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on Macroeconomics |
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Issue of 2010‒12‒04
47 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Shu-Chun S. Yang; Nora Traum |
| Abstract: | A New Keynesian model allowing for an active monetary and passive fiscal policy (AMPF) regime and a passive monetary and active fiscal policy (PMAF) regime is fit to various U.S. samples from 1955 to 2007. Data in the pre-Volcker periods strongly prefer an AMPF regime, but the estimation is not very informative about whether the inflation coefficient in the interest rate rule exceeds one in pre-Volcker samples. Also, whether a government spending increase yields positive consumption in a PMAF regime depends on price stickiness. An income tax cut can yield a negative labor response if monetary policy aggressively stabilizes output. |
| Keywords: | Data analysis , Economic models , Fiscal policy , Monetary policy , United States , |
| Date: | 2010–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/243&r=mac |
| By: | Hasanov, Mübariz; Omay, Tolga |
| Abstract: | In this paper, we examine causal relationships among inflation rate, output growth rate, inflation uncertainty and output uncertainty for ten Central and Eastern European transition countries. For this purpose, we estimate a bivariate GARCH model that includes output growth and inflation rates for each country. Then we use conditional standard deviations of inflation and output to proxy nominal and real uncertainty, respectively, and perform Granger-causality tests. Our results suggest that inflation rate induces uncertainty about both inflation rate and output growth rate, which is detrimental for real economic activity. On the other hand, we find that output growth rate reduces macroeconomic uncertainty in some countries. In addition, we also examine and discuss causal relationships among remaining variables. |
| Keywords: | Inflation; output growth; uncertainty; Granger-Causality tests; transition countries |
| JEL: | C51 C32 C52 E30 E10 |
| Date: | 2010–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:23764&r=mac |
| By: | Natal, Jean-Marc (Swiss National Bank) |
| Abstract: | How should monetary authorities react to an oil price shock? The New Keynesian literature has concluded that ensuring perfect price stability is optimal. Yet, the contrast between theory and practice is striking: Inflation targeting central banks typically favor a longer run approach to price stability. The first contribution of this paper is to show that because oil cost shares vary with oil prices, policies that perfectly stabilize prices entail large welfare costs, which explains the reluctance of policymakers to enforce them. The policy trade-off faced by monetary authorities is meaningful because oil (energy) is an input to both production and consumption. Welfare-based optimal policies rely on unobservables, which makes them hard to implement and communicate. The second contribution of this paper is thus to analytically derive a simple interest rate rule that mimics the optimal plan in all dimensions but that only depends on observables: core inflation and the growth rates of output and oil prices. It turns out that optimal policy is hard on core inflation but cushions the economy against the real consequences of an oil price shock by reacting strongly to output growth and negatively to oil price changes. Following a Taylor rule or perfectly stabilizing prices during an oil price shock are very costly alternatives. |
| Keywords: | optimal monetary policy; oil shocks; divine coincidence; simple rules |
| JEL: | E32 E52 E58 |
| Date: | 2010–09–02 |
| URL: | http://d.repec.org/n?u=RePEc:ris:snbwpa:2010_015&r=mac |
| By: | Kazuo Ueda (Faculty of Economics, University of Tokyo,) |
| Abstract: | This paper offers a brief summary of non-traditional monetary policy measures adopted by the Bank of Japan (BOJ) during the last two decades, especially the period between 1998-2006, when the so-called Zero Interest Rate Policy (ZIRP) and Quantitative Easing (QE) were put in place. The paper begins with a typology of policies usable at low interest and inflation rates. They are: strategy (i), managemen t of expectations about future policy rates; strategy (ii), targeted asset purchases; and strategy (iii), QE. Alternatively, QE may be decomposed into a pure attempt to inflate the central bank balance sheet, QE0, purchases of assets in dysfunctional markets, QE1 and purchases of assets to generate portfolio rebalancing, QE2. Strategy (ii), when non-sterilized, is either QE1 or QE2. Using this typology, I review the measures adopted by the BOJ and discuss evidence on the effectiveness of the measures. The broad conclusion is that strategies (i) and (ii) have affected interest rates, while no clear evidence exists so far of the effectiveness of strategy (iii), or QE0. Strategy (ii) has been effective especially in containing risk/liquidity premiums in dysfunctional money markets; that is, QE1 has been effective. The effectiveness of QE2, however, is unclear. The strategies, however, have failed to bring the economy out of the deflation trap so far. I discuss some possible reasons for this and also implications for the current U.S. situation. *Prepared for the policy panel at the 55th Economic Conference of the Federal Reserve Bank of Boston, "Revisiting Monetary Policy in a Low Inflation Environment," October 14-16, 2010. |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2010cf775&r=mac |
| By: | Conrad, Christian; Karanasos, Menelaos |
| Abstract: | This paper employs an augmented version of the UECCC GARCH specification proposed in Conrad and Karanasos (2010) which allows for lagged in-mean effects, level effects as well as asymmetries in the conditional variances. In this unified framework we examine the twelve potential intertemporal relationships between inflation, growth and their respective uncertainties using US data. We find that high inflation is detrimental to output growth both directly and indirectly via the nominal uncertainty. Output growth boosts inflation but mainly indirectly through a reduction in real uncertainty. Our findings highlight that macroeconomic performance affects nominal and real uncertainty in many ways and that the bidirectional relation between inflation and growth works to a large extend indirectly via the uncertainty channel. |
| Keywords: | Bivariate GARCH process; volatility feedback; inflation uncertainty; output variability |
| JEL: | E31 C51 C32 |
| Date: | 2010–11–26 |
| URL: | http://d.repec.org/n?u=RePEc:awi:wpaper:0507&r=mac |
| By: | Andreas Steiner (Universitaet Osnabrueck) |
| Abstract: | Central banks’ international reserves have increased significantly in the recent past. While this accumulation has been widely perceived as precautionary savings to prevent financial crises, rising reserves might also endanger monetary and financial stability. This paper sheds new light on the implications for financial stability and assesses the consequences for monetary policy on theoretical and empirical grounds. Our estimation results show that the accumulation of reserves raises the inflation rate, both on the global and the individual-country level. |
