nep-mac New Economics Papers
on Macroeconomics
Issue of 2010‒07‒31
28 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Note on nominal rigidities and news-driven business cycles By Nutahara, Kengo
  2. Expectations-Driven Cycles in the Housing Market By Luisa Lambertini; Caterina Mendicino; Maria Tereza Punzi
  3. Time variation in U.S. wage dynamics By Boris Hofmann; Gert Peersman; Roland Straub
  4. Global Liquidity Trap By Ippei Fujiwara; Tomoyuki Nakajima; Nao Sudo; Yuki Teranishi
  5. A Time-Invariant Duration Policy under the Zero Lower Bound By Kozo Ueda
  6. Trusting the bankers: a new look at the credit channel of monetary policy By Matteo Ciccarelli; Angela Maddaloni; José-Luis Peydró
  7. Monetary policy and capital regulation in the US and Europe By Ethan Cohen-Cole; Jonathan Morse
  8. Adoption of Inflation Targeting and Tax Revenue Performance in Emerging Market Economies: An Empirical Investigation By Yannick Lucotte
  9. Money Transmission Mechanisms and Identified Long-Run Relationships between the Banking Sector's Balance Sheet and the Macroeconomy in Pakistan By J L Ford; Zahid Mohammad
  10. Banking Globalization and International Business Cycles By Kozo Ueda
  11. The Japanese Economy and Economic Policy in Light of the East Asian Financial Crisis By Ramkishen Rajan
  12. Do Banking Shocks Matter for the U.S. Economy? By Naohisa Hirakata; Nao Sudo; Kozo Ueda
  13. Does housing really lead the business cycle? By Luis J. Álvarez; Alberto Cabrero
  14. Inflation and inflation uncertainty in the euro area By Guglielmo Maria Caporale; Luca Onorante; Paolo Paesani
  15. International evidence on the new Keynesian Phillips Curve using aggregate and disaggregate data By Joseph P. Byrne; Alexandros Kontonikas; Alberto Montagnoli
  16. World Food Prices and Monetary Policy By Roberto Chang; Luis Catão
  17. Fiscal Imbalances, Ination and Sovereign Default Dynamics By Guillard, Michel; Sosa Navarro, Ramiro
  18. Monetary Policy Effects: Evidence from the Portuguese Flow of Funds By Isabel Marques Gameiro; João Sousa
  19. Green shoots in the euro area. A real time measure By Maximo Camacho; Gabriel Perez-Quiros; Pilar Poncela
  20. The Macroeconomics of Medium-Term Aid Scaling-Up Scenarios By Jan Gottschalk; Rafael Portillo; Luis-Felipe Zanna; Andrew Berg
  21. The Indian exchange rate and central bank action: A GARCH analysis By Ashima Goyal; Sanchit Arora
  22. Asset Bubbles, Endogenous Growth, and Financial Frictions By Hirano, Tomohiro; Yanagawa, Noriyuki
  23. Globalization, Pass-Through and Inflation Dynamic By Pierpaolo Benigno; Ester Faia
  24. Alternative methods for forecasting GDP By Dominique Guegan; Patrick Rakotomarolahy
  25. Burying the Stability Pact: The Reanimation of Default Risk in the Euro Area By Christian Fahrholz; Roman Goldbach
  26. A Model of Housing Stock for Canada By David Dupuis; Yi Zheng
  27. Monopolistic Competition and Different Wage Setting Systems. By José Ramón García; Valeri Sorolla
  28. "Red Star Spangled Banner" Scrutinizing the Root Causes of Financial Crisis By Christian Fahrholz; Andreas Kern

  1. By: Nutahara, Kengo
    Abstract: A news-driven business cycle is a positive comovement of consumption, output, labor, and investment from the news about the future. We show that nominal rigidities, especially sticky prices, can cause it in an estimated medium-scale DSGE economy.
