nep-mac New Economics Papers
on Macroeconomics
Issue of 2011‒04‒30
forty-two papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The Cost Channel of Monetary Policy in a Post Keynesian Macrodynamic Model of Inflation and Output Targeting By Gilberto Tadeu Lima; Mark Setterfield
  2. Accounting for Japanese Business Cycles: A Quest for Labor Wedges By Keisuke Otsu
  3. The effectiveness of monetary policy in steering money market rates during the recent financial crisis By Puriya Abbassi; Tobias Linzert
  4. Business cycle dynamics under rational inattention By Bartosz Maćkowiak; Mirko Wiederholt
  5. Understanding the macroeconomic effects of working capital in the United Kingdom By Fernandez-Corugedo, Emilio; McMahon, Michael; Millard, Stephen; Rachel, Lukasz
  6. Is Monetary Policy in New Members States Asymmetric? By Borek Vasicek
  7. Inflation Targeting in Brazil, Chile and South Africa: An Empirical Investigation of Their Monetary Policy Framework By Mona Kamal
  8. The Quantity Theory revisited: A new structural Approach By Makram El-Shagi; Sebastian Giesen; L. J. Kelly
  9. A Monetary Theory with Non-Degenerate Distributions By Hongfei Sun; Shouyong Shi; Guido Menzio
  10. Household Leverage and the Recession By Thomas Philippon; Virgiliu Midrigan
  11. The Evolution of the Monetary Policy Regimes in the U.S. By Jinho Bae; Chang-Jin Kim; Dong Heon Kim
  12. Agent-based macroeconomics - a baseline model By Lengnick, Matthias
  13. The long and large decline in state employment growth volatility By Gerald Carlino; Robert DeFina; Keith Sill
  14. Does the level of capital openness explain “fear of floating” amongst the inflation targeting countries? By Mukherjee, Sanchita
  15. Macroeconomic Stress Testing and the Resilience of the Indian Banking System: A Focus on Credit Risk By Niyogi Sinha Roy, Tanima; Bhattacharya, Basabi
  16. Distributional dynamics under smoothly state-dependent pricing By James Costain; Anton Nakov
  17. Expectations of inflation: the biasing effect of thoughts about specific prices By Wändi Bruine de Bruin; Wilbert van der Klaauw; Giorgio Topa
  19. Emerging Market Business Cycles Revisited: Learning about the Trend By Emine Boz; Christian Daude; C. Bora Durdu
  20. Tailwinds and headwinds: how does growth in the BRICs affect inflation in the G7? By Lipinska, Anna; Millard, Stephen
  21. French and American labour markets in response to cyclical shocks between 1986 and 2007: a DSGE approach By T. LE BARBANCHON; B. OURLIAC; O. SIMON
  22. SOE PL 2009 - An Estimated Dynamic Stochastic General Equilibrium Model for Policy Analysis And Forecasting By Grzegorz Grabek; Bohdan Klos; Grzegorz Koloch
  23. Fiscal policy, structural reforms and external imbalances: a quantitative evaluation for Spain By Ángel Gavilán; Pablo Hernández de Cos; Juan F. Jimeno; Juan A. Rojas
  24. Japan's Labor Market Cyclicality and the Volatility Puzzle By Julen ESTEBAN-PRETEL; NAKAJIMA Ryo; TANAKA Ryuichi
  25. Modeling transition in Central Asia: the Case of Kazakhstan By Gilles DUFRENOT; Adelya OSPANOVA; Alain SAND-ZANTMAN
  26. Fiscal data revisions in Europe By Francisco de Castro; Javier J. Pérez; Marta Rodríguez Vives
  27. Money Market Integration and Sovereign CDS Spreads Dynamics in the New EU States By Peter Chobanov; Amine Lahiani; Nikolay Nenovsky
  28. What does ex-post evidence tell us about the output effects of future tax reforms? By Kneller, Richard; Misch, Florian
  29. Beyond the DSGE Straitjacket By Pesaran, Hashem; Smith, Ron P.
  30. Forecasting U.S. Macroeconomic and Financial Time Series with Noncausal and Causal AR Models: A Comparison By Lanne, Markku; Nyberg, Henri; Saarinen, Erkka
  31. How did the crisis in international funding markets affect bank lending? Balance sheet evidence from the United Kingdom By Aiyar, Shekhar
  32. Finance and Employment By Marco Pagano; Giovanni Pica
  33. Debt Portfolios By Hintermaier, Thomas; Koeniger, Winfried
  34. From the financial crisis to the economic crisis The impact of the financial trouble of 2007-2008 on the growth of seven advanced countries By J.-C. BRICONGNE; J.-M. FOURNIER; V. LAPÈGUE; O. MONSO
  35. On the Relationship Between Mobility, Population Growth, and Capital Spending in the United States By Marco Bassetto; Leslie McGranahan
  36. Public Investment and Fiscal Performance in New EU Member States By Jan Hanousek; Evzen Kocenda
  37. Measuring globalization: A hierarchical network approach By David Matesanz Gomez; Guillermo J. Ortega; Benno Torgler
  38. Recommendations of the Stiglitz-Sen-Fitoussi Report: A few illustrations By M. CLERC; M. GAINI; D. BLANCHET
  39. Découplage de modèle économique lent/rapide By Aurélien Hazan
  40. A Call for Comparative Research: Consequences of a Rising Income Inequality for State Activities By Neubäumer, Renate
  41. House purchase versus rental in Spain By Eva Ortega; Margarita Rubio; Carlos Thomas
  42. Hidden Consequences of a First-Born Boy for Mothers By Ichino, Andrea; Lindström, Elly-Ann; Viviano, Eliana

  1. By: Gilberto Tadeu Lima (Department of Economics, University of Sao Paulo); Mark Setterfield (Department of Economics, Trinity College)
    Abstract: This paper contributes to the debate about whether or not inflation targeting is compatible with Post Keynesian economics. It does so by developing a model that takes into account the potentially inflationary consequences of interest rate manipulations. Evaluations of the macroeconomic implications of this so-called cost channel of monetary policy are common in the mainstream literature. But this literature uses supply-determined macro models and provides standard optimizing microfoundations for the various ways in which the interest rate can affect mark-ups, prices and ultimately the form of the Phillips curve. Our purpose is to study the implications of different Phillips curves, each embodying the cost channel and derived from Post Keynesian, cost-based-pricing microfoundations, in a monetary-production economy. We focus on the impact of these Phillips curves on macroeconomic stability and the consequent efficacy of inflation and output targeting. Ultimately, our results suggest that the presence of the cost channel is of less significance than the general orientation of the policy regime, and corroborate earlier finding that, in a monetary-production economy, more orthodox policy regimes are inimical to macro stabilization.
