nep-mac New Economics Papers
on Macroeconomics
Issue of 2011‒03‒05
43 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Firms’ Money Demand and Monetary Policy By Bafile, Romina; Piergallini, Alessandro
  2. Inflation Convergence and the New Keynesian, Phillips Curve in the Czech Republic By Katarína Danišková; Jarko Fidrmuc
  3. Asset Price and Monetary Policy ¡V The Effect of Expectation Formation By Nan-Kuang Chen; Han-Liang Cheng
  4. Firm Entry, Inflation and the Monetary Transmission Mechanism By V. LEWIS; C. POILLY
  5. Measuring Monetary Conditions in A Small Open Economy: The Case of Malaysia By Abdul Majid, Muhamed Zulkhibri
  6. The Dark Side of Fiscal Stimulus By Strulik, Holger; Trimborn, Timo
  7. Floats, pegs and the transmission of fiscal policy By Giancarlo Corsetti; Keith Kuester; Gernot J. Muller
  8. Wage rigidities in an estimated DSGE model of the UK labour market By Faccini, Renato; Millard, Stephen; Zanetti, Francesco
  9. Banks, oligopolistic competition, and the business cycle: A new financial accelerator approach By Totzek, Alexander
  10. Central bank capital adequacy for central banks with or without a monetary policy By Luca Papi
  11. A Macro-Finance Approach to Exchange Rate Determination By Yu-chin Chen; Kwok Ping Tsang
  12. Capital Requirements and Business Cycles with Credit Market Imperfections By Pierre-Richard; K. Alper; L. Pereira da Silva
  13. Monetary Policy Analysis in Real-Time. Vintage combination from a real-time dataset By Carlo Altavilla; Matteo Ciccarelli
  14. The Stability and Growth Pact: Lessons from the Great Recession By Martin Larch; Paul van den Noord; Lars Jonung
  15. The Great Recession, 'Rainy Day' Funds, and Countercyclical Fiscal Policy in Latin America By Eduardo Fernández-Arias; Peter Montiel
  16. Monetary Rewards, Image Concern, and Intrinsic Motivation: Evidence from a Survey on Blood Donation By Lan Shi
  17. Efficiency in a Model of Labor Selection By Sanjay Chugh; Christian Merkl
  18. Règle du taux d’intérêt et politique d’assouplissement quantitatif avec un rôle pour la monnaie. By Meixing Dai
  19. The Political Setting of Social Security Contributions in Europe in the Business Cycle By Toralf Pusch; Ingmar Kumpmann
  20. No News in Business Cycles By Mario Forni; Luca Gambetti; Luca Sala
  21. Predicting Output and Inflation in Less Developed Financial Markets Using the Yield Curve: Evidence from Malaysia By Abdul Majid, Muhamed Zulkhibri
  22. International liquidity provision during the financial crisis: a view from Switzerland By Raphael Auer; Sebastien Kraenzlin
  23. Non-Stationary Interest Rate Differentials and the Role of Monetary Policy By Philipp Matros; Enzo Weber
  24. UK World War I and interwar data for business cycle and growth analysis By James M. Nason; Shaun P. Vahey
  25. Rules and risk in the euro area: does rules-based national fiscal governance contain sovereign bond spreads? By Anna Iara; Guntram B. Wolff
  26. Nowcasting Business Cycles Using Toll Data By Askitas, Nikos; Zimmermann, Klaus F.
  27. What active labor market policy works in a recession? By Forslund, Anders; Fredriksson, Peter; Vikström, Johan
  28. Are Recessions Really Good for Your Health? Evidence from Canada By Ariizumi, Hideki; Schirle, Tammy
  29. Adjustment in the Euro Area and Regulation of Product and Labour Markets: An Empirical Assessment By Pietro Biroli; Gilles Mourre; Alessandro Turrini
  30. Why are Prices Sticky? Evidence from Business Survey Data By Schenkelberg, Heike
  31. Connectionist-based rules describing the pass-through of individual goods prices into trend inflation in the United States By Richard G. Anderson; Jane M. Binner; Vincent A. Schmidt
  32. Heterogeneous Productivity Shocks, Elasticity of Substitution and Aggregate Fluctuations By Alessio, Moro; Rodolfo, Stucchi
  33. Policy Rate Pass-through and the Adjustment of Retail Interest Rates in Malaysia? Empirical Evidence from Commercial Banks and Finance Companies By Abdul Majid, Muhamed Zulkhibri
  34. MOSES: Model of Swedish Economic Studies By Bårdsen, Gunnar; den Reijer, Ard; Jonasson, Patrik; Nymoen, Ragnar
  35. The Irish Crisis By Philip Lane
  36. Labor Market Flexibility and the Impact of the Financial Crisis By I Kadek Dian Sutrisna Artha; Jakob de Haan
  37. “Fire Sales” in housing market: is the house-searching process similar to a theme park visit? By Leung, Charles Ka Yui; Zhang, Jun
  38. Nonlinearities in the oil price-output relationship By Lutz Kilian; Robert J. Vigfusson
  39. Aproximación Alterna a la Curva de Phillips By Juan Cmilo GálvisCiro
  40. Economic Growth and Inequality: The Role of Fiscal Policies By Walter Leonel Muinelo Gallo; Oriol Roca Sagalés
  41. Wealth Effects Revisited 1978-2009 By Karl E. Case; John M. Quigley; Robert J. Shiller
  42. Economisirea în România – evoluţii şi factori determinanţi By Dumitru, Ionut; Mircea, Romulus; Jianu (Dumitru), Ionela
  43. Forecasting With Many Predictors. An Empirical Comparison By Eliana González

  1. By: Bafile, Romina; Piergallini, Alessandro
    Abstract: Standard New Keynesian models for monetary policy analysis are "cashless". When the nominal interest rate is the central bank's operating instrument, the LM equation is endogenous and, it is argued, can be ignored. The modern theoretical and quantitative debate on the importance of money for the conduct of monetary policy, however, overlooks firms' money demand. Working in an otherwise baseline New Keynesian setup, this paper shows that the monetary policy transmission mechanism is critically affected by the firms' money demand choice. Specifically, we prove that equilibrium determinacy may require either an active interest-rate policy (i.e., overreacting to inflation) or a passive interest-rate policy (i.e., underreacting to inflation), depending on the elasticity of production with respect to real money balances. We then calibrate the model to U.S. quarterly data and develop a sensitivity analysis in order to investigate the quantitative implications of our theoretical results. We find that macroeconomic stability is more likely to be guaranteed under an active, although not overly aggressive, monetary-policy stance.
