|
on Macroeconomics |
|
Issue of 2011‒06‒11
fifty-five papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Graham, Liam; Snower, Dennis J. |
| Abstract: | The Friedman rule states that steady-state welfare is maximized when there is deflation at the real rate of interest. Recent work by Khan et al. (2003) uses a richer model but still finds deflation optimal. In an otherwise standard new Keynesian model we show that, if households have hyperbolic discounting, small positive rates of inflation can be optimal. In our baseline calibration, the optimal rate of inflation is 2.1% and remains positive across a wide range of calibrations. |
| Keywords: | inflation targeting; monetary policy; nominal inertia; optimal monetary policy; Phillips curve; unemployment |
| JEL: | E20 E40 E50 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8390&r=mac |
| By: | Berlemann, Michael (Helmut Schmidt University, Hamburg); Hielscher, Kai (Helmut Schmidt University, Hamburg) |
| Abstract: | Based on an extended version of a time-inconsistency model of monetary policy we show that the degree of effective monetary policy conservatism can be uncovered by studying to what extent central banks react to real disturbances. By estimating central bank reaction functions in moving and overlapping intervals for the period of 1985 to 2007 using an ordered logit approach in a panel setting we derive a time-varying indicator of effective monetary policy conservatism for Canada, Sweden, the UK and the US. Employing this indicator we show that increasing effective conservatism tends to lower inflation without increasing the output gap. However, while a higher degree of effective conservatism does not result in lower inflation uncertainty the variance of the output gap tends to decrease. |
| Keywords: | central banking; monetary policy; conservatism; central bank independence; inflation |
| JEL: | E31 E58 |
| Date: | 2011–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:ris:vhsuwp:2011_112&r=mac |
| By: | Dennis Wesselbaum |
| Abstract: | Recent research has shown that economic conditions have an important effect on real commodity prices. We quantify the contribution of fluctuations in inflation to this particular link. In the data, a temporary rise in inflation causes real commodity prices to rise, as does a rise in trend inflation. We find that a simple dynamic equilibrium model of commodity supply and demand gives a realistic response of real commodity prices to inflation. Based on historical simulations, shocks to inflation played an important role in commodity price dynamics during the 1970s, but they have contributed negligibly to commodity price movements since then |
| Keywords: | Commodity prices, monetary policy, inflation, the 1970s |
| JEL: | E31 E52 E65 Q00 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1704&r=mac |
| By: | Hielscher, Kai (Helmut Schmidt University, Hamburg) |
| Abstract: | We show that, in a two-stage model of monetary policy with stochastic policy targets and asymmetric information, the transparency regime chosen by the central bank does never coincide with the regime preferred by society. Independent of society’s endogenous choice of delegation, the central bank reveals its inflation target and conceals its output target. In contrast, society would prefer either transparency or opacity of both targets. As a conclusion, the choice of the transparency regime should be part of the optimal delegation solution. |
| Keywords: | central banking; monetary policy; communication; delegation; positive analysis |
| JEL: | E52 E58 |
| Date: | 2011–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:ris:vhsuwp:2011_113&r=mac |
| By: | Svatopluk Kapounek (Department of Finance, FBE MENDELU in Brno); Lubor Lacina (Department of Finance, FBE MENDELU in Brno) |
| Abstract: | There is significant empirical evidence that the introduction of the euro led to a significant increase of perceived inflation in most countries. Such an increase and persistence in the perceived inflation might then have an impact on inflation expectations and other macroeconomic variables. The authors have used the short-term Phillips curve to describe the difference between inflation expectations and its current values, subsequently to identify the impact of this difference on other economic indicators. The paper is structured as follows: Section 1 provides an overview of the theory and empiricism on the gap between measured and perceived inflation. Section 2 then builds up the theoretical framework based on the short–term Phillips curve approach and derives two hypotheses, to be tested subsequently. Section 3 provides the methodology. Section 4 presents the modelling and results of the empirical analysis. In section 5 authors compare its results and used methodology with papers and studies on a similar topic. Finally, Section 6 concludes and provides recommendations for the economic policy. |
| Keywords: | monetary integration, perceived and anticipated inflation, adaptive and rational expectations hypothesis, expectations-augmented Phillips curve, stationarity, ADF test |
| JEL: | E42 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:men:wpaper:05_2011&r=mac |
| By: | Challe, Edouard; Giannitsarou, Chryssi |
| Abstract: | Recent empirical literature documents that unexpected changes in the nominal interest rates have a significant effect on stock prices: a 25-basis point increase in the Fed funds rate is associated with an immediate decrease in broad stock indices that may range from 0.5 to 2.3 percent, followed by a gradual decay as stock prices revert towards their long-run expected value. In this paper, we assess the ability of a general equilibrium New Keynesian asset-pricing model to account for these facts. The model we consider allows for staggered price and wage setting, as well as time-varying risk aversion through habit formation. We find that the model predicts a stock market response to policy shocks that matches empirical estimates, both qualitatively and quantitatively. Our findings are robust to a range of variations and parameterizations of the model. |
| Keywords: | Asset prices; Monetary policy; New Keynesian general equilibrium model |
| JEL: | E31 E52 G12 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8387&r=mac |
| By: | Ascari, Guido (Department of Economics and Quantitative Methods, University of Pavia); Colciago , Andrea (University of Milano-Bicocca. Department of Economics); Rossi, Lorenza (University of Pavia) |
| Abstract: | We study the design of monetary policy in an economy characterized by staggered wage and price contracts together with limited asset market participation (LAMP). Contrary to previous results, we find that once nominal wage stickiness, an incontrovertible empirical fact, is considered: i) the Taylor Principle is restored as a necessary condition for equilibrium determinacy for any empirically plausible degree of LAMP; ii) the implications of LAMP for the design of optimal monetary policy are minor; iii) optimal interest rate rules become active no matter the degree of asset market participation. For these reasons we argue that LAMP is not particularly important for monetary policy. |
| Keywords: | optimal monetary policy; sticky wages; non-Ricardian household; determinacy; optimal simple rules |
| JEL: | E50 E52 |
| Date: | 2011–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2011_015&r=mac |
| By: | John Earl Floyd |
| Abstract: | This paper analyzes the relationship between Canadian Monetary Policy and the movements of Canada\'s real and nominal exchange rates with respect to the U.S. A broad-based theory is developed to form the basis for subsequent empirical analysis. The main empirical result is that the Canadian real exchange rate has been determined in large part by capital movements into and out of Canada as compared to the U.S. and world energy prices. Additional important determinants were world commodity prices and Canadian and U.S. real GDPs and employment rates. No evidence of effects of unanticipated money supply shocks on the nominal and real exchange rates is found. Under conditions where exchange rate overshooting is likely to occur in response to monetary demand or supply shocks, this suggests that the Bank of Canada follows an orderly-markets style of monetary policy and the conclusion is that this is the best approach under normal conditions. Finally, it is shown that in response to a domestic inflation rate that has become permanently too high or a catastrophic situation in the U.S., the Bank of Canada can induce a one-percent short-run change in the unemployment rate by pushing the nominal and real exchange rates in the appropriate direction by between five and six percent. |
