nep-mac New Economics Papers
on Macroeconomics
Issue of 2010‒08‒06
sixty-five papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Why do financial market experts misperceive future monetary policy decisions? By Schmidt, Sandra; Nautz, Dieter
  2. Asset prices and monetary policy in a sticky-price economy with financial frictions By Nutahara, Kengo
  3. Inventories, Stockouts, and ToTEM By Oleksiy Kryvtsov; Yang Zhang
  4. Using estimated models to assess nominal and real rigidities in the United Kingdom By Kamber, Gunes; Millard, Stephen
  5. Monetary Policy Reaction Functions in the OECD By Douglas Sutherland
  6. Monetary and fiscal policies coordination - Pakistan's experience By Arby, Muhammad Farooq; Hanif , Muhammad Nadeem
  7. Money Targeting, Heterogeneous Agents and Dynamic Instability By Giorgio Motta; Patrizio Tirelli
  8. Economic Volatility and Institutional Reforms in Macroeconomic Policymaking: The Case of Fiscal Policy By Adam Gersl; Jan Zápal
  9. Inflation and Growth in the Long Run: A New Keynesian Theory and Further Semiparametric Evidence By Andrea Vaona
  10. Fiscal Stimulus in a Small Euro Area Economy By Vanda Almeida; Gabriela Lopes de Castro; Ricardo Mourinho Félix; José Ramos Maria
  11. The zero lower bound on the interest rate and a Neo-Classical Phillips curve By Ragna Alstadheim
  12. "Changes in Central Bank Procedures during the Subprime Crisis and Their Repercussions on Monetary Theory" By Marc Lavoie
  13. The Business Cycle Implications of Reciprocity in Labor Relations By Danthine, Jean-Pierre; Kurmann, André
  14. Inflation Persistence and Labour Market Frictions: An Estimated Efficiency Wage Model of the Australian Economy By Sean Langcake
  15. The Welfare Consequences of Monetary Policy and the Role of the Labor Market: a Tax Interpretation By Federico RAVENNA; Carl E. WALSH
  16. Greater Transparency Needed By Angelo Melino; Michael Parkin
  17. Evolving macroeconomic dynamics in a small open economy: an estimated Markov-switching DSGE model for the United Kingdom By Liu, Philip; Mumtaz, Haroon
  18. Israel: Monetary and Fiscal Policy By Charlotte Moeser
  19. Bank globalization and the balance sheet channel of monetary transmission By Sami Alpanda; Uluc Aysun
  20. The Vanishing Procyclicality of Labor Productivity By Galí, Jordi; van Rens, Thijs
  21. Monetary Policy Responses to the Crisis and Exit Strategies By Makoto Minegishi; Boris Cournède
  22. Counter-cyclical Economic Policy By Douglas Sutherland; Peter Hoeller; Balázs Égert; Oliver Röhn
  23. Assessing the Impact of Incomes Policy: The Italian Experience By Pastore, Francesco
  24. External debt sustainability under different policy rules By Gabriel Porcile; Alexandre C. Gomes de Souza; Ricardo Viana
  25. Optimal Monetary and Fiscal Stabilisation Policies By Klaus Adam
  26. Catching-up and Inflation in Europe: Balassa-Samuelson, Engel’s Law and Other Culprits By Balázs Égert
  27. Does the Crisis Experience Call for a New Paradigm in Monetary Policy? By John B. Taylor
  28. Fiscal Policy Reaction to the Cycle in the OECD: Pro- or Counter-cyclical? By Balázs Égert
  29. A Tale of Two Policies: Prudential Regulation and Monetary Policy with Fragile Banks By Ignazio Angeloni
  30. Securitization and the balance sheet channel of monetary transmission By Uluc Aysun; Melanie Guldi; Ralf Hepp
  31. The Loonie’s Flirtation with Parity: Prospects and Policy Implications By Philippe Bergevin; Colin Busby
  32. Economic Crisis and Economic Theory By Mark Weder
  33. Preparing for Euro Adoption in Poland By Rafal Kierzenkowski
  34. Testing Goodwin’s Growth Cycle Disaggregated Models: Evidence from the Input-Output Table of the Greek Economy for the Year 1988 By Rodousakis, Nikolaos
  35. Regional Inflation Persistence: Evidence from Italy By Guido Ascari; Andrea Vaona
  36. Why Hasn’t the US Economic Stimulus Been More Effective? The Debate on Tax and Expenditure Multipliers By F. Gerard Adams; Byron Gangnes
  37. The yield curve and the macro-economy across time and frequencies By Luís Aguiar-Conraria; Manuel M. F. Martins; Maria Joana Soares
  38. The yield curve and the macro-economy across time and frequencies By Luís Francisco Aguiar; Manuel M. F. Martins; Maria Joana Soares
  39. Real convergence and its illusions By Marcin Kolasa
  40. "Global Central Bank Focus: Facts on the Ground" By Paul McCulley
  41. Post Crisis Policy: Some Reflections of a Keynesian Economist By Karl Aiginger
  42. Exchange Rate Arrangements For East Asia Post-Crisis: Examining The Case For Open Economy Inflation Targeting By Tony Cavoli; Ramkishen S. Rajan
  43. Short and Long Interest Rate Targets By Bernardino Adão; Isabel Horta Correia; Pedro Teles
  44. "Asset Bubbles, Endogenous Growth, and Financial Frictions" By Tomohiro Hirano; Noriyuki Yanagawa
  45. Gauging the Impact of Higher Capital and Oil Costs on Potential Output By Boris Cournède
  46. The Wage-Productivity Gap Revisited: Is the Labour Share Neutral to Employment? By Karanassou, Marika; Sala, Hector
  47. Sub-central Governments and the Economic Crisis: Impact and Policy Responses By Hansjörg Blöchliger; Claire Charbit; José Maria Pinero Campos; Camila Vammalle
  48. Enhancing Financial Stability Through Better Regulation in Hungary By Margit Molnar
  49. Oil Price Shocks and Labor Market Fluctuations By Ordóñez, Javier; Sala, Hector; Silva, José I.
  50. Oil price shocks and labor market fluctuations By Javier Ordoñez; Hector Sala Lorda; Jose I. Silva
  51. Changes in Functional Income Distribution in Italy and Europe By Antonella Stirati
  52. The Political Economy of Fiscal Consolidation By Robert Price
  53. Extraordinary measures in extraordinary times: Public measures in support of the financial sector in the EU and the United States By Stolz, Stéphanie Marie; Wedow, Michael
  54. Asset Prices and Real Economic Activity By E. Philip Davis
  55. Procyclical Effects of the banking System during the financial and economic Crisis 2007-2009: the Case of Europe By Nikolov, Pavel
  56. The OECD’s New Global Model By Karine Hervé; Nigel Pain; Pete Richardson; Franck Sédillot; Pierre-Olivier Beffy
  57. Labour markets and the crisis By OECD
  58. An Assessment of the Bank of Canada's Term PRA Facility By Emanuella Enenajor; Alex Sebastian; Jonathan Witmer
  59. Inferential Expectations and the Missing Middle of Price Changes By Timo Henckel; Gordon Menzies; Daniel Zizzo
  60. Fiscal Policy Coordination in Asia: East Asian Infrastructure Investment Fund By Abidin, Mahani Zainal
  61. Financing the doubling of GDP in one year at constant price By Punabantu, S
  62. Back to the roots: On the origins of the Fed's independence By Farvaque, Etienne
  63. „Geschäftsmodell Deutschland“ und außenwirtschaftliche Ungleichgewichte in der EU By Renate Ohr; Götz Zeddies
  64. Equity Criteria as Instrument to Ensure Sustainability of Pareto or Kaldor-Hicks Efficiency: A Correlation Hidden by Sources of Confounding as Key for Sorting Out the Global Economic Crisis By Benazzo, Piero
  65. The National and International Effects;of Regional Policy Choices: Agglomeration Economies, Peripherality and Territorial Characteristics By Ugo FRATESI

  1. By: Schmidt, Sandra; Nautz, Dieter
    Abstract: This paper investigates why financial market experts misperceive the interest rate policy of the European Central Bank (ECB). Assuming a Taylor-rule-type reaction function of the ECB, we use qualitative survey data on expectations about the future interest rate, inflation, and output to discover the sources of individual interest rate forecast errors. Based on a panel random coefficient model, we show that financial experts have systematically misperceived the ECB's interest rate rule. However, although experts tend to overestimate the impact of inflation on future interest rates, perceptions of monetary policy have become more accurate since clarification of the ECB's monetary policy strategy in May 2003. We find that this improved communication has reduced disagreement over the ECB's response to expected inflation during the financial crisis. --
    Keywords: Central bank communication,Interest rate forecasts,Survey expectations,Panel random coefficient model
    JEL: E47 E52 E58 C23
    Date: 2010
  2. By: Nutahara, Kengo
    Abstract: A recent study shows that equilibrium indeterminacy arises if monetary policy responds to asset prices, especially share prices, in a sticky-price economy. We show that equilibrium indeterminacy never arises if the working capital of firms is subject to their asset values by financial frictions.
    Keywords: asset prices; financial frictions; equilibrium indeterminacy; monetary policy; sticky prices
    JEL: E32 E52 E44 C62
    Date: 2010–04–05
  3. By: Oleksiy Kryvtsov; Yang Zhang
    Abstract: Inventory investment is an important component of the Canadian business cycle. Despite its small average size – less than 1 per cent of output -- it exhibits volatile procyclical fluctuations, accounting for almost one-third of output variance. Procyclicality of inventories is somewhat smaller than that of sales, resulting in a counter-cyclical aggregate inventory-sales ratio. These salient inventory facts are matched in a partialequilibrium version of Kryvtsov and Midrigan’s (2010) model in which firms hold stocks of goods to buffer against stockouts. In booms, firms boost their inventories to avoid stocking out due to the rise in demand. The model combines the real marginal cost estimated by ToTEM with the convex cost of adjusting inventories to match the dynamics of the inventory-sales ratio in the data.
    Keywords: Business fluctuations and cycles; Transmission of monetary policy
    JEL: E31 E32
    Date: 2010
  4. By: Kamber, Gunes (Reserve Bank of New Zealand); Millard, Stephen (Bank of England)
    Abstract: This paper aims to contribute to our understanding of inflation dynamics in the United Kingdom by estimating two dynamic stochastic general equilibrium models and assessing the role of nominal and real rigidities within them. We first obtain an empirical representation of the monetary transmission mechanism in the United Kingdom and then estimate the models by minimising the difference between this representation and its model equivalents. We find that both models can explain the data reasonably well without relying on undue amounts of price and wage stickiness.