    Keywords: Firms’ Money Demand; Interest-Rate Policy.
    JEL: E52 E41
    Date: 2011–02–21
  2. By: Katarína Danišková (Comenius University Bratislava); Jarko Fidrmuc (Osteuropa-Institut, Regensburg (Institut for East European Studies))
    Abstract: The New Keynesian Phillips Curve has become an important part of modern monetary policy models. It describes the relationship between inflation and real marginal cost, which is derived from micro-founded models with rational expectations, sticky prices, and forward and backward looking behaviour. This answers the previous critique of the Phillips Curve. We estimate several specifications of the New Keynesian Phillips Curve for the Czech Republic between 1996 and 2009. We show that the GMM suffers under the problem of weak instruments leading to biased estimates. In turn, the FIML is robust and yields significant estimates of structural parameters implying a strong forward looking behaviour.
    Keywords: inflation, New Keynesian Phillips Curve, marginal costs, output gap, real unit labour costs
    JEL: E31 E52 C32
    Date: 2011–01
  3. By: Nan-Kuang Chen (National Taiwan University and Hong Kong Institute for Monetary Research); Han-Liang Cheng (Chung-Hua Institution for Economic Research)
    Abstract: This paper is a theoretical study of the effects of monetary policy reacting to fluctuations in asset price, accounting for the expectation formation effect of policy regime shift in a DSGE model calibrated to the U.S. economy. We find that the effect of expectation formation can substantially influence the movement of asset price. In contrast to the linear policy rule, under the regime switching policy rule reacting to asset price can generate substantial stabilization effect: the "expected" inflation-output volatility frontier shifts downward, thereby lowering both the volatilities of inflation and output for all possible policy choices. The trade-off between the expected volatility of inflation and that of output, as demonstrated by the "Taylor curve," greatly diminishes, implying that the Taylor rule which considers expectation formation effect and asset price movement expands the set of monetary policy choices available for monetary authority.
    Keywords: Asset Price, Monetary Policy, Regime Switching, DSGE
    JEL: E3 E52 G1
    Date: 2011–03
  4. By: V. LEWIS; C. POILLY
    Abstract: This paper estimates a business cycle model with endogenous …rm entry by matching impulse responses to a monetary policy shock in US data. Our VAR includes net business formation, pro…ts and markups. We evaluate two channels through which entry may inuence the monetary transmission process. Through the competition effect, the arrival of new entrants makes the demand for existing goods more elastic, and thus lowers desired markups and prices. Through the variety effect, increased …rm and product entry raises consumption utility and thereby lowers the cost of living. This implies higher markups and, through the New Keynesian Phillips Curve, lower ination. While the proposed model does a good job at matching the observed dynamics, it generates insufficient volatility of markups and pro…ts. Estimates of standard parameters are largely unaffected by the introduction of …rm entry. Our results lend support to the variety e¤ect; however, we …nd no evidence for the competition effect.
    Keywords: entry, ination, monetary transmission, monetary policy, extensive margin
    JEL: E32 E52
    Date: 2011–01
  5. By: Abdul Majid, Muhamed Zulkhibri
    Abstract: The paper explores the measurement of monetary condition in Malaysia to augment the existing monetary policy framework. As an open economy, Monetary Condition Index (MCI) and Financial Condition Index (FCI) are applicable to understand the monetary condition especially in the era of financial deregulation and liberalisation. The results obtained suggest that the index is most useful when the exchange market exhibits stable conditions, and would be a constructive tool in the simultaneous management of the foreign currency and domestic money markets. However, the frequent experience of instability caused by supply and demand shocks with persistent and large inertia in the economy complicates the practical use of MCI and FCI in Malaysia. While this approach obviously does not provide answers to every question and as a leading indicator for inflation, it nonetheless makes it possible to measure the monetary condition in the Malaysian economy.