    Keywords: Cost channel of monetary policy, incomes policy, inflation targeting, macroeconomic stability
    JEL: E12 E52 E60
    Date: 2011–04
  2. By: Keisuke Otsu
    Abstract: The Japanese business cycle from 1980-2007 portrays less contemporaneous correlation of labor with output than in the U.S. and also tends to lead output by one quarter. A canonical real business cycle model cannot account for these facts. This paper uses the business cycle accounting method a la Chari, Kehoe and McGrattan (2007) and shows that efficiency and labor market distortions are important in accounting for the quarterly business cycle fluctuation patterns in Japan. Fiscal and monetary variables such as labor income tax, money growth and interest rates cannot fully account for the distortions in the Japanese labor market.
    Keywords: business cycle accounting; japanese labor market
    JEL: E13 E32
    Date: 2011–04
  3. By: Puriya Abbassi (Gutenberg-Universität Mainz, Saarstrasse 21, D-55128 Mainz, Germany.); Tobias Linzert (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: The recent financial crisis deeply affected the money market yield curve and thus, potentially, the proper functioning of the interest rate channel of monetary policy transmission. Therefore, we analyze the effectiveness of monetary policy in steering euro area money market rates using two measures: first, the predictability of money market rates on the basis of monetary policy expectations, and second the impact of extraordinary central bank measures on money market rates. We find that market expectations about monetary policy are less relevant for money market rates up to 12 months after August 2007 compared to the pre-crisis period. At the same time, our results indicate that the ECB’s net increase in outstanding open market operations as of October 2008 accounts for at least a 100 basis point decline in Euribor rates. These findings show that central banks have effective tools at hand to conduct monetary policy in times of crises. JEL Classification: E43, E52, E58.
    Keywords: Monetary transmission mechanism, Financial Crisis, Monetary policy implementation, European Central Bank, Money market.
    Date: 2011–04
  4. By: Bartosz Maćkowiak (CEPR and European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Mirko Wiederholt (Department of Economics, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208, USA.)
    Abstract: We develop a dynamic stochastic general equilibrium model with rational inattention by households and firms. Consumption responds slowly to interest rate changes because households decide to pay little attention to the real interest rate. Prices respond quickly to some shocks and slowly to other shocks. The mix of fast and slow responses of prices to shocks matches the pattern found in the empirical literature. Changes in the conduct of monetary policy yield very different outcomes than in models currently used at central banks because systematic changes in policy cause reallocation of attention by decision-makers in households and firms. JEL Classification: D83, E31, E32, E52.
    Keywords: information choice, rational inattention, monetary policy, business cycles.
    Date: 2011–04
  5. By: Fernandez-Corugedo, Emilio (Bank of England); McMahon, Michael (University of Warwick, and Centre for Economic Performance, LSE); Millard, Stephen (Bank of England); Rachel, Lukasz (Bank of England)
    Abstract: The most recent recession has been associated with a financial crisis that led to a large widening of spreads and quantitative restrictions on lending. As well as affecting investment, such a credit contraction is likely to have had a large effect on the working capital positions of UK firms and this, in turn, is likely to have affected the United Kingdom’s supply potential, at least temporarily. However, the role of such disruptions in the business cycle is not well understood. In this paper we first document the behaviour of working capital in the United Kingdom. In order to understand the effects of working capital on macroeconomic variables, we then solve and calibrate a DSGE model that introduces an explicit role for the components of working capital (net cash, inventories, and trade credit). We find that this model produces the standard responses of macroeconomic variables to productivity shocks, but we also find that financial intermediation shocks, similar to those experienced in the United Kingdom post-2007, have persistent negative effects on economic activity; these effects are reinforced by reductions in trade credit. Our model also documents a crucial role for monetary policy to offset such shocks.
    Keywords: Working capital; business cycle model; spreads; financial crisis.
    JEL: E20 E51 E52
    Date: 2011–04–18
  6. By: Borek Vasicek
    Abstract: Estimated Taylor rules became popular as a description of monetary policy conduct. There are numerous reasons why real monetary policy can be asymmetric and estimated Taylor rule nonlinear. This paper tests whether monetary policy can be described as asymmetric in three new European Union (EU) members (the Czech Republic, Hungary and Poland), which apply an inflation targeting regime. Two different empirical frameworks are used: (i) a Generalized Method of Moments (GMM) estimation of models that allow discrimination between the sources of potential policy asymmetry but are conditioned by specific underlying relations (Dolado et al., 2004, 2005; Surico, 2007a,b); and (ii) a flexible framework of sample splitting where nonlinearity enters via a threshold variable and monetary policy is allowed to switch between regimes (Hansen, 2000; Caner and Hansen, 2004). We find generally little evidence for asymmetric policy driven by nonlinearities in economic systems, some evidence for asymmetric preferences and some interesting evidence on policy switches driven by the intensity of financial distress in the economy.
    Keywords: monetary policy, inflation targeting, nonlinear Taylor rules, threshold estimation
    JEL: C32 E52 E58
    Date: 2010–12–01
  7. By: Mona Kamal
    Abstract: This paper tackles the monetary policy performance in Brazil, Chile and South Africa under inflation targeting framework. Furthermore, it provides an empirical assessment through using the unrestricted Vector Auto-regression (VAR) and Structural Vector Auto-regression (SVAR) approaches depending on data spans the period from the first quarter of 1970 to the fourth quarter of 2007. On the other hand, it utilizes the Likelihood Ratio (LR) Statistic to test for possible structural changes due to the adoption of inflation targeting regime in those countries. The main findings are as follows: inflation targeting does make a difference in the performance of monetary policy in those countries. Furthermore, the experience of Brazil, Chile and South Africa provides important lessons for other emerging market economies to adopt such a framework.
    Keywords: Monetary policy, Vector Auto-regression (VAR), Structural Vector Auto-regression (SVAR) approach, Inflation Targeting Framework.
    JEL: E52 E58
    Date: 2010–11–01
  8. By: Makram El-Shagi; Sebastian Giesen; L. J. Kelly
    Abstract: While the long run relation between money and inflation is well established, empirical evidence on the adjustment to the long run equilibrium is very heterogeneous. In this paper we show, that the development of US consumer price inflation between 1960Q1 and 2005Q4 is strongly driven by money overhang. To this end, we use a multivariate state space framework that substantially expands the traditional vector error correction approach. This approach allows us to estimate the persistent components of velocity and GDP. A sign restriction approach is subsequently used to identify the structural shocks to the signal equations of the state space model, that explain money growth, inflation and GDP growth. We also account for the possibility that measurement error exhibited by simple-sum monetary aggregates causes the consequences of monetary shocks to be improperly identified by using a Divisia monetary aggregate. Our findings suggest that when the money is measured using a reputable index number, the quantity theory holds for the United States.