    Keywords: Minimum distance estimation; DSGE models; Nominal and real rigidities
    JEL: E31 E52
    Date: 2010–07–27
  5. By: Douglas Sutherland
    Abstract: Monetary policy reaction functions can provide insights into the factors influencing monetary policy decisions. Empirical estimates suggest that differences exist across countries as to whether monetary policy reacts solely to expected inflation or also takes into account expected output developments. A range of other factors, such as monetary policy in large economies, can also influence monetary policy reactions in smaller ones. On the other hand, monetary policy has reacted less to contemporaneous measures of the output gap, while asset price developments do not generally appear to have influenced monetary policy decisions.<P>Les fonctions de réaction de la politique monétaire dans la zone de l’OCDE<BR>Les fonctions de réaction de la politique monétaire peuvent utilement éclairer les facteurs qui influent sur les décisions de politique monétaire. Les estimations empiriques montrent qu’il y a des différences d’un pays à l’autre sur le point de savoir si la politique monétaire réagit uniquement à l’inflation anticipée, ou prend également en compte l’évolution prévisible de la production. Plusieurs autres facteurs, notamment la politique monétaire des grandes économies, peut également influer sur les réactions de politique monétaire dans les petites économies. En revanche, la politique monétaire a moins réagi aux mesures instantanées de l’écart de production et l’évolution des prix des actifs ne paraît pas en général avoir influencé les décisions de politique monétaire.
    Keywords: monetary policy, asset prices, output gap, politique budgétaire, prix des actifs, écart de production
    JEL: E42
    Date: 2010–05–04
  6. By: Arby, Muhammad Farooq; Hanif , Muhammad Nadeem
    Abstract: The paper explores how the monetary and fiscal policies have coordinated with each other in Pakistan. It argues that monetary and fiscal policies have been executed independently throughout the study period that is 1964-65 to 2008-09 and there have been very few instances of coordination between the two policies while addressing prevailing economic conditions. The paper does not find any difference between the behavior of monetary and fiscal policies before and after the establishment of Monetary and Fiscal Policies Coordination Board in 1994. Whatever instances of coordination were found were clustered in military regimes; which may be one of the reasons of macroeconomic stability in such regimes.
    Keywords: Monetary Policy; Fiscal Policy;
    JEL: H30 E50 E61
    Date: 2010
  7. By: Giorgio Motta; Patrizio Tirelli
    Abstract: Christiano et al. (2005) have shown that a standard medium-sized DSGE model can successfully replicate VAR IRFs to a money supply shock. This important result vanishes under limited asset market partic- ipation. Further, even a moderate fraction of constrained consumers is su¢ cient to dampen the real interest rate reaction to inflation, thereby causeing instability. The introduction of a simple fiscal automatic sta- bilizer restores stability and improves the dynamic performance of the model.
    Keywords: Rule of Thumb Consumers, DSGE, Determinacy, Limited Asset, Market Participation
    JEL: E52
    Date: 2010–07
  8. By: Adam Gersl (Czech National Bank; Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Jan Zápal (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; London School of Economics and Political Science)
    Abstract: We evaluate proposals for independent fiscal authority put forward as a solution to excessive public spending. Our main conclusion is that moving the responsibility to set broad measures of fiscal policy from the hands of government to an independent fiscal council is not necessarily welfare improving. We show that the change is welfare improving if nature of uncertainty between fiscal and monetary policymakers does not change as a result. However, if this institutional change involves considerable decrease of capacity of the new agency to recognize economic shocks, citizens' welfare can decrease as a results. This is especially significant in times of increased economic volatility such as in a recent global financial crisis. Faced with the ambiguous theoretical result, we try to gain deeper insight by calibrating our simple model.
    Keywords: dynamic inconsistency, fiscal and monetary policy interaction, independent fiscal council
    JEL: E42 E58 E63 H30
    Date: 2010–08
  9. By: Andrea Vaona (Department of Economics (University of Verona))
    Abstract: This paper explores the influence of inflation on economic growth both theoretically and empirically. We propose to merge an endogenous growth model of learning by doing with a New Keynesian one with sticky wages. We show that the intertemporal elasticity of substitution of working time is a key parameter for the shape of the inflation-growth nexus. When it is set equal to zero, the inflation-growth nexus is weak and hump-shaped. When it is greater than zero, inflation has a sizeable and negative effect on growth. Endogenizing the length of wage contracts does not lead to inflation superneutrality in presence of a fixed cost to wage resetting. Once adopting various semiparametric and instrumental variable estimation approaches on a cross-country/time-series dataset, we show that increasing inflation reduces real economic growth, consistently with our theoretical model with a positive intertemporal elasticity of substitution of working time.
    Keywords: inflation, growth, wage-staggering, learning-by-doing, semi- parametric estimator
    JEL: E31 E51 E52 O42 C14
    Date: 2010–05
  10. By: Vanda Almeida; Gabriela Lopes de Castro; Ricardo Mourinho Félix; José Ramos Maria
    Abstract: The international economic and financial crisis elicited an intensive debate on fiscal stimulus programmes. Although the topics have been diverse, most of the research is focused on large countries, some of them in autarky. The literature covering small economies is thinner and for those integrated in a monetary union is virtually nonexistent. This paper is a contribution to fill this gap. The discussion draws on a New-Keynesian general equilibrium model introduced in Almeida, Castro and Félix (2008), which features a small euro area economy. Contrary to most of the literature that considers infinitely lived households, the model features stochastic finite lifetime households following Blanchard (1985), which are a source of non-Ricardian behaviour and allow for pinning-down the steady state net foreign asset position endogenously. Since in a small euro area economy monetary policy is not an available business cycle stabilisation tool, the use of fiscal policy to pursue this goal seems the only alternative. The results reveal that permanent government expenditure increases should be avoided, as opposed to temporary stimulus. This outcome is identical to the one obtained in the literature for large economies. Lags in the program implementation and limited credibility can however undermine the objectives of a temporary stimulus. In particular, in financial distress circumstances, under which the stimulus may trigger a hike in the country's risk premium, the effectiveness of the stimulus might be negligible.
    JEL: E62 F41 H62
    Date: 2010
  11. By: Ragna Alstadheim (Norges Bank (Central Bank of Norway))
    Abstract: With sticky prices, optimizing agents and money in the utility function, I derive the exact analytical solution for optimal monetary policy given a zero lower bound (ZLB) on the interest rate. The Phillips curve is Neo-Classical, and the ZLB is then not a constraint on optimal policy. Optimal policy is history dependent even without a commitment problem and implements a Friedman rule equilibrium. The role of forward guidance in policy is more limited than under a New-Keynesian Phillips curve. The optimal policy rule intercept term is time varying and depends on the variance of the natural real rate.
    Keywords: Zero Lower Bound on Interest Rates, Monetary Policy
    JEL: E31 E52 E61
    Date: 2010–07–01
  12. By: Marc Lavoie
    Abstract: The subprime financial crisis has forced several North American and European central banks to take extraordinary measures and to modify some of their operational procedures. These changes have made even clearer the deficiencies and lack of realism in mainstream monetary theory, as can be found in both undergraduate textbooks and most macroeconomic models. They have also forced monetary authorities to reject publicly some of the assumptions and key features of mainstream monetary theory, fearing that, on that mistaken basis, actors in the financial markets would misrepresent and misjudge the consequences of the actions taken by the monetary authorities. These changes in operational procedures also have some implications for heterodox monetary theory; in particular, for post-Keynesian theory. The objective of this paper is to analyze the implications of these changes in operational procedures for our understanding of monetary theory. The evolution of the operating procedures of the Federal Reserve since August 2007 is taken as an exemplar. The American case is particularly interesting, both because it was at the center of the financial crisis and because the U.S. monetary system and its federal funds rate market are the main sources of theorizing in monetary economics.
    Keywords: Federal Funds Rate; Corridor System; Interest on Bank Reserves; Money Multiplier
    JEL: E42 E43 E58
    Date: 2010–08
  13. By: Danthine, Jean-Pierre (Swiss National Bank); Kurmann, André (Université du Québec à Montréal)
    Abstract: We develop a reciprocity-based model of wage determination and incorporate it into a modern dynamic general equilibrium framework. We estimate the model and find that, among potential determinants of wages, rent-sharing (between workers and firms) and wage entitlement (based on wages earned in the past) are important to fit the dynamic responses of output, wages and inflation to various exogenous shocks. Aggregate employment conditions (measuring workers’ outside option), on the other hand, are found to play only a negligible role for wage setting. These results are broadly consistent with micro-studies on reciprocity in labor relations but contrast with traditional efficiency wage models which emphasize aggregate labor market variables as the main determinant of wage setting.
    Keywords: Efficiency Wages; Reciprocity; Estimated DSGE Models
    JEL: E24 E31 E32 E52 J50
    Date: 2010–06–14
  14. By: Sean Langcake (School of Economics, University of Adelaide)
    Abstract: The purpose of this paper is to evaluate whether adding labour market frictions improves the basic New Keynesian model's ability to generate greater inflation persistence and plausible labour market dynamics. This paper builds and compares two sticky price models, one of which is augmented by an efficiency wage model of the labour market. The efficiency wage model is motivated by fair wage considerations, which add a real rigidity to the model that complements nominal price rigidities common to both models. The two models are then extended to capture a series of backward looking behaviours typically used to generate inflation persistence. The key contribution of this paper is that the proposed models are estimated using Bayesian maximum likelihood techniques and Australian data. The results presented show that by adding real wage rigidity, the models' internal propogation and labour market dynamics are significantly improved. The results also demonstrate that the conclusions made elsewhere in the literature using simulated models can be extended to models estimated using Bayesian methods.
    Keywords: efficiency Wage, effort, inflation persistence
    JEL: E24
    Date: 2010–07
  15. By: Federico RAVENNA (IEA, HEC Montréal); Carl E. WALSH
    Abstract: We explore the distortions in business cycle models arising from inefficiencies in price setting and in the search process matching firms to unemployed workers, and the implications of these distortions for monetary policy. To this end, we characterize the tax instruments that would implement the first best equilibrium allocations and then examine the trade-offs faced by monetary policy when these tax instruments are unavailable. Our findings are that the welfare cost of search inefficiency can be large, but the incentive for policy to deviate from the inefficient flexible-price allocation is in general small. Sizable welfare gains are available if the steady state of the economy is inefficient, and these gains do not depend on the existence of an inefficient dispersion of wages. Finally, the gains from deviating from price stability are larger in economies with more volatile labor flows, as in the U.S.
    JEL: E52 E58 J64
    Date: 2010–07
  16. By: Angelo Melino (University of Toronto); Michael Parkin (University of Western Ontario)
    Abstract: Financial market participants would benefit from a better understanding of how the Bank of Canada sets the overnight interest rate in response to economic developments. More accurate forecasts of the Bank’s future policy choices would lead to better financial decisions and better price and wage-setting decisions, making it easier for the Bank to hit its 2 percent inflation target. Currently, the Bank’s internal model predicts a path for the overnight rate that is inconsistent with the expectations of the Bank’s Governing Council. The Bank could achieve greater transparency by publishing its own conditional forecasts of the future path of the overnight rate or, failing that, by publishing such forecasts with a six-month lag. This would enable market participants to better understand what these forecasts mean and how to use them in economic decision-making.