    Keywords: nominal rigidities ; news-driven business cycles
    JEL: E32 E21
    Date: 2010–02–19
  2. By: Luisa Lambertini; Caterina Mendicino; Maria Tereza Punzi
    Abstract: This paper analyzes housing market boom-bust cycles driven by changes in households' expectations. We explore the role of expectations not only on productivity but on several other shocks that originate in the housing market, the credit market and the conduct of monetary policy. We find that, in the presence of nominal rigidities, expectations on both the conduct of monetary policy and future productivity can generate housing market boom-bust cycles in accordance with the empirical findings. Moreover, expectations of either a future reduction in the policy rate or a temporary increase in the central bank's inflation target that are not fulfilled generate a macroeconomic recession. Increased access to credit generates a boom-bust cycle in most variables only if it is expected to be reversed in the near future.<br>
    JEL: E32 E44 E52
    Date: 2010
  3. By: Boris Hofmann (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Gert Peersman (Ghent University, Sint-Pietersnieuwstraat 25, B-9000 Ghent, Belgium.); Roland Straub (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: This paper explores time variation in the dynamic effects of technology shocks on U.S. output, prices, interest rates as well as real and nominal wages. The results indicate considerable time variation in U.S. wage dynamics that can be linked to the monetary policy regime. Before and after the "Great Inflation", nominal wages moved in the same direction as the (required) adjustment of real wages, and in the opposite direction of the price response. During the "Great Inflation", technology shocks in contrast triggered wage-price spirals, moving nominal wages and prices in the same direction at longer horizons, thus counteracting the required adjustment of real wages, amplifying the ultimate repercussions on prices and hence increasing inflation volatility. Using a standard DSGE model, we show that these stylized facts, in particular the estimated magnitudes, can only be explained by assuming a high degree of wage indexation in conjunction with a weak reaction of monetary policy to inflation during the "Great Inflation", and low indexation together with aggressive inflation stabilization of monetary policy before and after this period. This means that the monetary policy regime is not only captured by the parameters of the monetary policy rule, but importantly also by the degree of wage indexation and resultant second round effects in the labor market. Accordingly, the degree of wage indexation is not structural in the sense of Lucas (1976). JEL Classification: C32, E24, E31, E42, E52.
    Keywords: technology shocks, second-round effects, Great Inflation.
    Date: 2010–07
  4. By: Ippei Fujiwara (Director, Financial Markets Department, Bank of Japan (E-mail:; Tomoyuki Nakajima (Associate Professor, Institute of Economic Research, Kyoto University (E-mail:; Nao Sudo (Deputy Director, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:; Yuki Teranishi (Deputy Director, Financial Systems and Bank Examination Department, Bank of Japan (E-mail:
    Abstract: In this paper we consider a two-country New Open Economy Macroeconomics model, and analyze the optimal monetary policy when countries cooperate in the face of a "global liquidity trap" -- i.e., a situation where the two countries are simultaneously caught in liquidity traps. The notable features of the optimal policy in the face of a global liquidity trap are history dependence and international dependence. The optimality of history dependent policy is confirmed as in local liquidity trap. A new feature of monetary policy in global liquidity trap is whether or not a country's nominal interest rate is hitting the zero bound affects the target inflation rate of the other country. The direction of the effect depends on whether goods produced in the two countries are Edgeworth complements or substitutes. We also compare several classes of simple interest-rate rules. Our finding is that targeting the price level yields higher welfare than targeting the inflation rate, and that it is desirable to let the policy rate of each country respond not only to its own price level and output gap, but also to those in the other country.
    Keywords: Zero Interest Rate Policy, Two-country Model, International Spillover, Monetary Policy Coordination
    JEL: E52 E58 F41
    Date: 2010–07
  5. By: Kozo Ueda (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: kouzou.ueda
    Abstract: Optimal commitment policy under the zero lower bound entails a high degree of complexity and time-inconsistency in a stochastic economy. This paper proposes a time-invariant duration policy that mitigates those problems and facilitates policy implementation and communication while retaining effectiveness in inflation stabilization. Under the time- invariant duration policy, a central bank commits itself to maintaining low interest rates for some duration even after adverse shocks disappear, but unlike the optimal commitment policy, the duration is independent of the ex post spell of the adverse shocks. Consequently, the time- inconsistency problem does not increase even if the ex post spell of the adverse shocks lengthens, and policy rates are expressed in an extremely simple, explicit form. Simulation results suggest that the time-invariant duration policy performs virtually as effectively as the optimal commitment policy in stabilizing inflation, and far better than a discretionary policy and simple interest rate rules with or without inertia.