    Keywords: Monetary condition index; Monetary Policy; Malaysia
    JEL: E52 E44
    Date: 2010–01–01
  6. By: Strulik, Holger; Trimborn, Timo
    Abstract: The output multiplier turns negative before a deficit spending program expires. We show the generality of this unpleasant finding for the standard real business cycle model. We then calibrate an extended model for the US and demonstrate how fiscal stimulus slows down economic recovery from recession in the medium-run. We discuss the slowdown from recovery w.r.t.\ alternative assumptions about the size and persistence of the initial shock (severity of the recession), the assumed power of the impact multiplier, and the scale and duration of the stimulus program. We also show that results are quantitatively very similar independent from whether a recession was caused by an efficiency wedge (input-financing frictions) or a labor wedge (labor market frictions). Capital stock and output are always below their laissez-faire level of recovery when fiscal stimulus expires.
    Keywords: fiscal stimulus, government spending, output multiplier, economic recovery
    JEL: E60 H30 H50 O40
    Date: 2011–02
  7. By: Giancarlo Corsetti; Keith Kuester; Gernot J. Muller
    Abstract: According to conventional wisdom, fiscal policy is more effective under a fixed than under a flexible exchange rate regime. In this paper the authors reconsider the transmission of shocks to government spending across these regimes within a standard New Keynesian model of a small open economy. Because of the stronger emphasis on intertemporal optimization, the New Keynesian framework requires a precise specification of fiscal and monetary policies, and their interaction, at both short and long horizons. The authors derive an analytical characterization of the transmission mechanism of expansionary spending policies under a peg, showing that the long-term real interest rate always rises in response to an increase in government spending if inflation rises initially. This response drives down private demand even though short-term real rates fall. As this need not be the case under floating exchange rates, the conventional wisdom needs to be qualified. Under plausible medium-term fiscal policies, government spending is not necessarily less expansionary under floating exchange rates.
    Keywords: Fiscal policy ; Monetary policy
    Date: 2011
  8. By: Faccini, Renato (Bank of England); Millard, Stephen (Bank of England); Zanetti, Francesco (Bank of England)
    Abstract: We estimate a New Keynesian model with matching frictions and nominal wage rigidities on UK data. We are able to identify important structural parameters, recover the unobservable shocks that have affected the UK economy since 1971 and study the transmission mechanism. With matching frictions, wage rigidities have limited effect on inflation dynamics, despite improving the empirical performance of the model. The reason is that with matching frictions, marginal costs depend on unit labour costs and on an additional component related to search costs. Wage rigidities affect both components in opposite ways leaving marginal costs and inflation virtually unaffected.
    Keywords: DSGE models; Bayesian estimation; labour market search; unemployment
    JEL: E24 E32 E52 J64
    Date: 2011–02–21
  9. By: Totzek, Alexander
    Abstract: In the last two decades a body of literature highlights the role of financial frictions for explaining the development of key macroeconomic variables. Moreover, the financial crisis 2007-2009 again sheds light on the importance of this topic. In this paper, we contribute to the literature by simultaneously explaining two empirical observations. First, mark-ups on the loan market react counter-cyclical. Second, the number of banks operating in the economy significantly co-moves with GDP. Therefore, we develop a DSGE model which incorporates an oligopolistic banking sector with endogenous bank entry. The resulting model generates significant accelerating effects which are even larger than those obtained in the famous financial accelerator model of Bernanke et al. [Bernanke, B., Gertler, M., Gilchrist, S., 1999. The financial accelerator in a quantitative business cycle framework. In: Handbook of Macroeconomics. North-Holland, Amsterdam] and performs remarkable well when comparing the generated second moments of real and financial variables with those observed in the data. --
    Keywords: Oligopolistic competition,Bank entry,Financial accelerator
    JEL: E44 E32
    Date: 2011
  10. By: Luca Papi (Universit… Politecnica delle Marche, Department of Economics, MoFiR)
    Date: 2011–01
  11. By: Yu-chin Chen (University of Washington and Hong Kong Institute for Monetary Research); Kwok Ping Tsang (Virginia Tech and Hong Kong Institute for Monetary Research)
    Abstract: The nominal exchange rate is both a macroeconomic variable equilibrating international markets and a financial asset that embodies expectations and prices risks associated with cross border currency holdings. Recognizing this, we adopt a joint macro-finance strategy to model the exchange rate. We incorporate into a monetary exchange rate model macroeconomic stabilization through Taylor-rule monetary policy on one hand, and on the other, market expectations and perceived risks embodied in the cross-country yield curves. Using monthly data between 1985 and 2005 for Canada, Japan, the UK and the US, we employ a state-space system to model the relative yield curves between country-pairs using the Nelson and Siegel (1987) latent factors, and combine them with monetary policy targets (output gap and inflation) into a vector autoregression (VAR) for bilateral exchange rate changes. We find strong evidence that both the financial and macro variables are important for explaining exchange rate dynamics and excess currency returns, especially for the yen and the pound rates relative to the dollar. Moreover, by decomposing the yield curves into expected future yields and bond market term premiums, we show that both expectations about future macroeconomic conditions and perceived risks are priced into the currencies. These findings provide support for the view that the nominal exchange rate is determined by both macroeconomic and financial forces.