| Keywords: | International Reserves, Inflation, Panel Data Analysis |
| JEL: | E31 E58 F31 C23 |
| Date: | 2010–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:iee:wpaper:wp0084&r=mac |
| By: | Chiara Forlati (Chair of International Finance, Ecole Polytechnique Federale de Lausanne (EPFL), Switzerland); Luisa Lambertini (Chair of International Finance, Ecole Polytechnique Federale de Lausanne (EPFL), Switzerland) |
| Abstract: | This paper develops a DSGE model with housing, risky mortgages and endogenous default. Housing investment is subject to idiosyncratic risk and some mortgages are defaulted in equilibrium. An unanticipated increase in the standard deviation of housing investment produces a credit crunch where delinquencies and mortgage interest rates increase, lending is curtailed, and aggregate demand for non-durable goods falls. The economy experiences a recession as a consequence of the credit crunch. The paper compares economies that differ only in the riskiness of housing investment. Economies with lower risk are characterized by lower steady-state mortgage default rates and higher loan-to-value and leverage ratios. The macroeconomic effects of an unanticipated increase in housing investment risk are amplified in high-leverage economies. Monetary policy plays an important role in the transmission of housing investment risk, as inertial interest rate rules generate deeper output contractions. |
| Keywords: | Housing, Mortgage default, Mortgage Risk |
| JEL: | E32 E44 R31 |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:cif:wpaper:201002&r=mac |
| By: | Pablo Lopez Murphy; Rolando Ossowski; Mauricio Villafuerte |
| Abstract: | This paper analyzes recent fiscal policies of nonrenewable resource exporting countries in Latin America and the Caribbean in the context of sharp swings in resource prices. Fiscal policies were predominantly procyclical during the boom period 2003-08 but to significantly differing degrees within the sample. Countries that pursued more conservative fiscal policies during the boom were then able to implement countercyclical fiscal policies during the downturn; moreover, they reduced or maintained their fiscal vulnerability to resource shocks, while their long-term fiscal sustainability positions improved or were broadly unchanged. However, these dimensions of fiscal policy did not seem to be linked to fiscal rules or resource funds, as countries with such institutions displayed a broad range of fiscal responses to the recent cycle. |
| Keywords: | Business cycles , Caribbean , Commodity price fluctuations , Cross country analysis , External shocks , Fiscal policy , Fiscal sustainability , Latin America , Natural resources , Oil exporting countries , |
| Date: | 2010–11–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/251&r=mac |
| By: | Kamal, Mona |
| Abstract: | This study presents the experience of the European Monetary Union (EMU) countries as an example for external coordination of fiscal and monetary policies under a fixed exchange rate regime. The Euro area is considered as a unique example since the coordination of the policies is achieved through an independent European Central Bank and the fiscal authorities of the member countries. This study reviews the coordinating arrangements and the mechanism required for the effectiveness of policy coordination. |
| Keywords: | The coordination of monetary and fiscal policies; the European Monetary Union(EMU) |
| JEL: | E61 E60 |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:27038&r=mac |
| By: | Kazuo Ueda (Faculty of Economics, University of Tokyo,) |
| Abstract: | This paper compares the three recent episodes of boom and bust cycles in asset prices: Japan in the late 1980s to the 1990s; the U.S. since the mid 1990s; and China during the last decade. Although we have not yet seen a collapse of Chinese property prices, the increases so far are comparable to those in the other two episodes and seem to warrant a careful comparative study. I first examine the behavior of asset prices, especially, property prices in the three cases and point out some similarities. I then go on to discuss some backgrounds for the behavior of asset prices. I emphasize the role played by extremely easy monetary policy for generating bubble like asset price behaviors in the three cases. Monetary policy was shown to be easier than standard policy rules like the Taylor rule indicates. The reason for easy monetary policies is investigated. In the U.S. case the monetary authority was concerned over the risk of deflation in the early to mid 2000s. The experiences of Japan and China are quite similar in that the authorities of both countries were seriously concerned with possible deflationary effects of exchange rate appreciation on the economy. Japan let the exchange rate appreciate, while China has resisted a large scale intervention. It is shown, however, that the behavior of real exchange rates has not been that different. Implications of such a finding for the future of the Chinese economy are also discussed. |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2010cf774&r=mac |
| By: | Gomes, Pedro Maia (Universidad Carlos III de Madrid) |
| Abstract: | I build a dynamic stochastic general equilibrium model with search and matching frictions and two sectors in order to study the labour market effects of public sector employment and wages. Public sector wages plays an important role in achieving the efficient allocation. High wages induce too many unemployed to queue for public sector jobs, while if they are low, the government faces recruitment problems. The optimal steady-state wage premium depends mainly on the labour market friction parameters. In response to technology shocks, it is optimal to have procyclical public sector wages. Deviations from the optimal policy can increase the volatility of unemployment significantly. Public sector wage and employment shocks have mixed effects on unemployment. A wage shock raises the unemployment rate, while a reduction in the separations lowers it. Hiring more people can increase or decrease the unemployment rate. All shocks raise the wage and crowd out employment in the private sector. In the empirical part, I employ Bayesian methods to estimate the parameters of the model for the United States. I find that the direct search mechanism between the two sectors is an important element to explain business cycle fluctuations of the labour market variables. |
| Keywords: | public sector employment, public sector wages, unemployment, fiscal shocks |
| JEL: | E24 E32 E62 J31 J45 |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5321&r=mac |
