|
on Macroeconomics |
|
Issue of 2011‒04‒02
fifty-six papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Stephen McKnight (El Colegio de México) |
| Abstract: | This paper analyses the necessary and sufficient conditions to ensure that interest rate policy does not introduce real indeterminacy and thus self-fulfilling fluctuations into open economies. A key feature of the model is the incorporation of capital and investment spending into the analysis. The conditions for real determinacy are examined for two measures of inflation that central banks' can target in open economies: domestic vs. consumer price inflation. In stark contrast to previous studies, in the presence of investment activity monetary policy that targets domestic price inflation is more susceptible to self-fulfilling fluctuations than monetary policy rules that target consumer price inflation. However, the problem of indeterminacy identified under domestic price inflation can be ameliorated provided the policy rule also responds to either the exchange rate or to output. |
| Keywords: | real indeterminacy, open economy monetary models, trade openness, interest rate rules |
| JEL: | E32 E43 E52 E58 F41 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:emx:ceedoc:2011-02&r=mac |
| By: | Luisa Lambertini; Caterina Mendicino; Maria Tereza Punzi |
| Abstract: | This paper studies the potential gains of monetary and macro-prudential policies that lean against news-driven boom-bust cycles in housing prices and credit generated by expectations of future macroeconomic developments. First, we find no trade-off between the traditional goals of monetary policy and leaning against boom-bust cycles. An interest-rate rule that completely stabilizes inflation is not optimal. In contrast, an interest-rate rule that responds to financial variables mitigates macroeconomic and financial cycles and is welfare improving relative to the estimated rule. Second, counter-cyclical Loan-to-Value rules that respond to credit growth do not increase inflation volatility and are more effective in maintaining a stable provision of financial intermediation than interest-rate rules that respond to financial variables. Heterogeneity in the welfare implications for borrowers and savers make it difficult to rank the two policy frameworks. |
| JEL: | E32 E44 E52 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201108&r=mac |
| By: | Francesco Furlanetto (Norges Bank (Central Bank of Norway)); Martin Seneca (Norges Bank (Central Bank of Norway)) |
| Abstract: | In this paper we study the transmission for capital depreciation shocks. The existing literature in the Real Business Cycle tradition has concluded that these shocks are irrelevant for business cycle fluctuations. We show that these shocks are potentially important drivers of aggregate fluctuations in a New Keynesian model. Nominal rigidities and some persistence in the shock process are the key ingredients to generate co-movement across real variables. |
| Keywords: | Keywords: depreciation shocks, investment-specific technology shocks, consumption, nominal rigidities, co-movement. |
| JEL: | E32 |
| Date: | 2011–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2011_02&r=mac |
| By: | Frankel, Jeffrey A. (Harvard University) |
| Abstract: | Fiscal and monetary policy each has a role to play in mitigating the volatility that stems from the large trade shocks hitting commodity-exporting countries. All too often macroeconomic policy is procyclical, that is, destabilizing, rather than countercyclical. This paper suggests two institutional innovations designed to achieve greater countercyclicality, one for fiscal policy and one for monetary policy. The proposal for fiscal policy is to emulate Chile's structural budget rule, and particularly its avoidance of over-optimism in forecasting. The proposal for monetary policy is called Product Price Targeting (PPT), an alternative to CPI-targeting that is designed to be more robust with respect to terms of trade shocks. |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:harjfk:rwp11-015&r=mac |
| By: | Isabel Horta Correia; Emmanuel Farhi; Juan Pablo Nicolini; Pedro Teles |
| Abstract: | When the zero lower bound on nominal interest rates binds, monetary policy cannot provide appropriate stimulus. We show that in the standard New Keynesian model, tax policy can deliver such stimulus at no cost and in a time-consistent manner. There is no need to use inefficient policies such as wasteful public spending or future commitments to inflate. We conclude that in the New Keynesian model, the zero bound on nominal interest rates is not a relevant constraint on both .fiscal and monetary policy. |
| JEL: | E31 E40 E52 E58 E62 E63 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201103&r=mac |
| By: | D'Agostino, Antonello; Surico, Paolo |
| Abstract: | We investigate inflation predictability in the United States across the monetary regimes of the XXth century. The forecasts based on money growth and output growth were significantly more accurate than the forecasts based on past inflation only during the regimes associated with neither a clear nominal anchor nor a credible commitment to fight inflation. These include the years from the outbreak of World War II in 1939 to the implementation of the Bretton Woods Agreements in 1951, and from Nixon's closure of the gold window in 1971 to the end of Volcker’s disinflation in 1983. |
| Keywords: | monetary regimes; Phillips curve; predictability; time-varying models |
| JEL: | E37 E42 E47 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8292&r=mac |
| By: | R. Anton Braun; Tomoyuki Nakajima |
| Abstract: | We consider an incomplete-markets economy with capital accumulation and endogenous labor supply. Individuals face countercyclical idiosyncratic labor and asset risk. We derive conditions under which the aggregate allocations and price system can be found by solving a representative agent problem. This result is applied to analyze the properties of an optimal monetary policy in a new Keynesian economy with uninsured countercyclical individual risk. The optimal monetary policy that emerges from our incomplete-markets economy is the same as the optimal monetary policy in a representative agent model with preference shocks. When price rigidity is the only friction, the optimal monetary policy calls for stabilizing the inflation rate at zero. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2011-04&r=mac |
| By: | István P. Székely; Werner Roeger; Jan in 't Veld |
| Abstract: | This paper uses a multi region DSGE model with collateral constrained households and residential investment to examine the effectiveness of fiscal policy stimulus measures in a credit crisis. The paper explores alternative scenarios which differ by the type of budgetary measure, its length, the degree of monetary accommodation and the level of international coordination. In particular we provide estimates for New EU Member States where we take into account two aspects. First, debt denomination in foreign currency and second, higher nominal interest rates, which makes it less likely that the Central Bank is restricted by the zero bound and will consequently not accommodate a fiscal stimulus. We also compare our results to other recent results obtained in the literature on fiscal policy which generally do not consider credit constrained households. |
| Keywords: | Fiscal Policy, Monetary Policy, Fiscal Multiplier, Collateral Constraint, DSGE modelling |
| JEL: | E21 E62 F42 H31 H63 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:sec:cnstan:0423&r=mac |
| By: | Neville Francis; Eric Ghysels; Michael T. Owyang |