    Keywords: Exchange Rate, Term Structure, Latent Factors, Term Premiums
    JEL: E43 F31 G12 G15
    Date: 2011–01
  12. By: Pierre-Richard; K. Alper; L. Pereira da Silva
    Date: 2011–01
  13. By: Carlo Altavilla (University of Naples Parthenope and CSEF); Matteo Ciccarelli (European Central Bank)
    Abstract: This paper explores the role that the imperfect knowledge of the structure of the economy plays in the uncertainty surrounding the effects of rule-based monetary policy on unemployment dynamics in the euro area and the US. We employ a Bayesian model averaging procedure on a wide range of models which differ in several dimensions to account for the uncertainty that the policymaker faces when setting the monetary policy and evaluating its effect on real economy. We find evidence of a high degree of dispersion across models in both policy rule parameters and impulse response functions. Moreover, monetary policy shocks have very similar recessionary effects on the two economies with a different role played by the participation rate in the transmission mechanism. Finally, we show that a policy maker who does not take model uncertainty into account and selects the results on the basis of a single model may come to misleading conclusions not only about the transmission mechanism, but also about the differences between the euro area and the US, which are on average essentially small.
    Keywords: Monetary policy, Taylor rule, Real-time data, Great Moderation, Forecasting.
    JEL: E52 E58 C32 C53 C82
    Date: 2011–02–20
  14. By: Martin Larch; Paul van den Noord; Lars Jonung
    Abstract: While current instruments of EU economic policy coordination helped stave off a full-scale depression, the post-2007 global financial and economic crisis has revealed a number of weaknesses in the Stability and Growth Pact, the EU framework for fiscal surveillance and fiscal policy coordination. This paper provides a diagnosis of how the SGP faired ahead and during the present crisis and offers a first comprehensive review of the ongoing academic and policy debate, including an account of the reform proposals adopted by the Commission on 29 September 2010. In our view, the current system of EU rules is unbalanced. It consists of (i) very specific provisions on how to conduct fiscal policy making in normal times with no effective enforcement mechanisms, and of (ii) no or extremely tight provisions for really bad economic times, like the Great Recession. A two-pronged approach as outlined in this report is needed to revive the Pact: tighter enforcement, coupled with broader macroeconomic surveillance, in good times and an open window for exceptionally bad times, including a crisis resolution mechanism at the EU level.
    JEL: E62 E63 H6
    Date: 2010–12
  15. By: Eduardo Fernández-Arias (Inter-American Development Bank); Peter Montiel (Williams College)
    Abstract: This paper examines the fiscal policy options that were available to Latin American countries at the onset of the current global economic crisis. It concludes that most of the major countries in the region possessed the fiscal space (as measured by credible fiscal sustainability and debt headroom) to run prudent countercyclical fiscal deficits. For those countries, the appropriate policy response involved a constrained fiscal expansion focused on productive public spending and financed by drawing on the “rainy day” funds - in the form of large stocks of foreign exchange reserves - that they accumulated in prior years, rather than by market borrowing. It shows that the recent surge in multilateral financial activity to alleviate market illiquidity, whether intended for reserve or budget support, strengthens the case for this policy prescription : with multilateral support, the appropriate policy response is more expansionary, and its financing is less reliant on market borrowing.
    Keywords: countercyclical policy, fiscal space, international reserves, multilateral financial support
    JEL: E62 E63 F34
    Date: 2010–07
  16. By: Lan Shi
    Date: 2011–02
  17. By: Sanjay Chugh; Christian Merkl
    Abstract: We characterize efficient allocations and business cycle fluctuations in a labor selection model. Due to forward-looking hiring and labor supply decisions, efficiency entails both static and intertemporal margins. We develop welfare-relevant measures of marginal rates of transformation and efficiency along each margin that nest their counterparts in frictionless labor markets. In a calibrated version of the model, efficient fluctuations feature highly volatile unemployment and job-finding rates, in line with empirical evidence. We show analytically in a simplified version of the model that volatility arises from selection effects, rather than general equilibrium effects. We also develop sufficient conditions on wages, which are independent of the wage-determination process, that decentralize efficient allocations. Unlike the Hosios condition for matching models, there is no simple restriction on Nash bargaining that guarantees that Nash wages can support efficient allocations. Cyclical fluctuations in the Nash-bargaining economy display even larger amplification of productivity shocks into labor market outcomes than in the efficient economy, without extreme assumptions about bargaining shares, inflexibility of wages, or the size of surpluses that govern labor demand. The results establish normative and positive foundations for DSGE labor selection models
    Keywords: labor market frictions, efficiency, amplification, selection
    JEL: E24 E32 J20
    Date: 2011–02
  18. By: Meixing Dai
    Abstract: Cet article fournit un point de vue opposé au consensus d’« une macroéconomie sans LM ». Elle montre que, lorsque la politique monétaire est spécifiée en termes de règle du taux d’intérêt et la banque centrale ne contrôle pas directement les taux d’intérêt affectant la demande globale, la condition d’équilibre sur le marché monétaire a un autre rôle à jouer que de déterminer de manière endogène la masse monétaire. En effet, dans le cadre du modèle de l’offre et de la demande globales, une intégration des conditions équilibres sur les marchés monétaire et des réserves bancaires permet de montrer que l’inflation anticipée peut être stable ou instable selon le degré de développement financier de l’économie. Ce cadre permet également d’examiner la dynamique de l’économie quand le taux d’intérêt nominal tombe à zéro et une politique d’assouplissement quantitatif est mise en place.
    Keywords: Règle du taux d’intérêt, marché des réserves bancaires, rôle de la monnaie, dynamique de l’inflation anticipée, politiques monétaires non conventionnelles, assouplissement quantitatif, et borne inférieure zéro du taux d’intérêt nominal.