    Keywords: Zero lower bound on nominal interest rates, optimal monetary policy, liquidity trap, time-inconsistency
    JEL: E31 E52
    Date: 2010–07
  6. By: Matteo Ciccarelli (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Angela Maddaloni (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); José-Luis Peydró (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: Any empirical analysis of the credit channel faces a key identification challenge: changes in credit supply and demand are difficult to disentangle. To address this issue, we use the detailed answers from the US and the confidential and unique Euro area bank lending surveys. Embedding this information within a standard VAR model, we find that: (1) the credit channel is active through the balance-sheets of households, firms and banks; (2) the credit channel amplifies the impact of a monetary policy shock on GDP and inflation; (3) for business loans, the impact through the (supply) bank lending channel is higher than through the demand and balance-sheet channels. For household loans the demand channel is the strongest; (4) during the crisis, credit supply restrictions to firms in the Euro area and tighter standards for mortgage loans in the US contributed significantly to the reduction in GDP. JEL Classification: E32, E44, E5, G01, G21.
    Keywords: Non-financial borrower balance-sheet channel, Bank lending channel, Credit channel, Credit crunch, Lending standards, Monetary policy.
    Date: 2010–07
  7. By: Ethan Cohen-Cole (Robert H Smith School of Business, 4420 Van Munching Hall, University of Maryland, College Park, MD 20742, USA.); Jonathan Morse (Federal Reserve Bank of Boston, 600 Atlantic Avenue, Boston, MA, USA.)
    Abstract: From the onset of the 2007-2009 crisis, the Federal Reserve and the European Central Bank have aggressively lowered interest rates. Both sets of changes are at odds with an anti-inflationary stance of monetary policy; indeed, as the crisis began in August 2007 inflation expectations were high and rising, particularly in the United States. We have two additions to the literature. One, we present a model economy with a leveraged and regulated financial sector. Two, we find optimal Taylor rules for our economy that are consistent with a strong pro-inflationary reaction during financial crisis while maintaining a standard output-inflation mandate. We have three interpretations of our results. One, because the Federal Reserve has partial control over bank regulation it can exercise regulatory lenience. Two, the Fed’s stronger output orientation means that it will potentially respond more quickly when faced with constrained banks. Three, our results support procyclical capital regulation. JEL Classification: E52, E58, G18, G28.
    Keywords: monetary policy, capital regulation, crisis.
    Date: 2010–07
  8. By: Yannick Lucotte (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans)
    Abstract: Inflation targeting is a monetary policy framework which was adopted by several emerging countries over the last decade. Previous empirical studies suggest that inflation targeting has significant effects on either inflation or inflation variability in emerging targeting countries. But, by reinforcing the disinflation process and so, by reducing drastically seigniorage revenue, the adoption of this monetary policy framework could also affect the design of fiscal policy. In a recent paper, Minea and Villieu (2009a) show theoretically that inflation targeting provides an incentive for governments to improve institutional quality in order to enhance tax revenue performance. In this paper, we test this theoretical prediction by investigating whether the adoption of inflation targeting affects the fiscal effort in emerging markets economies. Using propensity score matching methodology, we evaluate the “treatment effect” of inflation targeting on fiscal mobilization in thirteen emerging countries that have adopted this monetary policy framework by the end of 2004. Our results show that, on average, inflation targeting has a significant positive effect on public revenue collection.
    Keywords: Inflation targeting ; Public revenue ; Treatment effect ; Propensity score matching ; Emerging countries
    Date: 2010–07–13
  9. By: J L Ford; Zahid Mohammad
    Abstract: This paper employs semi-annual observations from 1964s1 to 2005s1 to evaluate the monetary transmission mechanism that has operated in Pakistan. It does so by using the familiar VAR approach and by analysing impulse responses and variance decompositions to banking sector and macroeconomic variables consequent upon innovations to the chosen indicator of monetary conditions. Those analyses demonstrate that the bank lending channel operates in Pakistan. The resultant VEC models embody cointegration; and this is used to identify long-run relationships between the variables. Observations are extended to 2008s2 to provide some indication of the out-of-sample quality of information provided by those relationships. Investigations using the Kalman filter provide evidence that, crucially, the innovations to the monetary indicators are influenced by sudden adjustments of monetary policy instruments.
