nep-mac New Economics Papers
on Macroeconomics
Issue of 2011‒06‒04
thirty papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Macroeconomic Regimes By Lieven Baele; Geert Bekaert; Seonghoon Cho; Koen Inghelbrecht; Antonio Moreno
  2. Commodity Price Shocks and the Business Cycle: Structural Evidence for the U.S. By Matthias Gubler; Matthias S. Hertweck
  3. Is there any evidence of a Greenspan put? By Hall Pamela
  4. Sectoral Inflation Dynamics, Idiosyncratic Shocks and Monetary Policy By Daniel Kaufmann; Sarah Lein
  5. FiMod - a DSGE model for fiscal policy simulations By Nikolai Stähler; Carlos Thomas
  6. Household Leverage and the Recession By Midrigan, Virgiliu; Philippon, Thomas
  7. Monetary Policy, Capital Inflows, and the Housing Boom By Sá, F.; Wieladek, T.
  8. Fiscal and Monetary Institutions in Central, Eastern and South-Eastern European Countries By Zsolt Darvas; Valentina Kostyleva
  9. On the Endogeneity of Inflation Targeting: Preferences Over Inflation By Nicolás de Roux; Marc Hofstetter
  10. Financial Cycles: What? How? When? By Claessens, Stijn; Kose, Ayhan; Terrones, Marco E
  11. The Role of Macroprudential Policy for Financial Stability in East Asia’s Emerging Economies By Park, Yung Chul
  12. International transmission of shocks: a time-varying factor-augmented VAR approach to the open economy By Liu, Philip; Mumtaz, Haroon; Theophilopoulou, Angeliki
  13. Unemployment in an Estimated New Keynesian Model By Jordi Galí; Frank Smets; Rafael Wouters
  14. Fiscal data revisions in Europe By Francisco de Castro; Javier J. Pérez; Marta Rodríguez-Vives
  15. Business Cycles in the Phillips Machine By Allan McRobie
  16. Global imbalances and the financial crisis: Link or no link? By Claudio Borio; Piti Disyatat
  17. Postkeynesian Precepts for Nonlinear, Endogenous, Nonstochastic, Business Cycle Theories By K. Vela Velupillai
  18. Credit cycles: Evidence based on a non linear model for developed countries By Rebeca Anguren Martín
  19. The Time-to-Build Tradition in Business Cycle Modelling By N. Dharmaraj; K. Vela Velupillai
  20. Keynes’s missing axioms By Kakarot-Handtke, Egmont
  21. Beginning, crises, and end of the money economy in three consistent steps By Kakarot-Handtke, Egmont
  22. Bibliography of Research using the NZIER’s Quarterly Survey of Business Opinion By Robert A. Buckle; Brian Silverstone
  23. The Role of Intangible Assets on the Economic Performances in Japan and Korea (Japanese) By MIYAGAWA Tsutomu; TAKIZAWA Miho
  24. Schumpeter and the essence of profit By Kakarot-Handtke, Egmont
  25. What is wrong with heterodox economics? Kalecki’s profit theory as an example By Kakarot-Handtke, Egmont
  26. Mortgage Rate Pass-Through in Switzerland By Iva Cecchin
  27. Credit conditions indices: controlling for regime shifts in the Norwegian credit market By Jansen, Eilev S.; Krogh, Tord S. H.
  28. Survey evidence on wage and price setting in Estonia By Aurelijus Dabušinskas; Tairi Rõõm
  29. Life and Growth By Charles I. Jones
  30. Can economic crises be good for your diet? By Ralitza Dimova; Ira N. Gang; Monnet Gbakou; Daniel Hoffman

  1. By: Lieven Baele; Geert Bekaert; Seonghoon Cho; Koen Inghelbrecht; Antonio Moreno
    Abstract: We estimate a New-Keynesian macro model accommodating regime-switching behavior in monetary policy and in macro shocks. Key to our estimation strategy is the use of survey-based expectations for inflation and output. We identify accommodating monetary policy before 1980, with activist monetary policy prevailing most but not 100% of the time thereafter. Systematic monetary policy switched to the activist regime in the 2000-2005 period through an aggressive lowering of interest rates. Discretionary policy spells became less frequent since 1985, but the Volcker period is identified as a discretionary period. Output shocks shift to the low volatility regime around 1985 whereas inflation shocks do so only around 1990, suggesting active monetary policy may have played role in anchoring inflation expectations. Shocks and policy regimes jointly drive the volatility of the macro variables. We provide new estimates of the onset and demise of the Great Moderation and the relative role played by macro-shocks and monetary policy.