| Abstract: | With rare exception, studies of monetary policy tend to neglect the timing of the innovations to the monetary policy instrument. Models which do take timing seriously are often difficult to compare to standard VAR models of monetary policy because of the differences in the frequency that they use. We propose an alternative model using MIDAS regressions which nests both ideas: Accurate (daily) timing of innovations to the monetary policy instrument are embedded in a monthly frequency VAR to determine the macroeconomic effects of high frequency changes to policy. We find that taking into account the timing of the shocks is important and can alleviate some of the puzzles in standard monthly VARs [e.g., the price puzzle]. We find that policy shocks are most important to variables thought of as being heavily expectations-oriented and that, contrary to some VAR studies, the effects of FOMC shocks on real variables are small.> |
| Keywords: | Monetary policy ; Econometric models ; Prices |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2011-009&r=mac |
| By: | Rochelle M. Edge; Refet S. Gurkaynak |
| Abstract: | DSGE models are a prominent tool for forecasting at central banks and the competitive forecasting performance of these models relative to alternatives--including official forecasts--has been documented. When evaluating DSGE models on an absolute basis, however, we find that the benchmark estimated medium scale DSGE model forecasts inflation and GDP growth very poorly, although statistical and judgmental forecasts forecast as poorly. Our finding is the DSGE model analogue of the literature documenting the recent poor performance of macroeconomic forecasts relative to simple naive forecasts since the onset of the Great Moderation. While this finding is broadly consistent with the DSGE model we employ--ie, the model itself implies that under strong monetary policy especially inflation deviations should be unpredictable--a "wrong" model may also have the same implication. We therefore argue that forecasting ability during the Great Moderation is not a good metric to judge the usefulness of model forecasts. |
| Keywords: | Economic forecasting ; Inflation (Finance) ; Econometric models |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2011-11&r=mac |
| By: | Clausen, Andrew; Strub, Carlo |
| Abstract: | Classical models of money are typically based on a competitive market without capital or credit. They then impose exogenous timing structures, market participation constraints, or cash-in-advance constraints to make money essential. We present a simple model without credit where money arises from a fixed cost of production. This leads to a rich equilibrium structure. Agents avoid the fixed cost by taking vacations and the trade between workers and vacationers is supported by money. We show that agents acquire and spend money in cycles of finite length. Throughout such a "money cycle," agents decrease their consumption which we interpret as the hot potato effect of inflation. We give an example where money holdings do not decrease monotonically throughout the money cycle. Optimal monetary policy is given by the Friedman rule, which supports efficient equilibria. Thus, monetary policy provides an alternative to lotteries for smoothing out non-convexities. |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:usg:econwp:2011:02&r=mac |
| By: | Kerstin Gerling; Carlos Fernandez Valdovinos |
| Abstract: | Using a consistent dataset and methodology for all eight member countries of the West African Economic and Monetary Union (WAEMU) from 1994 to 2009, this paper provides evidence of the two major channels for real effects of inflation: inflation uncertainty and relative price variability. In line with theory and most evidence for advanced and emerging market economies, higher inflation increases inflation uncertainty and relative price variability in all WAEMU countries. However, the pattern, magnitude and timing of these two channels vary considerably by country. The findings raise several policy issues for future research. |
| Keywords: | Central banks , Cross country analysis , Economic models , Inflation , Inflation targeting , Monetary policy , Price elasticity , Prices , West Africa , West African Economic and Monetary Union , |
| Date: | 2011–03–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/59&r=mac |
| By: | Ferhan Salman; Gabriela Dobrescu |
| Abstract: | Domestic absorption cycles are relevant in assessment and design of fiscal policies. Our cross-country analysis covers 59 advanced and emerging countries for the 1990-2009 period. We show that ignoring domestic absorption cycles leads to biased fiscal stance indicators, for both advanced and emerging economies, by up to 1.5 percent of GDP. The estimates of fiscal policy reaction functions indicate that absorption booms are associated with pro-cyclical fiscal policy. We tackle the endogeneity problem in reactions functions through stripping the cyclical component of the fiscal aggregates. We also find that simple filtering methods in the computation of absorption gaps perform as better as indirect methods of estimating trade balance gaps and stripping of output gaps. |
| Keywords: | Business cycles , Cross country analysis , Developed countries , Economic growth , Economic models , Emerging markets , Fiscal policy , Indirect taxation , Revenue sources , Revenues , |
| Date: | 2011–02–23 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/41&r=mac |
| By: | Dixon, H.; Le Bihan, H. |
| Abstract: | The Generalized Calvo and the Generalized Taylor model of price and wage-setting are, unlike the standard Calvo and Taylor counterparts, exactly consistent with the distribution of durations observed in the data. Using price and wage micro-data from a major euro-area economy (France), we develop calibrated versions of these models. We assess the consequences for monetary policy transmission by embedding these calibrated models in a standard DSGE model. The Generalized Taylor model is found to help rationalizing the hump-shaped response of inflation, without resorting to the counterfactual assumption of systematic wage and price indexation. |
| Keywords: | Contract length, steady state, hazard rate, Calvo, Taylor, wage-setting, price-setting. |
| JEL: | E31 E32 E52 J30 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:324&r=mac |
| By: | Cristian Badarinza (House of Finance, Goethe University, Frankfurt am Main, Germany.); Emil Margaritov (House of Finance, Goethe University, Frankfurt am Main, Germany.) |
| Abstract: | We study the effects of information shocks on macroeconomic and term structure dynamics in an estimated medium-scale DSGE model for the US economy. We consider news about total factor productivity and investment-specific technology, as well as foresight about monetary policy. Our empirical investigation confirms the findings of previous studies on the limited role played by productivity news in this class of models. In contrast, we uncover a non-trivial role for investment-specific news and anticipated monetary policy shocks not only in the historical and variance decomposition of real economic variables but also for the overall dynamic behavior of the term structure of interest rates. We also document substantial qualitative differences in the dynamic responses of the macroeconomy and the bond yield term structure to anticipated and surprise structural and policy innovations. JEL Classification: E32, E43, E52. |
| Keywords: | News, Policy Foresight, Term Structure, DSGE Model. |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20111313&r=mac |
| By: | Luc Laeven; Fabian Valencia |