| Keywords: | Real Exchange Rate Canadian Monetary Policy |
| JEL: | A E F G |
| Date: | 2011–05–16 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-430&r=mac |
| By: | Andrés González G.; Franz Hamann |
| Abstract: | This paper measures inflation persistence in Colombia for the period 1990-2010 and estimates the implied speed at which agents learn about the central bank’s inflation target. We estimate Erceg and Levin’s (2003) imperfect credibility model using Bayesian techniques and compare the posterior odds of this model against a conventional Neokeynesian model with ad-hoc price indexation. The odds are strongly in favor of the imperfect credibility model, suggesting that lack of credibility on the inflation target is an important source of inflation persistence. We use the model to compute the sacrifice ratio associated to 100 basis points inflation target shocks and find that it is (0.83%) in line with previous estimates for Colombia. We also find that the speed at which agents learn in the model has increased, albeit marginally, since the central bank implemented its inflation targeting strategy. Although during this period macroeconomic volatility has fallen, inflation persistence has remained roughly constant suggesting that so far, the impact of those credibility gains has been modest. |
| Date: | 2011–05–26 |
| URL: | http://d.repec.org/n?u=RePEc:col:000094:008737&r=mac |
| By: | Igor Vetlov (Bank of Lithuania); Tibor Hlédik (Czech National Bank); Magnus Jonsson (Sveriges Riksbank); Henrik Kucsera (Magyar Nemzeti Bank); Massimiliano Pisani (Banca d'Italia) |
| Abstract: | In view of the increasing use of Dynamic Stochastic General Equilibrium (DSGE) models in the macroeconomic projections and the policy process, this paper examines, both conceptually and empirically, alternative notions of potential output within DSGE models. Furthermore, it provides historical estimates of potential output/output gaps on the basis of selected DSGE models developed by the European System of Central Banks’ staff. These estimates are compared to the corresponding estimates obtained applying more traditional methods. Finally, the paper assesses the usefulness of the DSGE model-based output gaps for gauging inflationary pressures. |
| Keywords: | potential output, simulation and forecasting models, monetary policy |
| JEL: | E32 E37 E52 |
| Date: | 2011–06–03 |
| URL: | http://d.repec.org/n?u=RePEc:lie:wpaper:9&r=mac |
| By: | Crowley , Patrick M (College of Business, Texas A&M University); Hughes Hallett, Andrew (George Mason University – School of Public Policy) |
| Abstract: | In this paper the relationship between the growth of real GDP components is explored in the frequency domain using both static and dynamic wavelet analysis. This analysis is carried out separately for the US and UK using quarterly data, and the results are found to be substantially different for the two countries. One of the key findings of this research is that the ‘great moderation’ shows up only at certain frequencies, and not in all components of real GDP. We use these results to explain why the incidence of the great moderation has been so patchy across GDP components, countries and time periods. This also explains why it has been so hard to detect periods of moderation (or other periods) reliably in the aggregate data. We argue this cannot be done without separating the GDP components into their frequency components over time. Our results show why: the predictions of traditional real business cycle theory often appear not to be upheld in the data. |
| Keywords: | business cycles; growth cycles; discrete wavelet analysis; US real GDP; UK real GDP |
| JEL: | C49 E20 E32 |
| Date: | 2011–05–23 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2011_013&r=mac |
| By: | Harold Ngalawa (School of Economics and Finance, University of KwaZulu-Natal); Nicola Viegi (Department of Economics, University of Pretoria) |
| Abstract: | This paper sets out to investigate the process through which monetary policy affects economic activity in Malawi. Using innovation accounting in a structural vector autoregressive model, it is established that monetary authorities in Malawi employ hybrid operating procedures and pursue both price stability and high growth and employment objectives. Two operating targets of monetary policy are identified, viz., bank rate and reserve money, and it is demonstrated that the former is a more effective measure of monetary policy than the latter. The study also illustrates that bank lending, exchange rates and aggregate money supply contain important additional information in the transmission process of monetary policy shocks in Malawi. Furthermore, it is shown that the floatation of the Malawi Kwacha in February 1994 had considerable effects on the country’s monetary transmission process. In the post-1994 period, the role of exchange rates became more conspicuous than before although its impact was weakened; and the importance of aggregate money supply and bank lending in transmitting monetary policy impulses was enhanced. Overall, the monetary transmission process evolved from a weak, blurred process to a somewhat strong, less ambiguous mechanism. |
| JEL: | E52 E58 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:201112&r=mac |
| By: | Fritz W. Scharpf |
| Abstract: | The European Monetary Union (EMU) has removed crucial instruments of macroeconomic management from the control of democratically accountable governments. Worse yet, it has been the systemic cause of destabilizing macroeconomic imbalances that member states found difficult or impossible to counteract with their remaining policy instruments. And even though the international financial crisis had its origins outside Europe, the Monetary Union has greatly increased the vulnerability of some member states to its repercussions. Its effects have undermined the economic and fiscal viability of some EMU member states, and they have frustrated political demands and expectations to an extent that may yet transform the economic crisis into a crisis of democratic legitimacy. Moreover, present efforts of EMU governments to rescue the Euro will do little to correct economic imbalances and vulnerabilities, but are likely to deepen economic problems and political alienation in both, the rescued and the rescuing polities. |
| Date: | 2011–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:erp:leqsxx:p0036&r=mac |
| By: | Andrea Pescatori (International Monetary Fund); Murat Tasci (Federal Reserve Bank of Cleveland) |
| Abstract: | This paper assesses whether labor market frictions, in the form of searching and matching, can help explain movements in the labor wedge—the gap between the marginal rate of substitution (MRS) and the marginal productivity of labor in a perfectly competitive business cycle model. Results suggest that those frictions are not able to explain fluctuations in the labor wedge, per se. However, the introduction of extensive and intensive margin shows that measuring the MRS in terms of total hours artificially introduces procyclicality in the MRS. When the MRS is correctly measured in terms of hours per worker, the labor wedge obtained is less variable than the one of the perfectly competitive model. A Frisch elasticity of 2.8, as in most macro models, implies a 20 percent decline in the variability of the labor wedge. A Frisch elasticity closer to micro estimates implies an even higher reduction. Finally, we show that it is possible to measure a strongly procyclical labor wedge as in CKM (2007) even if the actual data generating process does not have any labor wedge but has search frictions that allow for movements in both labor margins. |
| Keywords: | Labor Market Search; Business Cycle Accounting; Labor Wedge |
| JEL: | E24 E32 J64 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1113&r=mac |
| By: | Michael P. Clements (University of Warwick); Ana Beatriz Galvão (Queen Mary, University of London) |
| Abstract: | Real-time estimates of output gaps and inflation trends differ from the values that are obtained using data available long after the event. Part of the problem is that the data on which the real-time estimates are based is subsequently revised. We show that vector-autoregressive models of data vintages provide forecasts of post-revision values of future observations and of already-released observations capable of improving real-time output gap and inflation trend estimates. Our findings indicate that annual revisions to output and inflation data are in part predictable based on their past vintages. |
