nep-mac New Economics Papers
on Macroeconomics
Issue of 2011‒09‒22
fifty-two papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Communication of Central Bank Thinking and Inflation Dynamics By Man-Keung Tang; Xiangrong Yu
  2. Cross-Checking Optimal Monetary Policy with Information from the Taylor Rule By Peter Tillmann
  3. The Optimality and Controllability of Discretionary Monetary Policy By Huiping Yuan; Stephen M. Miller
  4. Evaluating interest rate rules in an estimated DSGE model By Vasco Cúrdia; Andrea Ferrero; Ging Cee Ng; Andrea Tambalotti
  5. Endogenous Entry, Product Variety, and Business Cycles By Bilbiie, Florin Ovidiu; Ghironi, Fabio; Melitz, Marc J
  6. Public Debt Targeting An Application to the Caribbean By Giovanni Melina; Alejandro D Guerson
  7. John Maynard Keynes: Is That you Knocking on the Door? By Tadeusz Kowalski; Yochanan Shachmurove
  8. The Cyclicality of Fiscal Policies in the CEMAC Region By Robert C. York; Sampawende J Tapsoba; Gaston K Mpatswe
  9. Inflation dynamics and labor market specifications: a Bayesian DSGE approach for Japan's economy By Ichiue, Hibiki; Kurozumi, Takushi; Sunakawa, Takeki
  10. Matching labor’s share in a search and matching model By Christopher Reicher
  11. A theory of the non-neutrality of money with banking frictions and bank recapitalization By Zeng, Zhixiong
  12. Capital Flows and Financial Stability: Monetary Policy and Macroprudential Responses By D. Filiz Unsal
  13. Aggregate Hours Worked in OECD Countries: New Measurement and Implications for Business Cycles By Lee E. Ohanian; Andrea Raffo
  14. Markups and the Welfare Cost of Business Cycles: A Reappraisal By Jean-Olivier Hairault; François Langot
  15. Optimal Monetary Policy with Endogenous Entry and Product Variety By Bilbiie, Florin Ovidiu; Fujiwara, Ippei; Ghironi, Fabio
  16. South Africa: The Cyclical Behavior of the Markups and its Implications for Monetary Policy By Nir Klein
  17. Toward a Political Economy of Macroeconomic Thinking By Gilles St. Paul
  18. Empirical evidence on inflation and unemployment in the long run By Haug, Alfred A.; King, Ian P.
  19. The Cyclical Behavior of Equilibrium Unemployment and Vacancies in the US and Europe By Alejandro Justiniano; Claudio Michelacci
  20. Central Bank Transparency and Financial Market Expectations: The Case of Emerging Markets By Matthias Neuenkirch
  21. Empirical Evidence on Inflation and Unemployment in the Long Run By Alfred A. Haug & Ian P. King
  22. Rethinking the Effects of Fiscal Policy on Macroeconomic Aggregates: A Disaggregated SVAR Analysis By Umut Unal
  23. Firm Heterogeneity, Endogenous Entry, and the Business Cycle By Gianmarco I.P. Ottaviano
  24. Formal Sector Price Discoveries: Results from a Developing Country By M. Ali Choudhary; Saima Naeem; Abdul Faheem; Nadim Haneef; Farooq Pasha
  25. High Noon at the EU corral. An economic plan for Europe, September 2011 By Colignatus, Thomas
  26. When the Music Stopped: Transatlantic Contagion During the Financial Crisis of 1931 By Gary Richardson; Patrick Van Horn
  27. The Fiscal Stimulus of 2009-10: Trade Openness, Fiscal Space and Exchange Rate Adjustment By Joshua Aizenman; Yothin Jinjarak
  28. Aggregate Earnings and Macroeconomic Shocks: The Role of Labour Market Policies and Institutions By Andrea Bassanini
  29. Improving GDP Measurement: A Forecast Combination Perspective By S. Boragan Aruoba; Francis X. Diebold; Jeremy Nalewaik; Frank Schorfheide; Dongho Song
  30. Firm default and aggregate fluctuations By Tor Jacobson; Jesper Lindé; Kasper Roszbach
  31. Taxing capital is not a bad idea indeed: the role of human capital and labor-market frictions By Chen, Been-Lon; Chen, Hung-Ju; Wang, Ping
  32. Oil Shocks in a Global Perspective: Are they Really that Bad? By Tobias N. Rasmussen; Agustin Roitman
  33. Global Economic Governance: IMF Quota Reform By Arvind Virmani
  34. Reconciling Micro and Macro Labor Supply Elasticities: A Structural Perspective By Michael P. Keane; Richard Rogerson
  35. Taxing Women: A Macroeconomic Analysis By Guner, Nezih; Kaygusuz, Remzi; Ventura, Gustavo
  36. Do Tax Cuts Boost the Economy? By David Rosnick; Dean Baker
  37. The Macro-economic Impact of Changing the Rate of Corporation Tax By Conefrey, Thomas; FitzGerald, John
  38. The Current State of the Financial Sector and the Regulatory Framework in Asian Economies—The Case of the People’s Republic of China By Ping, Luo
  39. The Banking Sector and Recovery in the EU Economy Reference By Barrell, Ray; FitzGerald, John
  40. The unreliability of credit-to-GDP ratio gaps in real-time: Implications for countercyclical capital buffers By Rochelle M. Edge; Ralf R. Meisenzahl
  41. Fewer Jobs or Smaller Paychecks? Aggregate Crisis Impacts in Selected Middle-Income Countries By Khanna, Gaurav; Newhouse, David; Paci, Pierella
  42. Equity Yields By Jules H. van Binsbergen; Wouter Hueskes; Ralph Koijen; Evert B. Vrugt
  43. Central bank communication on financial stability By Benjamin Born; Michael Ehrmann; Marcel Fratzscher