| Abstract: | We collect new data to assess the importance of supply-side credit market frictions by studying the impact of financial sector recapitalization packages on the growth performance of firms in a large cross-section of 50 countries during the recent crisis. We develop an identification strategy that uses the financial crisis as a shock to credit supply and exploits exogenous variation in the degree to which firms depend on external financing for investment needs, and focus on policy interventions aimed at alleviating the bank capital crunch. We find that the growth of firms dependent on external financing is disproportionately positively affected by bank recapitalization policies, and that this effect is quantitatively important and robust to controlling for other financial sector support policies. We also find that fiscal policy disproportionately boosted growth of firms more dependent on external financing. These results provide new evidence of a quantitatively important role of credit market frictions in influencing real economic activity. |
| Keywords: | Banking crisis , Banking sector , Capital , Central banks , Credit , External shocks , Financial crisis , Financial sector , Liquidity management , Monetary policy , |
| Date: | 2011–03–02 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/45&r=mac |
| By: | Frankel, Jeffrey A. (Harvard University) |
| Abstract: | American fiscal policy has been procyclical: Washington wasted the expansion period 2001-2007 by running budget deficits, but by 2011 had come to feel constrained by inherited debt to withdraw fiscal stimulus. Chile has achieved countercyclical fiscal policy - saving in booms and easing in recession - during the same decade that rich countries forgot how to do so. Chile has a rule that targets a structural budget balance. But rules are not credible by themselves. In Europe and the U.S., official forecasts are overly optimistic in booms; so revenue is spent rather than saved. Chile avoids such wishful thinking by having independent panels of experts decide what is structural and what is cyclical. |
| JEL: | E62 F41 H50 O54 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:harjfk:rwp11-014&r=mac |
| By: | Yi Wen |
| Abstract: | This paper develops an analytically tractable general-equilibrium model of inventory dynamics based on a precautionary stockout-avoidance motive. The model’s predictions are broadly consistent with the U.S. business cycle and key features of inventory behavior. It is also shown that technological improvement of inventory management can increase, rather than decrease, the volatility of aggregate output. Key to this seemingly counterintuitive result is that a stockout-avoidance motive leads to a procyclical shadow value of inventories, which acts as an automatic stabilizer that discourages sales in booms and encourages demand in recessions, thereby reducing the variability of GDP.> |
| Keywords: | Inventories ; Business cycles |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2011-008&r=mac |
| By: | Vladimir Klyuev; Stephen Snudden |
| Abstract: | This paper uses the IMF’s Global Integrated Monetary and Fiscal Model (GIMF) to assess the impact of fiscal consolidation on the Czech economy. Its contribution is threefold. First, it provides estimates of dynamic fiscal multipliers for a variety of fiscal instruments (tax and expenditure), consolidation durations, assumptions about credibility, and monetary policy responses. Second, the paper evaluates the impact on the economy of tightening measures envisaged in the 2011 budget. Third, the paper considers alternative packages for consolidation beyond 2011 to achieve the government’s balanced budget target by 2016 and identifies which forms of adjustment are more "growth-friendly". |
| Date: | 2011–03–24 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/65&r=mac |
| By: | Pedro Gomes |
| Abstract: | I build a dynamic stochastic general equilibrium model with search and matching frictions in order to study the labour market effects of public sector employment and wages. Public sector wages are important to achieve the effcient allocation. High wages induce too many unemployed to queue for public sector jobs, raising unemployment. Following technology shocks, public sector wages should be procyclical and deviations from the optimal policy increase the volatility of unemployment significantly. Another conclusion is that different types of fiscal shocks have opposite effects on labour market variables. I then estimate the parameters of the model for the United States |
| JEL: | E24 E62 J45 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecopap:0439&r=mac |
| By: | Repullo, Rafael; Saurina, Jesús |
| Abstract: | We provide a critical assessment of the countercyclical capital buffer in the new regulatory framework known as Basel III, which is based on the deviation of the credit-to-GDP ratio with respect to its trend. We argue that a mechanical application of the buffer would tend to reduce capital requirements when GDP growth is high and increase them when GDP growth is low, so it may end up exacerbating the inherent pro-cyclicality of risk-sensitive bank capital regulation. We also note that Basel III does not address pro-cyclicality in any other way. We propose a fully rule-based smoothing of minimum capital requirements based on GDP growth. |
| Keywords: | Bank capital regulation; Basel III; Business cycles; Credit crunch; Pro-cyclicality |
| JEL: | E32 G28 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8304&r=mac |
| By: | Rafael Repullo (CEMFI, Centro de Estudios Monetarios y Financieros); Jesús Saurina (Banco de España) |
| Abstract: | We provide a critical assessment of the countercyclical capital buffer in the new regulatory framework known as Basel III, which is based on the deviation of the credit-to-GDP ratio with respect to its trend. We argue that a mechanical application of the buffer would tend to reduce capital requirements when GDP growth is high and increase them when GDP growth is low, so it may end up exacerbating the inherent pro-cyclicality of risk-sensitive bank capital regulation. We also note that Basel III does not address pro-cyclicality in any other way. We propose a fully rule-based smoothing of minimum capital requirements based on GDP growth. |
| Keywords: | Bank capital regulation, Basel III, Pro-cyclicality, Business cycles, Credit crunch. |
| JEL: | E32 G28 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2011_1102&r=mac |
| By: | Guido Menzio; Shouyong Shi; Hongfei Sun |
| Abstract: | Dispersion of money balances among individuals is the basis for a range of policies but it has been abstracted from in monetary theory for tractability reasons. In this paper, we fill in this gap by constructing a tractable search model of money with a non-degenerate distribution of money holdings. We assume search to be directed in the sense that buyers know the terms of trade before visiting particular sellers. Directed search makes the monetary steady state block recursive in the sense that individuals\' policy functions, value functions and the market tightness function are all independent of the distribution of individuals over money balances, although the distribution affects the aggregate activity by itself. Block recursivity enables us to characterize the equilibrium analytically. By adapting lattice-theoretic techniques, we characterize individuals\' policy and value functions, and show that these functions satisfy the standard conditions of optimization. We prove that a unique monetary steady state exists. Moreover, we provide conditions under which the steady-state distribution of buyers over money balances is non-degenerate and analyze the properties of this distribution. |
| Keywords: | Money; Distribution; Search; Lattice-Theoretic |