    Keywords: Monetary Policy, Bank of Canada, overnight interest rate, inflation target
    JEL: E52 E58
    Date: 2010–07
  17. By: Liu, Philip (International Monetary Fund); Mumtaz, Haroon (Bank of England)
    Abstract: This paper carries out a systematic investigation into the possibility of structural shifts in the UK economy using a Markov-switching dynamic stochastic general equilibrium (DSGE) model. We find strong evidence for shifts in the structural parameters of several equations of the DSGE model. In addition, our results indicate that the volatility of structural shocks has also changed over time. However, a version of the model that allows for a change in the coefficients of the Taylor rule and shock volatilities provides the best model fit. Estimates from the selected DSGE model suggest that the mid-1970s were associated with a regime characterised by a smaller reaction by the monetary authorities to inflation developments.
    Keywords: Markov switching; DSGE; Bayesian estimation
    JEL: E23 E32
    Date: 2010–07–27
  18. By: Charlotte Moeser
    Abstract: Israel’s monetary policy framework is broadly sound. Inflation targeting was introduced in the early 1990s, and low single-digit inflation was established by the end of the decade. However, fast transmission from the exchange rate to inflation means the operational challenges differ somewhat from those in many OECD countries. Also, the Bank of Israel has been intervening heavily in the foreign-exchange market, marking a departure from standard practice in inflation targeting. Past progress in fiscal consolidation has been affected by several economic shocks, including the recent downturn. The government’s strategy of lowering tax rates on corporate profits and on personal income is assessed. Also, various avenues for raising revenues on other fronts are suggested. Primary civilian spending is now relatively low in international comparison, the room for savings has narrowed, and many of the necessary future structural reforms probably require initial fiscal outlays. In budgeting, which is strongly controlled by the Ministry of Finance, there is room for various process improvements. This Working Paper relates to the 2009 OECD Economic Survey of Israel (<P>Les politiques monétaire et budgétaire en Israël<BR>Le cadre de la politique monétaire d’Israël est globalement solide. Le ciblage de l’inflation a été introduit au début des années 1990 et l’inflation s’est maintenue à un niveau nettement inférieur à 10 % dès la fin de cette même décennie. Une transmission rapide du taux de change à l’inflation signifie cependant que les problèmes opérationnels sont assez différents de ceux de la plupart des pays de l’OCDE. Par ailleurs, la Banque d’Israël intervient sur le marché des changes, rompant ainsi avec la pratique habituellement suivie pour cibler l’inflation. Les progrès réalisés dans l’assainissement des finances publiques ont été compromis par plusieurs chocs économiques, et notamment la dernière récession. Nous dressons le bilan de la stratégie du gouvernement de réduire l’impôt sur les sociétés et les tranches supérieures de l’impôt sur le revenu des personnes physiques et proposons plusieurs moyens d’augmenter les recettes sur d’autres fronts. Les dépenses civiles primaires sont désormais relativement faibles par rapport aux autres pays, les possibilités de réaliser des économies se sont réduites et beaucoup de réformes structurelles nécessaires obligeront à faire des dépenses budgétaires initiales. Enfin il y a des améliorations à apporter au processus d’élaboration du budget, qui est étroitement contrôlé par le ministère des Finances. Ce document de travail se rapporte à l’étude économique d’Israël publié par l'OCDE en 2010 (
    Keywords: taxation, public debt, OECD, fiscal policy, monetary policy, public spending, macroeconomic policies, inflation targeting, Israel, government deficit, budget rules, fiscalité, dette publique, OCDE, politique budgétaire, dépenses publiques, politique monétaire, règles budgétaires, politique macro-économique, ciblage de l’inflation, Israël, déficit des administrations publiques
    JEL: E E52 E58 H20 H50 H62 H63
    Date: 2010–06–04
  19. By: Sami Alpanda (Amherst College); Uluc Aysun (University of Connecticut)
    Abstract: The literature typically finds that the development of financial markets has decreased the ability of central banks to affect the real economy. This paper shows that this negative relationship does not hold for the balance sheet channel of monetary transmission and bank globalization -- one aspect of financial development. The reason is that global banks are more sensitive to borrowers' leverage. By affecting this leverage, monetary policy has a larger impact on global banks' lending and aggregate economic activity. We use bank-level, Call Report data to obtain this disparity between more and less global banks. We then use this data in the estimation of a general equilibrium model and find that the balance sheet channel of monetary policy operates mainly through more global banks.
    Keywords: balance sheet channel, bank globalization, financial accelerator
    JEL: E44 F31 F41 O16
    Date: 2010–07
  20. By: Galí, Jordi (CREI and Universitat Pompeu Fabra); van Rens, Thijs (CREI and Universitat Pompeu Fabra)
    Abstract: We document three changes in postwar US macroeconomic dynamics: (i) the procyclicality of labor productivity has vanished, (ii) the relative volatility of employment has risen, and (iii) the relative (and absolute) volatility of the real wage has risen. We propose an explanation for all three changes that is based on a common source: a decline in labor market frictions. We develop a simple model with labor market frictions, variable effort, and endogenous wage rigidities to illustrate the mechanisms underlying our explanation. We show that the reduction in frictions may also have contributed to the observed decline in output volatility.
    Keywords: wage rigidities, labor market frictions, labor hoarding, effort choice
    JEL: E24 E32
    Date: 2010–07
  21. By: Makoto Minegishi; Boris Cournède
    Abstract: Central banks have responded with exceptional vigour to the crisis by using their traditional interest-rate tools to their limits and deploying a wide range of unconventional measures. This paper documents these responses in a systematic way, reviews the evidence about their impact, and discusses the need to exit from these measures. Unconventional monetary policy measures appear to have been broadly successful in terms of improving conditions in financial markets and stabilising the real economy. In line with the improvement in functioning of financial markets, however, these unconventional measures should be gradually removed. Given the considerable changes in the size and composition of central banks' balance sheets, the exit will likely involve the combination of various tools. More challenging questions surround the decisions of when and how fast the current exceptional amount of stimulus should be reduced and then eliminated. A particularly important goal will be to preserve the hard-won anchoring of inflation expectations and dissipate any hypothetical fears that central banks? greater risk exposure and purchases of bonds issued or backed by governments might have reduced their independence regarding monetary policy decisions.<P>Réponses de la politique monétaire à la crise et stratégies de sortie<BR>Les banques centrales ont répondu avec une vigueur exceptionnelle à la crise en poussant leurs instruments traditionnels de taux d'intérêt jusqu'à leurs limites et en déployant une vaste gamme de mesures non conventionnelles. La présente étude fournit une description systématique de ces mesures, fait le bilan des éléments disponibles permettant d'apprécier leur efficacité et examine le besoin de mettre progressivement fin à ces dispositifs. Dans l'ensemble, les mesures de politique monétaire non conventionnelle semblent avoir été couronnées de succès en contribuant à l'amélioration des conditions financières et à la stabilisation de l'économie réelle. Toutefois, au fur et à mesure que les marchés financiers retrouvent un fonctionnement plus normal, ces mesures non conventionnelles devront être retirées. Étant donné l'ampleur des changements qui ont affecté la taille et la composition du bilan des banques centrales, les stratégies de sortie devront nécessairement s'appuyer sur un large éventail d'instruments. Des questions plus délicates encore se poseront lorsqu'il s'agira de décider du calendrier et du rythme selon lesquels l'exceptionnel stimulus monétaire actuel devra être réduit puis éliminé. À cet égard, il sera crucial de préserver l'ancrage, durement acquis, des anticipations d'inflation et d'éviter une situation hypothétique dans laquelle le public craindrait que la plus grande exposition au risque des banques centrales tout comme leurs acquisitions de titres de dette publique ou quasi-publique puissent avoir réduit leur indépendance dans la conduite de la politique monétaire.
    Keywords: monetary policy, financial crisis, exit strategies, unconventional policy, politique monétaire, crise financière, stratégies de sortie, mesures non conventionnelles
    JEL: E31 E42 E44 E50 E51 E52 E58
    Date: 2010–02–18
  22. By: Douglas Sutherland; Peter Hoeller; Balázs Égert; Oliver Röhn
    Abstract: What changes are needed to make counter-cyclical economic policy more effective in the aftermath of the recent crisis? An important lesson from the severity of the recent recession is that policy in various areas will have to be more prudent during upswings and to build in greater safety margins to be able to react to large adverse shocks. In the period leading up to the crisis, cycles became more synchronised, while asset prices became more volatile. Recent events also underline the difficulties encountered in detecting and reacting to asset price misalignments. The confluence of the turn in asset prices, financial market crisis and slump in trade challenged the ability of counter-cyclical policies to cope with the severe downturn, although experience reveals that countries where the fiscal position was sound and inflation under control were better able to cushion the shocks. Furthermore, robust micro-prudential regulation can help the financial sector withstand shocks. In this light, existing policies should be strengthened to ensure that there is room for manoeuvre going into a downturn. In order to deal with similar shocks in the future, macroeconomic and financial sector policies should consider precautionary policy settings and macro-prudential regulation to address systemic threats to stability.<P>Politique économique contracyclique<BR>Quels changements sont necessaires pour que la politique economique contracyclique soit plus efficace a l.issue de la crise ? On peut tirer une lecon essentielle de la recession recente : il faudra que, dans plusieurs domaines, la politique economique soit plus prudente en periode d.expansion et comporte plus de marges de securite pour pouvoir reagir a un choc de grande ampleur. Avant la crise, on a pu observer une plus grande synchronisation des cycles et une plus forte volatilite des prix des actifs. Les evenements recents mettent egalement en lumiere les difficultes rencontrees pour detecter les dephasages des prix des actifs et pour y reagir. La conjonction d.un retournement des prix des actifs, d.une crise financiere et d.un effondrement des echanges fait que les mesures contracycliques n.ont plus ete a meme de contrecarrer une profonde recession. Cela etant, l.experience montre que les pays dont les finances publiques etaient saines et l.inflation maitrisee ont pu mieux amortir les chocs. De plus, une solide reglementation microprudentielle peut aider le secteur financier a resister en cas de choc. C.est pourquoi il faudrait renforcer les politiques actuelles pour conserver une marge de manoeuvre face a une recession. Pour parer a des chocs similaires a l.avenir, les mesures macroeconomiques et celles applicables au secteur financier devraient s.appuyer sur un cadre d.action guide par la precaution et sur une reglementation macroprudentielle afin d.ecarter les menaces pour la stabilite qui ont un caractere systemique.