    JEL: E44 E51 E52 E58
    Date: 2011
  19. By: Toralf Pusch; Ingmar Kumpmann
    Abstract: Social security revenues are influenced by business cycle movements. In order to support the working of automatic stabilizers it would be necessary to calculate social insurance contribution rates independently from the state of the business cycle. This paper investigates whether European countries set social contribution rates according to such a rule. By means of VAR estimations, country-specific effects can be analyzed – in contrast to earlier studies which used a panel design. As a result, some countries under investigation seem to vary their social contribution rates in a procyclical way.
    Keywords: welfare state, procyclical policy, automatic stabilizers, social insurance, fiscal policy, European Union, business cycle
    JEL: E62 H53 H55 H75 J32
    Date: 2011–02
  20. By: Mario Forni; Luca Gambetti; Luca Sala
    Abstract: This paper uses a structural, large dimensional factor model to evaluate the role of 'news' shocks (shocks with a delayed effect on productivity) in generating the business cycle. We find that (i) existing small-scale VECM models are affected by 'non-fundamentalness' and therefore fail to recover the correct shock and impulse response functions; (ii) news shocks have a limited role in explaining the business cycle; (iii) their effects are in line with what predicted by standard neoclassical theory; (iv) the bulk of business cycle fluctuations are explained by shocks unrelated to technology.
    Keywords: structural factor model, news shocks, invertibility, fundamentalness.
    JEL: C32 E32 E62
    Date: 2011–02–21
  21. By: Abdul Majid, Muhamed Zulkhibri
    Abstract: This paper investigates the role of the term spread to predict domestic output and inflation in less developed financial market with the focus on Malaysia bond market. By controlling for past values of the dependent variable, this paper finds that the term spread of various bond maturities contain relevant information about future output and inflation at short horizons. Besides that, we employ a probit model to assess the ability for the yield curve to predict future economic slowdown. The results suggest that the term spread has contributed significantly in the probability of predicting future economic slowdown. Despite the under-developed bond market, the findings point to the potential for bond yields to play a greater role in monetary analysis beyond conventional indicators. From the policy point of views, the results from our analysis suggest that there is a significant potential for incorporating more technical and model based approaches using the yield curve beyond the usual indicator analysis.
    Keywords: Term spread; Forecasting; Monetary Policy; Malaysia
    JEL: E43 E52
    Date: 2011–01–01
  22. By: Raphael Auer; Sebastien Kraenzlin
    Abstract: We document the provision of CHF liquidity by the Swiss National Bank (SNB) to banks domiciled outside Switzerland during the recent financial crisis. What makes the Swiss case special is the size of this liquidity provision—making up 80 percent of all short term CHF liquidity provided by the SNB—and also the measures that were adopted to distribute this liquidity. In addition to making CHF available to other central banks via SWAP facilities, the SNB also allows banks domiciled outside Switzerland to directly participate in its REPO transactions. Although this policy was adopted for reasons that predate the financial crisis, during the crisis it proved tremendously helpful as it gave the European banking system direct access to the primary funding facility for CHF.
    Keywords: Demand for money ; Monetary policy - Switzerland ; International finance
    Date: 2011
  23. By: Philipp Matros (Universität Regensburg); Enzo Weber (Osteuropa-Institut, Regensburg (Institut for East European Studies))
    Abstract: The present work deals with a frequently detected failure of the uncovered interest rate parity (UIP) - the absence of bivariate cointegration between domestic and foreign interest rates. We explain non-stationarity of the interest differential via central bank reactions to exchange rate variations. Thereby, the exchange rate in levels introduces an additional stochastic trend into the system. Trivariate cointegration between the interest rates and the exchange rate accounts for the missing stationarity property of the interest differential. We apply the concept to the case of Turkey and Europe,where we can validate the theoretical considerations by multivariate time series techniques.
    Keywords: Uncovered Interest Rate Parity, Monetary Policy Rules, Cointegration, Vector-Error Correction Model
    JEL: E44 F31 C32
    Date: 2011–01
  24. By: James M. Nason; Shaun P. Vahey
    Abstract: This article contributes new time series for studying the UK economy during World War I and the interwar period. The time series are per capita hours worked and average capital income, labor income, and consumption tax rates. Uninterrupted time series of these variables are provided for an annual sample that runs from 1913 to 1938. The authors highlight the usefulness of these time series with several empirical applications. The per capita hours worked data are used in a growth accounting exercise to measure the contributions of capital, labor, and productivity to output growth. The average tax rates are employed in a Bayesian model averaging experiment to reevaluate the Benjamin and Kochin (1979) regression.
    Keywords: Business cycles ; Economic development ; Real-time data
    Date: 2011
  25. By: Anna Iara; Guntram B. Wolff
    Abstract: The strengthening of national fiscal frameworks, including numerical fiscal rules, has recently been proposed as an important part of the economic governance reform package for the EU. The strength of numerical fiscal rules can be described along the dimensions of their statutory base, the room to revise budgetary objectives, provisions for their monitoring and enforcement, and their media visibility. With a unique data set summarizing the quality of national fiscal rules along these dimensions, we show that stronger fiscal rules in euro area member states reduce sovereign risk. According to our estimates, yield spreads against Germany of countries with relatively weak fiscal rules could be up to 100 basis points lower if they upgraded their numerical fiscal rules. The legal base turns out to be the most important dimension for the perceived effectiveness of the rules. The effectiveness of the correction and enforcement mechanisms turns out to be very important as well, while the role of the bodies in charge of monitoring and enforcing compliance is somewhat smaller. Overall, national fiscal rules are found to be beneficial for market assessments of governments' ability and willingness to timely service debt: they could thus provide an effective way to implement fiscal discipline.