| By: | M. Ayhan Kose; Christopher Otrok; Raju Huidrom; Thomas Helbling |
| Abstract: | This paper examines the importance of credit market shocks in driving global business cycles over the period 1988:1-2009:4. We first estimate common components in various macroeconomic and financial variables of the G-7 countries. We then evaluate the role played by credit market shocks using a series of VAR models. Our findings suggest that these shocks have been influential in driving global activity during the latest global recession. Credit shocks originating in the United States also have a significant impact on the evolution of world growth during global recessions. |
| Keywords: | Business cycles , Capital markets , Credit , Cross country analysis , Economic models , Economic recession , External shocks , Group of seven , Time series , United States , |
| Date: | 2010–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/261&r=mac |
| By: | Martin Uebele |
| Abstract: | This article analyzes international business cycles in Europe 1862-1913 using disaggregated data and Dynamic Factor Analysis. In comparison with estimates of real national product there is more evidence for international business cycles in disaggregated data of Germany, France and Great Britain before World War I. This is because data used to construct historical national accounts are often not sufficient to date business cycles, and especially because little is known about general price fluctuations. Thus, national products in current prices show higher degrees of international correlation than deflated ones although price indices themselves are not very well correlated across countries. |
| Keywords: | International Business Cycles, Historical National Accounting, Disaggregate Data, Dynamic Factor Models |
| JEL: | E31 E32 F15 N13 N73 |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:cqe:wpaper:1610&r=mac |
| By: | Stefano Ugolini (Graduate Institute of International and Development Studies (Geneva)) |
| Abstract: | Can the central bank of a small open economy be mandated with the maintenance of both fixed exchange rates and monetary independence, and still succeed in the long term? Looking at a pioneering experiment put in place by the National Bank of Belgium, this article shows how foreign exchange policy allowed for persistent violations of the predictions of the trilemma in the 1850s. Success was based on four main ingredients. First, the credibility of the peg was not built through the stabilisation of exchange rates, but through the stabilisation of central bank liquidity (i.e. the ‘margin of manoeuvre’ available for countercyclical action): based on constructive ambiguity, this strategy positively influenced market expectations. Second, the stock of bullion circulating in the country acted as a buffer for central bank reserves. Third, the banking system had a structural liquidity deficit towards the central bank. Fourth, the central bank was big enough to meet the domestic demand of credit and accumulate foreign reserves at the same time. These findings shed new light on the nature of monetary policy and its implementation in the 19th century. |
| Keywords: | Foreign exchange policy, monetary policy implementation, reserve management |
| JEL: | E52 E58 F31 N23 |
| Date: | 2010–11–23 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2010_22&r=mac |
| By: | [no author] |
| Abstract: | This thesis attempts to shed light on the role of financial factors and vulnerabilities in shaping macroeconomic fluctuations. It contributes to the literature that integrates financial factors into the real business cycle paradigm by introducing asymmetries and disaster risk in financial conditions, reflecting the low probability of sharp worsening in financial conditions that is found in data. The introduction of disaster risk in this thesis is done within a small open economy modeling framework. In this sense, while the trigger of disaster events is not endogenized, the emphasis is on exploring the role of financial frictions (such as working capital requirements or time-varying leverage) and of modeling features (e.g. variable capital utilization, the use of imported intermediate inputs, etc.) in affecting the propagation mechanisms when external conditions show a rare disaster pattern. |
| Date: | 2010–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:ner:euiflo:urn:hdl:1814/14991&r=mac |
| By: | Choudhary, M. Ali; Hanif, M. Nadim; Khan, Sajawal; Rehman, Muhammad |
| Abstract: | Weak governance adversely affects firm’s net worth and consequently the value of its collateral. This negative impact on the collateral reduces the external credit available for importing inputs constraining potential output. As a result, a stronger procyclical monetary policy stance is adopted for protecting the exchange rate and hence arresting the degradation in the collateral constraint. |
| Keywords: | Collateral Constraints; Governance; Monetary Policy |
| JEL: | F4 O1 E5 |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:27022&r=mac |
| By: | Afonso, António (European Central Bank); Gomes, Pedro Maia (Universidad Carlos III de Madrid) |
| Abstract: | We examine the interactions between public and private sector wages per employee in OECD countries. The growth of public sector wages and of public sector employment positively affects the growth of private sector wages. Moreover, total factor productivity, the unemployment rate and the degree of urbanisation are also important determinants of private sector wage growth. With respect to public sector wage growth, we find that it is influenced by fiscal conditions in addition to private sector wages. We then set up a dynamic labour market equilibrium model with two sectors, search and matching frictions and exogenous growth to understand the interaction mechanisms. The model is quantitative consistent with the main estimation findings. |
| Keywords: | public sector wages, private sector wages, employment, fiscal policy |
| JEL: | E24 E62 H50 |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5322&r=mac |
| By: | Mathias Dolls; Clemens Fuest; Andreas Peichl |
| Abstract: | This paper analyzes the effectiveness of social protection systems in Europe and the US to provide (income) insurance against macro level shocks in terms of automatic stabilizers. We find that automatic stabilizers absorb 38% of a proportional income shock and 47% of an idiosyncratic unemployment shock in Europe, compared to 32% and 34% in the US. There is large heterogeneity within Europe with stabilization being much lower in Eastern and Southern than in Central and Northern Europe. Our results suggest that social transfers, in particular the rather generous systems of unemployment insurance in Europe, play a key role for the stabilization of disposable incomes and explain a large part of the difference in automatic stabilizers between Europe and the US. |
| Keywords: | Automatic Stabilization, Crisis, Liquidity Constraints, Fiscal Stimulus |