    Keywords: macroeconomic policies, financial sector regulation, politique macro-économique, réglementation du secteur financier
    JEL: E61 G28
    Date: 2010–05–05
  23. By: Pastore, Francesco (University of Naples II)
    Abstract: The Saint Valentine's decree (1984) and the ensuing hard fought referendum (1985), which reduced the automatisms of scala mobile, started a process of redefinition of wage fixing in Italy, which culminated with the final abolition of scala mobile (1992) and the approval of Protocollo d'intesa (1993). Since then, following New Corporatist principles, a national system of centralised wage bargaining (concertazione) and the so-called "institutional indexation" have governed the determination of wages. This paper aims to assess the impact of such incomes policy agreements on the long and short run equilibrium relationship between real wages, labour productivity and unemployment. Different time series econometric tools confirm that incomes policy has altered the relationship between real wages and productivity, generating not only a permanent downward impact on prices, but also on real wages. In a sense, incomes policy has caused a new form of (upward) wage rigidity. Interestingly, no impact of incomes policy on the weak relationship between real wages and unemployment is detected. The analysis calls for a careful revision of the 1993 Protocol aimed at: a) better protecting the purchasing power of real wages without losing control on inflation; b) introducing growth generating mechanisms.
    Keywords: New Keynesian macroeconomic theory, neo-corporatism, models of industrial relations, Phillips Curve, incomes policy, centralised wage bargaining, macroeconomic policy evaluation, income distribution, cointegration analysis, structural break testing, scala mobile, Protocollo d'intesa, Italy
    JEL: C22 E12 E25 E64 E65
    Date: 2010–07
  24. By: Gabriel Porcile (Department of Economics, Universidade Federal do Paraná); Alexandre C. Gomes de Souza (Department of Economics, Brazilian Central Bank); Ricardo Viana (Department of Physics, Universidade Federal do Paraná)
    Abstract: The paper develops a Kaleckian macroeconomic model which discusses the conditions that may lead to an external debt crisis in a small developing economy fully integrated to global goods and financial markets. The focus is on how policy rules affect the stability of the economy. Two kinds of policy rules are discussed, namely an inflation rate target and a real exchange rate target, implemented through an interest rate operation procedure (IROP). It is argued that in both cases the evolution of the real exchange rate should be closely monitored to avoid external instability.
    Keywords: central banks, open economy, external crisis
    JEL: E12 E58 F43
    Date: 2010
  25. By: Klaus Adam
    Abstract: This paper studies optimal stabilisation policies under commitment when monetary policy sets nominal interest rates and fiscal policy decides on public expenditure, income tax rates, and issuance of nominal non-contingent debt. High levels of government debt adversely affect the steady state of the economy and increase aggregate volatility. The latter emerges because debt exposes the government budget to real interest rate risk and thereby induces stronger volatility of taxes and public spending. The optimal variability of fiscal deficits is found to increase with the level of government debt, while the optimal variability of nominal interest rates decreases. Overall, optimal stabilisation policy does not require annual fiscal deficits to deviate by more than 3 percentage points of GDP from their steady state value or nominal interest rates to fall all the way to zero. Only if the standard deviation of economic disturbances is two to three times larger than suggested by post-war evidence do such events occur with non-negligible probability.<P>Politique optimale de stabilisation monétaire et budgétaire<BR>Cet article étudie la politique optimale de stabilisation dans des conditions telles que la politique monétaire fixe les taux d’intérêt nominaux et la politique budgétaire détermine les dépenses publiques, les taux de l’impôt sur les revenus et l’émission de la dette nominale non contingente. Un niveau élevé d’endettement public a des effets négatifs sur l’état stationnaire de l’économie et accroît la volatilité globale. Cette volatilité tient à ce que la dette expose le budget de l’État à un risque de taux d’intérêt réel et provoque donc une plus grande instabilité de l’impôt et des dépenses publiques. On constate que la variabilité optimale des déficits budgétaires s’accroît en fonction du niveau de la dette publique, contrairement à la variabilité des taux d’intérêt nominaux, qui diminue. Au total, une politique optimale de stabilisation n’exige pas que le déficit budgétaire annuel s’écarte de plus de 3 points de PIB de sa valeur à l’état stationnaire, ni que les taux d’intérêt nominaux tombent totalement à zéro. C’est seulement si l’écart type des perturbations économiques est deux à trois fois supérieur aux résultats observés depuis la fin de la guerre que de tels événements se produisent, avec une probabilité non négligeable.
    Keywords: government spending, Ramsey optimal policy, non-contingent government debt, distortionary taxes, interest rate policy, dépenses publiques, Politique optimale de Ramsey, dette publique non contingente, distorsions fiscales, politique de taux d’intérêt
    JEL: E32 E63
    Date: 2010–05–04
  26. By: Balázs Égert
    Abstract: This study analyses the impact of economic catching-up on annual inflation rates in the European Union with a special focus on the new member countries of Central and Eastern Europe. Using an array of estimation methods, we show that the Balassa-Samuelson effect is not an important driver of inflation rates. By contrast, we find that the initial price level and regulated prices strongly affect inflation outcomes in a nonlinear manner and that the extension of Engel’s Law may hold during periods of very fast growth. We interpret these results as a sign that price level convergence comes from goods, market and non-market service prices. Furthermore, we find that the Phillips curve flattens with a decline in the inflation rate, that inflation persistence increases and that commodity prices have a stronger effect on inflation in a higher inflation environment.<P>Rattrapage économique et inflation en Europe : Balassa-Samuelson, la loi d’Engel et d’autres explications<BR>Ce papier étudie l’influence du rattrapage économique sur l’inflation annuelle dans l’Union européenne avec un accent particulier sur les nouveaux pays membres de l’Europe central et orientale. Les résultats indiquent que l’effet Balassa-Samuelson n’est pas à même d’expliquer les taux d’inflation différents observés dans les pays étudiés. Par contre, le niveau général des prix et les prix règlementés ont un impact significatif et non-linéaire sur l’inflation et la loi d’Engel peut être vérifiée durant des périodes de forte croissance économique. Ces résultats suggèrent que la convergence des niveaux de prix provient de la convergence des niveaux de prix des biens échangeables, des biens non-échangeables marchands et non-marchands. Nos résultats montrent aussi que la courbe de Phillips devient plate avec des taux d’inflation plus faible et que la persistance de l’inflation augmente et les prix des matières premières ont une influence plus forte sur l’inflation lorsque l’inflation est plus élevée.
    Keywords: European Union, catching-up, inflation, Balassa-Samuelson effect, Bayesian model averaging, nonlinearity, Engel’s law, real convergence, politique budgétaire, pays membre de l'OCDE, procyclique, contracyclique
    JEL: C22 C33 E21 E32 E43 E50 E52 E62 G21 H30 H60 O52
    Date: 2010–07–16
  27. By: John B. Taylor
    Abstract: This paper shows that the monetary policy paradigm that was in place before the financial crisis worked very well and that the crisis occurred only after policy makers deviated from that paradigm. The paper also evaluates monetary policy during the financial crisis by dividing the crisis into three periods: pre-panic, panic and post-panic. It shows that the extraordinary measures did not work well in the pre-panic or the post-panic periods; instead they helped bring on the panic, even though they may have some positive impact during the panic. The implication of the paper is that the crisis does not call for a new paradigm for monetary policy.
    Keywords: financial crisis, monetary policy rule, Taylor rule, quantitative easing
    JEL: E43 E52 E58
    Date: 2010
  28. By: Balázs Égert
    Abstract: This paper analyses the reaction of fiscal policy to the cycle in OECD countries. The results suggest that while overall government balances were counter-cyclical in the past and more so in economic downturns than in upswings, discretionary fiscal policy was neutral on average. However, discretionary fiscal policy appears to react to the cycle in a non-linear fashion: fiscal policy in countries with high public debt and high government deficits tends to be pro-cyclical, while countries that have low public debt and that have surpluses are more likely to conduct a counter-cyclical fiscal policy. The paper also finds that asset prices have a significant impact on government balances.<P>La réaction de la politique budgétaire au cycle dans les pays de l’OCDE : A-t-elle été procyclique ou contracyclique ?<BR>Ce document analyse la réaction de la politique budgétaire au cycle dans les pays de l’OCDE. Les résultats montrent que le solde budgétaire global a été contracyclique dans le passé et encore plus en période de ralentissement économique qu’en période d’expansion, mais que les mesures budgétaires discrétionnaires ont eu en moyenne un caractère acyclique. Ce constat s’explique par les réactions non linéaires au cycle : dans les pays où la dette publique et le déficit budgétaire sont élevés, la politique budgétaire à tendance à réagir de façon procyclique au cycle, alors que dans les pays à faible dette publique et à excédent budgétaire, la politique budgétaire sera plus probablement contracyclique. Comme le montre également ce document, les plans budgétaires ne sont pas extrêmement différents des résultats budgétaires, et les prix des actifs n’ont pas un impact sensible sur le solde budgétaire.
    Keywords: fiscal policy, OECD countries, pro-cyclicality, counter-cyclicality, politique budgétaire, pays membres de l'OCDE, procyclique, contracyclique
    JEL: C33 E32 E62 H30 H60
    Date: 2010–05–06
  29. By: Ignazio Angeloni
    Abstract: In a paper co-written with Ester Faia of Geothe University Frankfurt, Visiting Fellow Ignazio Angeloni introduces banks into a standard DSGE model and uses this framework to study the role of banks in the transmission of shocks, the effects of monetary policy when banks are exposed to runs, and the interplay between monetary policy and Basel-like capital ratios. 
    Date: 2009–10
  30. By: Uluc Aysun (University of Connecticut); Melanie Guldi (Mount Holyoke College); Ralf Hepp (Fordham University)
    Abstract: This paper shows that the balance sheet channel of monetary transmission works mainly through U.S. bank holding companies that securitize their assets. This finding is different, in spirit, from the widely-found negative relationship between financial development and the strength of the lending channel of monetary transmission. Focusing on the balance sheet channel, and using bank-level observations, we find that securitized banks are more sensitive to borrowers' balance sheets and that monetary policy has a greater impact on this sensitivity for securitizing bank holding companies. The optimality conditions from a simple partial equilibrium framework suggest that the positive effects of securitization on policy effectiveness could be due to the high sensitivity of security prices to policy rates.
    Keywords: balance sheet channel, banks, bank holding companies, securitization.
    JEL: E44 F31 F41 O16
    Date: 2010–07
  31. By: Philippe Bergevin (C.D. Howe Institute); Colin Busby (C.D. Howe Institute)
    Abstract: With the Canadian dollar near parity with its US counterpart, monetary policymakers may come under pressure to curb future interest rate increases to limit the loonie’s appreciation. When the value of the loonie is in line with economic fundamentals, such actions would necessarily compromise the domestic inflation target. By examining the factors underpinning the Canada/US exchange rate, we conclude that the present trading range for the loonie is supported by fundamentals. The Bank of Canada should therefore continue its policy of benign neglect with regard to the exchange rate.