  45. Unemployment hysteresis in the English-speaking Caribbean: evidence from non-linear models By Craigwell, Roland; Mathouraparsad, Sebastien; Maurin, Alain
  46. Experimentelle Evidenz zur Wirkung der Teilnahme an E-Learning-Veranstaltungen auf den Klausurerfolg By Decker, Philipp; Pierdzioch, Christian; Stadtmann, Georg
  47. Solow meets Marx: Economic growth and the emergence of social class By Heibø Modalsli, Jørgen
  48. Análisis de las calificaciones de riesgo soberano: el caso uruguayo By Fernando Borraz; Alejandro Fried; Diego Gianelli
  49. The Federal Reserve as an Informed Foreign Exchange Trader: 1973 – 1995 By Michael D. Bordo; Owen F. Humpage; Anna J. Schwartz
  50. Russian Growth Path and TFP Changes in Light of the Estimation of Production Function using Quarterly Data By Kuboniwa, Masaaki
  51. The Minimum Wage and Inequality - The Effects of Education and Technology By Zsófia L. Bárány
  52. Capital Utilisation and Retirement By Bonleu, A.; Cette, G.; Horny, G.

  1. By: Man-Keung Tang; Xiangrong Yu
    Abstract: This paper studies the role of central bank communication of its economic assessment in shaping inflation dynamics. Imperfect information about the central bank’s assessment - or the basis for monetary policy decisions - could complicate the private sector’s learning about its policy response function. We show how clear central bank communication, which facilitates agents’ understanding of policy reasoning, could bring about less volatile inflation and interest rate dynamics, and afford the authorities with greater policy flexibility. We then estimate a simple monetary model to fit the Mexican economy, and use the suggested paramters to illustrate the model’s quantitative implications in scenarios where the timing, nature and persistence of shocks are uncertain.
    Keywords: Central bank role , Central banks , Economic models , Inflation targeting , Mexico , Monetary policy , Transparency ,
    Date: 2011–08–03
  2. By: Peter Tillmann (University of Giessen)
    Abstract: This paper shows that monetary policy should be delegated to a central bank that cross-checks optimal policy with information from the Taylor rule. Attaching some weight to deviations of the interest rate from the interest rate prescribed by the Taylor rule is beneficial if the central bank aims at optimally stabilizing inflation and output gap variability under discretion. Placing a weight on deviations from a simple Taylor rule increases the overall relative weight of inflation volatility in the effective loss function, which reduces the stabilization bias of discretionary monetary policy. The welfare-enhancing role of this modified loss function depends on the size of the stabilization bias, i.e. on the degree of persistence in the cost-push shock process, and the relevance of demand shocks. These results can be interpreted in terms of the optimal composition of monetary policy committees.
    Keywords: optimal monetary policy, stabilization bias, monetary policy delegation, robustness, Taylor rule, monetary policy committee
    JEL: E43 E52
    Date: 2011
  3. By: Huiping Yuan (Xiamen University); Stephen M. Miller (University of Nevada, Las Vegas and University of Connecticut)
    Abstract: This paper addresses two issues -- the time-inconsistency of optimal policy and the controllability of target variables within new-classical and new-Keynesian model structures. We can resolve both issues by delegation. That is, we design central bank loss functions by determining the two target values and the weight between the two targets. With a single decision maker, the time-inconsistency issue does not exist; the target controllability issue does. Delegating the long-run target values (target variables’ equilibriums under the Ramsey optimal policy) and the same weight as society to the central bank can achieve Ramsey optimality and path controllability. With multiple decision makers (game), both issues of time-inconsistency and target controllability exist and the delegation becomes more complicated. The long-run target values can only achieve asymptotic, not path, controllability. Path controllability requires the delegation of short-run target values, which commits or binds the central bank to follow exactly the Ramsey optimal paths. The short-run inflation target value conforms to the macroeconomic structure (i.e., Phillips curve). With path controllability, the constant average and state-contingent inflation biases are removed. To eliminate the stabilization bias, the delegated weight must differ from society in a dynamic game. When the Phillips curve exhibits output (inflation) persistence, the central bank must place more weight on output (inflation) stabilization. When the Phillips curve exhibits principally forward-looking behavior, the delegated weight can require a conservative or liberal central bank. In sum, delegating certain short-run target values and a different weight can cause discretionary monetary policy to prove Ramsey optimal and path controllable in a dynamic game.