    JEL: C42 C53 E31 E32 E52 E58
    Date: 2011–05
  2. By: Matthias Gubler; Matthias S. Hertweck (University of Basel)
    Keywords: business cycles, commodity price shocks, structural VAR
    JEL: C32 E32 E52 Q43
    Date: 2011
  3. By: Hall Pamela
    Abstract: Central banks have won in credibility as from the mid-eighties by keeping inflation under control. However, confidence in low inflation might have encouraged agents to excessive risk-taking, leading asset prices to rise. Moreover, the belief in a Federal Reserve guarantee against a sharp market decline spread across US markets as from the nineties. This belief, commonly referred to as the Greenspan put, raised again the question about the role of asset prices in monetary policy decisions. The problem is addressed by modeling the reaction of the Fed to stockmarket deviations from fundamentals over the period stretching from August 1987 to October 2008, which corresponds to the periods where Greenspan until January 2006 and Bernanke from thereon were chairmen. A Taylor rule describing the Fed's nominal feedback rule to inflation and economic activity on a monthly basis is extended to take account of asset prices. The indicators considered are deflation and volatility in stock prices. Furthermore, a Markov switching process allows to capture contemporaneous as well as forward-looking monetary policy responses to asset prices over the period. We find out that taking asset price deflation improves the Taylor rule fit by some 8%. In periods when the Fed was actively pursuing an expansive or restrictive monetary policy, its reaction to volatility or deflation of financial markets was significant. We also see that the reaction of the Fed to asset prices was greater during financial crises, especially when modeling a forward-looking decision process. Agents' confidence in a stronger response of the US central bank to significant market declines urging to an easing of monetary conditions in their favour was therefore not unfounded.
    Keywords: monetary policy, nominal feedback rule, asset prices, United States
    JEL: C11 C22 E44 E52 E58
    Date: 2011
  4. By: Daniel Kaufmann; Sarah Lein
    Abstract: This paper disentangles fluctuations in disaggregate prices into macroeconomic and idiosyncratic components using a factor-augmented vector autoregression (FAVAR) in order to shed light on sectoral inflation dynamics in Switzerland. We find that disaggregated prices react only slowly to monetary policy and other macroeconomic shocks, but relatively quickly to idiosyncratic shocks. We document that there is a large heterogeneity across sectors in the reaction to monetary policy shocks and show that sectors with larger volatility of idiosyncratic shocks react more readily to monetary policy. This finding stands in contrast to the rational inattention model of price setting. We also find that sectors, which change prices infrequently, react less strongly but if they do change their prices, they adjust them by a large amount. This suggests that the source of sluggish response to aggregate shocks is heterogeneity in menu costs rather than rational inattention. Furthermore, even though prices respond with a significant delay to identified monetary policy shocks, we find no evidence of a price puzzle on average. For single sectors, however, we still find a hump-shaped response which can partially be explained by the fact that, by law, rents are tied to interest rates in Switzerland.
    Keywords: monetary policy transmission, idiosyncratic shocks, rational inattention, heterogeneity in price setting, cost channel, price puzzle
    JEL: E31 E4 E5 C3
    Date: 2011
  5. By: Nikolai Stähler (Deutsche Bundesbank); Carlos Thomas (Banco de España)
    Abstract: This paper develops a medium-scale dynamic, stochastic, general equilibrium (DSGE) model for fiscal policy simulations. Relative to existing models of this type, our model incorporates two important features. First, we consider a two-country monetary union structure, which makes it well suited to simulate fiscal measures by relatively large countries in a currency area. Second, we provide a notable degree of disaggregation on the government expenditures side, by explicitly distinguishing between (productivity-enhancing) public investment, public purchases and the public sector wage bill. In addition, we consider a labor market characterized by search and matching frictions, which allows to analyze the response of equilibrium unemployment to fiscal measures. In order to illustrate some of its applications, and motivated by recent policy debate in the Euro Area, we calibrate the model to Spain and the rest of the area and simulate a number of fiscal consolidation scenarios. We find that, in terms of output and employment losses, fiscal consolidation is the least damaging when achieved by reducing the public sector wage bill, whereas it is most damaging when carried out by cutting public investment.