    Keywords: Monitary Policy, Bank of Canada, exchange rate
    JEL: E58 E52 F31
    Date: 2010–06
  32. By: Mark Weder
    Abstract: Two dynamic general equilibrium economies compete in explain?ing the United States'interwar business cycles. Despite the demand driven contender's slight advantages, the results remain too close to call a clear winner.
    Keywords: Great Depression, Dynamic General Equilibrium.
    JEL: E32 N12
    Date: 2010–07–30
  33. By: Rafal Kierzenkowski
    Abstract: The objective of joining the euro area has become an important priority in the policy agenda of the current government. The paper focuses on the major structural reforms necessary to prepare for euro adoption that should allow a sustainable fulfilment of the Maastricht criteria and maximisation of the ensuing various benefits. These reforms are desirable independent of the effective date of adoption, given the necessity to restore fiscal discipline, maintain price stability and ensure a balanced growth going forward. However, they are even more essential in the run up to euro adoption as the process of real and nominal convergence remains largely incomplete, which requires a substantial strengthening of alternative adjustment mechanisms to domestic interest- and exchange-rate changes. The reforms should aim to create strong institutions to ensure fiscal sustainability and an efficient counter-cyclical rules-based fiscal policy supported by an independent fiscal council; promote flexibility in labour and product markets; and head off the risk of a boom-bust cycle triggered by much lower real interest rates, too rapid credit expansion and overblown perceived permanent income gains. The timing of euro adoption should therefore be determined by the speed of the implementation of reforms; otherwise the outcome of early membership without appropriate preparation may turn out to be difficult and risky. Yet, provided that adequate reforms are implemented, euro adoption should speed up the convergence process. This Working Paper relates to the 2010 OECD Economic Survey of Poland (<P>Préparer l’adoption de l’euro en Pologne<BR>L'objectif que constitue l'entrée dans la zone euro est devenu un objectif important du gouvernement actuel. Cet article est consacré aux principales réformes structurelles nécessaires à la préparation de l'adoption de la monnaie unique, qui devraient permettre à la Pologne de satisfaire durablement aux critères de Maastricht et de maximiser les différents avantages qu'elle en retirera. Ces réformes sont souhaitables indépendamment de la date effective d'entrée dans la zone euro, compte tenu de la nécessité de restaurer la discipline budgétaire, de maintenir la stabilité des prix et de garantir une croissance équilibrée dans l'avenir. Néanmoins, elles sont d'autant plus cruciales à l'approche de l'adoption de la monnaie unique que le processus de convergence réelle et nominale reste dans une large mesure inachevé, ce qui exige un renforcement sensible d'autres mécanismes d'ajustement que les taux d'intérêt et le taux de change domestiques. Ces réformes devraient viser à : mettre en place des institutions fortes garantissant la soutenabilité des finances publiques, ainsi qu'une politique budgétaire anticyclique efficace fondée sur des règles et étayée par un conseil indépendant de politique budgétaire ; à promouvoir la flexibilité du marché du travail et des marchés de produits ; et à neutraliser le risque d'un cycle de forte expansion et de récession déclenchée par des taux d'intérêt réels nettement plus bas, une croissance trop rapide du crédit, et l'impression injustifiée de gains de revenu durables. Le moment d'adoption de l'euro devrait donc être déterminé par le rythme de mise en oeuvre des réformes. Faute de quoi, une entrée prématurée dans la zone euro sans préparation adéquate pourrait se révéler difficile et risquée. Néanmoins, si des réformes adaptées sont instituées, l'adoption de la monnaie unique devrait accélérer le processus de convergence. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de la Pologne 2010 (
    Keywords: OECD, Poland, fiscal rules, convergence, euro area, Maastricht criteria, labour market flexibility, boom-bust cycle, OCDE, Pologne, règles budgétaires, convergence, zone Euro, critère de Maastricht, flexibilité du marché du travail, cycle d’expansion et de récession
    JEL: E42 E58 E61 E62 P20
    Date: 2010–07–15
  34. By: Rodousakis, Nikolaos
    Abstract: This paper tests empirically the well-known Goodwin’s ‘growth cycle’ disaggregated models, using data from the symmetric input-output table of the Greek economy for the year 1988. It is found that from qualitative as well as quantitative point of view, both models are not adequate to describe the long-run workers’ share-employment rate trajectories of the Greek economy. However, in the medium-run analysis the evidence presented here are more encouraging: at qualitative level, one of the two Goodwin’s models is found to be adequate to describe the dynamic behavior of the workers’ share and employment rate.
    Keywords: Business cycles; Disaggregated models; Input-output tables; Principal coordinates
    JEL: E32 D57 E24 C67
    Date: 2010–07–31
  35. By: Guido Ascari (Università di Pavia); Andrea Vaona (Department of Economics (University of Verona))
    Abstract: Regional patterns of inflation persistence have received attention only at a very coarse level of territorial disaggregation, that of EMU member states. However economic disparities within EMU member states are an equally important policy issue. This paper considers a country with a large regional divide, i.e., Italy, at a fine level of territorial disaggregation (NUTS3). Our results show that economically backward regions display greater inflation persistence. Moreover, we show that higher persistence is linked to a lower degree of competitiveness in the retail sector. Finally, the inflation persistence at the national level does not present any geographical aggregation bias, because it equals the mean of inflation persistence of provincial data.
    Keywords: inflation persistence, retail sector, regions
    JEL: E0 E30 R0 R10
    Date: 2010–02
  36. By: F. Gerard Adams (University of Pennsylvania, Department of Economics (Emeritus)); Byron Gangnes (University of Hawaii, Department of Economics)
    Abstract: Recent dissatisfaction with the impact of expenditure stimulus on economic activity in the United States, along with the results of academic research, have once again raised questions about the effectiveness of fiscal stimulus policies and about whether stimulus to a recessionary economy should be in the form of tax cuts or expenditure increases. This paper considers alternative methods for evaluating the impacts of stimulus policy strategies. We discuss conceptual challenges involved in effectiveness measurement, and we review alternative empirical approaches applied in recent studies. We then present our own estimates of policy multipliers based on simulations of the IHS Global Insight model of the US economy. Based on this review and analysis, we address the question of why recent US stimulus programs have not been more effective.
    Keywords: United States (US) recession and recovery; fiscal and monetary policy; tax and expenditure multipliers; econometric model forecast simulation.
    JEL: E37 E62 E65
    Date: 2010–07–22
  37. By: Luís Aguiar-Conraria (NIPE, Escola de Economia e Gestão, Universidade do Minho); Manuel M. F. Martins (Cef.up, Faculdade de Economia, Universidade do Porto); Maria Joana Soares (Departmento de Matemática, Universidade do Minho)
    Abstract: This paper assesses the relation between the yield curve and the main macroeconomic variables in the U.S. between early 1960s and 2010 across time and frequencies, using wavelet analyses. The shape of the yield curve is modelled by latent factors corresponding to its level, slope and curvature, estimated by maximum likelihood with the Kalman filter. The macroeconomic variables measure economic activity, unemployment, inflation and the fed funds rate. The cross wavelet tools employed — coherency and phase difference —, the set of variables and the length of the sample, allow for a thorough appraisal of the timevariation and structural breaks in the direction, intensity, synchronization and periodicity of the relation between the yield curve and the macro-economy. Our evidence establishes a number of new stylized facts on the yield curve-macro relation; and sheds light on several results found in the literature, which could not have been achieved with analyses conducted strictly in the time-domain (as most of the literature) or purely in the frequency-domain.
    Keywords: Macro-finance; Yield curve; Kalman filter; Continuous wavelet transform; Wavelet coherency; Phase-difference.
    JEL: C32 C49 E43 E44
    Date: 2010–07
  38. By: Luís Francisco Aguiar (Universidade do Minho - NIPE); Manuel M. F. Martins (Cef.up, Faculdade de Economia, Universidade do Porto); Maria Joana Soares (Universidade do Minho)
    Abstract: This paper assesses the relation between the yield curve and the main macroeconomic variables in the U.S. between early 1960s and 2009 across time and frequencies, using wavelet analyses. The shape of the yield curve is modelled by latent factors corresponding to its level, slope and curvature, estimated by maximum likelihood with the Kalman filter. The macroeconomic variables measure econmic activity, unemployment, inflation and the fed funds rate. The cross wavelet tools employed - coherency and phase difference - , the set of variables and the length of the sample, allow for a thorough appraisal of the time- variation and structural breaks in the direction,intensity,synchronization and periodicity of the relation between the yield curve and the macro-economy. Our evidence establishes a number of new stylized facts on the yield curve-macro relation; and sheds light on several results found in the literature, which could not have been achieved with analyses conducted strictly in the time-domain(as most of the literature)or purely in the frequency-domain.
    Keywords: Macro-finance; Yield curve; Kalman filter; Continuous wavelet transform;Wavelet coherency;Phase-difference
    JEL: C32 C49 E43 E44
    Date: 2010
  39. By: Marcin Kolasa (National Bank of Poland, Economic Institute, ul. Swietokrzyska 11/21, 00-919 Warsaw and Warsaw School of Economics, Department of Applied and Theoretical Economics, Al. Niepodleglosci 162, 02-554 Warsaw, Poland.)
    Abstract: This paper uses the EAGLE, a multi-country dynamic general equilibrium model, to illustrate dynamic adjustments in a small open economy undergoing real convergence. We consider the effects of productivity catch-up and misperceptions about future productivity developments. Our results indicate that even if real convergence takes the form of a gradual process, the dynamic responses of key macrovariables can be far from smooth. We also find that overly optimistic expectations about productivity shifts can generate sizable boom-bust cycles and so be relevant in accounting for cyclical deviations from a sustainable real convergence path. Our comparisons across alternative monetary regimes reveal that a flexible exchange rate helps to smooth real convergence processes and misperceptions associated with tradable sector productivity, while the opposite usually holds true for scenarios based on nontradable sector developments. JEL Classification: D58, E32, F41.
    Keywords: Real convergence, Boom-bust cycles, Dynamic general equilibrium models.
    Date: 2010–08
  40. By: Paul McCulley
    Abstract: The developed world faces a cyclical deficiency of aggregate demand, the product of a liquidity trap and the paradox of thrift, in the context of headwinds born of ongoing structural realignments. According to Paul McCulley, PIMCO, front-loaded fiscal austerity would only add to that deflationary cocktail. This is why the market vigilantes are fleeing risk assets, which depend on growth for valuation support, rather than the sovereign debt of fiat-currency countries. McCulley bases his outlook on the financial balances approach (double-entry bookkeeping) pioneered by the late Wynne Godley, who was a distinguished scholar at the Levy Institute. Godley’s analytical framework, says McCulley, should be the workhorse of discussions on global rebalancing.