    JEL: E43 E62 G12 H60 H63
    Date: 2010–12
  26. By: Askitas, Nikos (IZA); Zimmermann, Klaus F. (IZA and University of Bonn)
    Abstract: Nowcasting has been a challenge in the recent economic crisis. We introduce the Toll Index, a new monthly indicator for business cycle forecasting and demonstrate its relevance using German data. The index measures the monthly transportation activity performed by heavy transport vehicles across the country and has highly desirable availability properties (insignificant revisions, short publication lags) as a result of the innovative technology underlying its data collection. It is coincident with production activity due to the prevalence of just-in-time delivery. The Toll Index is a good early indicator of production as measured for instance by the German Production Index, provided by the German Statistical Office, which is a well-known leading indicator of the Gross National Product. The proposed new index is an excellent example of technological, innovation-driven economic telemetry, which we suggest should be established more around the world.
    Keywords: production forecasting, transportation, new products, macroeconomic forecasting, evaluating forecasts, data mining, business cycles, nowcasting, telemetry
    JEL: C82 E01 E32 E37 L92
    Date: 2011–02
  27. By: Forslund, Anders (IFAU - Institute for Labour Market Policy Evaluation); Fredriksson, Peter (Department of Economics, Stockholm University); Vikström, Johan (IFAU - Institute for Labour Market Policy Evaluation)
    Abstract: This paper discusses the case for expanding active labor market policy in recession. We find that there is reasonable case for relying more heavily on certain kinds of programs. The argument is tied to the varying size of the lock-in effect in boom and recession. If programs with relatively large lock-in effects should ever be used, they should be used in a downturn. The reason is simply that the cost of forgoing search time is lower in recession. We also provide new evidence on the relative effectiveness of different kinds of programs over the business cycle. In particular we compare an on-the-job training scheme with (traditional) labor market training. We find that labor market training is relatively more effective in recession. This result is consistent with our priors since labor market training features relative large lock-in effects.
    Keywords: Active labor market policy; business cycle; unemployment
    JEL: J08 J64 J68
    Date: 2011–01–26
  28. By: Ariizumi, Hideki; Schirle, Tammy
    Abstract: This study investigates the relationship between business cycle fluctuations and health in the Canadian context, given that a procyclical relationship between mortality rates and unemployment rates has already been well established in the U.S. literature. Using a fixed effects model and provincial data over the period 1977--â€2009, we estimate the effect of unemployment rates on Canadian age and gender specific mortality rates. Consistent with U.S. results, there is some evidence of a strong procyclical pattern in the mortality rates of middle--â€aged Canadians. We find that a one percentage point increase in the unemployment rate lowers the predicted mortality rate of individuals in their 30s by nearly 2 percent. In contrast to the U.S. data, we do not find a significant cyclical pattern in the mortality rates of infants and seniors.
    Keywords: Unemployment, Business Cycles, Health, Mortality
    JEL: I10 J20 E32
    Date: 2011–02–22
  29. By: Pietro Biroli; Gilles Mourre; Alessandro Turrini
    Abstract: This paper assesses the adjustment mechanism in the euro area. Results show that the real exchange rate (REER) adjusts in such a way to redress cyclical divergences and that after monetary unification REER dynamics have become less reactive to country-specific shocks but also less persistent. It is found that regulations, notably affecting price and wage nominal flexibility and employment protection, play a role in the adjustment mechanism. Indicators of product and labour regulations appear to matter forboth the reaction of price competitiveness to cyclical divergences (differences between national and euro-area output gaps) and for the inertia of competitiveness indicators. Moreover, regulations appear to matter also for the extent to which common shocks may end up producing country-specific effects on the price competitiveness, as revealed by their interaction with proxies of unobservable common shocks along the lines of the methodology developed in Blanchard and Wolfers (2000). In light of the tendency towards less stringent regulations in past decades, the results seem consistent with the observed reduction in the persistence of inflation differentials, and has have implications for the design of adjustment-friendly product and labour market reforms.
    JEL: E30 F41
    Date: 2010–10
  30. By: Schenkelberg, Heike
    Abstract: This paper oers new insights on the price setting behaviour of German retail rms using a novel dataset that consists of a large panel of monthly business surveys from 1991-2006. The rm-level data allows matching changes in rms' prices to several other rm-characteristics. Moreover, information on price expectations allow analyzing the determinants of price updating. Using univariate and bivariate ordered probit specications, empirical menu cost models are estimated relating the probability of price adjustment and price updating, respectively, to both time- and state- dependent variables. First, results suggest an important role for state-dependence; changes in the macroeconomic and institutional environment as well as rm-specic factors are signicantly related to the timing of price adjustment. These ndings imply that price setting models should endogenize the timing of price adjustment in order to generate realistic predictions concerning the transmission of monetary policy. Second, an analysis of price expectations yields similar results providing evidence in favour of state-dependent sticky plan models. Third, intermediate input cost changes are among the most important determinants of price adjustment suggesting that pricing models should explicitly incorporate price setting at dierent production stages. However, the results show that adjustment to input cost changes takes time indicating "additional stickiness" at the last stage of processing.