    Keywords: DSGE model, fiscal policy, two-country monetary union, disaggregation of fiscal expenditures, labor market frictions
    JEL: E62 H30
    Date: 2011–05
  6. By: Midrigan, Virgiliu; Philippon, Thomas
    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.
    Keywords: cash-in-advance; household credit; housing; leverage; monetary policy; Recession
    JEL: E2 E4 E5 G0
    Date: 2011–05
  7. By: Sá, F.; Wieladek, T.
    Abstract: We estimate an open economy VAR model to quantify the effect of monetary policy and capital inflows shocks on the US housing market. The shocks are identified with sign restrictions derived from a standard DSGE model. We find that monetary policy shocks have a limited effect on house prices and residential investment. In contrast, capital inflows shocks driven by an increase in foreign savings have a positive and persistent effect on both housing variables. Other sources of capital inflows shocks, such as foreign monetary expansion or an increase in aggregate demand in the US, have a more limited role.
    JEL: E5 F3
    Date: 2011–05–30
  8. By: Zsolt Darvas; Valentina Kostyleva (OECD Public Governance and Territorial Development Directorate)
    Abstract: This paper studies the role of fiscal and monetary institutions in macroeconomic stability and budgetary control in central, eastern and south-eastern European countries (CESEE) in comparison with other OECD countries. CESEE countries tend to grow faster and have more volatile output than non-CESEE OECD countries, which has implications for macroeconomic management: better fiscal and monetary institutions are needed to avoid pro-cyclical policies. The paper develops a Budgetary Discipline Index to assess whether good fiscal institutions underpin good fiscal outcomes. Even though most CESEE countries have low scores, the debt/GDP ratios declined before the crisis. This was largely the consequence of a very favourable relationship between the economic growth rate and the interest rate, but such a favourable relationship is not expected in the future. Econometric estimations confirm that better monetary institutions reduce macroeconomic volatility and that countries with better budgetary procedures have better fiscal outcomes. All these factors call for improved monetary institutions, stronger fiscal rules and better budgetary procedures in CESEE countries.
    Keywords: CESEE countries, Budgetary Discipline Index, budget process, fiscal institutions, budgetary institutions, monetary institutions, macroeconomic stability, econometric analysis, budgetary procedures, fiscal outcomes, fiscal rules
    JEL: E32 E50 H11 H60
    Date: 2011–04
  9. By: Nicolás de Roux; Marc Hofstetter
    Abstract: Over the last quarter of a century, inflation targeting has become a popular monetary regime. Nevertheless, empirical evaluations of IT have shown contradictory results. Part of the reason is that IT in and of itself constitutes an endogenous decision and thus needs to be properly instrumented. In this paper, we show that preferences over inflation constitute a crucial determinant of IT: countries exhibiting greater inflation aversion are more likely to adopt IT.
    Date: 2011–02–20
  10. By: Claessens, Stijn; Kose, Ayhan; Terrones, Marco E
    Abstract: This paper provides a comprehensive analysis of financial cycles using a large database covering 21 advanced countries over the period 1960:1-2007:4. Specifically, we analyze cycles in credit, house prices, and equity prices. We report three main results. First, financial cycles tend to be long and severe, especially those in housing and equity markets. Second, they are highly synchronized within countries, particularly credit and house price cycles. The extent of synchronization of financial cycles across countries is high as well, mainly for credit and equity cycles, and has been increasing over time. Third financial cycles accentuate each other and become magnified, especially during coincident downturns in credit and housing markets. Moreover, globally synchronized downturns tend to be associated with more prolonged and costly episodes, especially for credit and equity cycles. We discuss how these findings can guide future research on various aspects of financial market developments.