| JEL: | E00 E4 C6 |
| Date: | 2011–03–24 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-425&r=mac |
| By: | Marco Cornia; Kristopher S. Gerardi; Adam Hale Shapiro |
| Abstract: | A parsimonious theoretical model of second degree price discrimination suggests that the business cycle will affect the degree to which firms are able to price-discriminate between different consumer types. We analyze price dispersion in the airline industry to assess how price discrimination can expose airlines to aggregate-demand fluctuations. Performing a panel analysis on seventeen years of data covering two business cycles, we find that price dispersion is highly procyclical. Estimates show that a rise in the output gap of 1 percentage point is associated with a 1.9 percent increase in the interquartile range of the price distribution in a market. These results suggest that markups move procyclically in the airline industry, such that during booms in the cycle, firms can significantly raise the markup charged to those with a high willingness to pay. The analysis suggests that this impact on firms' ability to price-discriminate results in additional profit risk, over and above the risk that comes from variations in cost. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2011-03&r=mac |
| By: | Vanda Almeida; Gabriela Lopes de Castro; Ricardo Mourinho Félix; José Ramos Maria |
| Abstract: | This article focuses on the costs and benefits of a fiscal consolidation in a small euro area economy. The macroeconomic impacts and the welfare analysis are conducted in a New-Keynesian general equilibrium model with non-Ricardian agents. We define a benchmark fiscal consolidation strategy based on a permanent reduction in Government expenditure. We find that, over the long run, fiscal consolidation leads to a considerable increase in the level of output and consumption, and is welfare improving. In addition, the gains are boosted if the fiscal strategy also involves a tax reform that shifts the tax burden away from labour income towards the final goods consumption. However, important short-run costs arise, notably output, consumption and welfare losses. Finally, we assess the effect of alternative fiscal consolidation paths in terms of the degree of front loading, the speed of its completion and the interaction with risk premium. |
| JEL: | E62 F41 H62 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201105&r=mac |
| By: | Marcos Poplawski-Ribeiro; Jan-Christoph Rulke |
| Abstract: | The paper uses survey data to analyze whether financial market expectations on government budget deficits changed in France, Germany, Italy, and the United Kingdom during the period of the Stability and Growth Pact (SGP). Our findings indicate that accuracy of financial expert deficit forecasts increased in France. Convergence between the European Commission's and market experts’ deficit forecasts also increased in France, Italy, and the United Kingdom, particularly during the period after SGP’s reform in 2005. Yet, convergence between markets’ forecasts and those of the French, German, and Italian national fiscal authorities seems not to have increased significantly during the SGP. |
| Keywords: | Budget deficits , Cross country analysis , Economic forecasting , Economic growth , European Economic and Monetary Union , Fiscal policy , Fiscal stability , France , Germany , Italy , United Kingdom , |
| Date: | 2011–03–04 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/48&r=mac |
| By: | Naohisa Hirakata (Deputy Director and Economist, Research and Statistics Department, Bank of Japan (E-mail: naohisa.hirakata@boj.or.jp)); Nao Sudo (Deputy Director and Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: nao.sudou@boj.or.jp)); Kozo Ueda (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: kouzou.ueda boj.or.jp)) |
| Abstract: | We evaluate the implications of spread-adjusted Taylor rules and capital injection policies in response to adverse shocks to the economy, using a variant of the financial accelerator model. Our model comprises the two credit-constrained sectors that raise external finance under the credit market imperfection: financial intermediaries (FIs) and entrepreneurs. Using a model calibrated to the United States, we find that a spread-adjusted Taylor rule mitigates (amplifies) the impact of adverse shocks when the shock is accompanied by a widening (shrinking) of the corresponding spread. We formalize a capital injection policy as a positive (negative) amount of injection to either of the two sectors in response to an adverse shock (a favorable shock). In contrast to a spread-adjusted Taylor rule, a positive injection boosts the economy regardless of the type of shock. The capital injection to the FIs has a greater impact on the economy compared with that to the entrepreneurs. Although the welfare implication of these policies varies depending on the source of economic downturn, our result shows more support for adopting the spread-adjusted Taylor rules than capital injections. |
| Keywords: | Financial Accelerators, Spread-adjusted Taylor rule, Capital Injection |
| JEL: | E31 F52 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:11-e-10&r=mac |
| By: | Gianluca Benigno; Huigang Chen; Christopher Otrok; Alessandro Rebucci; Eric Young |
| Abstract: | Stochastic general equilibrium models of small open economies with occasionally binding financial frictions are capable of mimicking both the business cycles and the crisis events associated with the sudden stop in access to credit markets (Mendoza, 2010). This paper studies the inefficiencies associated with borrowing decisions in a two-sector small open production economy, finding that this economy is much more likely to display under-borrowing rather than over-borrowing in normal times. As a result, macro-prudential policies (e.g, Tobin taxes or economy-wide controls on capital inflows) are costly in welfare terms. Moreover, macro-prudential policies aimed at minimizing the probability of the crisis event might be welfare-reducing in production economies. The analysis shows that there is a much larger scope for welfare gains from policy interventions during financial crises. That is to say that, ex post or crisis-management policies dominate ex ante or macro-prudential ones. |
| Keywords: | Capital controls, Crises, Financial frictions, Macro-prudential policies, Bailouts, Overborrowing |
| JEL: | E52 F37 F41 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:idb:wpaper:4710&r=mac |
| By: | Vítor Castro (Universidade de Coimbra and NIPE) |
| Abstract: | This paper tries to identify, for the first time, a chronology for the Portuguese business cycle and test for the presence of duration dependence in the respective phases of expansion and contraction. A duration dependent Markov-switching vector autoregressive model is employed in that task. This model is estimated over monthly and year-on-year (monthly) growth rates of a set of relevant economic indicators, namely, industrial production, a composite leading indicator and, additionally, civilian employment. The estimated specifications allow us to identify four main periods of contraction during the last three decades and the presence of positive duration dependence in contactions, but not in expansions. |
| Keywords: | business cycles; duration dependence; Markov-switching |
| JEL: | E32 C41 C24 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:11/2011&r=mac |
| By: | Bec, F.; Bouabdallah, O.; Ferrara, L. |