    Keywords: Divisia money, state space decomposition, sign restrictions
    JEL: E31 E52 C32
    Date: 2011–04
  9. By: Hongfei Sun (Queen's University); Shouyong Shi (University of Toronto); Guido Menzio (University of Pennsylvania)
    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
  10. By: Thomas Philippon; Virgiliu Midrigan
    Abstract: A salient feature of the recent U.S. recession is that output and employment have declined more in regions (states, counties) where household leverage had increased more during the credit boom. This pattern is difficult to explain with standard models of financing frictions. We propose a theory that can account for these cross-sectional facts. We study a cash-in-advance economy in which home equity borrowing, alongside public money, is used to conduct transactions. A decline in home equity borrowing tightens the cash-in-advance constraint, thus triggering a recession. We show that the evidence on house prices, leverage and employment across US regions identifies the key parameters of the model. Models estimated with cross-sectional evidence display high sensitivity of real activity to nominal credit shocks. Since home equity borrowing and public money are, in the model, perfect substitutes, our counter-factual experiments suggest that monetary policy actions have significantly reduced the severity of the recent recession.
    JEL: E2 E4 E5 G0
    Date: 2011–04
  11. By: Jinho Bae (Department of Economics, Konkuk University, Seoul, South Korea); Chang-Jin Kim (Department of Economics, Korea University, Seoul, South Korea); Dong Heon Kim (Department of Economics, Korea University, Seoul, South Korea)
    Abstract: The existing literature on U.S. monetary policy provides no sense of a cnsensus regarding the existence of a monetary policy regime. This paper explores the evolution of U.S. monetary policy regimes via the development of a Markov-switching model predicated on narrative and statistical evidence of a monetary policy regime. We identified five regimes for the period spanning 1956:I - 2005:IV and they roughly corresponded to the Chairman term of the Federal Reserve, except for the Greenspan era. More importantly, we demonstrate that the conflicting results regarding the response to inflation for the pre-Volcker period in the existing literature is not attributable to the different data but due to different samples, and also provided an insight regarding the Great Inflation?namely, that the near non-response to inflation in the early 1960s appears to have constituted the initial seed of the Great Inflation. We also find via analysis of the Markov-switching model for the U.S. real interest rate, that the regime changes in the real interest rate follow the regime changes in monetary policy within two years and that the evolution of real interest rate regimes provides a good explanation for the conflicting results regarding the dynamics of real interest rate.
    Keywords: Monetary policy rule; Markov switching; Great Inflation; Real interest rate; Evolution
    JEL: E5 C32
    Date: 2011
  12. By: Lengnick, Matthias
    Abstract: This paper develops a baseline agent-based macroeconomic model and contrasts it with the common dynamic stochastic general equilibrium approach. Although simple, the model can reproduce a lot of the stylized facts of business cycles. The author argues that agent-based modeling is an adequate response to the recently expressed criticism of macroeconomic methodology. It does not depend on the strict assumption of rationality and allows for aggregate behavior that is more than simply a replication of microeconomic optimization decisions. At the same time it allows for absolutely consistent micro foundations. Most importantly, it does not depend on equilibrium assumptions or fictitious auctioneers and does therefore not rule out coordination failures, instability and crisis by definition. --
    Keywords: agent-based modeling,complex adaptive systems,microfoundations of macroeconomics
    JEL: B4 E1 E50
    Date: 2011
  13. By: Gerald Carlino; Robert DeFina; Keith Sill
    Abstract: This study documents a general decline in the volatility of employment growth during the period 1956 to 2002 and examines its possible sources. The authors use a panel design that exploits the considerable state-level variation in volatility during the period. The roles of monetary policy, oil prices, industrial employment shifts and a coincident index of business cycle variables are explored. Overall, these four variables taken together explain as much as 31 percent of the fluctuations in employment growth volatility. Individually, each of the four factors is found to have significantly contributed to fluctuations in employment growth volatility, although to differing degrees.
    Keywords: Employment ; Business cycles
    Date: 2011
  14. By: Mukherjee, Sanchita
    Abstract: Abstract Under the assumption of perfect capital mobility, inflation targeting (IT) requires central banks to primarily focus on domestic inflation and to let their exchange rate float freely. This is consistent with the macroeconomic trilemma suggesting monetary independence, perfect capital mobility and a fixed exchange rate regime are mutually incompatible. However, some recent empirical evidence suggests that many developed and developing countries following an IT regime are reacting systematically both to deviations of inflation from its target and to exchange rates. I empirically examine whether the responsiveness of the interest rate to exchange rate fluctuations can be explained in terms of limited capital openness. Applying Arellano-Bond dynamic panel estimation method for 22 IT countries, I find that short-term interest rates do respond to real exchange rate fluctuations. However, the responsiveness of the interest rate to the exchange rate declines significantly as capital market openness increases. The results indicate that capital controls have a significant impact on the exchange rate policy of the IT central banks, as the central banks have relatively less control over the exchange rate movements with greater openness of the capital market.
    Keywords: Macroeconomic Trilemma; Inflation Targeting; Interest Rates; Exchange Rate Policy; Capital Market Openness
    JEL: E58 E52 E44 F41
    Date: 2011–04–12
  15. By: Niyogi Sinha Roy, Tanima; Bhattacharya, Basabi
    Abstract: The paper undertakes a macroprudential analysis of the credit risk of Public Sector Banks during the liberalization period. Using the Vector Autoregression methodology, the paper investigates the dynamic impact of changes in the macroeconomic variables on the default rate, the Financial Stability Indicator of banks by simulating interactions among all the variables included in the model. Feedback effects from the banking sector to the real economy are also estimated. The impact of variations in different Monetary Policy Instruments such as Bank Rate, Repo Rate and Reverse Repo Rate on the asset quality of banks is examined using three alternative baseline models. Impulse Response Functions of the estimated models are augmented by conducting sensitivity and scenario stress testing exercises to assess the banking sector’s vulnerability to credit risk in the face of hypothetically generated adverse macroeconomic shocks. Results indicate the absence of cyclicality and pro-cyclicality of the default rate. Adverse shocks to output gap, Real Effective Exchange Rate appreciation above its trend value, inflation rate and policy-induced monetary tightening significantly affect bank asset quality. Of the three policy rates, Bank Rate affects bank soundness with a lag and is more persistent while the two short-term rates impact default rate instantaneously but is much less persistent. Scenario stress tests reveal default rate of Public Sector Banks could increase on an average from 4% to 7% depending on the type of hypothetical macroeconomic scenario generated. An average buffer capital of 3% accumulated during the period under consideration could thus be inadequate for nearly twice the amount of Non-Performing Assets generated if macroeconomic conditions worsened. An important policy implication of the paper is that as the Indian economy moves gradually to Full Capital Account Convertibility, the banking sector is likely to come under increased stress in view of the exchange rate volatility with adverse repercussions on interest rates and bank default rates. In this emerging scenario, monetary policy stance thus emerges as an important precondition for banking stability. The study also highlights the inadequacy of existing capital reserves should macroeconomic conditions deteriorate and the urgency to strengthen the buffer capital position.