| Keywords: | Revisions, Real-time forecasting, Output gap, Inflation trend |
| JEL: | C53 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:qmw:qmwecw:wp678&r=mac |
| By: | Deborah Gefang (Department of Economics, University of Lan~~#badcaster); Gary Koop (Department of Economics, University of Strathclyde); Simon Potter (Research and Statistics Group, Federal Reserve Bank of New York) |
| Abstract: | This paper investigates the relationship between short term and long term inflation expectations in the US and the UK with a focus on inflation pass through (i.e. how changes in short term expectations affect long term expectations). An econometric methodology is used which allows us to uncover the relationship between in?ation pass through and various explanatory variables. We relate our empirical results to theoretical models of anchored, contained and unmoored inflation expectations. For neither country do we find anchored or unmoored inflation expectations. For the US, contained inflation expectations are found. For the UK, our findings are not consistent with the specific model of contained in?ation expectations presented here, but are consistent with a more broad view of expectations being constrained by the existence of an inflation target. |
| Keywords: | smoothly mixing regression, inflation pass through, Bayesian |
| JEL: | C11 C24 E37 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:str:wpaper:1120&r=mac |
| By: | Matthias Kehrig |
| Abstract: | Using plant-level data, I show that the dispersion of total factor productivity in U.S. durable manufacturing is greater in recessions than in booms. This cyclical property of productivity dispersion is much less pronounced in non-durable manufacturing. In durables, this phenomenon primarily reflects a relatively higher share of unproductive firms in a recession. In order to interpret these findings, I construct a business cycle model where production in durables requires a fixed input. In a boom, when the market price of this fixed input is high, only more productive firms enter and only more productive incumbents survive, which results in a more compressed productivity distribution. The resulting higher average productivity in durables endogenously translates into a lower average relative price of durables. Additionally, my model is consistent with the following business cycle facts: procyclical entry, procyclical aggregate total factor productivity, more procyclicality in durable than non-durable output, procyclical employment and countercyclicality in the relative price of durables and the cross section of stock returns. |
| Keywords: | Productivity, Plant-level Risk, Entry and Exit, Business Cycles, Manufacturing, Plant-Level Data |
| JEL: | D24 E32 L11 L25 L60 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:11-15&r=mac |
| By: | Justiniano, Alejandro; Primiceri, Giorgio E; Tambalotti, Andrea |
| Abstract: | Not in an estimated DSGE model of the US economy, once we account for the fact that most of the high-frequency volatility in wages appears to be due to noise, rather than to variation in workers' preferences or market power. |
| Keywords: | optimal policy; output gap; potential output |
| JEL: | E30 E52 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8407&r=mac |
| By: | Balleer, Almut; van Rens, Thijs |
| Abstract: | Over the past two decades, technological progress in the United States has been biased towards skilled labor. What does this imply for business cycles? We construct a quarterly skill premium from the CPS and use it to identify skill-biased technology shocks in a VAR with long-run restrictions. Hours fall in response to skill-biased technology shocks, indicating that at least part of the technology-induced fall in total hours is due to a compositional shift in labor demand. Skill-biased technology shocks have no effect on the relative price of investment, suggesting that capital and skill are not complementary in aggregate production. |
| Keywords: | business cycle; capital-skill complementarity; long-run restrictions; skill premium; skill-biased technology; VAR |
| JEL: | E24 E32 J24 J31 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8410&r=mac |
| By: | Qayyum, Abdul; Anwar, Saba |
| Abstract: | This paper addresses the linkages between the monetary policy and the stock market in Pakistan. The estimation technique employed includes Engle Granger two step procedure and the bivariate EGARCH method. The results indicate that any change in the monetary policy stance have a significant impact on the volatility of the stock market. Thus contributing to the ongoing debate in the monetary policy rule literature regarding the proactive and reactive approach. |
| Keywords: | Interest Rate; Stock Market; Monetary Policy; EGARCH; Pakistan |
| JEL: | E43 G12 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:31188&r=mac |
| By: | Carlos Gustavo Machicado; Paul Estrada; Ximena Flores |
| Abstract: | This paper develops a dynamic stochastic general equilibrium (DSGE) model to analyze the growth effects of fiscal policy in Bolivia. It is a multi-sector model with five representative sectors for the Bolivian economy: Non-tradables, importables, hydrocarbons, mining and agriculture. Public capital is included as a production factor in each of these sectors. The model is calibrated and a number of interesting scenarios are simulated by modifying each of the available fiscal policy instruments. In particular, we analyze the sustainability of Bolivian social policy based on government transfers to households along with the short- and long-run implications of fiscal policy for growth and welfare. We find that fiscal policy alone is unable to generate high rates of growth: it must be accompanied by an efficient provision of public capital and productivity boosts in the economic sectors. |
| Keywords: | Fiscal policy, Infrastructure, multi-sector growth model |
| JEL: | E62 H54 O41 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:mpiacr:2011-10&r=mac |
| By: | Gary Koop (Department of Economics, University of Strathclyde); Luca Onorante (European Central Bank) |
| Abstract: | This paper uses forecasts from the European Central Bank?s Survey of Professional Forecasters to investigate the relationship between inflation and inflation expectations in the euro area. We use theoretical structures based on the New Keynesian and Neoclassical Phillips curves to inform our empirical work. Given the relatively short data span of the Survey of Professional Forecasters and the need to control for many explanatory variables,we use dynamic model averaging in order to ensure a parsimonious econometric specification. We use both regression-based and VAR-based methods. We find no support for the backward looking behavior embedded in the Neo-classical Phillips curve. Much more support is found for the forward looking behavior of the New Keynesian Phillips curve, but most of this support is found after the beginning of the financial crisis. |
| Keywords: | inflation expectations, survey of professional forecasters,Phillips curve, Bayesian |
| JEL: | E31 C53 C11 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:str:wpaper:1109&r=mac |
| By: | Julia Darby (Department of Economics, University of Strathclyde); Jacques Melitz (Department of Economics, School of Management and Languages, Heriot-Watt University, Edinburgh.) |
| Abstract: | Official calculations of automatic stabilizers are seriously flawed since they rest on the assumption that the only element of social spending that reacts automatically to the cycle is unemployment compensation. This puts into question many estimates of discretionary fiscal policy. In response, we propose a simultaneous estimate of automatic and discretionary fiscal policy. This leads us, quite naturally, to a tripartite decomposition of the budget balance between revenues, social spending and other spending as a bare minimum. Our headline results for a panel of 20 OECD countries in 1981-2003 are .59 automatic stabilization in percentage-points of primary surplus balances. All of this stabilization remains following discretionary responses during contractions, but arguably only about 3/5 of it remains so in expansions while discretionary behavior cancels the rest. We pay a lot of attention to the impact of the Maastricht Treaty and the SGP on the EU members of our sample and to real time data. |