| Abstract: | This paper explores the various shapes the recoveries may exhibit within a Markov-Switching model. It relies on the bounce-back effects first analyzed by Kim, Morley and Piger (2005) and extends the methodology by proposing i) a more flexible bounce-back model, ii) explicit tests to select the appropriate bounce-back function, if any, and iii) a suitable measure of the permanent impact of recessions. This approach is then applied to post-WWII quarterly growth rates of US, UK and French real GDPs. |
| Keywords: | Markov-Switching models, bounce-back effects, asymmetric business cycles. |
| JEL: | E32 C22 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:321&r=mac |
| By: | Tidiane Kinda |
| Abstract: | This paper examines the determinants of inflation in Chad using quarterly data from 1983:Q1 to 2009:Q3. The analysis is based on a single-equation model, completed by a structural vector auto regression model to capture inflation persistence. The results show that the main determinants of inflation in Chad are rainfall, foreign prices, exchange rate movements, and public spending. The effects of rainfall shocks and changes in foreign prices on inflation persist during six quarters. Changes in public spending and the nominal exchange rate affect inflation during three and four quarters, respectively. |
| Keywords: | Chad , Consumer price indexes , Demand , Demand for money , Economic models , Government expenditures , Inflation , |
| Date: | 2011–03–14 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/57&r=mac |
| By: | Fabio Ghironi (Department of Economics, Boston College, 140 Commonwealth Avenue, Chestnut Hill, MA 02467-3859, U.S.A. (E-mail: Fabio. Ghironi@bc.edu)); Karen K. Lewis (Department of Finance, 2300 SH-DH, Wharton School, University of Pennsylvania, Philadelphia, PA 19104-6367, U.S.A. (E-mail: lewisk@wharton.upenn.edu)) |
| Abstract: | Smaller firms sell more equity in response to expansions than do larger firms. Also, consumption is more pro-cyclical for high income groups than others. In this paper, we present a model that captures key features of both of these patterns found in recent empirical studies. Managers own firms with unique differentiated products and can sell ownership in these firms. Equity sales require paying consulting fees, but the resulting scrutiny also make firms more efficient. We find four main results: (1) Equity sales are pro-cylical since the benefits of efficient production outweigh the consulting fees during a boom. (2) Equity shares in smaller firms are more pro-cyclical because expansions make previously solely-owned firms to seek outside equity financing. (3) Households must absorb the increased equity sales by managers, thereby affecting their consumption response relative to managers. (4) Greater underlying managerial inefficiency induces more firms to seek outside advice and ownership in equilibrium. As a result, the cyclical impact on efficiency is mitigated by outside ownership. |
| Keywords: | Equity Sales, Managerial Efficiency, Firm Size, Business Cycles |
| JEL: | E25 E44 E21 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:11-e-07&r=mac |
| By: | Angelini, P.; Clerc, L.; Cúrdia, V.; Gambacorta, L.; Gerali, A.; Locarno, A.; Motto, R.; Roeger, W.; Van den Heuvel, S.; Vlcek, J. |
| Abstract: | We assess the long-term economic impact of the new regulatory standards (the Basel III reform), answering the following questions. (1) What is the impact of the reform on long-term economic performance? (2) What is the impact of the reform on economic fluctuations? (3) What is the impact of the adoption of countercyclical capital buffers on economic fluctuations? The main results are the following. (1) Each percentage point increase in the capital ratio causes a median 0.09 percent decline in the level of steady state output, relative to the baseline. The impact of the new liquidity regulation is of a similar order of magnitude, at 0.08 percent. This paper does not estimate the benefits of the new regulation in terms of reduced frequency and severity of financial crisis, analysed in Basel Committee on Banking Supervision (BCBS, 2010b). (2) The reform should dampen output volatility; the magnitude of the effect is heterogeneous across models; the median effect is modest. (3) The adoption of countercyclical capital buffers could have a more sizeable dampening effect on output volatility. These conclusions are fully consistent with those of the reports by the Long-term Economic Impact group (BCBS, 2010b) and Macro Assessment Group (MAG, 2010b). |
| Keywords: | Basel III, countercyclical capital buffers, financial (in)stability, procyclicality, macroprudential policy. |
| JEL: | E44 E61 G21 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:323&r=mac |
| By: | Troy Matheson |
| Abstract: | We develop monthly indicators for tracking growth in 32 advanced and emerging-market economies. We test the historical performance of our indicators and find that they do a good job at describing the business cycle. In a recursive out-of-sample forecasting exercise, we find that the indicators generally produce good GDP growth forecasts relative to a range of time series models. |
| Keywords: | Business cycles , Developed countries , Economic growth , Economic indicators , Emerging markets , Forecasting models , Time series , |
| Date: | 2011–02–24 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/43&r=mac |
| By: | Dimitrios Christelis (University of Salerno and CSEF); Dimitris Georgarakos (Goethe University Frankfurt and CFS); Tullio Jappelli (University of Naples Federico II, CSEF and CEPR) |
| Abstract: | We use data from the 2009 Internet Survey of the Health and Retirement Study to examine the consumption impact of wealth shocks and unemployment during the Great Recession in the US. We find that many households experienced large capital losses in housing and in their financial portfolios, and that a non-trivial fraction of respondents have lost their job. As a consequence of these shocks, many households reduced substantially their expenditures. We estimate that the marginal propensities to consume with respect to housing and financial wealth are 1 and 3.3 percentage points, respectively. In addition, those who became unemployed reduced spending by 10 percent. We also distinguish the effect of perceived transitory and permanent wealth shocks, splitting the sample between households who think that the stock market is likely to recover in a year’s time, and those who don’t. In line with the predictions of standard models of intertemporal choice, we find that the latter group adjusted much more than the former its spending in response to financial wealth shocks. |
| Keywords: | Marginal Propensity to Consume; Wealth Shocks; Unemployment |
| JEL: | E21 D91 |
| Date: | 2011–03–24 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:279&r=mac |
| By: | Frederick van der Ploeg; Anthony J. Venables |
| Abstract: | A windfall of natural resource revenue (or foreign aid) faces government with choices of how to manage public debt, investment, and the distribution of funds for consumption, particularly if the windfall is both anticipated and temporary. Standard policy advice follows the permanent income hypothesis in suggesting a sustained increase in consumption supported by interest on accumulated foreign assets (a Sovereign Wealth Fund) once resource revenue are exhausted. However, this strategy is not optimal for capital-scarce developing economies. Incremental consumption should be skewed towards present generations, relative to those in the far future. Savings should be directed to accumulation of domestic private and public capital rather than foreign assets. Optimal policy depends on instruments available to government. We study cases where the government can make lump-sum transfers to consumers; where such transfers are impossible so optimal policy involves cutting distortionary taxation in order to raise investment and wages; and where Ricardian consumers can borrow against future revenues so government only has indirect control of consumption. |