    Date: 2010–07
  41. By: Karl Aiginger (WIFO)
    Abstract: This paper compares the depth and length of the recent crisis with the Great Depression in the 1930s. It claims that economic policy played a crucial role in shortening and curtailing the recent crisis. We analyse which policies were applied during the recent crisis and which measures worked. We know that policies relying on large infrastructure projects inherently involve an implementation lag. These lags have been very high in the recent crisis and some expenditure planned will maybe never be spent. We therefore suggest implementing a leakage rate for government expenditure programs which represents the part of intended public expenditures not spent in the first twelve months after the program is set into action. It might be higher than the savings rate out of a tax cut. Furthermore, exit strategies should ideally cut expenditure to the same extent as the increase in government spending during the crisis had been, so that sooner or later tax rates and debt rates may return to pre crisis levels. The core of the Keynesian policy recommendation is to raise expenditure in the crisis but to achieve a balanced budget over a full cycle. If expenditure is not cut after the crisis tax and/or debt rates will increase after each downturn and the basis for any Keynesian policy in the next crisis will be eroded. This does not preclude that it might be useful in the exit phase to change the tax structure in order to lower taxes on labour, specifically for low wages, while increasing taxes on financial transactions, carbon dioxide emissions, capital gains or property. This would lower unemployment and boost demand in economies with tendencies to underconsume.
    Keywords: financial crisis, business cycle, stabilisation policy, resilience
    Date: 2010–05–11
  42. By: Tony Cavoli; Ramkishen S. Rajan
    Abstract: The infeasibility of a monetary union for East Asia in the near future, as well as the limitations of other forms of super fixes, appears to leave a flexible regime as the only viable policy option. This paper first deliberates on the case for and against a flexible regime. To anticipate the main conclusion -- while favoring relatively more flexible regimes, emerging economies in East Asia and elsewhere have continued to heavily manage their currencies despite being officially described as “floatersâ€. The paper goes on to explore the case for and operational mechanics behind an open inflation targeting regime which has increasingly been advocated for small and open economies in East Asia and elsewhere. The importance of incorporating the exchange rate in open economy monetary policy rules is stressed.
    Keywords: infeasibility, monetary union, East Asia, flexible regime, floaters, East Asia
    Date: 2010
  43. By: Bernardino Adão; Isabel Horta Correia; Pedro Teles
    Abstract: We show that short and long nominal interest rates are independent monetary policy instruments. The pegging of both helps solving the problem of multiplicity that arises when only short rates are used as the instrument of policy. A peg of the nominal returns on assets of different maturities is equivalent to a peg of state-contingent interest rates. These are the rates that should be targeted in order to implement unique equilibria. At the zero bound, while it is still possible to target state-contingent interest rates, that is no longer equivalent to the target of the term structure.
    JEL: E3 E4 E5
    Date: 2010
  44. By: Tomohiro Hirano (Financial Research and Training Center, Financial Services Agency, The Japanese Government); Noriyuki Yanagawa (Faculty of Economics, University of Tokyo)
    Abstract: This paper analyzes the effects of bubbles in an in.nitely-lived agent model of endogenous growth with .nancial frictions and heterogeneous agents. We provide a complete characterization on the relationship between .nancial 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.
    Date: 2010–07
  45. By: Boris Cournède
    Abstract: The 2007-2009 period has been characterised by an oil shock followed by a financial crisis. Higher oil prices and the prospect of higher borrowing costs are likely to reduce the productive potential of OECD economies. The present study provides illustrative numerical estimates of the impact under different scenarios using a stylised model based on a production function. In a scenario where real borrowing costs for firms return to their 1991-2001 average as opposed to staying at the level at which the capital stock in place at the end of 2007 had been invested, the impact on equilibrium GDP could be in the order of 2%. If the real oil price stays at $80 per barrel, up from the $50 average at which the capital stock in place in 2007 had been invested, the impact on equilibrium GDP could be in the order of 1%.<P>Une évaluation de l’impact de l’augmentation des coûts du capital et du pétrole sur le potentiel de production<BR>La période 2007-2009 a été caractérisée par un choc pétrolier suivi d’une crise financière. Des prix de l’énergie plus élevés et la perspective d’un renchérissement du coût du crédit réduisent probablement le potentiel productif des pays de l’OCDE. La présente étude propose d’illustrer ces effets par des évaluations numériques s’appuyant sur un modèle stylisé construit à l’aide d’une fonction de production. Le principal résultat est que ces deux chocs peuvent avoir un impact significatif, quoique d’une taille très incertaine. Dans un scénario où le coût réel des prêts aux entreprises reviendrait à sa moyenne sur la période 1991- 2001, le PIB d’équilibre pourrait s’en trouver réduit d’environ 2%, par comparaison à une situation dans laquelle le coût réel du crédit demeurerait au niveau moyen auquel le capital en place à la fin de 2007 fut investi. Si le prix du brut restait voisin de 80 dollars par baril, et par comparaison au prix moyen de 50 dollars qui prévalait lorsque le capital en place en 2007 fut investi, l’impact sur le PIB d’équilibre pourrait être de l’ordre de 1%.
    Keywords: United States, euro area, potential growth, potential output, general equilibrium, financial crisis, interest rates, oil price, oil shock, capital costs, partial equilibrium, États-Unis, zone Euro, croissance potentielle, taux d'intérêt, équilibre général, crise financière, prix du pétrole, choc pétrolier, potentiel de production, coût du capital, équilibre partiel
    JEL: E22 E23
    Date: 2010–07–01
  46. By: Karanassou, Marika (University of London); Sala, Hector (Universitat Autònoma de Barcelona)
    Abstract: This paper challenges the prevailing view of the neutrality of the labour income share to labour demand, and investigates its impact on the evolution of employment. Whilst maintaining the assumption of a unitary long-run elasticity of wages with respect to productivity, we demonstrate that productivity growth affects the labour share in the long run due to frictional growth (that is, the interplay of wage dynamics and productivity growth). In the light of this result, we consider a stylised labour demand equation and show that the labour share is a driving force of employment. We substantiate our analytical exposition by providing empirical models of wage setting and employment equations for France, Germany, Italy, Japan, Spain, the UK, and the US over the 1960-2008 period. Our findings show that the time-varying labour share of these countries has significantly influenced their employment trajectories across decades. This indicates that the evolution of the labour income share (or, equivalently, the wage-productivity gap) deserves the attention of policy makers.
    Keywords: wages, productivity, labour income share, employment
    JEL: E24 E25 O47
    Date: 2010–07
  47. By: Hansjörg Blöchliger; Claire Charbit; José Maria Pinero Campos; Camila Vammalle
    Abstract: The world is recovering from the worst crisis since the Great Depression, leaving a strong and lasting impact on Member countries’ public finances. This paper analyses how sub-central governments (SCG) are affected and how fiscal policy has reacted in the first months after the outbreak of the crisis. In general and in line with earlier downturns, SCG’s public finance appear to be less affected than central governments. However, SCGs suffer from a scissors effect of higher spending and lower tax revenue, specially those with a volatile tax base and large social welfare responsibilities. While some SCGs were conducting their own stimulus plans, others cut expenditures and raised taxes, potentially undermining national government’s recovery programmes. Most national governments are helping SCGs to cope with the crisis, by disbursing additional grants and supporting investment programmes, by easing centrally-imposed fiscal rules, lifting borrowing constraints or by temporarily raising the sub-central tax share. The crisis also showed the need for better coordination in intergovernmental fiscal relations, both for more macroeconomic coherence and for efficiency in public service delivery. Several countries are creating or reinvigorating their institutions for managing relations across levels of government.<P>Gouvernements infra-nationaux et la crise : Effets et politiques<BR>Le monde se relève lentement de la crise la plus profonde depuis la Grande Dépression, mais les séquelles de celle-ci sur les finances publiques des pays Membres seront durables. Cet article analyse l’impact de la crise sur les collectivités territoriales (CT) et comment les politiques budgétaires ont été adaptées pour répondre à la crise pendant les tout premiers mois. En règle générale, comme dans les récessions antérieures, les finances publiques infranationales semblent moins touchées que celles des gouvernements centraux. Cependant, les CT sont confrontées à un effet « ciseaux », où leurs dépenses augmentent alors que leurs recettes fiscales diminuent. Cet effet est d’autant plus important que l’assiette fiscale des CT est volatile, et que leurs responsabilités en termes de protection sociale sont importantes. Certaines CT ont mis en oeuvre leurs propres plans de relance, alors que d’autres au contraire ont réduit leurs dépenses et augmenté les impôts, compromettant ainsi l’efficacité des plans de relance nationaux. La plupart des gouvernements nationaux ont soutenu les CT, en leur attribuant des transferts exceptionnels, en participant à leurs programmes d’investissement, en relâchant les règles budgétaires ainsi que les plafonds d’endettement fixés auparavant, ou en augmentant temporairement la part des CT dans le partage des recettes fiscales. Cette crise a révélé le besoin d’améliorer la coordination budgétaire entre niveaux de gouvernement, tant dans un souci de cohérence macroéconomique que d’efficacité dans la provision de services publics. Dans ce but, plusieurs pays ont créé ou renforcé leurs institutions chargées de gérer les relations entre niveaux de gouvernement.