| Keywords: | Fiscal stabilization, automatic stabilizers, discretionary policy. |
| JEL: | E62 H53 H62 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:str:wpaper:1122&r=mac |
| By: | Pascal Michaillat |
| Abstract: | This paper models unemployment as the result of matching frictions and job rationing. Job rationing is a shortage of jobs arising naturally in an economic equilibrium from the combination of some wage rigidity and diminishing marginal returns to labor. During recessions, job rationing is acute, driving the rise in unemployment, whereas matching frictions contribute little to unemployment. Intuitively, in recessions jobs are lacking, the labor market is slack, recruiting is easy and inexpensive, so matching frictions do not matter much. In a calibrated model, cyclical fluctuations in the composition of unemployment are quantitatively large. |
| Keywords: | Unemployment, matching frictions, job rationing |
| JEL: | E24 E32 J64 |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1024&r=mac |
| By: | Andrea Monticini (Universita Cattolica - Milano); Francesco Ravazzolo (Norges Bank (Central Bank of Norway)) |
| Abstract: | Market efficiency hypothesis suggests a zero level for the intraday interest rate. However, a liquidity crisis introduces frictions related to news, which can cause an upward jump of the intraday rate. This paper documents that these dynamics can be partially predicted during turbulent times. A long memory approach outperforms random walk and autoregressive benchmarks in terms of point and density forecasting. The gains are particular high when the full distribution is predicted and probabilistic assessments of future movements of the interest rate derived by the model can be used as a policy tool for central banks to plan supplementary market operations during turbulent times. Adding exogenous variables to proxy funding liquidity and counterparty risks does not improve forecast accuracy and the predictability seems to derive from the econometric properties of the series more than from news available to financial markets in realtime. |
| Keywords: | Interbank market, Intraday interest rate, Forecasting, Density forecasting, Policy tools. |
| JEL: | C22 C53 E4 E5 |
| Date: | 2011–06–06 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2011_06&r=mac |
| By: | Gopinath, Shyamala (Asian Development Bank Institute) |
| Abstract: | This paper provides an overview of the Reserve Bank of India's approach to macroprudential regulation and systemic risk management, and reviews lessons drawn from the Indian experience. It emphasizes the need for harmonization of monetary policy and prudential objectives, which may not be possible if banking supervision is separated from central banks. It also notes that supervisors need to have the necessary independence and flexibility to act in a timely manner on the basis of available information. Macroprudential regulation is an inexact science with limitations and needs to be used in conjunction with other policies to be effective. |
| Keywords: | macroprudential regulation; systemic risk management; monetary policy; banking supervision; central banks |
| JEL: | E52 E58 G28 |
| Date: | 2011–06–06 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0286&r=mac |
| By: | Petr Rozmahel (Research Centre, FBE MENDELU in Brno); Nikola Najman (Department of Economics, FBE MENDELU in Brno) |
| Abstract: | The article sheds some light on the process of measuring business cycle similarity and points out the fact that contemporary studies usually simplify this problem by measuring a simple correlation of cyclical development in GDP. The main goal is to assess the level of business cycle similarity in selected Eurozone member and candidate countries using the Concordance index. The Concordance index embodies an alternative and rarely used approach to measuring the similarity of business cycles. The article also includes a comparison of the Concordance index technique with traditional correlation methods. The results show that the Czech Republic belongs to the states with relatively high level of concordance comparing to the other Eurozone member and candidate countries. Accordingly, the measure of business cycle concordance should not serve as an argument for slowing down of the monetary integration process in the Czech Republic. The resultant concordance measures also give an evidence of relatively low level of the business cycle similarity of Slovak economy and the Eurozone, which might imply a possibly higher risk of the asymmetric shock occurrence in Slovakia. |
| Keywords: | business cycle, concordance index, correlation analysis, optimum currency area |
| JEL: | E32 F41 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:men:wpaper:06_2011&r=mac |
| By: | Gianluca Benigno; Huigang Chen; Christopher Otrok; Alessandro Rebucci; Eric R. Young |
| Abstract: | Stochastic general equilibrium models of small open economies with occasionally binding financial frictions are capable of mimicking both the business cycles and the crisis events associated with the sudden stop in access to credit markets (Mendoza, 2010). In this paper we study the inefficiencies associated with borrowing decisions in a two-sector small open production economy. We find that this economy is much more likely to display "under-borrowing" rather than "over-borrowing" in normal times. As a result, macro-prudential policies (i.e. Tobin taxes or economy-wide controls on capital inflows) are costly in welfare terms in our economy. Moreover, we show that macro-prudential policies aimed at minimizing the probability of the crisis event might be welfare-reducing in production economies. Our analysis shows that there is a much larger scope for welfare gains from policy interventions during financial crises. That is to say that, within our modeling approach, ex post or crisis-management policies dominate ex ante or macro-prudential ones. |
| Keywords: | Capital controls, crises, financial frictions, macro prudential policies, bailouts,overborrowing |
| JEL: | E52 F37 F41 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1032&r=mac |
| By: | Gary Koop (Department of Economics, University of Strathclyde); Dimitris Korobilis (Center for Operations Research & Econometrics (CORE), Universite Catholique de Louvain) |
| Abstract: | We forecast quarterly US inflation based on the generalized Phillips curve using econometric methods which incorporate dynamic model averaging. These methods not only allow for coe¢ cients to change over time, but also allow for the entire forecasting model to change over time. We find that dynamic model averaging leads to substantial forecasting improvements over simple benchmark regressions and more sophisticated approaches such as those using time varying coefficient models. We also provide evidence on which sets of predictors are relevant for forecasting in each period. |
| Keywords: | Bayesian, State space model, Phillips curve |
| JEL: | E31 E37 C11 C53 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:str:wpaper:1119&r=mac |
| By: | Ricardo Reis (Columbia University - Department of Economics); Hyunseung Oh (Columbia University - Department of Economics) |
| Abstract: | Between 2007 and 2009, government expenditures increased rapidly across the OECD countries. While economic research on the impact of government purchases has flourished, in the data, about three quarters of the increase in expenditures in the United States (and more in other countries) was in government transfers. We document this fact, and show that the increase in U.S. spending on retirement, disability, and medical care has been as high as the increase in government purchases. We argue that future research should focus on the positive impact of transfers. Towards this, we present a model in which there is no representative agent and Ricardian equivalence does not hold because of uncertainty, imperfect credit markets, and nominal rigidities. Targeted lump-sum transfers are expansionary both because of a neoclassical wealth effect and because of a Keynesian aggregate demand effect. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:clu:wpaper:1011-10&r=mac |
| By: | Muellbauer, John; Williams, David M |