| JEL: | E32 E63 H2 H31 |
| Date: | 2010–07–16 |
| URL: | http://d.repec.org/n?u=RePEc:cgr:cgsser:01-02&r=mac |
| By: | Scott Davis |
| Abstract: | Recessions that are accompanied by financial crises tend to be more severe and are followed by slower recoveries than ordinary recessions. This paper introduces a new Keynesian model with financial frictions on both the demand and supply side of the credit markets that can explain this empirical finding. Following a shock that leads to a decline in economic activity, an adverse feedback loop arises where falling profits and asset values lead to increased defaults in the real sector, and these increased defaults lead to increased loan losses in the banking sector. Following this increase in loan losses, financial frictions in the banking sector imply that the banking sector itself may face difficulty obtaining funds. This disruption in the intermediation process leads to a further decline in output and asset prices in the real sector. In simulations of the model it is found that this feedback loop operating through the balance sheets of financial intermediaries can lead to as much as a 20 percent increase in business cycle volatility, and impulse response analysis shows that in the presence of financial frictions the path back to the steady state after a shock is much slower. |
| Keywords: | Business cycles - Econometric models ; Financial markets ; International finance ; Financial crises ; Recessions |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:66&r=mac |
| By: | Maral Shamloo; Aytek Malkhozov |
| Abstract: | We develop a tractable way to solve for equilibrium quantities and asset prices in a class of real business cycle models featuring Epstein-Zin preferences and affine dynamics for productivity growth and volatility. The method relies on log-linearization and exploits the log-normality of all the quantities. It is an easy substitute for more involved numerical techniques, such as higher order perturbation methods, and allows for easy implementation and analytical results. We show explicitly the link with perturbation techniques and find that the quantitative difference between the two is insignificant for several models of interest. |
| Keywords: | Asset prices , Business cycles , Economic models , External shocks , Productivity , |
| Date: | 2010–11–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/249&r=mac |
| By: | Anita Tuladhar; Nina T Budina |
| Abstract: | This paper focuses on post-crisis fiscal priorities in the ASEAN-5 economies - Indonesia, Malaysia, Philippines, Singapore and Thailand. Sound economic fundamentals and timely and forceful policy responses to the crisis, including fiscal stimulus, contributed to rapid economic recovery in the ASEAN-5. As growth rebounds, these economies are beginning to identify, communicate and implement their strategies for unwinding the fiscal stimulus while addressing long-term growth challenges. In this context, the paper highlights the need for fiscal policies to address infrastructure gaps, stimulate private consumption and expand social safety nets. Creating fiscal space to address these challenges will require raising revenues and reorienting public spending rather than increasing borrowing. Supporting structural reforms, aiming to stimulate private infrastructure investment, could help address long-term growth challenges, while easing the burden on fiscal policy. |
| Keywords: | Association of Southeast Asian Nations , Cross country analysis , Economic growth , Economic recovery , Fiscal policy , Indonesia , Infrastructure , Malaysia , Philippines , Private consumption , Public investment , Singapore , Social safety nets , Thailand , |
| Date: | 2010–11–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/252&r=mac |
| By: | Alejandro Hajdenberg; Javier Arze del Granado; Sanjeev Gupta |
| Abstract: | This paper studies the cyclical behavior of public spending on health and education in 150 countries during 1987 - 2007. It finds that spending on education and health is procyclical in developing countries and acyclical in developed countries. In addition, education and health expenditures follow an asymmetric pattern in developing countries; they are procyclical during periods of positive output gap and acyclical during periods of negative output gap. Furthermore, the degree of cyclicality is higher the lower the level of economic development. |
| Keywords: | Business cycles , Developed countries , Developing countries , Education , Fiscal policy , Government expenditures , Health care , |
| Date: | 2010–10–18 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/234&r=mac |
| By: | John H. Munro |
| Abstract: | The renown or infamy of Henry VIII’s Great Debasement (1542 - 1553), which the government of his successor, Edward VI, continued for another six years after his death, has unfairly obscured his earlier and far more modest coinage changes and public-spirited monetary policies. Furthermore, despite the renown of and the ample literature devoted to the Great Debasement this unusual episode in early-modern monetary history still lacks a fully accurate exposition and explanation. For example, did it begin in 1542 or 1544? How did it work, and why and how did it prove to be successful or ‘profitable’. This study seeks to provide such an accurate exposition and explanation, and thus to provide a proper contrast with Henry VIII’s earlier coinage changes and monetary policies – while also providing a brief comparison with those of Edward IV, whose debasements of 1464-65 were the last undertaken before those of Henry VIII. The subject of coinage debasements remains an arcane subject, ill understood not only by students of European history but also by many of the historians and economists who have published on topics in monetary history. A major problem is that historians have not clearly asked one fundamental question: were debasements fundamentally aggressive or defensive in nature? The second question to be asked is the nature of the goals sought from debasement: were they fundamentally monetary or fiscal? The fiscal aspect of coinage debasements is derived from the fact that in pre-modern western Europe minting was a princely or government monopoly from which the prince or government derived a fee known as seigniorage. The central thesis of this study is that ‘aggressive’ coinage debasements were undertaken primarily as fiscal policies to increase mint profits: profits from an increased mint output and from a increased seigniorage rate. In most, of not all cases, the fiscal motive was to finance warfare, even if indirectly. As this study shows, aggressive coinage debasements worked best if the offending mint could lure coinage and bullion from not only domestic but also foreign sources. Since neighbouring lands were thus affected and afflicted by such coinage debasements, their rulers were so often forced to respond with retaliatory if purely defensive coinage debasements, to