimulus has been directed toward labour market measures. We use an open economy model (more specifically a currency area calibrated on the EMU) with labour market frictions in the form of labour turnover costs and workers’ heterogeneity to measure fiscal multipliers. We compute short and long run multipliers and open economy spillovers for five types of fiscal packages: pure demand stimuli and consumption tax cuts return very small multipliers; income tax cut and hiring subsidies deliver larger multipliers as they reduce distortions in sclerotic labour markets; short-time work (German "Kurzarbeit") returns negative short-run multipliers, but stabilises employment. Our model highlights a novel dimension through which multipliers operate, namely the labour demand stimulus which occurs in a model with non-walrasian labour markets |
| Keywords: | Fiscal multipliers, fiscal packages, labour market frictions |
| JEL: | E62 H30 J20 H20 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1592&r=mac |
| By: | Sebnem Kalemli-Ozcan (University of Houston and NBER); Elias Papaioannou; José Luis Peydró |
| Abstract: | We investigate the effect of financial integration on the degree of international business cycle synchronization. For identfication, we use a confidential database on banks' bilateral exposure over the past three decades and employ a novel bilateral country-pair panel instrumental vari- ables approach. First, we show that conditional on global shocks and country-pair fixed factors countries that become more financially integrated over time have less synchronized growth pat- terns, in line with the standard theories of output fluctuations. Second, to isolate the one-way impact of financial integration on output co-movement and account for measurement error in the financial integration measure, we exploit variation in the transposition dates of the European Union-wide legislative acts (the "Directives") from the Financial Services Action Plan (FSAP). These laws are designed to harmonize regulation of financial markets in the European Union. We find that increases in financial integration stemming from regulatory-legislative harmoniza- tion policies in capital markets are followed by more divergent output cycles, even when we condition on monetary unification. Our results contrast with those of the previous empirical studies. We reconcile the different results by showing that the earlier estimates suffer from the standard identification problems. |
| Keywords: | Banking Integration, Co-movement, Fluctuations, Financial Legislation |
| JEL: | E32 F15 F36 G21 O16 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1005&r=mac |
| By: | Tobias Adrian; Emanuel Moench; Hyun Song Shin |
| Abstract: | The macro risk premium measures the threshold return for real activity that receives funding from savers. We base our argument in this paper on the relationship between the macro risk premium and the growth of financial intermediaries' balance sheets. The spare capacity of their balance sheets determines the intermediaries' risk appetite, which in turn determines the real projects that receive funding and, hence, the supply of credit. Monetary policy affects risk appetite by changing the ability of intermediaries to leverage their capital. We estimate the time-varying risk appetite of financial intermediaries for the United States, Germany, the United Kingdom, and Japan, and study the joint dynamics of risk appetite using macroeconomic aggregates for the United States. We argue that risk appetite is an important indicator of monetary conditions. |
| Keywords: | Monetary policy ; Intermediation (Finance) ; Risk ; Capital market ; Credit |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:428&r=mac |
| By: | Di Maggio, Marco |
| Abstract: | This paper proposes a novel method to recover the market's beliefs about the Fed's monetary policy by using the responses of interest rates to economic news. We investigate the differential impact of news over time showing that the impact of this information is time varying, and that the importance of the housing and labor markets has sharply increased after the crisis. We follow a difference-in-difference estimation procedure to test for the presence of political constraints in the U.S., employing as control group the response of the European swap rates to macroeconomic announcements. We provide strong evidence that after the crisis of 2007, the Federal Reserve has been subject to the political pressure exerted by the Congress. |
| Keywords: | Fed; Financial Crisis; Political Pressure; Yield Curve; Political Constraints |
| JEL: | E43 G14 E58 G18 |
| Date: | 2010–01–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:20697&r=mac |
| By: | Joerg Bibow |
| Abstract: | This paper investigates the United States dollar's role as the international currency of choice as a key contributing factor in critical global developments that led to the crisis of 2007-09, and considers the future role of the dollar as the global economy emerges from that crisis. It is argued that the dollar is likely to retain its hegemonic status for a few more decades, but that United States spending powered by public rather than private debt would provide a more sustainable motor for global growth. In the process, the "Bretton Woods II" regime depicted by Dooley, Folkerts-Landau, and Garber (2003) as sustainable despite featuring persistent U.S. current account deficits may turn into a "Bretton Woods III" regime that sees U.S. fiscal policy and public debt as "minding the store" in maintaining U.S. and global growth. |
| Keywords: | Reserve Currency; Global Monetary Order; Global Financial Crisis |
| JEL: | E12 E61 E62 F02 F33 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_584&r=mac |
| By: | Clark, Gregory (University of California, Davis) |
| Abstract: | Estimates are developed of the major macroeconomic aggregates--wages, land rents, interest rates, prices, factor shares, sectoral shares in output and employment, and real wages--for England by decade between 1209 and 2008. The efficiency of the economy 1209-2008 is also estimated. One finding is that the growth of real wages in the Industrial Revolution era and beyond was faster than the growth of output per person. Indeed until recently the greatest recipient of modern growth in England has been unskilled workers. The data also creates a number of puzzles, the principle one being the very high levels of output and efficiency estimated for England in the medieval era. This data is thus inconsistent with the general notion that there was a period of Smithian growth between 1300 and 1800 which preceded the Industrial Revolution, as expressed in such recent works as De Vries (2008). |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:ucdeco:09-19&r=mac |