| Abstract: | Changes in credit market architecture are an important but unobservable structural influence on economic activity. For Australian data, we model non-price credit supply conditions within equilibrium correction models of consumption, house prices, mortgage credit and housing equity withdrawal. Our "latent interactive variable equation system" (LIVES) employs a single latent variable to capture evolutionary shifts (in credit conditions) that affect not only the intercept of each equation, but also interact with key economic variables. We show that credit conditions impact on consumption by: (i) lowering the mortgage downpayment constraint facing young households; (ii) introducing a housing collateral channel from house prices to real activity; and (iii) facilitating intertemporal consumption smoothing. |
| Keywords: | Consumption; credit conditions; house prices; wealth |
| JEL: | E21 E44 G21 R31 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8386&r=mac |
| By: | Jitka Poměnková (Department of Finance, FBE MENDELU in Brno); Roman Maršálek (Department of Radio Electronics, Faculty of Electrical Engineering and Communication, Brno University of Technology) |
| Abstract: | The paper deals with identification of cyclical behaviour of business cycle from time and frequency domain perspectives. Herewith, commonly used methods for obtaining growth business cycle are investigated – the first order difference, the unobserved component models, regression curves and filtration using Baxter-King and Christiano-Fitzgerald band-pass filters as well as Hodrick-Prescott high-pass filter. In the case of time domain analysis identification of cycle lengths is based on dating process of the growth business cycle. For this reason, methods such right and left variant of naive techniques as well as Bry-Boschan algorithm are applied. In the case frequency domain analysis of cyclical structure trough spectrum estimate via periodogram and autoregressive process with optimum lag are suggested. Results from both domain approaches are compared. On their bases recommendation for cyclical structure identification of growth business cycle of the transition economy type (the Czech Republic) are formulated. In the context of the time domain analysis evaluation of unity results of de-trending techniques from identification turning point points of view is attached. All analyses are done on the quarterly data of the gross domestic product, the total industry excluding construction, the gross capital formation in the period 1996/Q1-2008/Q4 and on the final consumption expenditure in the period 1995/Q1-2008/Q4. |
| Keywords: | spectrum, business cycle, transition economy, frequency domain, time domain |
| JEL: | E32 C16 C5 C6 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:men:wpaper:07_2011&r=mac |
| By: | FUKUYAMA Mitsuhiro; OIKAWA Keita; YOSHIHARA Masayoshi; NAKAZONO Yoshiyuki |
| Abstract: | The global financial crisis, triggered by the subprime mortgage problem and resulting in the collapse of a major American investment bank in September 2008, has seriously affected the Japanese economy. The Japanese government has instigated certain policies in response to the global economic recession and volatility in financial markets. In formulating policies, it has become increasingly necessary to forecast different economic scenarios by taking into account the possible impact of policies and risks, including contributing factors from abroad. Using macro-econometric models is one way to respond to this. In recent years, the governments, central banks and international organizations of many nations have placed more emphasis on aligning their macro-econometric models with macroeconomic theory, in order to better respond with the "Lucas Critique." This paper will attempt to achieve two things: 1) to illustrate the macro-econometric models of foreign countries and Japan and the macroeconomic theory behind those models, and 2) to explain the "MEAD-RIETI Model" (MRM) which we have constructed. While the aim of the MRM is to evaluate quantitatively the risks and impacts of policy decisions, it is a hybrid model which attaches a high degree of importance to how it fits with empirical data considering the consistency of the model with macroeconomic theory. Although MRM comprehensively covers SNA and other key economic variables, MRM prefers simplicity over complexity with regards to model specification and avoids the use of too many variables. |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:eti:rdpsjp:10045&r=mac |
| By: | Achmad Kemal Hidayat (Department of Economics, Padjadjaran University); Arief Bustaman (Department of Economics, Padjadjaran University); Anhar Fauzan (Department of Economics, Padjadjaran University); Eva Nurwita (Department of Economics, Padjadjaran University); Adhitya Wardhana (Department of Economics, Padjadjaran University); Arief Anshory Yusuf (Department of Economics, Padjadjaran University) |
| Abstract: | Private consumption expenditure (PCE) contributes a major share in Indonesian GDP and its growth has been dominating the economic growth. PCE is also linked directly to the welfare of Indonesian people making it even more relevant for its close monitoring. However, despite the high volatility of macroeconomic conditions due to both global and domestic disturbances, indicators that measure PCE in frequency higher than quarterly is not yet existent in Indonesia. This paper is the first attempt to construct a monthly index of private consumption expenditure for Indonesia. Using a methodology based on the experience of other countries and constrained with data availability, we devise the index based on four statistically relevant variables: value added tax revenue, excise tax revenue, electricity consumption, and fuel consumption. Using the weights estimated based on the principal component analysis we found that our monthly PCE index fits well and correlate highly with the quarterly private consumption expenditure from the national accounts data. We hope that our initial attempt to construct the monthly PCE index will encourage others to devise even better measure of monthly consumption indicators. |
| Keywords: | Private consumption expenditure, Macroeconomic Policies, Indonesia |
| JEL: | E2 E21 C43 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:unp:wpaper:201103&r=mac |
| By: | Kakarot-Handtke, Egmont |
| Abstract: | When anything goes and nothing fits together this can be euphemized as pluralism, blossoming with fresh ideas. Lacking a common fixed point, discussions between various schools of economic thought actually amount to a repetition of contradicting views with more refined arguments. It seems impossible to find an intersection of the different approaches. Yet there must exist one because the subject matter is the same. The difference of perspectives is due to self-chosen fundamental assumptions. What is called for is a minimalist common set of assumptions. The present paper submits three structural axioms as an open formal platform. |
| Keywords: | New framework of concepts; Structure-centric; Axiom set; Common formal core; Abandonment of the axiom of reals; Consistent integration of sub-fields |
| JEL: | E25 E30 E00 E10 E40 E20 B41 |
| Date: | 2011–06–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:31279&r=mac |
| By: | Michael C. Burda; Jennifer Hunt |
| Abstract: | Germany experienced an even deeper fall in GDP in the Great Recession than the United States with little employment loss. Employers’ reticence to hire in the preceding expansion - associated in part with a lack of confidence it would last - contributed to an employment shortfall equivalent to 40 percent of the missing employment decline in the recession. Another 20 percent may be explained by wage moderation. A third important element was the widespread adoption of working time accounts, which permit employers to avoid overtime pay if hours per worker average to standard hours over a window. We find that this provided disincentives for employers to lay off workers in the downturn. While the overall cuts in hours per worker were consistent with the severity of the Great Recession, reduction of working time account balances substituted for traditional government-sponsored short time work. |
| Keywords: | unemployment, Germany, Great Recession, short time work, working time accounts, Hartz reforms, extensive vs. intensive employment margin |
| JEL: | E24 E65 J23 J33 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2011-031&r=mac |
| By: | Muysken, Joan (Department of Economics, Maastricht University); Ziesemer, Thomas (UNU-MERIT and Department of Economics, Maastricht University) |