    Keywords: Banks; Macro Prudential analysis; Stress test
    JEL: E52 G21
    Date: 2011–03–16
  16. By: James Costain (Banco de España, Calle Alcalá 48, 28014 Madrid, Spain.); Anton Nakov (Banco de España and European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: Starting from the assumption that firms are more likely to adjust their prices when doing so is more valuable, this paper analyzes monetary policy shocks in a DSGE model with firm-level heterogeneity. The model is calibrated to retail price microdata, and inflation responses are decomposed into “intensive”, “extensive”, and “selection” margins. Money growth and Taylor rule shocks both have nontrivial real effects, because the low state dependence implied by the data rules out the strong selection effect associated with fixed menu costs. The response to firm-specific shocks is gradual, though inappropriate econometrics might make it appear immediate. JEL Classification: E31, E52, D81.
    Keywords: Nominal rigidity, state-dependent pricing, menu costs, heterogeneity, Taylor rule.
    Date: 2011–04
  17. By: Wändi Bruine de Bruin; Wilbert van der Klaauw; Giorgio Topa
    Abstract: National surveys follow consumers’ expectations of future inflation, because they may directly affect the economic choices they make, indirectly affect macroeconomic outcomes, and be considered in monetary policy. Yet relatively little is known about how individuals form the inflation expectations they report on consumer surveys. Medians of reported inflation expectations tend to track official estimates of realized inflation, but show large disagreement between respondents, due to some expecting seemingly extreme inflation. We present two studies to examine whether individuals who consider specific price changes when forming their inflation expectations report more extreme and disagreeing inflation expectations due to focusing on specific extreme price changes. In Study 1, participants who were instructed to recall any price changes or to recall the largest price changes both thought of various items for which price changes were perceived to have been extreme. Moreover, they reported more extreme year-ahead inflation expectations and showed more disagreement than did a third group that had been asked to recall the average change in price changes. Study 2 asked participants to report their year-ahead inflation expectations, without first prompting them to recall specific price changes. Half of participants nevertheless thought of specific prices when generating their inflation expectations. Those who thought of specific prices reported more extreme and more disagreeing inflation expectations, because they were biased toward various items associated with more extreme perceived price changes. Our findings provide new insights into expectation formation processes and have implications for the design of survey-based measures of inflation.
    Keywords: Consumer surveys ; Inflation (Finance) ; Prices
    Date: 2011
  18. By: Zuzana Brixiová; Léonce Ndikumana; Kaouther Abderrahim
    Abstract: The objective of this paper is to discuss macroeconomic policies that would help African countries, especially the low income countries, reach strong, sustained and shared growth in the post-crisis world. The paper first reviews, with a special focus on LICs, macroeconomic policies in Africa prior to the crisis. It then discusses factors behind ‘the Africa surprise’ that is the continent’s overall good performance during the crisis and relatively fast recovery. It underscores that in the aftermath of the crisis, the emphasis of the macroeconomic policy needs to shift from the objective of very low inflation that predominated prior to the crisis towards growth. Fiscal policy is key in this regard, through public outlays on infrastructure anchored in the medium term expenditure frameworks that would also have a counter-cyclical role. Where conditions allow, frontier market LICs may want to consider adopting flexible inflation targeting frameworks that would provide sufficient room for expansion of credit to the private sector.
    Keywords: macroeconomic policies, growth, capital flows, Africa
    JEL: E5 F43 O11 O47
    Date: 2011–01–01
  19. By: Emine Boz (IMF); Christian Daude (OECD); C. Bora Durdu (FRB)
    Abstract: We build an equilibrium business cycle model in which agents cannot perfectly distinguish between the permanent and transitory components of TFP shocks and learn about those components using the Kalman filter. Calibrated to Mexico, the model predicts a higher variability of consumption relative to output and a strongly negative correlation between the trade balance and output for a wide range of variability and persistence of permanent shocks vis-a-vis the transitory shocks. Moreover, our estimation for Mexico and Canada suggests more severe informational frictions in emerging markets than in developed economies.
    Keywords: emerging markets, business cycles, learning, Kalman filter
    JEL: F41 E44 D82
    Date: 2011–04
  20. By: Lipinska, Anna (Bank of England); Millard, Stephen (Bank of England)
    Abstract: In this paper, we analyse the impact of a persistent productivity increase in a set of countries – which we think of as the BRIC economies – on inflation in their trading partners, the G7. In particular we want to understand conditions under which this shock can lead to tailwinds or headwinds in the economies of trading partners. We build a three-country DSGE model in which there are two oil-importing countries (home and foreign) and one oil-exporting country. We perform several experiments where we try to disentangle the importance of different factors that can shape inflation dynamics in the home country when the foreign country is hit by a persistent productivity shock. These factors are wage stickiness, the role of the oil sector and its share in both consumption and production, foreign monetary policy and the degree of completeness of financial markets. We find that the tailwinds effect, lowering inflation in the home economy, dominates the headwinds effect as long as there is scope for borrowing and lending across countries and the foreign country’s production is not too oil intensive.
    Date: 2011–04–15
  21. By: T. LE BARBANCHON (Insee); B. OURLIAC (Insee); O. SIMON (Insee)
    Abstract: Until the current economic crisis, the recovery capacity of the American and French labour markets had often been compared. The United States had been considered more "resilient", namely more affected by cyclical shocks in the short term but more quickly coming back to their initial path in the medium term. As this conclusion may be modified in the context of the current crisis, it is also relevant to study if it is actually valid on the previous period. Between 1986 and 2007, the output gap of the United States presented more pronounced fluctuations and came back to the equilibrium more rapidly. However, it does not mean that the United States were more resilient since it can also result from the fact that the American economy was affected by other kinds of shocks than the French economy. To distinguish which explanation is the most relevant, it is difficult to use an astructural approach. This study is therefore based on a structural approach directly inspired from Christoffel and Linzert (2005). We use two calibrated DSGE models, one for the French economy, the other for the United States, which include a labour market matching model à la Diamond, Mortensen and Pissarides. The comparison of the impulse response functions between the two models show that differences in resilience cannot be assessed globally: they depend on the shock which affects the economy. The differences are the most significant for shocks related to the labour market but they are less sensible for standard shocks like productivity shocks or monetary shocks. We use the same DSGE models to determine the nature of historical shocks between 1986 and 2007 and to assess the contributions of these shocks to output fluctuations. According to the models, the dynamics of the two economies on the period is thus characterized by different combinations of shocks, rather than different absorption capacity of these shocks.