    Keywords: Optimal Policy, Controllability, Policy Rules
    JEL: E42 E52 E58
    Date: 2011–08
  4. By: Vasco Cúrdia; Andrea Ferrero; Ging Cee Ng; Andrea Tambalotti
    Abstract: The empirical DSGE (dynamic stochastic general equilibrium) literature pays surprisingly little attention to the behavior of the monetary authority. Alternative policy rule specifications abound, but their relative merit is rarely discussed. We contribute to filling this gap by comparing the fit of a large set of interest rate rules (fifty-five in total), which we estimate within a simple New Keynesian model. We find that specifications in which monetary policy responds to inflation and to deviations of output from its efficient level—the one that would prevail in the absence of distortions—have the worst fit within the set we consider. Policies that respond to measures of the output gap based on statistical filters perform better, but the best-fitting rules are those that also track the evolution of the model-consistent efficient real interest rate.
    Date: 2011
  5. By: Bilbiie, Florin Ovidiu; Ghironi, Fabio; Melitz, Marc J
    Abstract: This paper builds a framework for the analysis of macroeconomic fluctuations that incorporates the endogenous determination of the number of producers and products over the business cycle. Economic expansions induce higher entry rates by prospective entrants subject to irreversible investment costs. The sluggish response of the number of producers (due to sunk entry costs and a time-to-build lag) generates a new and potentially important endogenous propagation mechanism for real business cycle models. The return to investment (corresponding to the creation of new productive units) determines household saving decisions, producer entry, and the allocation of labor across sectors. The model performs at least as well as the benchmark real business cycle model with respect to the implied second-moment properties of key macroeconomic aggregates. In addition, our framework jointly predicts procyclical product variety and procyclical profits even for preference specifications that imply countercyclical markups. When we include physical capital, the model can simultaneously reproduce most of the variance of GDP, hours worked, and total investment found in the data.
    Keywords: business cycle propagation; entry; markups; product creation; profits; variety
    JEL: E20 E32
    Date: 2011–09
  6. By: Giovanni Melina; Alejandro D Guerson
    Abstract: This paper proposes a fiscal policy framework we call Public Debt Targeting. The framework seeks to smooth primary spending over the business cycle while remaining consistent with public debt sustainability. Under the proposed framework, a government announces a commitment to a public debt band trajectory over the medium term, while sequentially announcing primary expenditures for the next budget cycle, which are determined recursively based on the history of shocks. Public debt targeting differs from a structural balance rule in that it internalizes the effect of the deterioration in creditworthiness from fiscal deficits and public debt accumulation, which tend to affect sovereign spreads, interest rates, exchange rates, and economic activity. The proposed framework is applied to Caribbean economies, which in general show high levels of public debt and procyclical primary expenditure.
    Keywords: Business cycles , Caribbean , Debt sustainability , Economic models , Fiscal policy , Government expenditures , Public debt ,
    Date: 2011–08–22
  7. By: Tadeusz Kowalski (Poznan University of Economics, Poznan, Poland); Yochanan Shachmurove (The City College of New York, New York, U.S.A.)
    Abstract: This paper provides an overview of the evolution of macroeconomic thought from 1936, the year John Maynard Keynes published his general theory of employment, interest and money to the year 2010. It explores the reasons for the extension of the business cycle during the postwar period. The paper details the decline in the popularity of the Keynesian theory and the return to classical economic principles. The recent crisis necessitates a shift in the way economists understand, theorize, teach and implement macroeconomic policies. The paper suggests some new elements needed in order to mitigate the next inevitable economic and financial crisis.
    Keywords: Financial crises; The United States Financial Crisis Inquiry Commission; The 2010 Economic Report of the United States President; Keynesian Theory; Adaptive Expectations; Rational Expectations; Monetary and Fiscal Policies; Business Cycles; Regulations; General Agreement on Tariffs and Trade (GATT); World Trade Organization (WTO); Trade Liberalization; United States; China; Euro; Econometric Policy Evaluation.
    JEL: B0 E0 E3 E4 E5 E6 F0 F3 F4 G0 H3 H6 K2 O51 P1 R3
    Date: 2011–09–10
  8. By: Robert C. York; Sampawende J Tapsoba; Gaston K Mpatswe
    Abstract: This paper examines fiscal cyclicality in the CEMAC region during 1980-2008. The issue has attracted very little empirical interest but is important if fiscal policies are to play a role in mitigating external shocks that exacerbate economic cycles across the region. We assess whether fiscal policies across these six countries have been procyclical using panel data to elaborate our analysis. Like in other sub-Saharan countries, total public expenditure in the CEMAC is found to be strongly procyclical. This is most pronounced for public investment, which overreacts to output growth with elasticity above 1. We further find that institutional weaknesses and poor governance partly explain this behavior. In contrast, the existence of an IMF-supported program can be a counterbalancing influence in attenuating this bias.