protect their own mints and also their domestic money supplies from the effects of Gresham’s Law. Indeed, some variant of Gresham’s Law can be found as an excuse for coinage debasements in western Europe, especially from the fourteenth to sixteenth centuries – so that it is often difficult to tell from an ordinance whether a debasement is aggressive or defensive. The other defensive aspect of such coinage debasement was the consequence of long-term ‘wear and tear’, ‘clipping’, ‘sweating’, counterfeiting, and other factors that over time diminished the mean precious metal contents of the circulating coinage. The result was that legal-tender coins lost their agio over bullion – an agio justified by circulating coins at ‘tale’, rather than measuring them, thus saving on transaction costs. The loss of that agio prevented bullion from being delivered to the mints; and the consequences were another variant of Gresham’s Law (as examined in this paper). In sum this paper explains why Henry VIII’s two related coinage debasements of August and November 1526 were purely defensive, and as such monetary policies, while the Great Debasement was an aggressive fiscal policy, and one highly effective in financing Henry VIII’s wars with France and Scotland. The Great Debasement was not, however, medieval England’s only aggressive debasement, for the same can be shown of Edward IV’s debasements of 1464-65. The proof for these assertions lies in the mint accounts and the evidence for the mintage fees: low with purely defensive debasements; high with aggressive debasements (a factor that would not have been true if aggressive debasements were monetary in their motivations). Finally, this study also presents proof that the extent of inflation during the Great Debasement (1542-1553) was less than that anticipated by monetary formulae, so that inflation did not nullify the merchants’ gains from spending debased coins (a reason some have cited to challenge the logic and utility of medieval coinage debasements). |
| Keywords: | coinage debasements, gold, silver, bullion, bullionist policies, mints, mint outputs, seigniorage, brassage, inflation, deflation, fiscal policies, warfare, taxation |
| JEL: | E E41 E42 E51 E52 E62 F33 H11 H27 N13 N23 N43 |
| Date: | 2010–11–26 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-417&r=mac |
| By: | Ana Corbacho; Leandro Medina; Carlos Caceres |
| Abstract: | In recent years, many countries have adopted Fiscal Responsibility Laws to strengthen fiscal institutions and promote fiscal discipline in a credible, predictable and transparent manner. Still, results on the effectiveness of these laws remain tentative. In this paper, we test empirically whether fiscal performance, measured as the level of primary fiscal balances and their volatility, indeed improved after the implementation of Fiscal Responsibility Laws in a sample of Latin American and advanced economies. We show that traditional econometric approaches, which rely on the use of dummies in time series or panel regressions, yield biased estimates. In contrast, our empirical strategy recognizes that, a priori, the timing of the effect of these laws on fiscal performance is unknown, while controlling for the impact of the business and commodity cycles on fiscal outcomes. Overall, we find limited empirical evidence in support of the view that Fiscal Responsibility Laws have had a distinguishable effect on fiscal performance. However, Fiscal Responsibility Laws could still have other positive effects on the conduct of fiscal policy not analyzed here, for instance, through enhanced transparency and guidance in the budget process and lower risk premia. |
| Keywords: | Business cycles , Commodity price fluctuations , Cross country analysis , Developed countries , Economic models , Fiscal analysis , Fiscal policy , Latin America , Legislation , |
| Date: | 2010–11–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/248&r=mac |
| By: | Pierpaolo Benigno; Paolo Surico; Luca Antonio Ricci |
| Abstract: | We propose a theory of low-frequency movements in unemployment based on asymmetric real wage rigidities. The theory generates two main predictions: long-run unemployment increases with (i) a fall in long-run productivity growth and (ii) a rise in the variance of productivity growth. Evidence based on U.S. time series and on an international panel strongly supports these predictions. The empirical specifications featuring the variance of productivity growth can account for two U.S. episodes which a linear model based only on long-run productivity growth cannot fully explain. These are the decline in long-run unemployment over the 1980s and its rise during the late 2000s. |
| Keywords: | Business cycles , Economic models , Labor markets , Productivity , Time series , Unemployment , United States , Wage adjustments , Wages , |
| Date: | 2010–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/259&r=mac |
| By: | Trung T Bui; Tamim Bayoumi |
| Abstract: | The 2008 crisis underscored the interconnectedness of the international business cycle, with U.S. shocks leading to the largest global slowdown since the 1930s. We estimate spillover effects across major advanced country regions in a structural VAR (SVAR) using pre-crisis data. Our new method freely estimates the contemporaneous correlation matrix for underlying shocks in the VAR and (uniquely, to our knowledge) the associated uncertainty. Our results suggest that the international business cycle is largely driven by U.S. financial shocks with a significant impact from global shocks, mainly reflecting commodity prices. Other advanced economic regions play a much smaller and regional role in growth spillovers. Our findings are consistent with the emerging evidence on the current crisis |
| Keywords: | Business cycles , Developed countries , Economic growth , Economic models , International financial system , Spillovers , United States , |
| Date: | 2010–10–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/239&r=mac |
| By: | Marco Guerrazzi |
| Abstract: | In this paper, I explore the out-of-equilibrium macro-economic dynamic behaviour of the Farmer’s (2010d) ME-NA model. Specifically, preserving the assumption that microeconomic adjustments are instantaneous, I build a dynamic model in continuous time that describes the macro-economic adjustments of the value of output and the interest rate. Within this framework, I show that the model economy has a unique stationary solution whose dynamics is locally stable. Moreover, simulating the model economy under the baseline calibration, I show that the adjustments towards the steady-state equilibrium occur through endogenous convergent oscillations while the most promising way out from a finance-induced recession combines a fiscal expansion with interventions aimed at altering the trade-off between holding risky and safe assets. |
| Keywords: | Old Keynesian Economics, ME-NA Schedules, Short-Run Macroeconomic Fluctuations. |