    Keywords: monetary transmission mechanisms, disaggregation of bank loans, VARs, VECs, identified cointegration vectors, innovations to SBP's monetary instruments and monetary indicator innovations
    JEL: E52 E58
    Date: 2010–07
  10. By: Kozo Ueda (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: kouzou.ueda
    Abstract: This paper constructs a two-country DSGE model to study the nature of the recent financial crisis and its effects that spread immediately throughout the world owing to the globalization of banking. In the model, financial intermediaries (FIs) enter into chained credit contracts at home and abroad, engaging in cross-border lending to entrepreneurs by undertaking cross-border borrowing from investors. The FIs as well as the entrepreneurs in two countries are credit constrained, so all of their net worths matter. Our model reveals that under FIs' globalization, adverse shocks that hit one country affect the other, yielding business cycle synchronization on both the real and financial sides. It also suggests that the FIs' globalization, net worth shock, and credit constraints are key to understanding the recent financial crisis.
    Keywords: Financial accelerator, financial intermediaries, correlation ( quantity) puzzle, business cycle synchronization, contagion, monetary policy
    JEL: E22 E32 E44 E52 F41
    Date: 2010–07
  11. By: Ramkishen Rajan
    Abstract: The depth and breadth of the East Asian financial crisis has added a sense of acute urgency for some concrete and credible measures by policy-makers to revitalise the Japanese economy. While steps to be taken for the long-run competitiveness and economic revitalisation of the Japanese economy are clear (with the only doubt being about whether and how effectively they will be implemented), those needed to boost aggregate demand in the short run are far less obvious. Given the near-zero nominal interest rates in Japan, most observers argue that an expansionary monetary policy would be ineffective. However, as with Krugman (1998a,b), we argue that once a distinction is made between real and nominal interest rates, it is logically possible for monetary policy to be effective in raising demand if it is able to create inflationary expectations. This could probably be effected through explicit announcements by the Bank of Japan of the intention to target a certain inflation rate in the future. [Working Paper No. 2]
    Keywords: East Asian, financial crisis, policy-makers, revitalise,Japanese economy, nominal interest rates, expansionary monetary policy, inflationary expectations, inflation rate
    Date: 2010
  12. By: Naohisa Hirakata (Deputy Director and Economist, Research and Statistics Department, Bank of Japan (E-mail:; Nao Sudo (Deputy Director and Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:; Kozo Ueda (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: kouzou.ueda
    Abstract: Recent financial turmoil and existing empirical evidence suggest that adverse shocks to the financial intermediary (FI) sector cause substantial economic downturns. The quantitative significance of these shocks to the U.S. business cycle, however, has not received much attention up to now. To determine the importance of these shocks, we estimate a sticky-price dynamic stochastic general equilibrium model with what we describe as chained credit contracts. In this model, credit- constrained FIs intermediate funds from investors to credit-constrained entrepreneurs through two types of credit contract. Using Bayesian estimation, we extract the shocks to the FIs' net worth. The shocks are cyclical, typically negative during a recession, such as the one that began in 2007. Their effects are persistent, lowering economic activity for several quarters after the recessionary trough. According to the variance decomposition, shocks to the FI sector are a main source of the spread variations, explaining 39% of the FIs' borrowing spread and 23% of the entrepreneurial borrowing spread. At the same time, these shocks play an important but not dominant role for investment, accounting for 15% of its variations.
    Keywords: Monetary Policy, Financial Accelerators, Financial Intermediaries, Chained Credit Contracts
    JEL: E31 E44 E52
    Date: 2010–07
  13. By: Luis J. Álvarez (Banco de España); Alberto Cabrero (Banco de España)
    Abstract: The aim of this paper is to characterize the cyclical properties of Spanish real and nominal housing related variables. Our three main results are: First, housing appears to lead the business cycle. Second, fluctuation in home prices are positively related to those of residential investment, suggesting the dominant role of demand factors over supply ones. Third,there are interesting asymmetries in cyclical fluctuations: contractions in GDP appear to be briefer than expansions.