    Keywords: Business cycles , Central African Economic and Monetary Community , Cross country analysis , Economic integration , Economic models , External shocks , Fiscal policy , Governance , Government expenditures , Public investment ,
    Date: 2011–08–23
  9. By: Ichiue, Hibiki; Kurozumi, Takushi; Sunakawa, Takeki
    Abstract: Which labor market specification is better able to describe inflation dynamics, a widely-used sticky wage model or a recently-investigated labor market search model? Using a Bayesian likelihood approach, we estimate these two models with Japan’s data. This paper shows that the labor market search model is superior to the sticky wage model in terms of both marginal likelihood and out-of-sample forecast performance, particularly regarding inflation. The labor market search model is better able to replicate the cross-correlation among inflation, real wages, and output in the data. Moreover, in this model, real marginal cost is determined by both hiring cost and unit labor cost that varies with employment fluctuations, which gives rise to a high contemporaneous correlation between inflation and real marginal cost as represented in the New Keynesian Phillips curve.
    Keywords: Inflation dynamics; Marginal cost; Labor market search; Extensive margin; Bayesian estimation
    JEL: E32 E24 E37
    Date: 2011–09
  10. By: Christopher Reicher
    Abstract: I evaluate the degree to which different wage-setting mechanisms in labor market search models can fit the aggregate facts on labor’s share. I find that staggered bargaining in nominal wages best allows the model to plausibly match the negative relationship between labor’s share and lagged productivity growth and inflation. I also evaluate the role of labor’s bargaining weight—a low bargaining weight seems plausible but by itself, it cannot generate the patterns observed in the data. Adding a standard sticky-price mechanism to the model actually degrades the match between the model and the data—in the data, labor’s share is countercyclical, while it is procyclical in the sticky-price model. Theory and data both agree that wage stickiness is relevant at the micro and macro levels
    Keywords: Sticky wages, sticky prices, staggered Nash bargaining, inflation, productivity, search and matching, labor’s share
    JEL: E24 E25 J23 J31
    Date: 2011–09
  11. By: Zeng, Zhixiong
    Abstract: The unconventional monetary policy actions of the Federal Reserve during the recent Global Financial Crisis often involve implicit subsidies to banks. This paper offers a theory of the non-neutrality of money associated with capital injection into banks via nominal transfers, in an environment where banking frictions are present in the sense that there exists an agency problem between banks and their private-sector creditors. The analysis is conducted within a general equilibrium setting with two-sided financial contracting. We first show that even with perfect nominal flexibility, the recapitalization policy has real effects on the economy. We then introduce banking riskiness shocks and study optimal policy responses to such shocks.
    Keywords: Bankruptcy of banks; banking riskiness shocks; two-sided debt contract; unconventional monetary policy; financial crisis
    JEL: D86 E52 E44 D82
    Date: 2011–08–15
  12. By: D. Filiz Unsal
    Abstract: The resumption of capital flows to emerging market economies since mid 2009 has posed two sets of interrelated challenges for policymakers: (i) to prevent capital flows from exacerbating overheating pressures and consequent inflation, and (ii) to minimize the risk that prolonged periods of easy financing conditions will undermine financial stability. While conventional monetary policy maintains its role in counteracting the former, there are doubts that it is sufficient to guard against the risks of financial instability. In this context, there have been increased calls for the development of macroprudential measures, with an explicit focus on systemwide financial risks. Against this background, this paper analyses the interplay between monetary policy and macroprudential regulations in an open economy DSGE model with nominal and real frictions. The key result is that macroprudential measures can usefully complement monetary policy. Even under the "optimal policy," which calls for a rather aggressive monetary policy reaction to inflation, introducing macroprudential measures is found to be welfare improving. Broad macroprudential measures are shown to be more effective than those that discriminate against foreign liabilities (prudential capital controls). However, these measures are not a substitute for an appropriate moneraty policy reaction. Moreover, macroprudential measures are less useful in helping economic stability under a technology shock.
    Keywords: Capital controls , Capital flows , Capital goods , Capital inflows , Corporate sector , Economic models , Emerging markets , Financial stability , Monetary policy ,
    Date: 2011–08–08
  13. By: Lee E. Ohanian; Andrea Raffo
    Abstract: We build a new quarterly dataset of aggregate hours worked consistent with standard NIPA constructs for 14 OECD countries over the last fifty years. We find that cyclical features of labor markets across countries differ markedly from the accepted empirical facts reported in the literature based on either just U.S. hours data, or based on cross-country employment data. We document that total hours worked in many OECD countries are about as volatile as output, that a relatively large fraction of labor market adjustment takes place along the intensive margin outside the United States, and that the volatility of total hours relative to output volatility has increased over time in almost all countries. We use these data to re-assess productivity and labor wedges during the Great Recession and during prior recessions. We find that the Great Recession in many OECD countries is a significant puzzle in that labor wedges are quite small, while those in the U.S. Great Recession - and those in previous European recessions - are much larger. These new data indicate that understanding cyclical labor fluctuations in OECD countries requires understanding why hours fluctuate so much more than previously considered, how and why labor markets changed so much in the last few years, why cyclical adjustment of hours per worker in countries with large firing costs is not even larger than observed, and why the Great Recession differs so much across countries.