    Keywords: Price setting behaviour; time dependent pricing; state dependent pricing; sticky prices
    JEL: E31 E32 E50
    Date: 2011–02–22
  31. By: Richard G. Anderson; Jane M. Binner; Vincent A. Schmidt
    Abstract: This paper examines the inflation "pass-through" problem in American monetary policy, defined as the relationship between changes in the growth rates of individual goods and the subsequent economy-wide rate of growth of consumer prices. Granger causality tests robust to structural breaks are used to establish initial relationships. Then, feedforward artificial neural network (ANN) is used to approximate the functional relationship between selected component subindexes and the headline CPI. Moving beyond the ANN “black box,” we illustrate how decision rules can be extracted from the network. Our custom decompositional extraction algorithm generates rules in humanreadable and machine-executable form (Matlab code). Our procedure provides an additional route, beyond direct Bayesian estimation, for empirical econometric relationships to be embedded in DSGE models. A topic for further research is embedding decision rules within such models.
    Keywords: Inflation (Finance) ; Consumer price indexes
    Date: 2011
  32. By: Alessio, Moro; Rodolfo, Stucchi
    Abstract: We use a Dixit-Stiglitz setting to show that aggregate productivity fluctuations can be generated through changes in the dispersion of firms' productivity. When the elasticity of substitution among goods is larger than one, an increase in the dispersion raises aggregate productivity because firms at the top of the distribution produce most of output. When the elasticity is smaller than one, an increase in the dispersion reduces aggregate productivity because firms at the bottom of the distribution use most of inputs. We use individual firm data from Spanish manufacturing sectors to test the relationship between the dispersion of firms' productivity and aggregate productivity. The estimated coefficients are consistent with the predictions of the model: we find that an increase in the coefficient of variation of firms productivity of 1% increases aggregate productivity by 0.59% in sectors with an elasticity of substitution larger than one while the same increase in the coefficient of variation reduces aggregate productivity by 0.07% in sectors with an elasticity of substitution smaller than one.
    Keywords: Heterogeneous Productivity Shocks; Elasticity of Substitution; Volatility; Aggregate Productivity.
    JEL: E32 E30 E13 E20
    Date: 2011–02
  33. By: Abdul Majid, Muhamed Zulkhibri
    Abstract: This paper examines the interest rate pass-through from money market rates to various retail lending and deposit rates for financial institutions in Malaysia. The evidence shows that vast majority of retail lending rates pass-through is less than complete, while the speed of adjustment varies across administered interest rates. Adjustment in lending rates tended to be more sluggish than that of deposit rates. The finance companies, moreover, are quicker in adjusting their deposit rates than the commercial banks, but are slower in adjusting their loan rates. The empirical analysis also shows that interest rate adjustment is asymmetric and faster in the period of monetary easing rather than in the period of monetary tightening. The evidence suggests the importance of financial institutions in the transmission of monetary policy reflecting the adjustment processes are not uniform across different types of institutions and instruments.
    Keywords: Interest rate pass-through; Price rigidity; Monetary Policy; Malaysia
    JEL: E43 E52 E44
    Date: 2010–09–01
  34. By: Bårdsen, Gunnar (Department of Economics); den Reijer, Ard (Monetary Policy Department, Central Bank of Sweden); Jonasson, Patrik (Monetary Policy Department, Central Bank of Sweden); Nymoen, Ragnar (Department of Economics)
    Abstract: MOSES is an aggregate econometric model for Sweden, estimated on quarterly data, and intended for short-term forecasting and policy simulations. After a presentation of qualitative model properties, the econometric methodology is summarized. The model properties, within sample simulations, and examples of dynamic simulation (model forecasts) for the period 2009q2-2012q4 are presented. We address practical issues relating to operational use and maintenance of a macro model of this type. The detailed econometric equations are reported in an appendix.
    Keywords: macroeconomic model; policy analysis; general-to-specific modelling
    JEL: E12 E66
    Date: 2011–01–01
  35. By: Philip Lane (Institute for International Integration Studies, Trinity College Dublin)
    Abstract: This paper has three goals. First, it seeks to explain the origins of the Irish crisis. Second, it provides an interim assessment of the Irish government?s management of the crisis. Third, it evaluates the lessons from Ireland for the macroeconomics of monetary unions.
    Keywords: Irish crisis
    JEL: E5 F4
    Date: 2011–02
  36. By: I Kadek Dian Sutrisna Artha; Jakob de Haan
    Abstract: The impact of the global financial crisis varies across countries. We examine whether cross-country differences in output loss and speed of recovery are affected by differences in labor market flexibility. By employing cross-country regressions and including control variables like trade and capital market integration, fiscal balance, financial vulnerability, and institutional differences, we find that lower hiring cost reduce the output loss, notably so in high-income countries. However, the duration of the crisis is longer in case of low dismissal cost, notably so in low-income countries.
    Keywords: labor market flexibility; output loss; financial crisis
    JEL: E32 E65
    Date: 2011–02
  37. By: Leung, Charles Ka Yui; Zhang, Jun
    Abstract: Three striking empirical regularities have been repeatedly reported: the positive correlation between housing prices and trading volume, between housing price and the time-on-the-market (TOM), and the existence of price dispersion. This short paper provides perhaps the first unifying framework which mimics these phenomena in a simple competitive search framework. In the equilibrium, sellers with heterogeneous waiting cost and buyers are endogenously segregated into different submarkets, each with distinct market tightness and prices. With endogenous search effort, our model also reproduces the well-documented price-volume correlation. Directions for future research are also discussed.