    Keywords: Housing, business cycles, filtering
    JEL: E32 R21 R32
    Date: 2010–07
  14. By: Guglielmo Maria Caporale (Centre for Empirical Finance, Brunel University, West London, UB8 3PH, United Kingdom.); Luca Onorante (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Paolo Paesani (University of Rome “Tor Vergata”.)
    Abstract: This paper estimates a time-varying AR-GARCH model of inflation producing measures of inflation uncertainty for the euro area, and investigates their linkages in a VAR framework, also allowing for the possible impact of the policy regime change associated with the start of EMU in 1999. The main findings are as follows. Steadystate inflation and inflation uncertainty have declined steadily since the inception of EMU, whilst short-run uncertainty has increased, mainly owing to exogenous shocks. A sequential dummy procedure provides further evidence of a structural break coinciding with the introduction of the euro and resulting in lower long-run uncertainty. It also appears that the direction of causality has been reversed, and that in the euro period the Friedman-Ball link is empirically supported, consistently with the idea that the ECB can achieve lower inflation uncertainty by lowering the inflation rate. JEL Classification: E31, E52, C22.
    Keywords: Inflation, Inflation Uncertainty, Time-Varying Parameters, GARCH Models, ECB, EMU.
    Date: 2010–07
  15. By: Joseph P. Byrne; Alexandros Kontonikas; Alberto Montagnoli
    Abstract: We present a unique empirical analysis of the properties of the New Keynesian Phillips Curve using an international dataset of aggregate and disaggregate sectoral inflation. Our results from panel time-series estimation clearly indicate that sectoral heterogeneity has important consequences for aggregate inflation behaviour. Heterogeneity helps to explain the overesti- mation of inflation persistence and underestimation of the role of marginal costs in empirical investigations of the NKPC that use aggregate data. We find that combining disaggregate information with heterogeneous-consistent estimation techniques helps to reconcile, to a large extent, the NKPC with the data.
    Keywords: New Keynesian Phillips Curve; Heterogeneity; Aggregation Bias.
    JEL: E31 E52
    Date: 2010–07
  16. By: Roberto Chang; Luis Catão
    Abstract: The large swings in world food prices in recent years renew interest in the question of how monetary policy in small open economies should react to such imported price shocks. We examine this issue in a canonical open economy setting with sticky prices and where food plays a distinctive role in utility. We show how world food price shocks affect natural output and other aggregates, and derive a second order approximation to welfare. Numerical calibrations show broad CPI targeting to be welfare-superior to alternative policy rules once the variance of food price shocks is sufficiently large as in real world data.
    Date: 2010–07–13
  17. By: Guillard, Michel; Sosa Navarro, Ramiro
    Abstract: The central question this paper seeks to answer is how monetary policy might affect the equilibrium behavior of default and sovereign risk premium. The paper is based on one-interest-rate model. Public debt becomes risky due to an active fiscal policy, as in Uribe (2006), reflecting the fiscal authority’s limited ability to control primary surplus. The insolvency problem is due to a string of bad luck (negative shocks affecting primary surplus). But in contrast to Uribe’s results, as the sovereign debt cost increases (which result from weak primary surplus), default becomes anticipated and reflected by a rising country risk premium and default probability. The default is defined as reneging on a contractual agreement and so the decision is set by the fiscal authority. However, conflicting objectives between fiscal and monetary authority play an important role in leading fiscal authority to default on its liabilities. The characteristic of the government policy needed to restore the equilibrium after the default is also analyzed.
    Keywords: Fiscal Imbalances; Inflation; Sovereign Risk; Default
    JEL: E52 E63 E61
    Date: 2009–12
  18. By: Isabel Marques Gameiro; João Sousa
    Abstract: This paper uses a VAR approach to study the transmission of monetary policy shocks in Portugal, focusing in particular on the financial decisions of households, corporations (financial/non-financial), the government and the rest of the world. We confirm that, in many ways, households and firms react in a similar way as found in other countries, with evidence that the monetary policy shock has a contractionary effect on economic activity and increases the financing needs of households and non-financial corporations. We also find evidence that the financial sector plays an important role, supplying the necessary funds to these sectors. We do not find much evidence of a significant systematic behaviour of the government or the rest of the world.