    JEL: E0 F41 J22
    Date: 2011–09
  14. By: Jean-Olivier Hairault (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, IZA - Institute for the Study of Labor); François Langot (IZA - Institute for the Study of Labor, GAINS-TEPP - Université du Mans, CEPREMAP - Centre pour la recherche économique et ses applications)
    Abstract: Gali et al. (2007) have recently shown quantitatively that fluctuations in the efficiency of resource allocation do not generate sizable welfare costs. In their economy, which is distorted by monopolistic competition in the steady state, we show that they underestimate the welfare cost of these fluctuations by ignoring the negative effect of aggregate volatility on average consumption and leisure. As monopolistic suppliers, both firms and workers aim to preserve their expected markups; the interaction between aggregate fluctuations and price-setting behavior results in average consumption and employment levels that are lower than their counterparts in the flexible-price economy. This level effect increases the efficiency cost of business cycles. It is all the more sizable with the degree of inefficiency in the steady state, lower labor-supply elasticities, and when prices instead of wages are rigid.
    Keywords: Business cycle costs; inefficiency gap; New-Keynesian Macroeconomics
    Date: 2011–09–14
  15. By: Bilbiie, Florin Ovidiu; Fujiwara, Ippei; Ghironi, Fabio
    Abstract: We show that deviations from long-run stability of product prices are optimal in the presence of endogenous producer entry and product variety in a sticky-price model with monopolistic competition in which price stability would be optimal in the absence of entry. Specifically, a long-run positive (negative) rate of inflation is optimal when the benefit of variety to consumers falls short of (exceeds) the market incentives for creating that variety under flexible prices, governed by the desired markup. Plausible preference specifications and parameter values justify a long-run inflation rate of two percent or higher. Price indexation implies even larger deviations from long-run price stability. However, price stability (around this non-zero trend) is close to optimal in the short run, even in the presence of time-varying flexible-price markups that distort the allocation of resources across time and states. The central bank uses its leverage over real activity in the long run, but not in the short run. Our results point to the need for continued empirical research on the determinants of markups and investigation of the benefit of product variety to consumers.
    Keywords: Entry; Optimal inflation rate; Price stability; Product variety; Ramsey-optimal monetary policy.
    JEL: E31 E32 E52
    Date: 2011–09
  16. By: Nir Klein
    Abstract: The study looks at the cyclical behavior of the markups and assesses its impact on inflation dynamics. The analysis finds that the aggregate level of the private sector’s markup is relatively high, thus pointing to the lack of strong competition in South Africa’s product markets. Additionally, the results suggest that the markups tend to move in a countercyclical manner, with a short-term positive impact on inflation. This implies that the countercyclical pattern of the markups is one factor among others that contribute to the relatively weak output gap-inflation co-movement. In the context of South Africa’s inflation targeting framework, the counter-cyclical markups may also generate an asymmetric response of monetary policy to the fluctuations in economic activity.
    Date: 2011–08–22
  17. By: Gilles St. Paul
    Abstract: This paper investigates, in a simplified macro context, the joint determination of the (incorrect) perceived model and the equilibrium. I assume that the model is designed by a self-interested economist who knows the true structural model, but reports a distorted one so as to influence outcomes. This model influences both the people and the government; the latter tries to stabilize an unobserved demand shock and will make different inferences about that shock depending on the model it uses. The model's choice is constrained by a set of autocoherence conditions that state that, in equilibrium, if everybody uses the model then it must correctly predict the moments of the observables. I then study, in particular, how the models devised by the economists vary depending on whether they are "progressive" vs. "conservative". The predictions depend greatly on the specifics of the economy being considered. But in many cases, they are plausible. For example, conservative economists will tend to report a lower keynesian multiplier, and a greater long-term inflationary impact of output expansions. On the other hand, the economists' margin of manoeuver is constrained by the autocoherence conditions. Here, a "progressive" economist who promotes a Keynesian multiplier larger than it really is, must, to remain consistent, also claim that demand shocks are more volatile than they really are. Otherwise, people will be disappointed by the stabilization performance of fiscal policy and reject the hypothesized value of the multiplier. In some cases, autocoherence induces the experts to make, loosely speaking, ideological concessions on some parameter values. The analysis is illustrated by empirical evidence from the Survey of Professional Forecasters.
    JEL: A11 E6
    Date: 2011–09
  18. By: Haug, Alfred A.; King, Ian P.
    Abstract: We examine the relationship between inflation and unemployment in the long run, using quarterly US data from 1952 to 2010. Using a band-pass filter approach, we find strong evidence that a positive relationship exists, where inflation leads unemployment by some 3 to 3 1/2 years, in cycles that last from 8 to 25 or 50 years. Our statistical approach is atheoretical in nature, but provides evidence in accordance with the predictions of Friedman (1977) and the recent New Monetarist model of Berentsen, Menzio, and Wright (2011): the relationship between inflation and unemployment is positive in the long run.