    Keywords: housing market; competitive search; price dispersion; trading volume; time on the market
    JEL: E30 D83 R21
    Date: 2011
  38. By: Lutz Kilian; Robert J. Vigfusson
    Abstract: It is customary to suggest that the asymmetry in the transmission of oil price shocks to real output is well established. Much of the empirical work cited as being in support of asymmetries, however, has not directly tested the hypothesis of an asymmetric transmission of oil price innovations. Moreover, many of the papers quantifying these asymmetric responses are based on censored oil price VAR models which recently have been shown to be invalid. Other studies are based on dynamic correlations in the data that do not shed light on the central question of whether the structural responses of real output triggered by positive and negative oil price innovations are asymmetric. Recently, a number of new methodologies have been introduced and applied to the problem of testing and quantifying asymmetric responses of U.S. real economic activity to positive and negative oil price innovations. Our objective is to put this literature in perspective, to contrast it with more traditional approaches, to highlight directions for further research, and to reconcile some seemingly conflicting results reported in the literature.
    Date: 2011
  39. By: Juan Cmilo GálvisCiro
    Abstract: El análisis de la curva de Phillips ha sido el centro de debate desde la segunda mitad del siglo XX y se ha alcanzado un relativo consenso de su existencia, por lo menos, a corto plazo en el mundo práctico, y hasta secreto hoy, de la macroeconomía. Este artículo intenta ser un paralelo crítico a Antonelli (2007) en cuánto intenta mostrar que la curva de Phillips si tiene sustento teórico que la demuestre en los llamados neokeynesianos y que de no ser así no hubiera sobrevivido en un ambiente académico que da fundamentos microeconómicos a la mayor parte de la teoría económica.
    Date: 2011–02–22
  40. By: Walter Leonel Muinelo Gallo (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona); Oriol Roca Sagalés (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona)
    Abstract: This paper analyses the impact of different instruments of fiscal policy on economic growth as well as on income inequality, using an unbalanced panel of 43 upper-middle and high income countries for the period 1972-2006. We consider and estimate two individual equations explaining growth and inequality in order to assess the incidence of different fiscal policies. Firstly, our approach considers imposing orthogonal assumptions between growth and inequality in both equations, and secondly, it allows growth to be included in the inequality equation, and inequality to be included in the growth equation. The empirical results suggest that an increase in the size of government measured through current expenditures and direct taxes diminishes economic growth while reducing inequality, being public investment the only fiscal policy that may break this trade-off between efficiency and equity, since increases in this item reduces inequality without harming output. Therefore, the results reflect that the trade-off between efficiency and equity that governments often confront when designing their fiscal policies may be avoided.
    Keywords: fiscal policy, inequality, growth, panel data models
    JEL: E62 D31 O47 C23
    Date: 2011–02
  41. By: Karl E. Case (Wellesley College); John M. Quigley (University of California, Los Angeles); Robert J. Shiller (Cowles Foundation, Yale University)
    Abstract: We re-examine the link between changes in housing wealth, financial wealth, and consumer spending. We extend a panel of U.S. states observed quarterly during the seventeen-year period, 1982 through 1999, to the thirty-one year period, 1978 through 2009. Using techniques reported previously, we impute the aggregate value of owner-occupied housing, the value of financial assets, and measures of aggregate consumption for each of the geographic units over time. We estimate regression models in levels, first differences and in error-correction form, relating per capita consumption to per capita income and wealth. We find a statistically significant and rather large effect of housing wealth upon household consumption. This effect is consistently larger than the effect of stock market wealth upon consumption. This reinforces the conclusions reported in our previous analysis. In contrast to our previous analysis, however, we do find -- based on data which include the recent volatility in asset markets -- that the effects of declines in housing wealth in reducing consumption are at least as large as the effects of increases in housing wealth in increasing the course of household consumption.
    Keywords: Consumption, Nonfinancial wealth, Housing market, Real estate
    JEL: E2 G1
    Date: 2011–02
  42. By: Dumitru, Ionut; Mircea, Romulus; Jianu (Dumitru), Ionela
    Abstract: The paper analyses the savings developments in Romania during transition in comparison with the other CEE countries, starting from the definition of savings from the national accounts. Moreover, saving analysis is performed by institutional sectors, especially for population and nonfinancial companies sectors. Also, the paper assesses the impact of savings on the financial balance sheets of population and companies. Using panel data covering 60 countries for 1980-2009 period, the paper is estimating some quantitative models for saving and its fundamentals. The models which are based on GMM methodology are used afterwards to assess the long term outlook of savings for Romania as well for other countries.
    Keywords: private savings; panel data; Ricardian equivalence; disposable income; impact of ageing
    JEL: E62 C23 E01 F21 E21
    Date: 2011–02–20
  43. By: Eliana González
    Abstract: Three methodologies of estimation of models with many predictors are implemented to forecast Colombian inflation. Two factor models, based on principal components, and partial least squares, as well as a Bayesian regression, known as Ridge regression are estimated. The methodologies are compared in terms of out-sample RMSE relative to two benchmark forecasts, a random walk and an autoregressive model. It was found, that the models that contain many predictors outperformed the benchmarks for most horizons up to 12 months ahead, however the reduction in RMSE is only statistically significant for the short run. Partial least squares outperformed the other approaches based on large datasets.
    Date: 2011–02–17

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