    Keywords: Labour market, matching model, business fluctuations, DSGE model, resilience
    JEL: E24 E32 J64
    Date: 2011
  22. By: Grzegorz Grabek (National Bank of Poland, Economic Institute); Bohdan Klos (National Bank of Poland, Economic Institute); Grzegorz Koloch (National Bank of Poland, Economic Institute)
    Abstract: The paper documents the effects of work on the dynamic stochastic general equilibrium (DSGE) SOEPL model that has been carried out in the recent years at the National Bank of Poland, initially at the Bureau of Macroeconomic Research and lately at the Bureau of Applied Research of the Economic Institute. In 2009, a team consisting of the authors of this paper developed a new version of the model, called SOEPL−2009 which in 2010 is to be used to obtain routine mid-term forecasts of the inflation processes and the economic trends, supporting and supplementing the traditional structural macroeconometric model and experts’ forecasts applied so far. In the recent years many researchers have engaged in the work over a class of estimated macroeconomic models (of the business cycle) integrating the effects of at least three important lines of economic and econometric research: • methods of macroeconomic modelling (gradual departure from the traditional structural models towards models resistant to Lucas’ and Sims’ critique, strongly motivated with microeconomics); • micro- and macroeconomic theories (monetary policy issues, with emphasis on the consequence of imperfect competition, the role of nominal and real rigidities, as well as anticipating and optimising behaviours of agents in an uncertain environment, with a strong shift of point of view towards general equilibrium); • estimation techniques (reduction in parameters calibration, shift from classical techniques to Bayesian techniques with Bayesian-specific risk quantification as well as systematic and controlled introduction of experts’ knowledge, improvement of projections accuracy). Merger of the three trends has brought about a class of models — DSGE models — with high analytical and developmental potential. The very potential of the models of this class seems to be the most important reason for the interest of central banks in that area, research that may be directly translated into the practice of monetary policy. Along with the development of numerical, econometric methods and the theory of economics, a number of central banks supplement or even replace the traditional structural macroeconometric models, whose forecasting applications are enhanced with experts’ knowledge, with estimated DSGE models, namely models which attempt to translate the economic processes in a more explicit and systematic manner, whereby experts’ knowledge is introduced through Bayesian methods. It happens although no formal reasons exist for which the ex post verified accuracy of forecasts within the DSGE models should be higher than that of classical models. DSGE models give, however, a chance of structural (internally consistent and microfounded) explanations of the reasons for the recently observed phenomena and their consequences for the future. DSGE models present a different image of economic processes than classical macroeconometric models — they capture the world from the perspective of structural disturbances. These disturbances set the economy in motion and economic agents respond to them in an optimal way, which eliminates the consequences of the disturbances, i.e. restores the economy to equilibrium. The analytical knowledge and experience gathered in contact with the traditional structural models rather interferes with than helps interpret the results of DSGE models. In econometric categories, the results of DSGE models are, nevertheless, at least partially compliant with that which may be achieved with VAR and SVAR models, thus, it is hard to speak about revolution here. Following the events of 2008–2009 (global financial crisis), while searching for the reasons for the problems’ occurrence, the usefulness of formalised tools constructed on a uniform, internally coherent (but also restrictive) paradigm for macroeconomic policy tends to be questioned. The reasons for the global economy problems are searched for in models oversimplifying perception of the world and burdening the decisions regarding economic policy. We have noticed that the critique refers to a larger extent to the models as such (i.e. tools) and less to the practice of applying them (i.e. the user). Therefore, we consider that conclusions from a deeper analysis of the sources of 2008–2009 crisis, verification of the directions of economic research and methods of the research, which is likely to be held, as well as the analysis of the current policy less influenced by its rationalisation shall confirm the legitimacy of building and applying models, particularly DSGE class models. The issue of applications using the strong sides of the models remains, however, open. In our opinion, the best we can do is to try to use our model, gather and exchange experience, develop new procedures and thoroughly verify the results. The model whose details we shall present further herein derives from the structure developed at Riksbank — DSGE model for the euro area see Adolfson et al. (2005b). The euro area DSGE model, know-how, methods of estimation and applications received within the technical support of Riksbank enabled us to start several experiments, build different versions of DSGE model (a family of SOEPL models) and develop our own procedures of the model application. Some of the experiments have been described in separate papers, e.g. Grabek et al. (2007), Grabek and Kłos (2009), Grabek and Utzig-Lenarczyk (2009). The alternative we present in this paper summarizes some of the gathered experience. We pass the DSGE SOEPL−2009 model for use, with a view to considering and analysing other interpretation and understanding of economic processes than that proposed by the traditional models. Additionally, systematic work with the model (preparing forecasts and analyses of their accuracy, simulation experiments and analytical works) may reveal issues and problems that will have to be solved. Resulting knowledge shall enable the preparation of a more thorough future modification of the model, taking into account the effects of the parallel research and the conclusions arrived at during use. This paper consists of three basic parts. In the first part — relatively independent of the other parts — we have made an attempt to outline the development of the methods of macroeconomic (macroeconometric) modelling and the economic thought related to monetary policy, which brought about the creation of dynamic stochastic general equilibrium models, pushing aside other classes of models — at least in the academic world. The considerations are illustrated with simple models of real business cycles (RBC) and DSGE model based on new Keynesian paradigm. The second chapter of the first part focuses on the technical aspects of construction, estimation and application of DSGE models, drawing attention to mathematical, statistical and numerical instruments. Although it presents only the keynotes, outlines and ideas, the formalisation and precision of presentation required in that case makes the fragment of the paper slightly hermetic — a reader less interested in the techniques may omit that chapter. The further parts of the paper refer to specification, results of estimations and properties of the DSGE SOEPL−2009 model. We present, therefore, a general non-technical outline of the basic features of the model, illustrating at the same time the correlations with other DSGE models (Chapter 3). The next chapter defines decision-making problems of the optimising agents, their equilibrium conditions as well as characteristics of behaviours of the non- optimising agents. The description of the model specification is completed with balance conditions on a macro scale. The SOEPL−2009 model has been estimated with the use of Bayesian techniques. Identically as in all estimated DSGE models we are aware of, the Bayesian estimation refers solely to some of the parameters (the rest of the parameters have been calibrated). Although due to the application of the Bayesian techniques, the number of calibrated parameters has been clearly reduced, being aware of the consequences of faulty calibration we conducted a sort of sensitivity analysis (examination of the influence of changes in the calibration of parameters on the characteristics of the model). The presented SOEPL−2009 version takes into account the conclusions we arrived at based on the analysis. For the purposes of this paper and the first forecast experiments we use only point estimates of the parameters reflecting the modal value of posterior distribution, in other words our reasoning omits — hopefully temporarily — the issue of uncertainty of the parameters. The results of the estimation of parameters and assumptions made at the subsequent stages of the work (calibrated values, characteristics of prior distributions) have been presented in Chapter 6. A synthetic image of the model characteristics has been presented in Chapters 7–8, which describes the responses of observable variables to structural disturbances taken into account in the model (i.e. impulse response functions), variances decompositions (formally — forecast error decomposition), thanks to which the structure (relative role) of the impact of shocks on the observable variables may be assessed, estimation (identification) of structural disturbances in the sample, examples of historical decompositions (counterfactual experiments) and information about the ex post accuracy of forecasts — this is, thus, a typical set of information allowing understanding the consequences of the assumptions made at the stage of constructing decisionmaking problems (model specification) and choice of parameters. The Appendix presents structural form equations, equations used to determine value at a steady state and a list of variables of the SOEPL−2009 model.