| Keywords: | Natural resource, windfall public revenues, risk premium on foreign debt, public infrastructure, private investment, credit constraints, optimal fiscal policy, debt management, Sovereign Wealth Fund, asset holding subsidy, developing economies |
| JEL: | E60 F34 F35 F43 H21 H63 O11 Q33 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:543&r=mac |
| By: | Kelly, Robert (Central Bank of Ireland); McQuinn, Kieran (Central Bank of Ireland); Stuart, Rebecca (Central Bank of Ireland) |
| Abstract: | The rapid increase in credit in an economy is now commonly perceived to be one of the leading in- dicators of financial instability. This view has been reinforced by the aftermath of the international financial crisis, which commenced in mid-2007. A key policy response has been to focus on the ratio of private sector credit to GDP for an economy, observing, in particular, significant deviations be- tween the actual and long-run trends of the ratio. This paper examines the issue of the steady-state relationship between private sector credit and GDP in the case of Ireland, a country which, even by international standards, experienced a sizeable expansion in credit over the past 10 years. |
| Keywords: | Credit, GDP, Indicator |
| JEL: | E51 E63 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:1/rt/11&r=mac |
| By: | Luís Francisco Aguiar (Universidade do Minho - NIPE); Yi Wen (Federal Reserve Bank of St. Louis and Tsinghua University) |
| Abstract: | Aguiar-Conraria and Wen (2008) argued that dependence on foreign oil raises the likelihood of equilibrium indeterminacy (economic instability) for oil importing countries. We argue that this relation is more subtle. The endogenous choices of prices and quantities by a cartel of oil exporters, such as the OPEC, can affect the directions of the changes in the likelihood of equilibrium indeterminacy. We show that fluctuations driven by self-fulfilling expectations under oil shocks are easier to occur if the cartel sets the price of oil, but the result is reversed if the cartel sets the quantity of production. These results offer a potentially interesting explanation for the decline in economic volatility (i.e., the Great Moderation) in oil importing countries since the mid-1980s when the OPEC cartel changed its market strategies from setting prices to setting quantities, despite the fact that oil prices are far more volatile today than they were 30 years ago. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:10/2011&r=mac |
| By: | L. Marattin; P. Paesani; S. Salotti |
| Abstract: | Public finances worldwide have been severely hit by the 2008-2009 Great Recession, stimulating the debate on the consequences of growing fiscal imbalances. Building on Paesani et al. (2006), this paper focuses on the USA, Germany and Italy over the 1983-2009 period and studies the effects of fiscal shocks and government debt accumulation on long-term interest rates, both nationally and across borders. Based on a a theoretical framework, the empirical analysis disentangles permanent and transitory components of interest rates dynamics .nding that sustained debt accumulation leads, at least temporarily, to higher long-term interest rates. The is particularly true for the Italian case. There is also evidence of signi.cant cross-country linkages, mainly between Italy and the USA. |
| JEL: | E6 H63 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp740&r=mac |
| By: | Pavel Gertler (National Bank of Slovakia, Research Departmen) |
| Abstract: | The paper studies the relationship between the local unemployment rate and wage level – commonly referred to as the wage curve. Using a panel data setup for annual enterprise-level microdata, we confirm previous findings that wages in Slovakia are, on the whole, relatively flexible – with a rise in the local unemployment rate of 1 percentage point being associated with a drop in wages of 0.85%. We find, however, that these elasticities differ considerably across sectors, regions and, in particular, skills. Our results indicate that overall wage flexibility in the Slovak labour market is driven more by the wage flexibility of higher-skilled employees, and their broader opportunities for employment, than by the institutional arrangements of the labour market. |
| Keywords: | wage curve, panel data, unemployment elasticity of wages, wage flexibility, Slovakia, Phillips curve, microdata |
| JEL: | E E C |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:svk:wpaper:1012&r=mac |
| By: | Karen A. Kopecky; Jeremy Greenwood |
| Abstract: | The welfare gain to consumers from the introduction of personal computers is estimated here. A simple model of consumer demand is formulated that uses a slightly modified version of standard preferences. The modification permits marginal utility, and hence total utility, to be finite when the consumption of computers is zero, implying that the good won't be consumed at a high enough price. It also bounds the consumer surplus derived from the product. The model is calibrated and estimated using standard national income and product account data. The welfare gain from the introduction of personal computers is in the range of 2 percent to 3 percent of consumption expenditure. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2011-05&r=mac |
| By: | Helke Waelde (Department of Economics, Johannes Gutenberg-Universitaet Mainz, Germany) |
| Abstract: | These days it has been witnessed, that banks other individual loans instead of group loans and develop products based on individual liability in developing coun- tries. In order to study this surprising turn, we expand the conventional approach on decision making of individuals. A social prestige function is introduced that re- ‡ects the non-monetary impacts of group membership on the individual and on her decisions. If a borrower possesses more than a critical level of wealth, it is optimal for her to switch to individual borrowing. From a welfare perspective, a mixture of individual and group loans is desirable. However, the average borrower switches from group to individual lending too soon. |
| JEL: | E43 E52 E58 D44 |
| Date: | 2011–03–07 |
| URL: | http://d.repec.org/n?u=RePEc:jgu:wpaper:1106&r=mac |
| By: | Abdul Abiad; Bin (Grace) Li; Giovanni Dell'Ariccia |
| Abstract: | Recoveries that occur in the absence of credit growth are often dubbed miracles and named after mythical creatures. Yet these are not rare animals, and are not always miracles. About one out of five recoveries is "creditless", and average growth during these episodes is about a third lower than during "normal" recoveries. Aggregate and sectoral data suggest that impaired financial intermediation is the culprit. Creditless recoveries are more common after banking crises and credit booms. Furthermore, sectors more dependent on external finance grow relatively less and more financially dependent activities (such as investment) are curtailed more during creditless recoveries. |
| Keywords: | Bank credit , Banking crisis , Business cycles , Credit expansion , Cross country analysis , Developed countries , Economic growth , Economic recovery , Emerging markets , Financial crisis , Industrial investment , Private sector , |
| Date: | 2011–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/58&r=mac |