    JEL: E52 G11
    Date: 2010
  19. By: Maximo Camacho (Universidad de Murcia); Gabriel Perez-Quiros (Banco de España); Pilar Poncela (Universidad autónoma de Madrid)
    Abstract: We show that an extension of the Markov-switching dynamic factor models that accounts for the specificities of the day to day monitoring of economic developments such as ragged edges, mixed frequencies and data revisions is a good tool to forecast the Euro area recessions in real time. We provide examples that show the nonlinear nature of the relations between data revisions, point forecasts and forecast uncertainty. According to our empirical results, we think that the real time probabilities of recession are an appropriate statistic to capture what the press call green shoots.
    Keywords: Business Cycles, Output Growth, Time Series
    JEL: E32 C22 E27
    Date: 2010–07
  20. By: Jan Gottschalk; Rafael Portillo; Luis-Felipe Zanna; Andrew Berg
    Abstract: We develop a model to analyze the macroeconomic effects of a scaling-up of aid and assess the implications of different policy responses. The model features key structural characteristics of low-income countries, including varying degrees of public investment efficiency and a learning-by-doing (LBD) externality that captures Dutch disease effects. On the policy front, it distinguishes between spending the aid, which is controlled by the fiscal authority, and absorbing the aid - financing a higher current account deficit - which is influenced by the central bank's reserve accumulation policies. We calibrate the model to Uganda and run several experiments. We find that a policy mix that results in full spending and absorption of aid can generate temporary demand and real exchange rate appreciation pressures, but also have a positive effect on real GDP in the medium term, through higher public capital. Full spending with partial absorption, on the other hand, may stem appreciation pressures but can also induce adverse medium-term real GDP effects, through private sector crowding out. When aid is very inefficiently invested and there are strong LBD externalities, aid can be harmful, and partial absorption policies may be justified. But in this case, a welfare improving solution is to defer spending or - even better if possible - raise its efficiency.
    Date: 2010–07–12
  21. By: Ashima Goyal (Indira Gandhi Institute of Development Research); Sanchit Arora (Indira Gandhi Institute of Development Research)
    Abstract: We study, with daily and monthly data sets, the impact of conventional monetary policy measures such as interest rates, intervention and other quantitative measures, and of Central Bank communication on exchange rate volatility. Since India has a managed float, we also test if the measures affect the level of the exchange rate. Using dummy variables in the best of an estimated family of GARCH models, we find forex market intervention to be the most effective of all the CB instruments evaluated for the period of analysis. We also find that CB communication has a large potential but was not effectively used.
    Keywords: exchange rate volatility, monetary policy, intervention, communication, GARCH
    JEL: E52 E58 F31
    Date: 2010–07
  22. By: Hirano, Tomohiro; Yanagawa, Noriyuki
    Abstract: This paper analyzes the effects of bubbles in an infinitely-lived agent model of endogenous growth with financial frictions and heterogeneous agents. We provide a complete characterization on the relationship between financial frictions and the existence of bubbles. Our model predicts that if the degree of pledgeability is sufficiently high or sufficiently low, bubbles can not exist. They can only arise at an intermediate degree. This suggests that improving the financial market condition might enhance the possibility of bubbles. We also examine whether bubbles are growth-enhancing or growth-impairing in the long run. We show that when the degree of pledgeability is relatively low, bubbles boost long-run growth. On the other hand, when it is relatively high, bubbles lower long-run growth. Moreover, we examine the effects of the burst of bubbles, and show that the effects much depend on the degree of the pldgeability, i.e., the quality of financial system.