| By: | Muhammad Mahboob Ali (Atish Dipankar University of Science and Technology; Bangladesh); Victoria Wise (University of Houston-Downtown, USA) |
| Abstract: | The study had empirically tested the money supply function for Bangladesh using annual time series data. Authors observed that high-powered money played a very significant role in the money supply process of Bangladesh, particularly with respect to the narrow money supply M1, thus providing some support for the monetarist model. However, beyond the monetarist view, additional variables in the light of the Keynesian and structuralist analysis, such as bank rate, external resources, and financial liberalization need to be taken into account in understanding the money supply process of the country. Other aforesaid variables were also found to exert some influence on the broad money supply in Bangladesh. However, given the poor performance of the narrow money model and the existence of multicollinearity problem in both models, the estimated results, even for the broad money model, needed to be interpreted with caution. |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:aiu:abewps:81&r=mac |
| By: | Andrés Alvarez |
| Abstract: | This paper presents Léon Walras and Augustin Cournot views on monetary regulation. Important differences can be found in their views about the convenience of the issuing of paper money and fiat money in general. Whereas Walras is against bank notes, even if coming from a central bank, Cournot has a moderate position. He accepts the need for bank notes even without a strict adjustment to metal reserves. It can be ascertained that Cournot believes discretionary monetary regulation is convenient and acceptable, while Walras believes the only acceptable monetary system is one based exclusively on the stability of the value of money under a monetary rule following the strict equivalence between metallic reserves and a pure medium of exchange form of money. This paper shows Cournot’s ability to understand more clearly than Walras the evolution of the monetary system of his days. Whereas Walras is trying to guarantee the coherence of his pure theory with his applied theory, and he is then unable to accept the evolution toward a monetary system based on fiat money and he proposes very rigid and complex system of quasi-bimetallic circulation where banks are simple mediators between entrepreneurs and savings. |
| Date: | 2010–02–11 |
| URL: | http://d.repec.org/n?u=RePEc:col:000178:006703&r=mac |
| By: | Inoue, Takeshi; Hamori, Shigeyuki |
| Abstract: | This study empirically analyzes the sources of the exchange rate fluctuations in India by employing the structural VAR model. The VAR system consists of three variables, i.e., the nominal exchange rate, the real exchange rate, and the relative output of India and a foreign country. Consistent with most previous studies, the empirical evidence demonstrates that real shocks are the main drives of the fluctuations in real and nominal exchange rates, indicating that the central bank cannot maintain the real exchange rate at its desired level over time. |
| Keywords: | Exchange Rate, India, RBI, SVAR, India, Foreign Exchange |
| JEL: | E31 F31 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:jet:dpaper:dpaper216&r=mac |
| By: | Bernard Philippe; Stéphane Mussard |
| Abstract: | In this paper, we investigate the analytical links between the rate of unemployment, monetary creation and how individuals share the value added in an economy with three types of agents : capital owners, managers and employees. This relationship relies on the fact that the rate of unemployment depends on many macroeconomic characteristics such as : creation of money, external balance of goods and services and mark-up pricing. The latter being decomposed into the expected margin rate and the growth rate of the unitary wage cost that characterize the primary value-added sharing. |
| Keywords: | Mark-up pricing, Unemployment rate, Value added |
| JEL: | E25 E24 C39 |
| Date: | 2010–02–11 |
| URL: | http://d.repec.org/n?u=RePEc:shr:wpaper:10-05&r=mac |
| By: | David Colander |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:mdl:mdlpap:1005&r=mac |
| By: | Joras Ferwerda; Ioana Deleanu; Brigitte Unger |
| Abstract: | Since the early 1980s, the interest in the nature and size of the non-measured economy (both the informal and the illegal one) was born among researchers in the US. Since then, several models to estimate the shadow and/or the underground economy appeared in the literature, each with its own theoretical pros and cons. In this paper we show that it is possible to overcome earlier expressed criticism of the Tanzi-model (1983). Its lack of a base year without any underground economy can be overcome, by using the natural experiment of the introduction of the Euro. However, this paper also comes up with new criticism. It shows that the crucial relationship of the Tanzi-model between taxes and the demand for cash money is not time robust, hence the model is not useful for estimating the underground economy nowadays. We believe that the change in financial conditions could partially explain the decline in the relevance of taxes as a means to evaluate the underground economy. We build a revised Tanzi model and try to find variables apart from tax evasion incentives in order to explain the underground economy. |
| Keywords: | Underground Economy Estimation, Shadow Economy, Tax Evasion |
| JEL: | E26 H26 K42 O17 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:1004&r=mac |
| By: | Jeremy Greenwood (University of Pennsylvania); Juan M. Sanchez (Federal Reserve Bank of Richmond); Cheng Wang (Iowa State University and Fudan University) |