    Keywords: Inflation; Unemployment; Long-Run Phillips Curve
    JEL: E24 E31
    Date: 2011–08–25
  19. By: Alejandro Justiniano; Claudio Michelacci
    Abstract: We set-up a real business cycle model with search and matching frictions driven by several shocks, which nests full Nash Bargaining and wage rigidity as special cases and includes other transmission mechanisms suggested by the literature for the propagation and amplification of disturbances. The model is estimated using full information methods for two Anglo-Saxon countries (the US and the UK), two Continental European countries (France and Germany) and two Scandinavian countries (Norway and Sweden). We conduct inference with mixed frequency data, combining quarterly series for unemployment, vacancies, GDP, consumption, and investment, with annual data on unemployment flows. Parameters and shocks are estimated separately for each country, which can then vary in terms of search and hiring costs, workers' bargaining power, unemployment benefits levels, wage rigidity and the stochastic properties of disturbances. Overall, the structural model accounts reasonably well for differences in labor market dynamics observed between the two sides of the Atlantic and within Europe. Our estimates indicate that there is considerable cross-country variation in the contribution of technology shocks to the cyclical fluctuations of the labor market. Technology shocks alone replicate remarkably well the volatility in vacancies, unemployment and finding probabilities observed in US, with mixed success in Europe. In contrast, matching shocks and job destruction shocks play a larger role in most European countries relative to the US.
    JEL: E0 E24
    Date: 2011–09
  20. By: Matthias Neuenkirch (University of Marburg)
    Abstract: In this paper, we study the influence of central bank transparency on the formation of money market expectations in emerging markets. The sample covers 25 countries for the period from January 1998 to December 2009. We find, first, that transparency reduces the bias (the difference between the money market rate and the weighted expected target rate over the contract period) in money market expectations. The effect is larger for non-inflation targeters, countries with low income, and countries with low financial depth. However, the biasreducing effect of transparency prevails only if inflation is relatively low. Second, three subcategories of the Eijffinger and Geraats (2006) lead to a smaller bias in expectations: operational, political, and economic transparency, with the effect being the largest for operational transparency. Finally, an intermediate level of transparency is found to have the most favourable influence on money market expectations. Neither complete secrecy nor complete transparency is optimal.
    Keywords: Central Bank Transparency, Emerging Markets, Financial Market Expectations, Interest Rates, Monetary Policy, Money Market
    JEL: E52 E58
    Date: 2011
  21. By: Alfred A. Haug & Ian P. King
    Abstract: We examine the relationship between inflation and unemployment in the long run,using quarterly US data from 1952 to 2010. Using a band-pass filter approach, we find strong evidence that a positive relationship exists, where inflation leads unemployment by some 3 to 3.5 years, in cycles that last from 8 to 25 or 50 years. Our statistical approach is atheoretical in nature, but provides evidence in accordance with the predictions of Friedman (1977) and the recent New Monetarist model of Berentsen, Menzio, and Wright (2011): the relationship between inflation and unemployment is positive in the long run.
    Keywords: Inflation; Unemployment; Long-Run Phillips Curve
    JEL: E24 E31
    Date: 2011
  22. By: Umut Unal (Department of Economics, Florida International University)
    Abstract: This paper characterizes the dynamic effects of net tax and government spending shocks on prices, interest rate, GDP and its private components in four OECD countries using a structural VAR approach. For the first time in this literature, I propose a structural decomposition of total net taxes into four components: corporate income taxes, income taxes, indirect taxes and social insurance taxes. The paper provides estimates of the responses of macroeconomic aggregates to innovations in these net tax components. The main conclusions of the analysis can be summarized as follows: 1) decompositions of total net tax innovations show that net tax components have different impacts on economic variables; 2) the size and persistence of these effects vary across countries depending upon the strength of wealth, substitution, and income effects reflecting the structure of the economies; 3) positive tax multipliers reported in previous studies are found only for the corporate income tax in the US, Canada, and France and for the social security tax in the US; 4) while we find that private investment is crowded out both by taxation and government spending in the UK and the US as consistent with the neo-classical model, our results for France and partially for Canada, indicate that there are opposite effects of tax and spending increases on private investment in line with Keynesian theory; and 5) private consumption is crowded in by government spending for all countries except the UK and crowded out by taxation in all countries except France. While the former result is consistent with a Keynesian model, the latter is in line with neo-classical theory.