    Keywords: fiscal federalism, sub-central governments, economic crisis, recession, recovery, sub-national fiscal policy, fédéralisme fiscal, collectivités territoriales, crise économique, récession, relance, politique budgétaire au niveau infranational
    JEL: E63 H50 H77
    Date: 2010–02–18
  48. By: Margit Molnar
    Abstract: The global crisis exposed weaknesses in the Hungarian financial system that pose risks to financial stability. Excessive risk-taking by banks and households had been masked by relatively stable exchange rates, the expected early adoption of the euro and unusually lax credit conditions in international markets. With credit becoming scarcer and dearer, the domestic economy was hit through multiple channels. The steep depreciation of the forint boosted households’ debt burden, while banks were hit by the drying up of liquidity, including in swap markets for Swiss francs. A major lesson learnt from the crisis is that the approach to household lending needs to change: a stronger protection for borrowers should be combined with a tighter regulation of lenders. Enhancing competition in the banking market would also impose discipline on lending behaviour. Financial supervision should be strengthened by enhancing the powers of the financial supervisor to avoid abusive practices and excessive risk taking. A better early-warning system needs to be created for the monitoring and assessment of systemic risks, in which a more formal Financial Stability Council should play a prominent role. This Working Paper relates to the 2010 OECD Economic Survey of Hungary (<P>Renforcer la stabilité financière en améliorant la réglementation en Hongrie<BR>La crise mondiale a révélé des faiblesses du système financier hongrois qui mettent en péril la stabilité financière. Les risques excessifs pris par les banques et les ménages avaient été masqués par la relative stabilité du taux de change, les anticipations d'adoption rapide de l'euro, et la détente inhabituelle des conditions de crédit sur les marchés internationaux. Quand le crédit est devenu plus rare et plus cher, l'économie hongroise a été touchée de multiples façons. La forte dépréciation du forint a beaucoup alourdi l'endettement des ménages, tandis que les banques ont souffert de l'assèchement de la liquidité, notamment sur le marché des contrats d'échange de forints contre francs suisses. Une des principales leçons de la crise est qu'il est nécessaire de modifier les modalités des prêts aux ménages : il faut conjuguer une plus grande protection des emprunteurs et l'application d'une réglementation plus rigoureuse aux prêteurs. Un renforcement de la concurrence sur le marché bancaire disciplinerait aussi le comportement des prêteurs. Il convient de renforcer la surveillance financière en donnant davantage de pouvoirs à l'autorité de régulation financière pour empêcher les pratiques abusives et la prise de risques excessifs. Il faut aussi créer un meilleur système d'alerte précoce pour le suivi et l'évaluation des risques systémiques, dans le cadre duquel un Conseil de stabilité financière ayant un caractère plus formel devrait jouer un rôle prédominant. Ce document de travail est lié à l'Étude économique de l'OCDE sur la Hongrie de 2010 (
    Keywords: Hungary, government policy and regulation, bank, financial crisis, financial markets and the macroeconomy, Hongrie, banque, crise financière, marchés de capitaux et macroéconomie, réglementation et politiques publiques
    JEL: E44 G18 G21
    Date: 2010–06–17
  49. By: Ordóñez, Javier (Universitat Jaume I de Castelló); Sala, Hector (Universitat Autònoma de Barcelona); Silva, José I. (University of Girona)
    Abstract: We examine the impact of real oil price shocks on labor market flows in the U.S. We first use smooth transition regression (STR) models to investigate to what extent oil prices can be considered as a driving force of labor market fluctuations. Then we develop and calibrate a modified version of Pissarides' (2000) model with energy costs, which we simulate in response to shocks mimicking the behavior of the actual oil price shocks. We find that (i) these shocks are an important driving force of job market flows; (ii) the job finding probability is the main transmission mechanism of such shocks; and (iii) they bring a new amplification mechanism for the volatility and should thus be seen as complementary of labor productivity shocks. Overall we conclude that shocks in oil prices cannot be neglected in explaining cyclical labor adjustments in the U.S.
    Keywords: oil prices, unemployment, vacancies, business fluctuations
    JEL: E22 E32 J63 J64
    Date: 2010–07
  50. By: Javier Ordoñez (Departament d'Economia, Universitat Jaume I de Castelló); Hector Sala Lorda (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona); Jose I. Silva (Departament d'Economia, Universitat de Girona)
    Abstract: We examine the impact of real oil price shocks on labor market flows in the U.S. We first use smooth transition regression (STR) models to investigate to what extent oil prices can be considered as a driving force of labor market fluctuations. Then we develop and calibrate a modified version of Pissarides’ (2000) model with energy costs, which we simulate in response to shocks mimicking the behavior of the actual oil price shocks. We find that (i) these shocks are an important driving force of job market flows; (ii) the job finding probability is the main transmission mechanism of such shocks; and (iii) they bring a new amplification mechanism for the volatility and should thus be seen as complementary of labor productivity shocks. Overall we conclude that shocks in oil prices cannot be neglected in explaining cyclical labor adjustments in the U.S.
    Keywords: Oil Prices, Unemployment, Vacancies, Business Fluctuations.
    JEL: E22 E32 J63 J64
    Date: 2010–07
  51. By: Antonella Stirati
    Abstract: The aim of this paper is to contribute to the interpretation of the factors that have led to the fall in the labour share in Europe from a non-orthodox perspective, drawing on Classical and Keynesian traditions. It focuses first on the Italian experience and then extends the analysis to other major countries in the Euro area: Germany, France and Spain. The paper examines the role of relative price changes between business sector services and manufacturing in affecting the labour share and real wages in the two sectors. It then proceeds to historical and statistical analysis of the set of factors that have affected real wage growth in manufacturing and finds that institutional changes, unemployment, employment growth and changes in product per worker in terms of the consumer price index, taken together, explain very well real wage trends between 1962 and 2006 in Italy, Germany and Spain.
    Keywords: Income distribution; Labour share; Real wages; Italian economy; European economies
    JEL: E25 E24 J30
    Date: 2010–07
  52. By: Robert Price
    Abstract: This paper explores the political economy of fiscal adjustment. It begins with an examination of the evidence for, and sources of, ‘deficit bias’, including political and governance factors, public attitudes, the role of financial markets and imprecision about which debt targets should be pursued. It then examines the evidence regarding the exogenous and policy-related factors which affect the success of fiscal consolidation efforts. This is followed by a discussion of the role of fiscal institutions, including fiscal rules and autonomous agencies. The final section considers how the political economy of fiscal policy has changed with the financial crisis, giving some indications as to what may be needed to re-establish a consolidation path and make it less prone to setbacks.<P>L'économie politique de l'ajustement budgétaire<BR>Ce document explore l’économie politique de l’ajustement budgétaire. Il commence par examiner l’existence et les sources d’un biais en faveur des déficits. Parmi ces sources on peut citer les facteurs de politique économique et de gouvernance, les attitudes de la population, le rôle des marchés financiers et le manque de précision concernant les cibles de dette à atteindre. Il s’intéresse ensuite aux facteurs exogènes ou liés à l’action des pouvoirs publics qui affectent le succès des efforts d’assainissement des finances publiques. Enfin le rôle des institutions budgétaires est abordé, y compris celui des règles budgétaires et des agences autonomes. La dernière section s’interroge sur la façon dont la crise financière a modifié l’économie politique de la politique budgétaire en donnant quelques pistes sur ce qui pourrait s’avérer nécessaire pour rétablir une trajectoire de consolidation et la rendre moins vulnérable aux rechutes.
    Keywords: taxation, budgets, institutions, fiscal policy, public expenditure, fiscal consolidation, fiscal sustainability, political economy, deficit, debt, institutions, politique budgétaire, finances publiques, imposition, dépenses publiques, économie politique, soutenabilité des finances publiques, consolidation budgétaire, déficit, dette
    JEL: E62 E65 H30 H60 H61 H62 H63
    Date: 2010–05–31
  53. By: Stolz, Stéphanie Marie; Wedow, Michael
    Abstract: The extensive public support measures for the financial sector have been key for the management of the current financial crisis. This paper gives a detailed description of the measures taken by central banks and governments and attempts a preliminary assessment of the effectiveness of such measures. The geographical focus of the paper is on the European Union (EU) and the United States. The crisis response in both regions has been largely similar in terms of both tools and scope, and monetary policy actions and bank rescue measures have become increasingly intertwined. However, there are important differences, not only between the EU and the United States (e.g. with regard to the involvement of the central bank), but also within the EU (e.g. asset relief schemes). --
    Keywords: Bank rescue measures,public crisis management
    JEL: E58 E61 G21 G38
    Date: 2010
  54. By: E. Philip Davis
    Abstract: A survey of the literature on asset price impacts on the real economy shows a much wider range of work on consumption and related wealth effects than on investment. The existence of wealth effects on consumption is little contested, but there remains an issue of whether different effects should hold between countries and across assets. There is less empirical work available on investment, partly reflecting poor results for Tobin?s Q, the user cost of capital and the financial accelerator. Panel investment functions for up to 23 OECD countries are estimated. Significant asset price effects from the financial accelerator and Tobin?s Q are found especially for the G7 countries as well as uncertainty effects as proxied by asset price volatility, but they only matter for the smaller OECD countries.<P>Les prix des actifs et l’économie réelle<BR>Un examen des etudes consacrees a l.impact des prix des actifs sur l.economie reelle montre que beaucoup plus de travaux portent sur la consommation et les effets connexes de patrimoine que sur l.investissement. L.existence d.effets de patrimoine sur la consommation n.est guere contestee, mais il reste a savoir si les differents effets sont valables d.un pays et d.un actif a l.autre. Les travaux empiriques sur l.investissement sont moins nombreux, en partie parce que les resultats sont mediocres pour le Q de Tobin, le cout d.usage du capital et l.accelerateur financier. On a estime des fonctions d.investissement sur donnees de panel pouvant couvrir jusqu'a 23 pays de l'OCDE. On constate des effets sensibles de prix des actifs dus a l.accelerateur financier et au Q de Tobin en particulier pour les pays du G7, et egalement des effets d.incertitude etablis a travers la volatilite des prix des actifs, mais ces derniers effets ne sont importants que pour les petits pays de la zone de l'OCDE.
    Keywords: uncertainty, asset prices, credit channel, wealth effect on consumption, aggregate fixed investment, Tobin's Q, financial accelerator, incertitude, prix des actifs, canal du crédit, effet de patrimoine sur la consommation, investissement fixe total, Q de Tobin, accélérateur financier
    JEL: E22 E44 F31 G31
    Date: 2010–05–04
  55. By: Nikolov, Pavel
    Abstract: This paper examines the relationship between adverse shocks to the banking system and their effect on the general economy in Europe. This topic was brought to the spotlight during the 2007-2009 financial and economic crisis, when the relatively healthy, at that time, European economy was severely hit by the spread of the US sub-prime mortgage problems. This interbanking contagion may have been one of the main, if not the primary, reasons why the region entered into a recession during the period. If significant evidence can be found to support this theory, it will make the need for more regulations on the financial system and stricter capital requirements even more apparent. The research includes comprehensive literature survey on past and recent financial crises, procyclical banking practices and their impact on the economy. Then it goes on to developing a theoretical model of the transmission of negative economic shocks from the financial system to the rest of the economy. The theoretical model is empirically tested on a range of banking specific and macroeconomic variables. The results show that a loss of confidence in the financial system and banking losses are followed by a significant decrease in the new loans to non-financial companies and subsequent economic contraction. Moreover, countries with better capitalized banks experienced smaller declines during the crisis and in general Tier 1 capital is correlated positively with economic growth.