    Date: 2011
  23. By: Ángel Gavilán (Banco de España); Pablo Hernández de Cos (Banco de España); Juan F. Jimeno (Banco de España); Juan A. Rojas (Banco de España)
    Abstract: This paper builds a large overlapping generations model of a small open economy featuring imperfect competition in the labor and product markets to understand i) which were the main determinants of the large expansionary phase experienced in Spain from the mid-1990s until the arrival of the global financial crisis in 2007-2008, ii) what role fiscal policy and structural reforms could have played to avoid the build-up of large external imbalance over this period, and iii) how these policies could affect the recovery of economic activity in Spain after the crisis. Our results indicate that falling interest rates and demographic changes were the main drivers of the Spanish expansionary phase. As for the macroeconomic behavior of the Spanish economy after the crisis, our results suggest that a front-loading in fiscal consolidation together with structural reforms that eliminate distortions in the goods and labor markets could make the recovery of economic activity in Spain more successful.
    Keywords: overlapping generations, imperfect competition, fiscal consolidation, demographic change, structural reforms
    JEL: E62 H30 J11
    Date: 2011–04
    Abstract: The search and matching model has recently come under criticism for its inability to account for some of the cyclical properties of the U.S. labor market. Shimer (2005) has shown that the basic version of the model is incapable of reproducing the volatility of the market tightness for reasonable movements in productivity. This paper considers whether the so-called "Shimer Puzzle" also holds for the Japanese economy. We present empirical evidence on the cyclical properties of the labor market variables in Japan and compare these to their U.S. counterparts. We then build, parametrize, and simulate three different versions of the search and matching model (with exogenous job destruction, with endogenous job destruction, and embedded in a Real Business Cycle model) and compare the simulated statistics to the data. We find that the "Shimer Puzzle" does hold for Japan, since the model is unable to generate as much volatility on the market tightness as in the data.
    Date: 2011–04
  25. By: Gilles DUFRENOT; Adelya OSPANOVA; Alain SAND-ZANTMAN
    Abstract: This paper presents a small macro-econometric model of Kazakhstan to study the impact of various economic policies. It uses a new approach to test the existence of a level relationship between a dependent variable and a set of regressors, when the characteristics of the regressors’ non-stationarity are not known with certainty. The simulations provide insights into the role of a tight monetary policy, higher foreign direct investment, and rises in nominal wages and in crude oil prices. The results obtained are in line with economic observations and give some support to the policies chosen as priority targets by the Kazakh authorities for the forthcoming years.
    Keywords: Simulation, Forecasting, Transition, Stabilization, Central Asian
    JEL: E17 F47 O53 P39
    Date: 2010–10–01
  26. By: Francisco de Castro (Banco de España); Javier J. Pérez (Banco de España); Marta Rodríguez Vives (European Central Bank)
    Abstract: Public deficit figures are subject to revisions, as most macroeconomic aggregates are. Nevertheless, in the case of Europe, the latter could be particularly worrisome given the role of fiscal data in the functioning of EU’s multilateral surveillance rules. Adherence to such rules is judged upon initial releases of data, in the framework of the so-called Excessive Deficit Procedure (EDP) Notifications. In addition, the lack of reliability of fiscal data may hinder the credibility of fiscal consolidation plans. In this paper we document the empirical properties of revisions to annual government deficit figures in Europe by exploiting the information contained in a pool of real-time vintages of data pertaining to fifteen EU countries over the period 1995-2008. We build up such real-time dataset from official publications. Our main findings are as follows: (i) preliminary deficit data releases are biased and non-efficient predictors of subsequent releases, with later vintages of data tending to show larger deficits on average; (ii) such systematic bias in deficit revisions is a general feature of the sample, and cannot solely be attributed to the behaviour of a small number of countries, even though the Greek case is clearly an outlier; (iii) Methodological improvements and clarifications stemming from Eurostat’s decisions that may lead to data revisions explain a significant share of the bias, providing some evidence of window dressing on the side of individual countries; (iv) expected real GDP growth, political cycles and the strength of fiscal rules also contribute to explain revision patterns; (v) nevertheless, if the systematic bias is excluded, revisions can be considered rational after two years.
    Keywords: data revisions, real-time data, news and noise, fiscal statistics, rationality
    JEL: E01 E21 E24 E31 E5 H60
    Date: 2011–04
  27. By: Peter Chobanov; Amine Lahiani; Nikolay Nenovsky
    Abstract: When the first phase of the crisis focused primarily on the interbank market volatility, the second phase spread on the instability of public finance. Although the overall stance of public finances of the new members is better than the old member countries, the differences within the new group are significant (from the performer Estonia to the laggard Hungary). Sovereign CDS spreads have become major variables focused on risks and expectations about the fiscal situation of different countries. In the paper we investigate, first, whether there is a link in the new member states (NMS) between the expectations about the condition of their public finances and the dynamics of money markets,including integration of national money markets with the euro area.....Our study confirm that the strong link between monetary and public finance risk as apart of total systemic risk increase during the crisis especially for currency boards regimes, when the link becomes stronger and pronounced. For the inflation targeting countries the link became weaker and less pronounced.
    Keywords: money markets, sovereign CDS spreads, EU enlargement, monetary regimes, financial crisis
    JEL: E43 G10 P20 F31 F34
    Date: 2010–10–01
  28. By: Kneller, Richard; Misch, Florian
    Abstract: This paper reviews the existing evidence on the effects of tax reforms on output levels and growth over the short and long run from different strands of the literature. It develops and applies criteria to evaluate the usefulness of ex-post estimates to predict the effects of tax reforms ex-ante. These include whether the estimated policy change can be replicated in practice and whether the estimates are reliable. Based on these criteria we present detailed tables summarizing and comparing ex-post estimates of the effects of tax reforms. Overall, our review suggests that at least the direction of the long-run growth effects can be predicted with a reasonable degree of certainty. However, our review also suggests that depending on the tax change, trade-offs between short-run stabilization and long-run growth may arise and that more research on this question is needed. --
    Keywords: Tax Reforms,Tax Policy,Aggregate Growth,Tax Multipliers,Fiscal Policy
    JEL: E62 H20 O20
    Date: 2011
  29. By: Pesaran, Hashem (University of Cambridge); Smith, Ron P. (Birkbeck College, University of London)
    Abstract: Academic macroeconomics and the research department of central banks have come to be dominated by Dynamic, Stochastic, General Equilibrium (DSGE) models based on micro-foundations of optimising representative agents with rational expectations. We argue that the dominance of this particular sort of DSGE and the resistance of some in the profession to alternatives has become a straitjacket that restricts empirical and theoretical experimentation and inhibits innovation and that the profession should embrace a more flexible approach to macroeconometric modelling. We describe one possible approach.