| JEL: | E12 E32 E62 |
| Date: | 2010–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:pie:dsedps:2010/106&r=mac |
| By: | Raphael Auer; Kathrin Degen; Andreas M. Fischer |
| Abstract: | What is the impact of import competition from other low-wage countries (LWCs) on inflationary pressure in Western Europe? This paper seeks to understand whether labor-intensive exports from emerging Europe, Asia, and other global regions have a uniform impact on producer prices in Germany, France, Italy, Sweden, and the United Kingdom. In a panel covering 110 (4-digit) NACE industries from 1995 to 2008, IV estimates predict that LWC import competition is associated with strong price effects. More specifically, when Chinese exporters capture 1 percent of European market share, producer prices decrease about 2 percent. In contrast, no effect is present for import competition from low-wage countries in Central and Eastern Europe. |
| Keywords: | International trade - Econometric models ; Labor market ; Inflation (Finance) - Euro area ; Globalization |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:65&r=mac |
| By: | Davidson, James; Meenagh, David (Cardiff Business School); Minford, Patrick (Cardiff Business School); Wickens, Michael (Cardiff Business School) |
| Abstract: | A Real Business Cycle model of the UK is developed to account for the behaviour of UK nonstationary macro data. The model is tested by the method of indirect inference, bootstrapping the errors to generate 95% confidence limits for a VECM representation of the data; we find the model can explain the behaviour of main variables (GDP, real exchange rate, real interest rate) but not that of detailed GDP components. We use the model to explain how `crisis' and `euphoria' are endemic in capitalist behaviour due to nonstationarity; and we draw some policy lessons. |
| Keywords: | Nonstationarity; Productivity; Real Business Cycle; Bootstrap; Indirect Inference; Banking Crisis; Banking Regulation |
| JEL: | E32 F32 F41 |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2010/13&r=mac |
| By: | Hassan Molana; Kwame Osei-Assibey |
| Abstract: | While flexible exchange rates facilitate stabilisation, exchange rate fluctuations can cause real volatility. This gives policy importance to the causal relationship between exchange rate depreciation and its volatility. An exchange rate may be expected to become more volatile when the underlying currency loses value. We conjecture that a reverse causation, which further weakens the currency, may be mitigated by price stability. Data from Ghana, Mozambique and Tanzania support this: depreciation makes exchange rate more volatile for all but volatility does not causes depreciation in Tanzania which has enjoyed a more stable inflation despite all countries adopting similar macro-policies since early 1990s. |
| Keywords: | exchange rate, depreciation, volatility, causality, GARCH, VAR |
| JEL: | E3 F3 F4 |
| Date: | 2010–10 |
| URL: | http://d.repec.org/n?u=RePEc:dun:dpaper:246&r=mac |
| By: | Gomes, Pedro Maia (Universidad Carlos III de Madrid) |
| Abstract: | This paper documents a number of facts about worker gross flows in the United Kingdom for the period between 1993 and 2010. Using Labour Force Survey data, I examine the size and cyclicality of the flows and transition probabilities between employment, unemployment and inactivity, from several angles. I examine aggregate conditional transition probabilities, job-to-job flows, employment separations by reason, flows between inactivity and the labour force and flows by education. I decompose contributions of job-finding and job-separation rates to fluctuations in the unemployment rate. Over the past cycle, the job-separation rate has been as relevant as the job-finding rate. |
| Keywords: | worker gross flows, job-finding rate, job-separation rate, transition probabilities |
| JEL: | E24 J60 |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5327&r=mac |
| By: | Nannette Lindenberg (Universitaet Osnabrueck); Frank Westermann (Universitaet Osnabrueck) |
| Abstract: | In this paper, we contrast two different views in the debate on official dollarization. The Mundell (1961) framework of optimal currency areas and a model on boom-bust cycles, by Schneider and Tornell (2004), who take account of credit market imperfections prevalent in middle income countries. We highlight that the role of the exchange rate is strikingly different in the two models. While in the Mundell framework the exchange rate is expected to smooth the business cycle, the other model predicts that the exchange rate plays an amplifying role. We empirically evaluate both models for eight highly dollarized Central American economies, and find that the main benefit of official dollarization derives from avoiding a mismatch between foreign currency liabilities and domestic revenues, as well as the boom-bust episodes that are likely to follow from it. Using a new method of Cubadda (1999, 2007), we furthermore test for cyclical comovement and reject the hypothesis that the countries form an optimal currency area with the United States according to the Mundell definition. |
| Keywords: | dollarization, real exchange rate, business cycle comovement, serial correlation, common feature, boom-bust cycles, credit market imperfections, Central America |
| JEL: | E32 E52 F36 O54 |
| Date: | 2010–08–05 |
| URL: | http://d.repec.org/n?u=RePEc:iee:wpaper:wp0083&r=mac |
| By: | Pau Rabanal; Jaewoo Lee |
| Abstract: | The driving force of U.S. economic growth is expected to rotate from the fiscal stimulus and inventory rebuilding in 2009 to private demand in 2010, with consumption and particularly investment expected to be important contributors to growth. The strength of U.S. investment will hence be a crucial issue for the U.S. and global recovery. On the basis of several traditional models of investment, we forecast that the U.S. investment in equipment and software will grow by about 10 percent on average over the 2010-12 period. The contribution of investment to real GDP growth will be 0.8 percentage points on average over the same period. |
| Date: | 2010–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/246&r=mac |
| By: | Stefano Ugolini (Graduate Institute of International and Development Studies (Geneva)) |
| Abstract: | This paper analyses the architecture of the international monetary system which preceded the international gold standard (1844-1870). It builds on a newly-created database made up of more than 100,000 weekly observations on exchange rates, interest rates, and bullion prices in the world’s six most important financial centers of the time. Market integration, substitutability of money market instruments, choice of the correct monetary standard reference, and currency liquidity are tested; moreover, an historical analysis is run, with special reference to financial crises. Contrary to received wisdom, the results point to a trend towards increasing multipolarism in the international monetary system before 1870. |