    Keywords: Fiscal shocks, Structural vector autoregression, Tax policy
    JEL: E62 H20 H30
    Date: 2011–09
  23. By: Gianmarco I.P. Ottaviano
    Abstract: This paper investigates the role that the entry and exit of heterogeneous firms plays in shaping aggregate fluctuations in economic activity. In so doing, it develops a dynamic stochastic general equilibrium model in which procyclical entry and countercyclical exit along a real business cycle lead to endogenous cyclical movements in average firm productivity. These movements stem from a composition effect due to the reallocation of market shares among firms with different levels of efficiency and affect the propagation of exogenous technological shocks. Numerical analysis suggests that existing models with representative firms may overstate the actual role of procyclical entry and exit in imperfectly competitive markets as a propagation mechanism of exogenous technology shocks. The reason is that procyclical entry and countercyclical exit disproportionately involve less efficiency firms whose impact on aggregate economic activity is hampered by their smaller size.
    JEL: E20 E32 L11 L16
    Date: 2011–09
  24. By: M. Ali Choudhary (University of Surrey and State Bank of Pakistan); Saima Naeem (State Bank of Pakistan); Abdul Faheem (State Bank of Pakistan); Nadim Haneef (State Bank of Pakistan); Farooq Pasha (State Bank of Pakistan)
    Abstract: We present results of 1189 structured interviews about price-setting behavior of firms in the manufacturing and services sector in Pakistan. Our discoveries are that frequency of price change is considerably high, lowering the real impact of monetary policy. The remaining price stickiness is explained by firms caring about relative prices and the persistence of shocks. The exchange-rate and cost shocks are more important than financial and demand shocks for both setting prices and also the readiness with which these pass-through to the economy. Firms with connections with the informal sector, especially through demand, have a lower probability of price adjustment.
    JEL: E32 E52 O11
    Date: 2011–09
  25. By: Colignatus, Thomas
    Abstract: The 2007+ credit crunch and economic crisis put European governments in severe debt, with talk about a Greek partial default. It also put the European banks into a zombie condition, while under Basel III the capital requirement rises from 8% to 10.5% (which requirement does not cover public debt since that is considered reliable). Fiscal measures concern tax structures and that Germany and Holland eliminate their surplusses on the external account. A monetary measure is that the European Central Bank as lender of last resort helps to prevent a crisis of confidence. The ECB can create capital and neutralise this by higher reserve requirements. Two reasonable measures are: (1) EUR 400 billion of European Recovery Capital (ERC) will reduce Greek and Italian debt to 100% of their GDP (using 2010 data). Greece and Italy on their part can have a wealth tax or create 40 year leases (implictly at 10 billion per year excluding interest) like Hong Kong once was for investment areas under foreign law (think of Magna Graecia). (2) EUR 400 billion can be injected in eurozone equity (and not eurozone bonds) in banks to allow the increase from the 8% to the 10.5% target. This equity can be managed by newly created independent ERC Investment Banks (ERBs), where the shares are allocated to eurozone member states in proportion to their GDP. This partial nationalisation would reduce eurozone national debts by 4.3% of GDP.
    Keywords: Economic stability; monetary policy; monetary crisis; credit crunch; zombie banks; euro; European Central Bank; fiscal policy; tax; external balance
    JEL: E00 A10 P16
    Date: 2011–09–17
  26. By: Gary Richardson; Patrick Van Horn
    Abstract: In 1931, a financial crisis began in Austria, struck numerous European nations, forced Britain to abandon the gold standard, and spread across the Atlantic. This article describes how banks in New York City, the central money market of the United States, reacted to events in Europe. An array of data sources – including memos detailing private conversations between leading bankers the governors of the New York Federal Reserve, articles written by prominent commentators, and financial data drawn from the balance sheets of commercial banks – tell a consistent tale. Banks in New York anticipated events in Europe, prepared for them by accumulating substantial reserves, and during the crisis, continued business as usual. Leading international bankers deliberately and collectively decided on the business-as-usual policy in order to minimize the impact of the panic in the United States and Europe.
    JEL: E42 E44 G21 N1 N12 N14 N2 N22 N24
    Date: 2011–09
  27. By: Joshua Aizenman; Yothin Jinjarak
    Abstract: This paper studies the cross-country variation of the fiscal stimulus and the exchange rate adjustment propagated by the global crisis of 2008-9, identifying the role of economic structure in accounting for the heterogeneity of response. We find that greater de facto fiscal space prior to the global crisis and lower trade openness were associated with a higher fiscal stimulus/GDP during 2009-2010 (where the de facto fiscal space is the inverse of the average tax-years it would take to repay the public debt). Lowering the 2006 public debt/average tax base from the level of low-income countries (5.94) down to the average level of the Euro minus the Euro-area peripheral countries (1.97), was associated with a larger crisis stimulus in 2009-11 of 2.78 GDP percentage points. Joint estimation of fiscal stimuli and exchange rate depreciations indicates that higher trade openness was associated with a smaller fiscal stimulus and a higher depreciation rate during the crisis. Overall, the results are in line with the predictions of the neo-Keynesian open-economy model.