| By: | Marco Lo Duca (International Policy Analysis Division, European Central Bank, Kaiserstraße 29, D-60311 Frankfurt am Main, Germany.); Tuomas A. Peltonen (Financial Stability Surveillance Division, European Central Bank, Kaiserstraße 29, D-60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper develops a framework for assessing systemic risks and for predicting (out-of-sample) systemic events, i.e. periods of extreme financial instability with potential real costs. We test the ability of a wide range of “stand alone” and composite indicators in predicting systemic events and evaluate them by taking into account policy makers’ preferences between false alarms and missing signals. Our results highlight the importance of considering jointly various indicators in a multivariate framework. We find that taking into account jointly domestic and global macrofinancial vulnerabilities greatly improves the performance of discrete choice models in forecasting systemic events. Our framework shows a good out-of-sample performance in predicting the last financial crisis. Finally, our model would have issued an early warning signal for the United States in 2006 Q2, 5 quarters before the emergence of money markets tensions in August 2007. JEL Classification: E44, E58, F01, F37, G01. |
| Keywords: | Early warning Indicators, Asset Price Booms and Busts, Financial Stress, Macro-Prudential Policies. |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20111311&r=mac |
| By: | Michael G. Arghyrou; Alexandros Kontonikas |
| Abstract: | We offer a detailed empirical investigation of the European sovereign debt crisis based on the theoretical model by Arghyrou and Tsoukalas (2010). We find evidence of a marked shift in market pricing behaviour from a ‘convergence-trade’ model before August 2007 to one driven by macro-fundamentals and international risk thereafter. The majority of EMU countries have experienced contagion from Greece. There is no evidence of significant speculation effects originating from CDS markets. Finally, the escalation of the Greek debt crisis since November 2009 is confirmed as the result of an unfavourable shift in country specific market expectations. Our findings highlight the necessity of structural, competitiveness-inducing reforms in periphery EMU countries and institutional reforms at the EMU level enhancing intra-EMU economic monitoring and policy co-ordination. |
| JEL: | E43 E44 F30 G12 |
| Date: | 2011–02 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecopap:0436&r=mac |
| By: | Dunne, Peter (Central Bank of Ireland); Forker, John (University of Bath, School of Management); Zholos, Andrey (Queen’s University Management School) |
| Abstract: | It is generally accepted that excessive exuberance or gloom in investor sentiment contributes to booms and crashes in share prices. However, views differ on the merits of active policy intervention due to gaps in our understanding of the transmission mechanism. To fill this gap we apply a fully ex ante valuation model in which an index of investor sentiment is included along with earnings and growth fundamentals to explain value. The outcome is a precise indication of the value relevance of sentiment. We employ the investor sentiment indicator proposed by Baker and Wurgler (2007). Valuation, and implied permanent growth, based on the inclusion of standard fundamentals is compared with that obtained when sentiment is added. The resulting ratio produces an index of ’the valuation effects of sentiment’ that can be assessed with statistical significance. Out-of-sample fit is also examined. For the Dow index the valuation effects of sentiment are significant and as large as 40% of market value at the peak of the ’dot-com’ bubble. The index we propose identifies conditions, detectable in advance and under the control of policy makers, that are conducive to the creation of asset bubbles. It is easy to construct, timely, robust and can be used improve our understanding of what leads to bubbles and crashes and to inform policy. |
| Keywords: | Bubbles, fundamental valuation, sentiment, early warning indicators |
| JEL: | E32 E44 E58 E66 G10 G12 G14 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:5/rt/11&r=mac |
| By: | Nelson Eduardo Barreto; Mauricio Caicedo |
| Abstract: | Este artículo describe y analiza las relaciones existentes entre el desempleo y la inflación y su impacto sobre la economía colombiana, a través de la estimación de la curva de Phillips para el período mensual 2001-2007, mediante la evaluación por mínimos cuadrados de una función lineal con un término Autorregresivo (AR(1)). Los resultados obtenidos concuerdan con una curva de Phillips de pendiente positiva aparentemente contraria a la teoría económica tradicional, pero a la vez congruente con la teoría Austríaca del ciclo económico. De acuerdo a lo arrojado por el análisis econométrico y estadístico, si la tasa de desempleo aumenta en 1%, la inflación hará lo propio en 7.79%. |
| Date: | 2011–02–27 |
| URL: | http://d.repec.org/n?u=RePEc:col:000421:008212&r=mac |
| By: | Abiad, Abdul; Dell'Ariccia, Giovanni; Li, Bin |
| Abstract: | Recoveries that occur in the absence of credit growth are often dubbed miracles and named after mythical creatures. Yet these are not rare animals, and are not always miracles. About one out of five recoveries is "creditless," and average growth during these episodes is about a third lower than during "normal" recoveries. Aggregate and sectoral data suggest that impaired financial intermediation is the culprit. Creditless recoveries are more common after banking crises and credit booms. Furthermore, sectors more dependent on external finance grow relatively less and more financially dependent activities (such as investment) are curtailed more during creditless recoveries. |
| Keywords: | credit crunch; Credit cycles; financial crises; financial dependence |
| JEL: | E32 E44 G21 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8301&r=mac |
| By: | Sarah J. Carrington; Jakob B. Madsen |
| Abstract: | This paper establishes a Tobin’s q model in which house prices fluctuate around their long run equilibrium due to fluctuations in credit availability and income. It is shown that house prices are positively related to credit in the short run, however, negatively related to the availability of credit in the long run. Using survey data on banks’ willingness to lend and data on disintermediation for the US it is shown that the availability of credit is the principal variable driving house prices around their long run equilibrium. Shocks to interest rates and income have only secondary effects on house price fluctuations. |
| Keywords: | Willingness to lend, Tobin’s q. House prices |
| JEL: | E44 E51 |
| Date: | 2011–03–23 |
| URL: | http://d.repec.org/n?u=RePEc:dkn:econwp:eco_2011_3&r=mac |
| By: | Liebermann, Joelle (Central Bank of Ireland) |
| Abstract: | This paper performs a fully real-time nowcasting (forecasting) exercise of US real gross domestic product (GDP) growth using Giannone, Reichlin and Small (2008) factor model framework which enables one to handle unbalanced datasets as available in real-time. To this end, we have constructed a novel real-time database of vintages from October 2000 to June 2010 for a panel of US variables, and can hence reproduce, for any given day in that range, the exact information that was available to a real-time forecaster. We track the daily evolution throughout the current and next quarter of the model nowcasting performance. Similarly to Giannone et al. pseudo realtime results, we find that the precision of the nowcasts increases with information releases. Moreover, the Survey of Professional Forecasters (SPF) does not carry additional information with respect to the model best specification, suggesting that the often cited superiority of the SPF, attributable to judgment, is weak over our sample. Then, as one moves forward along the real-time data flow, the continuous updating of the model provides a more precise estimate of current quarter GDP growth and the SPF becomes stale compared to all the model specifications. These results are robust to the recent recession period. |