    Keywords: economic shocks, financial crisis, banking system stability, procyclical effects
    JEL: E0 E32 E5
    Date: 2010–06–11
  56. By: Karine Hervé; Nigel Pain; Pete Richardson; Franck Sédillot; Pierre-Olivier Beffy
    Abstract: This paper provides a summary of the OECD’s new global macroeconometric model, including an overview of model structure and a selection of simulations illustrating its main properties. Compared with its predecessors, the new model is more compact and regionally aggregated, but gives more weight to the focus of policy interests in global trade and financial linkages. The country model structures typically combine short-term Keynesian-type dynamics with a consistent long-run neo-classical supply-side. While retaining a conventional treatment of international trade and payments linkages, the model has a greater degree of stock-flow consistency, with explicit modelling of domestic and international assets, liabilities and associated income streams. Account is also taken of the influence of financial and housing market developments on asset valuation and domestic expenditures via house and equity prices, interest rates and exchange rates. As a result, the model gives more prominence to wealth and wealth effects in determining longer-term outcomes and the role of asset prices in the transmission of international shocks both to goods and financial markets.<P>Le nouveau modèle global de l’OCDE<BR>Ce document de travail présente un résumé du nouveau modèle macro-économétrique de l’OCDE, incluant une vue d’ensemble de la structure du modèle et une sélection de simulations qui illustrent ses principales propriétés. Comparé aux modèles antérieurs, le nouveau modèle est plus compact et agrégé par région, mais donne plus de poids aux politiques économiques portant sur les interactions entre le commerce mondial et les marchés financiers. Les structures du modèle par pays combinent des dynamiques de court terme de type Keynésien avec un côté de l’offre à long terme néo-classique consistant. Alors qu’il conserve un traitement conventionnel des interactions enter le commerce international et les secteurs financiers, le modèle a un meilleur degré de consistance des stocks et des flux, avec une modélisation explicite des actifs domestiques et internationaux et des flux des actions et des revenus qui en découlent. On tient compte aussi de l’influence du développement des marchés financier et immobilier sur les valorisations d’actifs et les dépenses domestiques à travers les prix des maisons et des titres, des taux d’intérêt et des taux de change. En conséquence, le modèle donne plus d’importance à la richesse et aux effets de richesse dans les résultats à long terme des simulations, ainsi qu’au rôle du prix des actifs dans la transmission des chocs internationaux entre les biens et les marchés financiers.
    Keywords: simulation, macroeconomic, Global, econometric modelling, simulation, macroéconomique, global, modèle économétrique
    JEL: E17 F01 F47
    Date: 2010–05–05
  57. By: OECD
    Abstract: The deep recession has led to a marked deterioration in labour market conditions in the OECD area. This paper, which draws heavily on other ongoing analytical work at the OECD, takes stock of recent labour market developments, highlights some of the key uncertainties in the early stages of the upturn, and discusses the policy options available to damp any further, structural deterioration in labour markets and facilitate an eventual, sustained, job-rich recovery.<P>Les marchés du travail et la crise<BR>La profonde récession qui a frappé l’économie de la zone OCDE a entraîné une dégradation marquée de la situation des marchés du travail. Ce document examine l’évolution récente du marché du travail, quelquesunes des principales incertitudes pendant les phases initiales de la reprise et examine les options de politiques économiques disponibles pour amortir une nouvelle dégradation structurelle durable de leurs marchés du travail et faciliter à terme une reprise pérenne riche en emplois.
    Keywords: unemployment, employment, Policy, crisis, recovery, chômage, emploi, Politique, crise, reprise
    JEL: E24 J08 J20
    Date: 2010–04–16
  58. By: Emanuella Enenajor; Alex Sebastian; Jonathan Witmer
    Abstract: This paper empirically assesses the effectiveness of the Bank of Canada's term Purchase and Resale Agreement (PRA) facility in reducing short-term bank funding pressures, as measured by the CDOR-OIS spread. It examines the behaviour of this spread around both term PRA announcement dates and term PRA operation dates, using an event-study methodology to control for developments in other money markets (i.e., using the U.S. LIBOR-OIS spread) as well as proxies for Canadian banking sector credit risk. Overall, there is robust evidence that the term PRA announcements reduced bank funding costs at both 1-month and 3-month terms, whereas we find no evidence of an impact from term PRA operations. However, given the small number of term PRA announcements in our sample, caution should be taken in attributing the reduction in the CDOR-OIS spread solely to the term PRA announcements, since other concurrent events (including other announcements by the Bank of Canada) may have also contributed to a compression in the CDOR-OIS spread.
    Keywords: Financial markets; Financial stability
    JEL: E58 G12 G18
    Date: 2010
  59. By: Timo Henckel (Australian National University); Gordon Menzies (University of Technology, Sydney); Daniel Zizzo (School of Economics, University of East Anglia)
    Abstract: Microeconomic evidence suggests price changes are either very small, or large. The theory of inferential expectations predicts this phenomena if agents use a low test size, reflecting a reluctance to change their minds on the basis of evidence.
    Keywords: inferential Expectations, prices, near-rationality
    JEL: E31 D84
    Date: 2010–05–03
  60. By: Abidin, Mahani Zainal (Asian Development Bank Institute)
    Abstract: East Asian countries were seriously affected by the 2008 global crisis through a steep fall in exports. This experience exposed the vulnerability of the East Asian growth model and emphasized the importance of generating regional growth by expanding domestic demand and enlarging intra-regional trade. A key factor to achieving higher regional economic growth and enlarging intra-regional trade is the better connectivity of infrastructure such as roads, ports, airports, and rail links. Although some East Asian countries have made large investments in improving their infrastructures, others still lag behind. In response to the global crisis, East Asian countries have allocated a significant proportion of their stimulus packages to infrastructure development. While these investments have improved national facilities, East Asian countries will only be well connected when there are good cross-border infrastructures in place. This requires a large amount of funding, and funds from both within and outside the region could be mobilized to fulfill these huge financing needs. Hence, an East Asian Infrastructure Investment Fund (EAIIF) is proposed to provide a mechanism to organize this funding and to be a platform for deciding on cross-border infrastructure projects. The EAIIF would be anchored to the existing Association of Southeast Asian Nations+3 mechanism with the leader's summit being the apex of the decision making process. A four-level mechanism is proposed, consisting of cooperation amongst political leadership; a steering committee and secretariat for executing the decisions of the leaders; fund mobilization; and the implementation and monitoring of projects. Projects chosen could be those with a high rate of commercial returns or those with the highest social benefits. The EAIIF would invite the private sector to participate by setting a framework for the sharing of risks between the public and private sectors. Likewise, there would also be a sharing of risks between countries.
    Keywords: East Asian Infrastructure Investment Fund; regional crossborder infrastructure investment
    JEL: E61 E63 F15 H40 H54
    Date: 2010–07–30
  61. By: Punabantu, S
    Abstract: If the heading has drawn your attention then it has achieved the second objective of this paper, its first objective being to lead the reader through a discussion of how economic scarcity is a reversible problem. This paper examines reasons why scarcity may remain unresolved by economics as a result of how history and the machinations of business have evolved, especially in relation to the circular flow of income, price, value and the exchange of goods and services. The hypothesis that an economy has sufficient latent financial resources with which to finance the doubling of its GDP in one year at constant price is used to first anchor the idea resources are available so that a greater emphasis is placed on the burden of proof. The reader is asked, as a warm up exercise, to take a moment to meditate and reflect on the hypothesis; then suspend disbelief briefly in order to be able to follow the arguments unhindered by conventional wisdom. This aids in grasping how important thinking outside traditional views in economics can open new vistas in how the problem of scarcity is addressed. The gist is to grapple with ideas taken for granted in economics pertaining to enterprise, observe their evolution and attempt to mould them toward a construct that better exposes the latent potential within economic thought to change the economic landscape. It explores the view that even practices taken for granted in economics and business such as those used to understand cost, revenue, and the significance of money may harbour hidden factors that can affect how money transfers value between transactions. Further, it discusses how the tension between pessimistic and optimistic views can influence outcomes in economics.
    Keywords: Scarcity; banking; credit creation; resource creation; implosion; wobble effect; economic thought; poverty; money; price; mark-up; cost plus pricing; rationality; operating level economics; economic growth; barter; gift economics; expenditure fallacy; paradox; optimism; pessimism
    JEL: E31 D01 B41 A11
    Date: 2010–07–27
  62. By: Farvaque, Etienne
    Abstract: This note considers the foundations of the Federal Reserve Board's independence. Its origins are shown to reside in the American political philosophy, under which independence is an essential working condition for a perennial democracy.
    Keywords: Federal Reserve Board; independence; constitution.
    JEL: E58 N20
    Date: 2010–03
  63. By: Renate Ohr; Götz Zeddies
    Abstract: During the last decades, current account imbalances increased all over the world. In this context, countries with current account surpluses, in the European Union especially Germany, are increasingly blamed for their modest wage policies, which are seen as the main reason for global imbalances. On the basis of a panel data model, the present paper indentifies the determinants of current account imbalances of EU Member States. As the results show, price competitiveness is, although significant, only one out of many explanatory variables. Instead, current account imbalances are substantially caused by divergent propensities to save. This does not only relate to public, but also to private savings. Accordingly, demands addressed to Germany and other countries for higher wage agreements alone would be unrewarding. Instead, domestic demand in surplus countries should be increased by other means. On the other hand, in countries with current account deficits, existing savings potentials should be adequately exploited.
    JEL: E2 F3
    Date: 2010–07–23
  64. By: Benazzo, Piero
    Abstract: The hypothesis is that Pareto and Kaldor-Hicks Efficiency have an aspect of sustainability in relation to inequality. The analysis finds efficient situations reached increasing inequality as diminishing in the long term effective demand in a larger measure than counterbalancing increases thanks to total factor productivity growth. Equity and efficiency in welfare economics, rather than being quite contrasting objectives, are as such related and mutually necessary. As such countries are called to implement redistributive policies together with Kaldor-Hicks movements. These would make some parts of the economic agents less well off, while they would reinstate effective demand on the demand side. This latter increases output and wealth throughout the economy for all economic agents in general. Redistributive policies increase also imports, benefiting third countries and remunerating therefore their potential free-rider behaviour. The concerned demand side policies, requiring cooperation and redistribution, call the international institutions to coordinate their action for harmonizing such policies and restrain free-rider behaviour.
    Keywords: paradigm; inequality; total factor productivity growth; confounding; pareto efficiency; kaldor-hicks efficiency; cost-benefit analysis; effective demand; sustainability; sustainable development; global economy
    JEL: E12 D63 I31 D33 C0 O33 E01 E21 D31 D61 A10 O11 B40 J31 O43 F02 E19 O12
    Date: 2010–04–22
  65. By: Ugo FRATESI ([n.a.])
    Abstract: This paper analyzes the effects of national regional policy choices on domestic and foreign regions to detect the different interests at play. The analysis starts from a new 2-country-4-region model with agglomeration economies, an immobile production factor and a mobile one, allowing the study of international capital and profit flows moreover, different assumptions on bilateral transport costs allow to obtain results in different spatial settings. It is shown that concurrent and often conflicting interests co-exist, especially when agglomeration economies are strong. The other key variables influencing the results are the characteristics and specificities of regions, which can be introduced in the model, and the existence of peripheral regions.
    Keywords: Agglomeration economies, Efficiency and Equity, Peripherality, Regional Policy, Territorial Characteristics
    JEL: E61 H79 R13 R58
    Date: 2010–07

This nep-mac issue is ©2010 by Soumitra K Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.