| Abstract: | How important is financial development for economic development? A costly-state verification model of financial intermediation is presented to address this question. The model is calibrated to match facts about the U.S. economy, such as intermediation spreads and the firm-size distribution for the years 1974 and 2000. The calibrated model is then used to study cross-country data, using international data on interest-rate spreads. The analysis suggests a country like Uganda could increase its output by 140 to 180% if it could adopt the world's best practice in the financial sector. Still, this amounts to only 34 to 40% of the gap between Uganda's potential and actual output. |
| Keywords: | costly-state verification, economic development, financial intermediation, firm-size distribution, interest-rate spreads, cross-country output differences, cross-country TFP differences |
| JEL: | E13 O11 O16 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:eag:rereps:17&r=mac |
| By: | Sebnem Kalemli-Ozcan (University of Houston and NBER); Bent E. Sørensen; Vadym Volosovych |
| Abstract: | We investigate the relationship between financial integration and output volatility at micro and macro levels. Using a very large firm-level dataset (AMADEUS) from 16 European countries, we construct a measure of "deep" financial integration at the regional level based on observations of foreign ownership at the firm-level. We find a significant positive effect of foreign ownership on the volatility of firms' outcomes in static as well as dynamic empirical frameworks. This effect survives aggregation and carries over to regional output, leading to a positive association between deep financial integration and aggregate fluctuations. To identify the causal effect of financial integration on volatility we exploit variation in the transposition dates of the European Union-wide legislative acts from the Financial Services Action Plan (FSAP). We find that high trust regions located in countries who harmonized their capital markets sooner have increased levels of financial integration and volatility. |
| Keywords: | firm volatility, foreign ownership, regional integration, social capital, macro volatility |
| JEL: | E32 F15 F36 O16 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1006&r=mac |
| By: | Cao, Jin |
| Abstract: | This paper provides a compact framework for banking regulation analysis in the presence of uncertainty between systemic liquidity and solvency shocks. Extending the work by Cao & Illing (2009a, b), it is shown that systemic liquidity shortage arises endogenously as part of the inferior mixed strategy equilibrium. The paper compares dierent traditional regulatory policies which intend to fix the ineciencies, and argues that the co-existence of illiquidity and insolvency problems adds extra cost for banking regulation and makes some schemes that are optimal under pure illiquidity risks (such as liquidity regulation with lender of last resort policy) fail. The regulatory cost can be minimized by combining the advantages of several instruments. |
| Keywords: | liquidity risk; insolvency risk; liquidity regulation; equity requirement |
| JEL: | E5 G21 G28 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:11370&r=mac |
| By: | David Colander |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:mdl:mdlpap:1004&r=mac |
| By: | Loren Brandt; Xiaodong Zhu |
| Abstract: | China has achieved impressive growth over the last three decades. However, there has been debate over the sources of the growth, and the role of the intensive versus extensive margin. Growth accounting exercises at the aggregate level (Rawski and Perkins, 2008; Bosworth and Collins, 2008) suggest an equal role for both. But for the non-agricultural sector, there have been doubts about the contribution of TFP improvements to growth. For the period between 1978 and 1998, Young (2003) stresses the role of labor deepening, including the reallocation from agriculture, while more recent analysis point to the role of rising rates of investment. Because labor reallocations across sectors, TFP growth at the sector level and investment are all inter-related, simple growth decompositions that are often used in the literature are not appropriate for quantifying their contributions to growth. In this paper, we develop a three sector model to quantify the sources of China's growth. The sectors include agriculture, and within non-agriculture, the state and non-state components. We find only a modest role for labor reallocation and capital deepening, and identify rising TFP in the non-state nonagricultural sector as the key driver of growth. We also find significant misallocation of capital: The much less efficient state sector continues to absorb more than half of all fixed investment. If capital had been allocated efficiently, China could have achieved the same growth performance without any increase in the rate of aggregate investment. This has important implications for China as it tries to rebalance its growth. Finally, in light of important concerns over data, we examine the robustness of our key results to alternative data |
| Keywords: | China, Growth, TFP, Investment, intensive vs extensive margins |
| JEL: | E2 O4 |
| Date: | 2010–02–16 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-394&r=mac |
| By: | Alesina, Alberto (Harvard University); Algan, Yann (Sciences Po, Paris); Cahuc, Pierre (Ecole Polytechnique, Paris); Giuliano, Paola (University of California, Los Angeles) |
| Abstract: | Flexible labor markets require geographically mobile workers to be efficient. Otherwise, firms can take advantage of the immobility of workers and extract monopsony rents. In cultures with strong family ties, moving away from home is costly. Thus, individuals with strong family ties rationally choose regulated labor markets to avoid moving and limiting the monopsony power of firms, even though regulation generates lower employment and income. Empirically, we do find that individuals who inherit stronger family ties are less mobile, have lower wages, are less often employed and support more stringent labor market regulations. There are also positive cross-country correlations between the strength of family ties and labor market rigidities. Finally, we find positive correlations between labor market rigidities at the beginning of the twenty first century and family values prevailing before World War II, which suggests that labor market regulations have deep cultural roots. |
| Keywords: | family values, labor regulation |
| JEL: | E0 P16 Z10 Z13 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4747&r=mac |