| Keywords: | Real-time data, Nowcasting, Forecasting, Factor model. |
| JEL: | E52 C53 C33 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:3/rt/11&r=mac |
| By: | Daniel Levy (Department of Economics, Bar Ilan University and RCEA); Dongwon Lee (Korea University); Haipeng (Allan) Chen (Texas A&M University); Robert J. Kauffman (Arizona State University); Mark Bergen (University of Minnesota) |
| Abstract: | We study the link between price points and price rigidity, using two datasets: weekly scanner data, and Internet data. We find that: “9” is the most frequent ending for the penny, dime, dollar and ten-dollar digits; the most common price changes are those that keep the price endings at “9”; 9-ending prices are less likely to change than non-9-ending prices; and the average size of price change is larger for 9-ending than non-9-ending prices. We conclude that 9-ending contributes to price rigidity from penny to dollar digits, and across a wide range of product categories, retail formats and retailers. |
| Keywords: | Price Point, 9-Ending Price, Price Rigidity |
| JEL: | E31 L16 D80 M21 M30 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:biu:wpaper:2010-21&r=mac |
| By: | Christian Bustamante |
| Abstract: | A pesar de que el encaje bancario era un instrumento de política monetaria que venía cayendo en desuso, recientemente, varios países lo han empleado con aparente éxito en el marco de una política monetaria contracíclica y macroprudencial. Surge entonces la pregunta de si dicho éxito se dio por la utilización del encaje per se, o porque el encaje reforzó el efecto de la política de tasas de interés. Para responder este interrogante, se construye un modelo de equilibrio general con agentes heterogéneos e intermediarios financieros aversos al riesgo. Se encuentra que un manejo contracíclico del encaje bancario contribuye a reducir marginalmente la volatilidad de las fluctuaciones del consumo. Su efecto cobra mayor importancia a medida que los bancos son más aversos al riesgo. |
| Date: | 2011–03–22 |
| URL: | http://d.repec.org/n?u=RePEc:col:000094:008209&r=mac |
| By: | António Afonso (European Central Bank, Directorate General Economics); Ricardo M. Sousa (Universidade do Minho - NIPE) |
| Abstract: | In this paper, we show, from the consumer’s budget constraint, that the residuals of the trend relationship among consumption, aggregate wealth, and labour income should predict both stock returns and government bond yields. We use data for several OECD countries and find that when agents expect future stock returns to be higher, they will temporarily allow consumption to rise. Regarding government bond yields, when bonds are seen as a component of asset wealth, then investors react in the same way. If, however, the increase in the yields is perceived as signalling a future rise in taxes, then they will temporarily reduce their consumption. |
| Keywords: | consumption, wealth, stock returns, bond returns. |
| JEL: | E21 E44 D12 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:09/2011&r=mac |
| By: | Avichai Snir (Bar-Ilan University and Humboldt-Universität zu Berlin); Daniel Levy (Department of Economics, Bar Ilan University and RCEA) |
| Abstract: | If producers have more information than consumers about goods’ attributes, then they may use non-price (rather than price) adjustment mechanisms and, consequently, the market may reach a new equilibrium even if prices remain sticky. We study a situation where producers adjust the quantity (per package) rather than the price in response to changes in market conditions. Although consumers should be indifferent between equivalent changes in goods' prices and quantities, empirical evidence suggests that consumers often respond differently to price changes and equivalent quantity changes. We offer a possible explanation for this puzzle by constructing and empirically testing a model in which consumers incur cognitive costs when processing goods’ price and quantity information. The model is based on evidence from cognitive psychology and explains consumers’ decision whether or not to process goods’ price and quantity information. Our findings explain why producers sometimes adjust goods’ prices and sometimes goods’ quantities. In addition, they predict variability in price adjustment costs over time and across economic conditions. |
| Keywords: | Sticky Prices, Rigid Prices, Cognitive Costs of Attention, Information Processing Cost, Price Adjustment, Quantity |
| JEL: | E31 L16 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:biu:wpaper:2011-03&r=mac |
| By: | Paolo A. Pesenti; Jan J.J. Groen |
| Abstract: | In this paper we seek to produce forecasts of commodity price movements that can systematically improve on naive statistical benchmarks, and revisit the forecasting performance of changes in commodity currencies as efficient predictors of commodity prices, a view emphasized in the recent literature. In addition, we consider different types of factor-augmented models that use information from a large data set containing a variety of indicators of supply and demand conditions across major developed and developing countries. These factor-augmented models use either standard principal components or partial least squares (PLS) regression to extract dynamic factors from the data set. Our forecasting analysis considers ten alternative indices and sub-indices of spot prices for three different commodity classes across different periods. We .find that the exchange rate-based model and especially the PLS factor-augmented model are more prone to outperform the naive statistical benchmarks. However, across our range of commodity price indices we are not able to generate out-of-sample forecasts that, on average, are systematically more accurate than predictions based on a random walk or autoregressive specifications. |
| JEL: | E24 E62 J45 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecopap:0440&r=mac |
| By: | Avichai Snir (Bar-Ilan University; Humboldt-Universität zu Berlin); Daniel Levy (Bar-Ilan University; Emory University; RCEA) |
| Abstract: | If producers have more information than consumers about goods’ attributes, then they may use non-price (rather than price) adjustment mechanisms and, consequently, the market may reach a new equilibrium even if prices remain sticky. We study a situation where producers adjust the quantity (per package) rather than the price in response to changes in market conditions. Although consumers should be indifferent between equivalent changes in goods' prices and quantities, empirical evidence suggests that consumers often respond differently to price changes and equivalent quantity changes. We offer a possible explanation for this puzzle by constructing and empirically testing a model in which consumers incur cognitive costs when processing goods’ price and quantity information. The model is based on evidence from cognitive psychology and explains consumers’ decision whether or not to process goods’ price and quantity information. Our findings explain why producers sometimes adjust goods’ prices and sometimes goods’ quantities. In addition, they predict variability in price adjustment costs over time and across economic conditions. |
| Keywords: | Sticky Prices, Rigid Prices, Cognitive Costs of Attention, Information Processing Cost, Price Adjustment, Quantity Adjustment |
| JEL: | E31 L16 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:17_11&r=mac |