| Keywords: | International monetary system, financial integration, money markets, bimetallism |
| JEL: | E42 F31 N20 |
| Date: | 2010–11–23 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2010_23&r=mac |
| By: | Camelia Minoiu; Luis-Felipe Zanna; Era Dabla-Norris |
| Abstract: | We examine the cyclical properties of development aid using bilateral data for 22 donors and over 100 recipients during 1970?2005. We find that bilateral aid flows are on average procyclical with respect to business cycles in donor and recipient countries. However, they become countercyclical when recipient countries face large adverse shocks to the terms-of-trade or growth collapses-thus playing an important cushioning role. Aid outlays contract sharply during severe donor economic downturns; this effect is magnified by higher public debt levels. Additionally, bilateral aid flows are higher in the presence of IMF programs and are more countercyclical for recipient countries with stronger institutions. |
| Keywords: | Aid flows , Bilateral aid , Business cycles , Developed countries , Developing countries , Development assistance , Economic growth , Economic models , External shocks , Fund , Terms of trade , |
| Date: | 2010–10–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/240&r=mac |
| By: | Du Cai Cai; Muysken Joan; Sleijpen Olaf (METEOR) |
| Abstract: | We model a three-pillar pension system and analyse the impact of exogenous shocks on an open economy, using an overlapping generation model where individuals live for two periods. The three-pillar pension system consists of (1) a PAYG pension system, (2) a defined benefits pension fund, and (3) private savings. The economy is exposed to an ageing trend, inflation and a stock market crash. We show that in the three-pillar pension system the impact of these shocks on the economy is mitigated when compared to a two- pillar system, since each shock has a different impact on the three pillars. In order to illustrate the working of the model with respect to the impact of shocks, both in magnitude and the development over time, we provide simulation results for the Netherlands. |
| Keywords: | macroeconomics ; |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umamet:2010055&r=mac |
| By: | Hassan Molana; Catia Montagna; Chang Yee Kwan |
| Abstract: | In the theoretical macroeconomics literature, fiscal policy is almost uniformly taken to mean taxing and spending by a ‘benevolent government’ that exploits the potential aggregate demand externalities inherent in the imperfectly competitive nature of goods markets. Whilst shown to raise aggregate output and employment, these policies crowd-out private consumption and hence typically reduce welfare. In this paper we consider the use of ‘tax-and-subsidise’ instead of ‘tax-and- spend’ policies on account of their widespread use by governments, even in the recent recession, to stimulate economic activity. Within a static general equilibrium macro-model with imperfectly competitive good markets we examine the effect of wage and output subsidies and show that, for a small open economy, positive tax and subsidy rates exist which maximise welfare, rendering no intervention as a suboptimal state. We also show that, within a two-country setting, a Nash non-cooperative symmetric equilibrium with positive tax and subsidy rates exists, and that cooperation between trading partners in setting these rates is more expansionary and leads to an improvement upon the non-cooperative solution. |
| Keywords: | fiscal policy, international trade, monopolistic competition, Nash equilibrium, policy coordination, welfare |
| JEL: | E6 F1 H2 |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:dun:dpaper:247&r=mac |
| By: | Carlo Benetti; Christian Bidard; Edith Klimovsky; Antoine Rebeyrol |
| Abstract: | We build a bisector reproduction model with classical features in which the capitalists aim at maximizing accumulation of their profits. At variance with gravitation models, it is assumed that they invest their profits in their own industry. Their plans are based on actual productions and expected prices. Effective prices and effective allocations of resources are determined by a market-clearing mechanism. A simple law on the formation of expectations allows us to define the dynamics of disequilibria, which let appear endogenous self-sustained fluctuations, around a long-run path. The long-run rate of growth and the amplitude of the fluctuations depend on the initial conditions. |
| Keywords: | Classical Reproduction, Market prices, Disequilibrium, Growth, Cycle |
| JEL: | E11 E30 E32 O41 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2010-23&r=mac |
| By: | Meixing Dai |
| Abstract: | La sous-évaluation du yuan fait partie du consensus des économistes et des décideurs de politique. La demande pressante des pays occidentaux pour une réévaluation nominale brutale du yuan ne prend pas en compte l’intérêt des entreprises (occidentales et chinoises) et des salariés travaillant pour les secteurs d’exportation en Chine. J’analyse dans ce papier le bénéfice d’une réévaluation réelle du yuan pour l’économie chinoise et propose, outre une réévaluation nominale modeste, une multitude de solutions alternatives aboutissant à une réévaluation complète du yuan en termes réels. |
| Keywords: | Réévaluation réelle du yuan, Renminbi (RMB), réserves de change, déséquilibre externe, mesures d’ajustement macroéconomique. |
| JEL: | E2 E5 E6 F3 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2010-26&r=mac |
| By: | Steven N. Durlauf; Andros Kourtellos; Chih Ming Tan |
| Abstract: | Barro and McCleary (2003) is a key research contribution in the new literature exploring the macroeconomic effects of religious beliefs. This paper represents an effort to evaluate the strength of their claims. We evaluate their results in terms of replicability and robustness. Overall, their analysis generally meets the standard of statistical replicability, though not perfectly. On the other hand, we do not find that their results are robust to changes in their baseline statistical specification. When model averaging methods are employed to integrate information across alternative statistical specifications, little evidence survives that religious variables help to predict cross-country income differences. |
| Keywords: | Economic Growth, Religion, Model Uncertainty |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:ucy:cypeua:11-2010&r=mac |
| By: | Deokwoo Nam; Jian Wang |