    Keywords: asset busts; credit booms; credit cycles; crunches; equity prices; house prices
    JEL: E32 F42 G12 G15
    Date: 2011–05
  11. By: Park, Yung Chul (Asian Development Bank Institute)
    Abstract: This paper analyzes the role and scope of macroprudential policy in preventing financial instability in the context of East Asian economies. It analyzes the behavior of the housing market in a dynamic setting to identify some of the factors responsible for the volatility of housing markets and their susceptibility to boom–bust cycles, which it identifies as a key source of financial imbalances in these economies. It then discusses the causal nexus between price and financial stability and the roles and complementary nature of macroprudential and monetary policies in addressing aggregate risk in the financial system. The paper identifies currency and maturity mismatches, which contributed to the 1997–1998 Asian financial crisis, as ongoing concerns in these economies although the high levels of reserves in the region now act as a buffer.
    Keywords: macroprudential policy; monetary policy; east asian economies; asian housing market; financial imbalances; asian financial crisis
    JEL: E52 E58 G15 G28
    Date: 2011–05–26
  12. By: Liu, Philip (International Monetary Fund); Mumtaz, Haroon (Bank of England); Theophilopoulou, Angeliki (University of Westminister)
    Abstract: A growing literature has documented changes to the dynamics of key macroeconomic variables in industrialised countries and highlighted the possibility that these variables may react differently to structural shocks over time. However, existing empirical work on the international transmission of shocks largely abstracts from the possibility of changes to the international transmission mechanism across time. In addition, the literature has largely employed small-scale models with limited number of variables. This paper introduces an empirical model which allows the estimation of time-varying response of a large set of domestic variables to foreign money supply, demand and supply shocks. The key results show that a foreign monetary policy tightening resembles the classic beggar-thy-neighbour scenario for the United Kingdom in the period 1975-90. In more recent periods, the response is negative but largely insignificant.
    Keywords: Factor augmented VAR; Time-variation; Gibbs sampling.
    Date: 2011–05–27
  13. By: Jordi Galí; Frank Smets; Rafael Wouters
    Abstract: We reformulate the Smets-Wouters (2007) framework by embedding the theory of unemployment proposed in Galí (2011a,b). We estimate the resulting model using postwar U.S. data, while treating the unemployment rate as an additional observable variable. Our approach overcomes the lack of identification of wage markup and labor supply shocks highlighted by Chari, Kehoe and McGrattan (2008) in their criticism of New Keynesian models, and allows us to estimate a "correct" measure of the output gap. In addition, the estimated model can be used to analyze the sources of unemployment fluctuations.
    JEL: D58 E24 E31 E32
    Date: 2011–05
  14. By: Francisco de Castro (Banco de España, Madrid, Spain.); Javier J. Pérez (Banco de España, Madrid, Spain.); Marta Rodríguez-Vives (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    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. JEL Classification: E01, E21, E24, E31, E5, H600.
    Keywords: data revisions, real-time data, news and noise, fiscal statistics, rationality.
    Date: 2011–05
  15. By: Allan McRobie
    Abstract: Over the summer of 2003, the author undertook the refurbishment of the Cambridge Phillips Machine with help from technicians in the Cambridge University Engineering Dept and with advice from economists. The Machine now works and - moreover - is safe to work with. The Machine has since been used to give numerous working demonstrations to a wide variety of audiences from schoolchildren to distinguished economists. This paper describes some of the standard experiments that can be conducted on the Machine. Also described are more recent simulations which attempt to demonstrate the possibility of generating business cycles - of both linear and nonlinear Hicksian types - from the basic accelerator-multiplier system.