    Keywords: macroeconometric models, DSGE, VARs, long run theory
    JEL: C1 E1
    Date: 2011–04
  30. By: Lanne, Markku; Nyberg, Henri; Saarinen, Erkka
    Abstract: In this paper, we compare the forecasting performance of univariate noncausal and conventional causal autoregressive models for a comprehensive data set consisting of 170 monthly U.S. macroeconomic and financial time series. The noncausal models consistently outperform the causal models in terms of the mean square and mean absolute forecast errors. For a set of 18 quarterly time series, the improvement in forecast accuracy due to allowing for noncausality is found even greater.
    Keywords: Noncausal autoregression; forecast comparison; macroeconomic variables; financial variables
    JEL: C53 C22 E37 E47
    Date: 2011–04–05
  31. By: Aiyar, Shekhar (Bank of England)
    Abstract: Evidence abounds on the propagation of financial stresses originating in the US mortgage market to banking systems worldwide through international funding markets. But the transmission of this external funding shock to the real economy via bank lending is surprisingly underexamined, given the central importance ascribed to this channel of contagion by policymakers. This paper provides evidence of this transmission for the UK-resident banking system, the largest in the world by asset size. It uses a novel data set, created from detailed and confidential balance sheet data reported by individual banks quarterly to the Bank of England. I find that the shock to foreign funding caused a substantial pullback in domestic lending. The results are derived using a range of instruments to correct for endogeneity and omitted variable bias. Foreign subsidiaries and branches reduced lending by a larger amount than domestically owned banks, while the latter calibrated the reduction in domestic lending more closely to the size of the funding shock.
    Keywords: Liquidity shock; transmission mechanism; bank lending; instrumental variables.
    JEL: E30 E50 G20
    Date: 2011–04–18
  32. By: Marco Pagano (Università di Napoli Federico II, CSEF, EIEF and CEPR); Giovanni Pica (Università di Salerno and CSEF)
    Abstract: How does finance affect employment and inter-industry job reallocation? We present a model that predicts that financial development (i) increases employment and/or labor productivity and wages, with a smaller impact at high levels of the equilibrium wage and financial development; (ii) may induce either more or less reallocation of jobs depending on whether shocks to profit opportunities or to cash flow predominate; (iii) amplifies the output and employment losses in crises, firms that rely most on banks for liquidity being hit the hardest. Testing these predictions on international industry-level data for 1970-2003, we find that standard measures of financial development are indeed associated with greater employment growth, although only in non-OECD countries, and are not correlated with labor productivity or real wage growth. Moreover, they correlate negatively with inter-industry dispersion of employment growth. Finally, there is some evidence of a “dark side” of financial development, in that during banking crises employment grows less in the industries that are more dependent on external finance and those located in the more financially developed countries.
    Keywords: financial development, employment, investment, access to finance
    JEL: E24 J20 O16 O40
    Date: 2011–04–08
  33. By: Hintermaier, Thomas (University of Bonn); Koeniger, Winfried (Queen Mary, University of London)
    Abstract: We provide a model with endogenous portfolios of secured and unsecured household debt. Secured debt is collateralized by owner-occupied housing whereas unsecured debt can be discharged according to bankruptcy regulations. We show that the calibrated model matches important quantitative characteristics of observed wealth and debt portfolios for prime-age consumers in the U.S. We then establish the quantitative result that home equity does not serve as informal collateral for unsecured debt since, as in the data, unsecured debtors hold small amounts of home equity in equilibrium. Thus, observed variations in homestead exemptions, which are an important part of U.S. bankruptcy regulation, have a small effect on the quantity and price of unsecured debt.
    Keywords: household debt portfolios, housing, collateral, bankruptcy, commitment, income risk
    JEL: E21 D91
    Date: 2011–04
  34. By: J.-C. BRICONGNE (Banque de France et Université Paris I); J.-M. FOURNIER (Crest-Insee); V. LAPÈGUE (Insee); O. MONSO (Insee)
    Abstract: The financial crisis started in the United States in 2007 on the subprime mortgage market and, then, gradually spread to all financial markets and strongly impacted growth in the main advanced countries through the years 2008 and 2009. Given its scope and its subsequent uncertainty, we discuss the capacity of macroeconometric models estimated on the past to quantify its various transmission channels. We try to measure the total impact of the crisis on the economy of seven advanced countries and on the euro area as a whole using the macroeconomic multinational model NiGEM. During the years 2008 and 2009, Germany suffered from a particularly strong drop in world trade, which would explain more than a half of the effect of the crisis measured in this way in 2009. The United Kingdom and the United States may especially have been affected by wealth effects and a strong drop in their inner demand. This drop may partly have been due to credit tightening. Japan seems to be the most affected country in 2009: the drop in foreign trade was exacerbated by the appreciation of the yen and investment seems to have strongly over-reacted to the fall in activity. A contrario, the fact that France suffered from a less marked drop in output in 2009 might be explained by an absence of over-reaction in economic behaviours and less sensitivity to the fall in world trade.
    Keywords: financial crisis, simulation, macroeconometric model, macro-financial linkages
    JEL: E17
    Date: 2011
  35. By: Marco Bassetto; Leslie McGranahan
    Abstract: In this paper, we investigate the relationship between public capital spending and population dynamics at the state level. Empirically, we document two robust facts. First, states with faster population growth do not spend more (per capita) to accommodate the needs of their growing population. Second, states whose population is more likely to leave do tend to spend more per capita than states with low gross emigration rates. To interpret these facts, we introduce an explicit, quantitative political-economy model of government spending determination, where mobility and population growth generate departures from Ricardian equivalence by shifting some of the costs and benefits of public projects to future residents. The magnitude of the empirical response of capital spending to mobility is at the upper end of what can be explained by the theory with a plausible calibration. In the model, more mobile voters favor more spending because the maturity of states' debt is very long term and costs are shifted into the future more than benefits.
    JEL: E62 H41 H71
    Date: 2011–04
  36. By: Jan Hanousek; Evzen Kocenda
    Abstract: In this paper we analyze the dynamics of public investment and public finance in new members of the European Union, and also how these sectors were affected by changes in economic freedom and corruption. When we assess the role of regulation and corruption on public investment, we find that improvements in economic freedom tend to be associated with decreases in public investment, while reductions in corruption produce effects going in both directions. Similarly, we show that increases in public investment are often linked with decreases as well as increases in corruption. In terms of public finance we detect mostly improvement in debt when there is less economic regulation, while results for a deficit are less conclusive. On the other hand, improvements in the corruption environment are mostly associated with decreases in the deficit as well as debt. As a general rule that follows from our results, steps aimed at reducing corruption and the degree of economic regulation should lead towards improvements in the fiscal position in most of the new EU countries.