| Abstract: | This paper argues that immigration can help to alleviate the burden ageing presents for the welfare states of most Western Economies. We develop a macroeconomic framework which deals with the impact of both ageing and immigration on economic growth. This is combined with a detailed model of the labour market, to include the interaction with lowskilled unemployment. The empirical relevance of some crucial model assumptions is shown to hold for the Netherlands, 1973 – 2007. The conclusions are that immigration will help to alleviate the ageing problem, as long as the immigrants will be able to participate in the labour force at least as much as the native population. Moreover, the better educated the immigrants are or become, the higher their contribution to growth will be. |
| Keywords: | ageing population, immigration, unemployment, skills |
| JEL: | E24 F22 O15 O52 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:unumer:2011012&r=mac |
| By: | Peijnenburg, J.M.J. (Universiteit van Tilburg) |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ner:tilbur:urn:nbn:nl:ui:12-4742897&r=mac |
| By: | Turhan, Ibrahim M. |
| Abstract: | Since the outbreak of the global crisis in mid 2007, there has been an extensive discussion on root causes. Some blame the greed and corruption of financial actors. Others put the blame on central bankers for easy money or regulators who remained idle as too much risks accumulated in financial markets. According to advanced economies, global imbalances have been caused by emerging surplus countries that keep their currency undervalued and their domestic consumption restricted. It is unfortunate that all these arguments and counter arguments, which may be valid in their own way, prevents a more general discussion on the deep-seated conflicts and contradictions in the global economic, social and political paradigm upon which the world order is built. To put it another way, the problems we face today do not arise from some operational failures, but from the system itself and the underlying philosophical framework. In fact this is a crisis of three main pillars of our existing system: the crisis of the economic theory, the crisis of the globalization, and the crisis of market based financial system. |
| Keywords: | global financial crisis; economic theory; financial system |
| JEL: | E44 A11 B41 |
| Date: | 2010–06–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:31209&r=mac |
| By: | Eduardo Wiesner |
| Abstract: | El presente artículo integra tres planteamientos interdependientes sobre la economía política de la problemática macroeconómica de Colombia. Primero, que desde la Constitución de 1991 se creó un desequilibrio estructural en el frente fiscal entre los ingresos y los gastos públicos. Esto explica gran parte de la volatilidad macroeconómica que se ha presentado en las dos últimas décadas. El segundo, que el creciente gasto social con ánimo redistributivo es realmente regresivo en gran medida y, por fallas de información al respecto, la demanda política por reformas que concilien la redistribución con la sostenibilidad fiscal termina siendo muy débil. En tercer lugar, y como estrategia de reforma, habría que fortalecer aún más las instituciones macroeconómicas y contemplar la creación de un Consejo Fiscal Superior análogo al Banco de la República en sus características de independencia técnica y de responsabilidad política. |
| Date: | 2011–03–07 |
| URL: | http://d.repec.org/n?u=RePEc:col:000089:008739&r=mac |
| By: | Gary Koop (Department of Economics, University of Strathclyde); Dimitris Korobilis (Center for Operations Research & Econometrics (CORE), Universite Catholique de Louvain) |
| Abstract: | Block factor methods offer an attractive approach to forecasting with many predictors. These extract the information in these predictors into factors reflecting different blocks of variables (e.g. a price block, a housing block, a financial block, etc.). However, a forecasting model which simply includes all blocks as predictors risks being over-parameterized. Thus, it is desirable to use a methodology which allows for different parsimonious forecasting models to hold at di¤erent points in time. In this paper, we use dynamic model averaging and dynamic model selection to achieve this goal. These methods automatically alter the weights attached to different forecasting model as evidence comes in about which has forecast well in the recent past. In an empirical study involving forecasting output and inflation using 139 UK monthly time series variables, we find that the set of predictors changes substantially over time. Furthermore, our results show that dynamic model averaging and model selection can greatly improve forecast performance relative to traditional forecasting methods. |
| Keywords: | Bayesian, state space model, factor model, dynamic model averaging |
| JEL: | E31 E37 C11 C53 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:str:wpaper:1118&r=mac |
| By: | Gibson, Bob; Leung, Danny; Rispoli, Luke |
| Abstract: | The paper estimates the contributions to gross domestic product (GDP) made by small, medium-sized and large businesses in the Canadian business sector for 2005. The contribution of large businesses with 500 or more employees to business-sector GDP was 45.7%. Small and medium-sized businesses, including unincorporated businesses, accounted for the other 54.3%. |
| Keywords: | Economic accounts, Business performance and ownership, Gross domestic product, Small and medium-sized businesses |
| Date: | 2011–05–30 |
| URL: | http://d.repec.org/n?u=RePEc:stc:stcp5e:2011069e&r=mac |
| By: | Bonfiglioli, Alessandra; Gancia, Gino A |
| Abstract: | This paper formalizes in a fully-rational model the popular idea that politicians perceive an electoral cost in adopting costly reforms with future benefits and reconciles it with the evidence that reformist governments are not punished by voters. To do so, it proposes a model of elections where political ability is ex-ante unknown and investment in reforms is unobservable. On the one hand, elections improve accountability and allow to keep well-performing incumbents. On the other, politicians make too little reforms in an attempt to signal high ability and increase their reappointment probability. Although in a rational expectation equilibrium voters cannot be fooled and hence reelection does not depend on reforms, the strategy of underinvesting in reforms is nonetheless sustained by out-of-equilibrium beliefs. Contrary to the conventional wisdom, uncertainty makes reforms more politically viable and may, under some conditions, increase social welfare. The model is then used to study how political rewards can be set so as to maximize social welfare and the desirability of imposing a one-term limit to governments. The predictions of this theory are consistent with a number of empirical regularities on the determinants of reforms and reelection. They are also consistent with a new stylized fact documented in this paper: economic uncertainty is associated to more reforms in a panel of 20 OECD countries. |
| Keywords: | Asymmetric Information; Elections; Reforms; Uncertainty |
| JEL: | E6 H3 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8421&r=mac |
| By: | Jan Willem Slingenberg; Jakob de Haan |
| Abstract: | This paper uses a Financial Stress Index (FSI) for 13 OECD countries to examine which variables can help predicting financial stress. A stress index measures the current state of stress in the financial system and summarizes it in a single statistic. We employ three criteria for indicators to be used in constructing a multi-country FSI (the index covers the entire financial system, indicators used are available at a high frequency for many countries for a long period, and are comparable) to come up with our FSI. Our results suggest that financial stress is hard to predict. Only credit growth has predictive power for most countries. Several other variables have predictive power for some countries, but not for others. |
| Keywords: | financial stress index; predicting financial stress |
| JEL: | E5 G10 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:292&r=mac |
| By: | Kurt Mitman (Department of Economics, University of Pennsylvania) |