    Date: 2011
  16. By: Claudio Borio; Piti Disyatat
    Abstract: Global current account imbalances have been at the forefront of policy debates over the past few years. Many observers have recently singled them out as a key factor contributing to the global financial crisis. Current account surpluses in several emerging market economies are said to have helped fuel the credit booms and risk-taking in the major advanced deficit countries at the core of the crisis, by putting significant downward pressure on world interest rates and/or by simply financing the booms in those countries (the "excess saving" view). We argue that this perspective on global imbalances bears reconsideration. We highlight two conceptual problems: (i) drawing inferences about a country's cross-border financing activity based on observations of net capital flows; and (ii) explaining market interest rates through the saving-investment framework. We trace the shortcomings of this perspective to a failure to consider the distinguishing characteristics of a monetary economy. We conjecture that the main contributing factor to the financial crisis was not "excess saving" but the "excess elasticity" of the international monetary and financial system: the monetary and financial regimes in place failed to restrain the build-up of unsustainable credit and asset price booms ("financial imbalances"). Credit creation, a defining feature of a monetary economy, plays a key role in this story.
    Keywords: global imbalances, saving glut, money, credit, capital flows, current account, interest rates, financial crisis
    Date: 2011–05
  17. By: K. Vela Velupillai
    Date: 2011
  18. By: Rebeca Anguren Martín (Banco de España)
    Abstract: We propose an econometric analysis of the evolution of bank credit to the private sector in order to describe credit cycles and identify phases of particularly low (or negative) credit growth such as those that typically accompany financial or banking crises. We use a sample of twelve developed countries, which improves the reliability of our estimation results and provides a global view of the situation of credit for developed countries. In our preferred specification, the credit cycle is characterized as a three-state Markov-switching model that identifies episodes of credit expansion, intermediate credit growth and subpar growth or credit crisis. This specification identifies six of the countries as having experienced period of credit adjustment after the beginning of the financial crisis in 2007 (Canada, Germany, Netherlands, Spain, Switzerland and US). By the end of the sample period, credit growth was still impaired in three of these countries (Germany and Spain in 2010:I; and United States in 2009:IV). The analysis also uncovers a systematic cyclical pattern in the bank lending sector of the group of advanced countries considered in our sample, which have experienced five episodes of synchronous restrictions in bank lending: 1974-75, 1980-82, 1991-93, 2001-02 and from 2008 to the end of the sample.
    Keywords: credit cycle, banking crisis, fi nancial crisis, Markov, business cycle
    JEL: E44 E51 G21
    Date: 2011–05
  19. By: N. Dharmaraj; K. Vela Velupillai
    Abstract: An important frontier of business cycle theorising is the 'time-to-build' tradition that lies at the heart of Real Business Cycle theory. Kydland and Prescott (1982) did not acknowledge the rich tradition of 'time-to-build' business cycle theorising - except in a passing, non-scholarly, non-specific, reference to Böhm-Bawerk's classic on Capital Theory (Böhm-Bawerk [1899]), which did not, in any case, address cycle theoretic issues. The notion of ‘time-to-build’ is intrinsic to any process oriented production theory which is incorporated in a macrodynamic model. We provide an overview of this tradition, focusing on some of the central business cycle classics, and suggest that the Neo-Austrian revival should be placed in this class of dynamic macroeconomics, albeit ‘traverse dynamics’ is itself to be considered as a fluctuating path from one equilibrium to another.
    Date: 2011
  20. By: Kakarot-Handtke, Egmont
    Abstract: Between Keynes’s verbalized theory and its formal basis persists a lacuna. The conceptual groundwork is too small and not general. The quest for a comprehensive formal basis is guided by the question: what is the minimum set of foundational propositions for a consistent reconstruction of the money economy? We start with three structural axioms. The claim of generality entails that it should be possible to prove that Keynes’s formalism is a subset of the structural axiom set. The axioms are applied to a central part of the General Theory in order to achieve consistency and generality.
    Keywords: New framework of concept; Structure-centric; Axiom set; Full employment; Intermediate situation; Emergent money; Singularity; System immanent risk; Distributed profit; Saving; Investment; Allais-Identity
    JEL: E12 E25 E31 E24 E40 B41
    Date: 2011–05–14
  21. By: Kakarot-Handtke, Egmont
    Abstract: A crisis is but a crisis when the long run outlook is definitively positive. Then a lower turning point must exist. This implicates a vision or, in the ideal case, a formalized theory of the money economy’s possible end states. This theory has to provide an endogenous explanation of end states and crises. The equilibrium approach excludes endogenous causes in principle. Thus disturbances can only be explained by exogenous random shocks. The structural axiomatic approach, that is applied in the following, consistently defines the potential systemic crisis point and the conditions of an economic happy end.