    Keywords: public finance, public investment, economic freedom, corruption, EU convergence and integration, macroeconomic policy, fiscal reforms, new EU members
    JEL: E61 E62 F42 H50 H60 O11
    Date: 2010–12–01
  37. By: David Matesanz Gomez; Guillermo J. Ortega; Benno Torgler
    Abstract: This paper investigates the business cycle co-movement across countries and regions since the middle of the last century as a measure for quantifying the ongoing globalization process of the world economy. Our methodological approach is based on analysis of a correlation matrix and the networks it contains. Such an approach summarizes the interaction and interdependence of all elements and it represents a more accurate measure of the global interdependence involved in the economic system. Our results show (1) that the dynamics of globalization has been more driven by synchronization in regional growth patterns than by the synchronization of the world economy as a whole in contrast with other empirical works and (2) that world crisis periods increase dramatically the global co movement in the world economy.
    Keywords: Globalization; regionalism; correlation matrix; clustering; synchronization
    JEL: E32 C45 O47
    Date: 2011–04
  38. By: M. CLERC (Insee); M. GAINI (Insee); D. BLANCHET (Insee)
    Abstract: In September 2009 the Stiglitz-Sen-Fitoussi Commission submitted its report on the measurement of economic performance and social progress. The report is based on a large body of applied research work conducted in recent years in various fields of the economic and social sciences. Some of this research work proposes composite well-being indicators more appropriate than GDP. A parallel trend rather favours the construction of dashboards, i.e. sets of indicators designed to provide an understanding of the several facets of economic performance and quality of life. Without neglecting the interest of constructing composite indicators, the commission strongly emphasized the multidimensional nature of well-being. To address this multidimensional nature, it did not propose its own ready-made dashboard. The report must rather be read as providing guidelines to be followed for constructing such a dashboard. This dossier outlines the main lessons to be learned from a comparison between France and a few other countries with the same level of development, as measured against the criteria used by the Stiglitz Commission. The use of alternative standard of living indicators involves a few reclassifications across countries but without really calling into question the apparent advance of the United States. However, living conditions indicators do show far more marked contrasts in the areas of health, education, the risks of unemployment and poverty, and security. Contributions to the problem of climatic sustainability can be up to three times greater from one country to the next. As for economic sustainability, the indicator proposed by the commission suggests that this sustainability remains warranted, although with a fairly small safety margin in several countries.
    Keywords: Stiglitz-Sen-Fitoussi report, measurement of well-being, international comparison, quality of life, sustainable development, economic growth
    JEL: E01 I31 Q01 D31 N30
    Date: 2011
  39. By: Aurélien Hazan (SAMM - Statistique, Analyse et Modélisation Multidisciplinaire (SAmos-Marin Mersenne) - Université Panthéon-Sorbonne - Paris I)
    Abstract: La compréhension des phénomènes économiques nécessite de prendre en compte plusieurs échelles de temps simultanément. Nous étudions le cas d'un modèle simple d'épargne, où plusieurs échelles de temps caractéristiques coexistent. Nous montrons qu'il est possible de séparer les contributions lentes et rapides confondues dans une même variable observée en nous appuyant d'une part sur une linéarisation de la dynamique (stochastique et nonlinéaire) autour d'un point d'équilibre, et d'autre part sur un découplage via la transformation de Chang, issue de la théorie de la commande. Les modèles d'équilibre calculable, plus généraux et de grande dimension, tels que les modèles DSGE employés par de nombreuses institutions financières, pourraient bénéficier de ces outils autant pour accélérer leurs simulations que pour l'analyse statistique de données réelles.
    Keywords: macroéconomie ; épargne ; Solow ; Ramsey ; découplage ; slow/fast ; multiéchelle ; filtrage
    Date: 2011–04–16
  40. By: Neubäumer, Renate (University of Koblenz-Landau)
    Abstract: The aim of this discussion paper is not only to activate a debate over the interrelation between rising income inequality and economic policy measures but also to initiate comparative research in several European countries and North America. It discusses the consequences of a rising income inequality and its implications for state activities and economic policy. Using a simple model it becomes evident that an increasing income inequality leads to higher government spending, as a share of Gross Domestic Product, though the state does not take over more responsibilities. It also leads to a higher tax share though rates of taxation are not increased. This forces economic politicians to act. If they want to prevent an increase of these shares in order not to fall behind in the international competition, they must accept a rising public debt and/or must move away from socially accepted value judgments about "social standards", the degree of redistribution by taxes and/or an "adequate" supply of public goods. This might result in disenchantment with politics.
    Keywords: economic policy, income inequality, macroeconomic key figures, state activities
    JEL: E6
    Date: 2011–04
  41. By: Eva Ortega (Banco de España); Margarita Rubio (Banco de España); Carlos Thomas (Banco de España)
    Abstract: One of the most salient feature of the Spanish housing market, compared to other European economies, is its relatively low rental share. This may be partly attributed to the existence of fiscal distortions in Spain favoring ownership. In this paper, we simulate the potential efects of different policy measures aimed at homogenizing the fiscal treatment of ownership and renting and improving the efficiency of the rental market. We do so in the context of a DSGE model featuring a market for owner-occupied and rented housing, as well as collateral constraints in loan markets. We find that eliminating the existing subsidy to house purchases, introducing a comparable subsidy to rental payments or increasing the efficiency in the production of housing rental services raise the rental share by a similar amount. However, their implications in terms of the construction sector differ.
    Keywords: Rental market share, subsidy to house purchases, subsidy to rents, rental market efficiency
    JEL: E21 E3 E51 E6
    Date: 2011–04
  42. By: Ichino, Andrea (University of Bologna); Lindström, Elly-Ann (IFAU); Viviano, Eliana (Bank of Italy)
    Abstract: We show that in the US, the UK, Italy and Sweden women whose first child is a boy are less likely to work in a typical week and work fewer hours than women with first-born girls. The puzzle is why women in these countries react in this way to the sex of their first child, which is chosen randomly by nature. We consider two explanations. As Dahl and Moretti (2008) we show that first-born boys positively affect the probability that a marriage survives, but differently from them and from the literature on developing countries, we show that after a first-born boy the probability that women have more children increases. In these advanced economies the negative impact on fertility deriving from the fact that fewer pregnancies are needed to get a boy is more than compensated by the positive effect on fertility deriving from the greater stability of marriages, which is neglected by studies that focus on married women only.
    Keywords: preference for sons, female labour supply, mothers’ behaviour
    JEL: E24 J13 J22 J23
    Date: 2011–04

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