| Abstract: | Bankruptcy laws govern consumer default on unsecured credit. Foreclosure laws regulate default on secured mortgage debt. I investigate to what extent differences in foreclosure and bankruptcy laws can jointly explain variation in default rates across states. I construct a general equilibrium model where heterogeneous infinitely-lived households have access to unsecured borrowing and can finance housing purchases with mortgages. Households can default separately on both types of debt. The model is calibrated to match national foreclosure and bankruptcy rates and aggregate statistics related to household net worth and debt. The model can account for 83% of the variation in bankruptcy rates due to differences in bankruptcy and foreclosure law. I find that more generous homestead exemptions raise the cost of unsecured borrowing. Households in states with high exemptions therefore hold less unsecured and more mortgage debt compared to low exemption states, which leads to lower bankruptcy rates but higher foreclosure rates. The model also predicts recourse results in higher bankruptcy rates and a higher coincidence of foreclosure and bankruptcy. I use the model to evaluate how proposed and implemented changes to bankruptcy policy affect default rates and welfare. The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act yields large welfare gains (1% consumption equivalent variation) but results in increases in both foreclosure and bankruptcy rates. I find that implementing the optimal joint foreclosure and bankruptcy policy, which is characterized by no-recourse mortgages and a homestead exemption equal to one quarter of median income, yields modest welfare gains (0.3% consumption equivalent variation). |
| Keywords: | Bankruptcy, Foreclosure, Housing, Default Risk, Household Debt |
| JEL: | E21 G11 K35 R21 |
| Date: | 2011–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:11-015&r=mac |
| By: | Hein, Eckhard |
| Abstract: | The severity of the financial and economic crisis which started in 2007 cannot be understood without examining the medium- to long-run developments in the world economy since the early 1980s. The following long-run causes for the crisis can be identified: inefficient regulation of financial markets, increasing inequality in the distribution of income, and rising imbalances at the global (and at the Euro area) level. The focus of the paper is on the changes in distribution triggered by ‘finance-dominated capitalism’ embedded in a ‘neo-liberal’ policy stance since the early 1980s. The three dimensions of re-distribution in the course of ‘financialisation’ and ‘neo-liberalism’ are examined: functional distribution, personal distribution and the development of top incomes. Since the development of functional income distribution is considered to be most important, the channels through which ‘financialisation’ and ‘neo-liberalism’ have contributed to the tendency of the labour income share to fall are identified, the effects of re-distribution on aggregate demand and growth are discussed, and the relationship between re-distribution at the expense of labour and regional (Euro area wide) and global current account imbalances are addressed. Finally, economic policy conclusions with respect to a sustainable income- or wage-led recovery strategy embedded in a ‘Keynesian New Deal at the global and the European level’ are drawn. |
| Keywords: | Distribution; financialisation; global imbalances; financial and economic crisis; economic policy strategies |
| JEL: | E64 E25 E22 E65 E63 E21 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:31180&r=mac |
| By: | Beetsma, Roel; Bluhm, Benjamin; Giuliodori, Massimo; Wierts, Peter |
| Abstract: | This paper explores the determinants of deviations of ex-post budget outcomes from first-release outcomes published towards the end of the year of budget implementation. The predictive content of the first-release outcomes is important, because these figures are an input for the next budget and the fiscal surveillance process. Deviations of ex-post from first-release fiscal figures may arise for political and strategic reasons. In particular, Ministries of Finance control the production of first-release figures, and may have an incentive to be over-optimistic at this stage. Our results suggest that an improvement in the quality of institutions, whether measured by the tightness of national fiscal rules, the medium-term budgetary framework or budgetary transparency, reduces the degree of optimism at the first-release stage, thereby making first-release figures more informative about the eventual outcomes. This supports the European Commission proposals for minimum standards for national fiscal frameworks and amendments by the European Parliament for improving national ownership. It also strengthens the case for a close monitoring by the Commission of the first-release production of fiscal figures. |
| Keywords: | base effect; biases; decomposition; denominator effect; ex-post data; first-release data; fiscal institutions; fiscal policy; growth effect; real-time data |
| JEL: | E6 H6 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8413&r=mac |
| By: | Lars Boerner; Albrecht Ritschl |
| Abstract: | Communal responsibility, a medieval institution studied by Greif (2006), supported the use of credit among European merchants in the absence of modern enforcement technologies. This paper shows how this mechanism helps to overcome enforcement problems in anonymous buyer/seller transactions. In a village economy version of the Lagos and Wright (2005) model, agents trading anonymously in decentralized markets can be identified by their citizenship and thus be held liable for each other. Enforceability within each village's centralized afternoon market ensures collateralization of credit in decentralized markets. In the resulting equilibrium, money and credit coexist in decentralized markets if the use of credit is costly. Our analysis easily extends itself to other payment systems like credit cards that provide a group identity to otherwise anonymous agents. |
| Keywords: | Communal responsibility, anonymous matching, money demand, credit, bills of exchange |
| JEL: | E41 D51 N2 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1034&r=mac |
| By: | Nicholas Oulton |
| Abstract: | How big a boost to long run growth can countries expect from the ICT revolution? I use the results of growth accounting and the insights from a two-sector growth model to answer this question. The use of a two-sector rather than a one-sector model is required because of the very rapid rate at which the prices of ICT products have fallen in the past and are expected to fall in the future. According to the two-sector model, the main boost to growth comes from ICT use, not ICT production. Even a country which has zero ICT production can benefit via improving terms of trade. In the long run, the falling relative price of ICT products boosts the growth of GDP and consumption by inducing faster accumulation of ICT capital. I quantify this effect on the long run growth rate of 15 European and 4 non-European countries, using data from the EU KLEMS database. The ICT intensity of production (the ICT income share) is much lower in many European countries than it is in the United States or Sweden. Nevertheless the contribution to the long run growth of labour productivity stemming from even the current levels of ICT intensity is substantial: about half a percent per annum on average in the countries studied here. Eventually, the ICT revolution may diffuse more widely so ICT intensity may reach at least the same level as currently in the U.S. or Sweden, which would add a further 0.2 percentage points per annum to long run growth. |
| Keywords: | Potential output, productivity, ICT, two-sector model, growth accounting, termsof trade |
| JEL: | E23 F43 O41 |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1027&r=mac |
| By: | Bichaka Fayissa; Christian Nsiah |
| Abstract: | This study estimates the macroeconomic impact of remittances and some control variables such as openness of the economy, capital/labor ratio, and economic freedom on the economic growth of African, Asian, and Latin American-Caribbean countries using newly developed panel unit-root tests, cointegration tests, and Panel Fully Modified OLS (PFMOLS). We use annual panel data from 1985- 2007for 64 countries consisting of 29 from Africa, 14 from Asia, and 21 from Latin America and the Caribbean region, respectively. We find that remittances, openness of the economy, and capital labor ratio have positive and significant effect on economic growth for all regions as a group and in each of the three in study. While the economic freedom index also has a positive and significant effect on growth in Africa and Latin America, however, its effect on the economic growth of Asia is mixed. |