    Keywords: New framework of conceps; Structure-centric; Axiom set; Zero profit economy; Distributed profit; Systemic crisis point; Logical end states
    JEL: E32 D33 E21 E40 B41
    Date: 2011–05–29
  22. By: Robert A. Buckle (Victoria University of Wellington); Brian Silverstone (University of Waikato)
    Abstract: The New Zealand Institute of Economic Research (NZIER) has conducted and published a quarterly survey of business opinion continuously, and with largely unchanged questions, since June 1961. The Institute’s Quarterly Survey of Business Opinion (QSBO) is a business tendency survey based substantially on the Business Test of the IFO Munich. It covers the manufacturing, building, merchant and service sectors and architects. This bibliography lists and classifies some 80 research papers which used QSBO data and published between 1964 and 2011.
    Keywords: bibliography; business surveys; business tendency surveys; NZIER; QSBO; New Zealand
    JEL: E32
    Date: 2011–05–24
  23. By: MIYAGAWA Tsutomu; TAKIZAWA Miho
    Abstract: Though the economies of both Japan and Korea suffered during the 1997-1998 financial crisis, economic performances in both countries have diverged somewhat after the financial crisis. The Korean economy recovered swiftly and has maintained an economic growth rate of 4%, but Japan's economic growth rate has remained low.<br /><br />Following the McGrattan and Prescott model, which includes intangible assets in the standard real business cycle (RBC) model, we explain the differences in the economic performances of Japan and Korea. According to our simulation results, the shares of intangible assets in Japan and Korea are 10% and 7%, respectively. Growth accounting (using the simulation results) shows that the accumulation of intangible assets and higher total factor productivity (TFP) contributed to the economic growth recorded in Korea, while the low accumulation of both tangible and intangible assets in Japan contributed to its low economic growth.
    Date: 2011–03
  24. By: Kakarot-Handtke, Egmont
    Abstract: Schumpeter had a clear vision of the developing economy, but he did not formalize it. The quest for a germane formal basis is in the following guided by the general question: what is the minimum set of foundational propositions for a consistent reconstruction of the evolving money economy? We start with three structural axioms. The claim of generality entails that it should be possible to free Schumpeter’s approach from its irksomeWalrasian legacy and to give a consistent formal account of the elementary circular flow that served him as a backdrop for the analysis of the entrepreneur-driven market system.
    Keywords: New framework of concepts; Structure-centric; Axiom set; Profit; Money; Credit; Structural stress; Catching-up process; Monopoly
    JEL: E25 E30 E10 E40 B41
    Date: 2011–05–29
  25. By: Kakarot-Handtke, Egmont
    Abstract: Kalecki’s profit theory has always been popular among heterodox economist as an alternative approach to solve the paradox of monetary profits. In the present paper his formula ‘The workers spend what they get, the capitalists get what they spend’ is scrutinized for its logical and factual implications. The analysis shows that Kalecki’s alternative approach points in the right direction but unfortunately shares a crucial conceptual error with standard economics.
    Keywords: National income accounting; Zero profit economy; Distributed profit; Income definition; Master equation
    JEL: E12 E25 B22 B50 B41
    Date: 2011–05–18
  26. By: Iva Cecchin
    Abstract: This paper investigates the speed and completeness of the pass-through from market rates to mortgage rates in Switzerland. The pass-through dynamics are studied under a marginal funding cost perspective. By choosing the appropriate benchmark rates, this study takes into account banks' forecasts of the evolution of their funding costs. It is found that the passthrough of rates of adjustable-rate mortgages is incomplete and sluggish compared to the rates of mortgages with a fixed maturity. For the latter, changes in market rates appear to be transmitted quickly and completely, particularly when benchmark rates are falling. This finding suggests that a low-interest-rate environment stimulates competition among financial institutions. Evidence for a structural change is found for all interest rates. The structural change occurred around the beginning of 2007 for fixed-rate mortgages and in mid-2005 for floating-rate mortgages. For all mortgage rates, asymmetries are detected in the pre-break period. More specifically, the adjustment of fixed-rate-mortgage rates is characterized by downward rigidity, which supports the existence of some form of imperfect competition. By contrast, the rates of adjustable-rate mortgages exhibit upward price stickiness. This result suggests that competition was stronger in this specific mortgage-lending market. In the post-break period, no clear evidence is found in favor of asymmetries with respect to the adjustment coefficient.