| Abstract: | In this paper, we find that expected (news) and unexpected (contemporaneous) components of productivity changes have opposite effects on the U.S. real exchange rate. Following Barsky and Sims' (2010) identification method, we decompose US total factor productivity (TFP) into news and contemporaneous productivity changes. The US real exchange rate appreciates following a favorable news shock to TFP, while it depreciates in response to a positive contemporaneous shock. In addition, the identified news TFP shocks play a much more important role than the identified contemporaneous TFP shocks in driving the US real exchange rate. These findings provide empirical guidance to important international macroeconomic issues, such as the international transmission of productivity shocks and the modeling of exchange rate volatility. |
| Keywords: | Business cycles ; Foreign exchange rates ; Productivity |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:64&r=mac |
| By: | Andreas Steiner (Universitaet Osnabrueck) |
| Abstract: | Foreign exchange holdings by central banks have increased significantly in the recent past. This article explains this development as a result of the liberalization of international capital markets. First, central banks accumulate reserves in order to protect the economy from potentially detrimental effects of sudden stops of capital flows and flow reversals. Second, central banks use the accumulation of reserves as a substitute for capital controls. Changes in the level of reserves are a form to manage net capital inflows. They permit the central bank to preserve some leeway for an independent monetary and financial policy despite the classic policy trilemma. The empirical analysis of a large panel data set supports the hypothesis that the accumulation of reserves is the consequence of a “fear of capital mobility” suffered by central banks. |
| Keywords: | International Reserves, Capital Mobility, Macroeconomic Trilemma |
| JEL: | E58 F31 |
| Date: | 2010–10–25 |
| URL: | http://d.repec.org/n?u=RePEc:iee:wpaper:wp0085&r=mac |
| By: | Mali Chivakul; Ricardo Llaudes; Ferhan Salman |
| Abstract: | This paper examines the impact of the recent global crisis on emerging market economies (EMs). Our cross-country analysis shows that the impact of the crisis was more pronounced in those EMs that had initial weaker fundamentals and greater financial and trade linkages. This effect is observed along a number of dimensions, such as growth, stock market performance, sovereign spreads, and credit growth. This paper also shows that during this crisis, pre-crisis reserve holdings helped to mitigate the initial growth collapse. This finding contrasts with other studies that fail to find a significant relationship between reserves and the growth decline. This paper argues that our preferred measure of impact is a more accurate reflection of the true impact of the crisis on EMs. |
| Keywords: | Credit , Cross country analysis , Economic growth , Economic recession , Emerging markets , Financial crisis , Global Financial Crisis 2008-2009 , Reserves , Sovereign debt , |
| Date: | 2010–10–19 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:10/237&r=mac |
| By: | Costas Azariadis (Department of Economics, Washington University, St. Louis MO, USA; The Rimini Centre for Economic Analysis (RCEA), Rimini, Italy); Leo Kaas (Department of Economics, University of Konstanz, Konstanz, Germany) |
| Keywords: | D90, E32, O47 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:39_10&r=mac |
| By: | Cem Cakmakli (Erasmus University Rotterdam); Dick van Dijk (Erasmus Universiteit Rotterdam) |
| Abstract: | This paper documents that factors extracted from a large set of macroeconomic variables bear useful information for predicting monthly US excess stock returns and volatility over the period 1980-2005. Factor-augmented predictive regression models improve upon both benchmark models that only include valuation ratios and interest rate related variables, and possibly individual macro variables, as well as the historical average excess return. The improvements in out-of-sample forecast accuracy are both statistically and economically significant. The factor-augmented predictive regressions have superior market timing ability and volatility timing ability, while a mean-variance investor would be willing to pay an annual performance fee of several hundreds of basis points to switch from the predictions offered by the benchmark models to those of the factor-augmented models. An important reason for the superior performance of the factor-augmented predictive regressions is the stability of their forecast accuracy, whereas the benchmark models suffer from a forecast breakdown during the 1990s. |
| Keywords: | return predictability; model uncertainty; dynamic factor models; variable selection |
| JEL: | C22 C53 G11 G12 |
| Date: | 2010–11–22 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20100115&r=mac |
| By: | Olivier Charlot; Franck Malherbet; Cristina Terra |
| Abstract: | This paper studies the impact of product and labor market regulations on the number and size of firms in the formal and informal sectors, as well as on relative wages, relative size of the two sectors and overall unemployment. We show that entry costs in the formal sector tend to make informal firms smaller and more numerous than informal firms, i.e., such costs render the informal sector relatively more competitive. Furthermore, it is possible to reduce informality without increasing unemployment or reducing workers’ wage by reducing entry costs in the formal sector rather than reducing labor market regulations. We also highlight a number of externalities stemming from labor and product market imperfections, allowing the size of those distortions to differ across sectors. We show that, while the so-called overhiring externality takes place in both sectors, this translates into a smaller relative size of the informal sector. |
| Keywords: | Informality, product and labor, market imperfections, firm size |
| JEL: | E24 E26 J60 L16 O1 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:lacicr:1043&r=mac |
| By: | Månsson, Jonas (Centre for Labour Market Policy Research (CAFO)); Ottoson, Jan (Uppsala University) |
| Abstract: | Using a rich data set on all registered Swedish part-time unemployed in 2003 we aim at identify individual characteristics that affect the probability of leaving part-time unemployment—from the perspective of whether part-time work serves as a transition mechanism offering access to the core labour market of full-time jobs, a stepping stone to the labour market, or if it is a dead end. The results of the study indicate clearly that there are groups for whom part-time employment cannot be considered as offering access to the market of full-time jobs—for them, part-time employment is a dead end. This is true especially for women and handicapped persons but also for part-time employed with unemployment benefit. Therefore, our policy recommendations are to strengthen placement and counselling services to these groups and to closely follow up and control the search process among those who are entitled to compensation from the unemployment insurance. |
| Keywords: | part-time; unemployment; |
| JEL: | E24 |
| Date: | 2010–11–21 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:vxcafo:2010_005&r=mac |