    Keywords: Asset Bubbles; Endogenous Growth; Financial Frictions
    JEL: E44
    Date: 2010–07–23
  23. By: Pierpaolo Benigno (Professor, LUISS Guido Carli and EIEF (E-mail:; Ester Faia (Professor, Goethe University Frankfurt, Kiel IfW and CEPREMAP (E-mail:
    Abstract: An important aspect of the globalization process is the increase in interdependence among countries through the deepening of trade linkages. This process should increase competition in each destination market and change the pricing behavior of firms. We present an extension of Dornbusch (1987)fs model to analyze the extent to which globalization, interpreted as an increase in the number of foreign products in each destination market, modifies the slope and the position of the New-Keynesian aggregate-supply equation and, at the same time, affects the degree of exchange rate pass-through. We provide empirical evidence that supports the results of our model.
    Keywords: AS equations, Oligopolistic Competition, Inflation Dynamic
    JEL: E31 F41
    Date: 2010–07
  24. By: Dominique Guegan (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Patrick Rakotomarolahy (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: An empirical forecast accuracy comparison of the non-parametric method, known as multivariate Nearest Neighbor method, with parametric VAR modelling is conducted on the euro area GDP. Using both methods for nowcasting and forecasting the GDP, through the estimation of economic indicators plugged in the bridge equations, we get more accurate forecasts when using nearest neighbor method. We prove also the asymptotic normality of the multivariate k-nearest neighbor regression estimator for dependent time series, providing confidence intervals for point forecast in time series.
    Keywords: Forecast, economic indicators, GDP, Euro area, VAR, multivariate k-nearest neighbor regression, asymptotic normality.
    Date: 2010–07
  25. By: Christian Fahrholz (School of Economics and Business Administration, Friedrich-Schiller-University Jena); Roman Goldbach
    Abstract: -
    Keywords: -
    JEL: E62 G12 G14 H30 H61
    Date: 2010–06–14
  26. By: David Dupuis; Yi Zheng
    Abstract: Using an error-correction model (ECM) framework, the authors attempt to quantify the degree of disequilibrium in Canadian housing stock over the period 1961–2008 for the national aggregate and over 1981–2008 for the provinces. They find that, based on quarterly data, the level of housing stock in the long run is associated with population, real per capita disposable income, and real house prices. Population growth (net migration, particularly for the western provinces) is also an important determinant of the short-run dynamics of housing stock, after controlling for serial correlation in the dependent variable. Real mortgage rates, consumer confidence, and a number of other variables identified in the literature are found to play a small role in the short run. The authors’ model suggests that the Canadian housing stock was 2 per cent above its equilibrium level at the end of 2008. There was likely overbuilding, to varying degrees, in Saskatchewan, New Brunswick, British Columbia, Ontario, and Quebec.
    Keywords: Domestic demand and components
    JEL: E21 J00
    Date: 2010
  27. By: José Ramón García; Valeri Sorolla
    Abstract: In this paper we match the static disequilibrium unemployment model without frictions in the labor market and monopolistic competition with an infinite horizon model of growth. We compare the wages set at the firm, sector and national (centralized) levels, their unemployment rates and growth of the economic variables, for the Cobb-Douglas production function, in order to see under wich conditions the inverse U hypothesis between unemployment and centralization of wage bargain is confirmed. We also analyze, in the three wage setting systems, the effect of an increase in the monopoly power on employment and growth.
    Keywords: Disequilibrium Unemployment, Monopolistic Competition, Growth, Wage Setting Systems.
    JEL: E24 O41
    Date: 2010–07–15
  28. By: Christian Fahrholz (School of Economics and Business Administration, Friedrich-Schiller-University Jena); Andreas Kern
    Abstract: In this article we inquire into the root causes of the present financial crisis by drawing on a Heckscher-Ohlin-Samuelson trade model. At the origin of the current crisis are global imbalances originating from distortions in relative prices. Due to impasses in international production, financial repression in countries that seek to suppress real appreciation has resulted in excessive capital-intensive production and an expansion of financial service sectors in flexible market economies. Moreover, financial globalization has been a vehicle for exporting real appreciation pressures from catching-up economies to mature economies, thus aggravating global imbalances.
    Keywords: Financial Crisis, Financial Repression, Heckscher-Ohlin-Samuelson Model
    JEL: E22 E44 F11 F36 F41
    Date: 2010–06–14

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