| Keywords: | Workers’ Remittances, Economic Growth, Unit-Root tests, Error Correction Model, PFMOLS, Panel Data, Africa, Asia, Latin America/Caribbean |
| JEL: | E21 F21 G22 J61 O16 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:mts:wpaper:201103&r=mac |
| By: | Shawkat Hammoudeh; Soodabeh Sarafrazi; Chia-Lin Chang; Michael McAleer (University of Canterbury) |
| Abstract: | This paper examines the short- and long-run daily relationships for a grain-energy nexus that includes the prices of corn, crude oil, ethanol, gasoline, soybeans, and sugar, and their open interest. The empirical results demonstrate the presence of these relationships in this nexus, and underscore the importance of ethanol and soybeans in all these relationships. In particular, ethanol and be considered as a catalyst in this nexus because of its significance as a loading factor, a long-run error corrector and a short-run adjuster. Ethanol leads all commodities in the price discovery process in the long run. The negative cross-price open interest effects suggest that there is a money outflow from all commodities in response to increases in open interest positions in the corn futures markets, indicating that active arbitrage activity takes place in those markets. On the other hand, an increase in the soybean open interest contributes to fund inflows in the corn futures market and the other futures markets, leading to more speculative activities in these markets. In connection with open interest, the ethanol market fails because of its thin market. Finally, it is interesting to note that the long-run equilibrium (cointegrating relationship), speeds of adjustment and open interest across markets have strengthened significantly during the 2009-2011 economic recovery period, compared with the full and 2007-2009 Great Recession periods. |
| Keywords: | Energy-grain price nexus; open interest; futures prices; ethanol; crude oil; gasoline; corn; soybean; sugar; arbitrage; speculation |
| JEL: | E43 Q11 Q13 |
| Date: | 2011–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:11/24&r=mac |
| By: | Ota, Tomohiro (Bank of England) |
| Abstract: | This paper studies the optimal intraday pricing in payment systems and its impact on banks’ payment behaviour and intraday liquidity management. A model is developed to compare the performance of two different mechanisms to reduce payment delay: a throughput guideline and a tariff that varies over time, and concludes that a linear time-varying tariff achieves a better outcome unless the payment system experiences a system-wide liquidity shock. We show that settlement delay can be socially efficient, contrary to general understanding of the literature, when it reduces the aggregate cost of liquidity. The theoretical model suggests that the tariff eliminates the inefficient settlement delay that does not contribute to lowering the cost, while leaving the socially efficient delay. |
| Keywords: | Payment; RTGS; two-part tariff; throughput guideline |
| JEL: | E42 E58 G21 |
| Date: | 2011–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0428&r=mac |
| By: | David H. Autor; Alan Manning; Christopher L. Smith |
| Abstract: | We reassess the effect of state and federal minimum wages on U.S. earnings inequality, attending to two issues that appear to bias earlier work: violation of the assumed independence of state wage levels and state wage dispersion, and errors-in-variables that inflate impact estimates via an analogue of the well known division bias problem. We find that the minimum wage reduces inequality in the lower tail of the wage distribution (the 50/10 wage ratio), but the impacts are typically less than half as large as those reported in the literature and are almost negligible for males. Nevertheless, the estimated effects extend to wage percentiles where the minimum is nominally non-binding, implying spillovers. We structurally estimate these spillovers and show that their relative importance grows as the nominal minimum wage becomes less binding. Subsequent analysis underscores, however, that spillovers and measurement error (absent spillovers) have similar implications for the effect of the minimum on the shape of the lower tail of the measured wage distribution. With available precision, we cannot reject the hypothesis that estimated spillovers to non-binding percentiles are due to reporting artifacts. Accepting this null, the implied effect of the minimum wage on the actual wage distribution is smaller than the effect of the minimum wage on the measured wage distribution. |
| Keywords: | Wage structure, inequality, minimum wage |
| JEL: | E24 J3 J31 |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1025&r=mac |
| By: | Tomini, Sonila (Maastricht Graduate School of Governance, Maastricht University); Packard, Truman G. (Europe and Central Asia Human Development Sector, The World Bank) |
| Abstract: | The absent or poorly functioning risk pooling mechanisms and high amounts of out-of-pocket payments for health care expose households to financial risks associated with major illnesses or accidents. The aim of this paper is to analyse the extent to which out-of-pocket health spending impoverish the households in Albania. The study augments the existing evidence by analysing the dynamics of such payments over different years and the weight that informal payments have in the total out-of-pocket health spending. The data used in this study come from Albania Living Standard Measurement Survey (ALSMS) for 2002, 2005 and 2008. We measure headcount catastrophic payments using different thresholds and the decomposition of indicators by expenditure quintiles to understand better their effects. We find that out-of-pocket and informal payments have increased in real value throughout the years. Even though their catastrophic effect has gone down (due also to declining trends in absolute poverty), the effect for the poorest expenditure quintiles remains high. Out-of-pocket payments deepen the poverty headcount and also enlarge the poverty gap and again the effect is larger for the poorest quintiles. Future policy interventions should provide better protection mechanisms for the poor by providing exemption criteria or subsidised transport and should seek to address the widespread informal payments in the country. |
| Keywords: | informal payments, out-of-pocket payments, health care expenditure, impoverishment, Albania LSMS, Albania, living standard, poverty |
| JEL: | E26 I18 I32 I38 O17 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:unumer:2011019&r=mac |
| By: | Fabrício Missio (UEMS); Frederico G. Jayme Jr (Cedeplar-UFMG) |
| Abstract: | The aim of this paper is to demonstrate that, especially in developing countries, changes in the real exchange rate affect both the structure of production and the income elasticities of the demand for imports and exports – and, as a result, the balance-of-payments constraint to growth in the fashion of Thirlwall’s Law. If the latter is weakened, then these countries are able to reach a higher long-term growth rate. Thus, following Dosi, Pavitt e Soete (1990), we show how a devaluation of the real exchange rate affects an economy’s productive heterogeneity, by reducing its real wages. In addition, we demonstrate that the elasticities are endogenous, based on the argument that maintaining an undervalued exchange rate encourages research and innovation. This is due to its positive impact on self-financing conditions and on the access to credit, making it possible to modernise and diversify the structure of production. In the long-term, this implies an expansion of the export capacity and a reduction of the dependence on imports. Furthermore, based on Kaldor and Mirrlees (1962), we present a model that formalises the endogeneity of the elasticities by making them dependent on the average age of the capital stock of the economy. Lastly, we show how the approach suggested in this article is an improvement on the Structural Economic Dynamics (SED) approach, by demonstrating how variations in the real exchange rate alter the sectoral composition of the economy. In the final considerations, we present a series of arguments supporting the hypothesis that elasticities are endogenous to the real exchange rate. |
| Keywords: | Balance-of-Payments Constraints, Real Exchange Rate, Structural Heterogeneity. |
| JEL: | E10 O11 O31 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:cdp:texdis:td425&r=mac |