    Keywords: Interest Rate Pass-Through, Monetary Policy, Mortgages, Cointegration analysis, Panel Data
    JEL: E43 E52 G21 C23
    Date: 2011
  27. By: Jansen, Eilev S.; Krogh, Tord S. H.
    Abstract: The interaction between financial markets and the macroeconomy can be strongly affected by changes in credit market regulations. In order to take account of these effects the authors control explicitly for regime shifts in a system of debt equations for Norway using a common, flexible trend. The estimated shape of the trend matches the qualitative development in the regulations, and the authors argue that it can be viewed as a measure of relative credit availability, or credit conditions, for the period 1975-2008 - a credit conditions index (CCI). This entails years of strict credit market regulations in the 1970s, its gradual deregulation in the 1980s, followed by a full-blown banking crisis in the years around 1990 and the development thereafter up to the advent of the current financial crisis. Our study is inspired by Fernandez-Corugedo and Muellbauer (2006), which introduced the methodology and provided estimates of a CCI for the UK. The trend conditions on a priori knowledge about changes in the Norwegian regulatory system, as documented in Krogh (2010b), and it shows robustness when estimated recursively. --
    Keywords: credit conditions,flexible trend,financial deregulation,household loans
    JEL: E44 G21 G28
    Date: 2011
  28. By: Aurelijus Dabušinskas; Tairi Rõõm
    Abstract: In this paper, we give a comprehensive overview of wage and price adjustment practices in Estonia, drawing from two managerial surveys which were conducted in autumn 2007 and summer 2009 within the framework of the Wage Dynamics Network (WDN), a joint research project by the Eurosystem/ESCB. Our discussion covers a broad range of results, including firm-level descriptive evidence for several institutional and structural characteristics of the Estonian economy such as unionisation and collective bargaining coverage, labour intensity of production, remuneration methods, product market competition, etc., and insights into the wage and price setting behaviour of Estonian firms. To illustrate this behaviour, we give an overview of the frequency and timing of wage and price changes; the extent of downward nominal and real wage rigidity; the determinants of wages paid to newly employed workers; and finally, the nature of firms\' adjustments to cost push and negative demand shocks
    Keywords: survey data, wage setting, price setting, Estonia
    JEL: E3 J3
    Date: 2011–05–27
  29. By: Charles I. Jones
    Abstract: Some technologies save lives — new vaccines, new surgical techniques, safer highways. Others threaten lives — pollution, nuclear accidents, global warming, the rapid global transmission of disease, and bioengineered viruses. How is growth theory altered when technologies involve life and death instead of just higher consumption? This paper shows that taking life into account has first-order consequences. Under standard preferences, the value of life may rise faster than consumption, leading society to value safety over consumption growth. As a result, the optimal rate of consumption growth may be substantially lower than what is feasible, in some cases falling all the way to zero.
    JEL: E0 I10 O3 O4
    Date: 2011–05
  30. By: Ralitza Dimova; Ira N. Gang (Osteuropa-Institut, Regensburg (Institut for East European Studies)); Monnet Gbakou; Daniel Hoffman
    Abstract: With fortuitously timed data - collected before, during and after a major macro-financial crisis in Bulgaria - we revisit several hypotheses in the economics and nutritional literature related to the tendency of households to smooth their nutritional status over time. We explore the dietary impact of both falling real incomes in the context of hyperinflation and crisis and changing relative prices and the changing responsiveness of different groups of people to these incomes and prices over six year of fundamental structural reforms of the economy. Our results highlight large and dramatically changing food and nutrient elasticities, which challenge the perception of household ability to smooth their nutrient stream during economic crises and transitions.
    Keywords: Crisis, Diet, Fluctuation, Health, Nutrition
    JEL: E32 I12 P23 P24 P36
    Date: 2011–03

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