    JEL: E62 F42 O23
    Date: 2011–09
  28. By: Andrea Bassanini
    Abstract: I examine the effect of labour market policies and institutions on the transmission of macroeconomic shocks to the labour market, using both aggregate and industry-level annual data for 23 OECD countries, 23 business-sector industries and up to 29 years. I find that high and progressive labour taxes and generous unemployment benefits amplify labour income fluctuations. By contrast, statutory minimum wages reduce the difference in the sensitivity of wages to aggregate shocks between low-wage and high-wage industries. Dismissal regulations are found to mitigate the impact of shocks on both earnings and employment. Moreover, this mitigation effect is greater in industries where firms have a greater propensity to make staffing changes through dismissals. Stringent dismissal regulations also appear to reduce the counter-cyclicality of the earnings dispersion between high and low-educated labour.
    Date: 2011–09
  29. By: S. Boragan Aruoba; Francis X. Diebold; Jeremy Nalewaik; Frank Schorfheide; Dongho Song
    Abstract: Two often-divergent U.S. GDP estimates are available, a widely-used expenditure side version, GDPE, and a much less widely-used income-side version GDPI . We propose and explore a "forecast combination" approach to combining them. We then put the theory to work, producing a superior combined estimate of GDP growth for the U.S., GDPC. We compare GDPC to GDPE and GDPI , with particular attention to behavior over the business cycle. We discuss several variations and extensions.
    JEL: E01 E32
    Date: 2011–09
  30. By: Tor Jacobson; Jesper Lindé; Kasper Roszbach
    Abstract: This paper studies the relationship between macroeconomic fluctuations and corporate defaults while conditioning on industry affiliation and an extensive set of firm-specific factors. By using a panel data set for virtually all incorporated Swedish businesses over 1990-2009, a period which includes a full-scale banking crisis, we find strong evidence for a substantial and stable impact from aggregate fluctuations on business defaults. A standard logit model with financial ratios augmented with macroeconomic factors can account surprisingly well for the outburst in business defaults during the banking crisis, as well as the subsequent fluctuations in default frequencies. Moreover, the effects of macroeconomic variables differ across industries in an economically intuitive way. Out-of-sample evaluations show that our approach is superior to models that exclude macro information and standard well-fitting time-series models. Our analysis shows that firm-specific factors are useful in ranking firms' relative riskiness, but that macroeconomic factors are necessary to understand fluctuations in the absolute risk level.
    Date: 2011
  31. By: Chen, Been-Lon; Chen, Hung-Ju; Wang, Ping
    Abstract: In a second-best optimal growth setup with only factor taxes as available instruments, is it optimal to fully replace capital by labor income taxation? The answer is generally positive based on Chamley, Judd, Lucas, and many follow-up studies. In the present paper, we revisit this important tax reform-related issue by developing a human capital-based endogenous growth framework with frictional labor search and matching. We allow each firm to create multiple vacancies and each worker to determine labor market participation endogenously. We consider a benevolent fiscal authority to finance direct transfers to households and unemployment compensation only by factor taxes. We then conduct dynamic tax incidence exercises using a model calibrated to the U.S. economy with a pre-existing 20% flat tax on both the capital and labor income. Our numerical results suggest that, due to a dominant channel via the interactions between the firm's vacancy creation and the worker's market participation, it is optimal to switch partly by a modest margin from capital to labor taxation in a benchmark economy where human capital formation depends on both the physical and human capital stocks. When the human capital accumulation process is independent of physical capital, the optimal tax mix features a slightly larger shift from capital to labor taxation; when we remove the extensive margin of the labor-leisure trade-off, such a shift is much larger. In either case, however, the optimal capital tax rate is far above zero.
    Keywords: Tax Incidence; Endogenous Human Capital Accumulation; Labor-Market Search and Matching Frictions
    JEL: E62 H22 O40 J20
    Date: 2011–08–30
  32. By: Tobias N. Rasmussen; Agustin Roitman
    Abstract: Using a comprehensive global dataset, we outline stylized facts characterizing relationships between crude oil prices and macroeconomic developments across the world. Approaching the data from several angles, we find that the impact of higher oil prices on oil-importing economies is generally small: a 25 percent increase in oil prices typically causes GDP to fall by about half of one percent or less. While cross-country differences in impact are found to depend mainly on the relative size of oil imports, we also show that oil price shocks are not always costly for oil-importing countries: although higher oil prices increase the import bill, there are partly offsetting increases in external receipts. We provide a small open economy model illustrating the main transmission channels of oil shocks, and show how the recycling of petrodollars may mitigate the impact.
    Keywords: Cross country analysis , Developing countries , Economic models , Emerging markets , External shocks , Imports , Oil prices , Price increases ,
    Date: 2011–08–11
  33. By: Arvind Virmani
    Abstract: The paper examines the principles on which a reform of a Quota based global economic institution like the IMF must be based, taking account of both the relative economic power of countries and the need for voice and representation of the poor countries. These principles are then used in the context of the global economic realities of the 21st century to examine the suitability of different variables in the IMF.s Quota formula. Based on this analysis a simple transparent formula is suggested, which will help increase the credibility and legitimacy of the IMF as a global macroeconomic and financial institution.
    Keywords: Corporate governance , Fund , International monetary system , Quota formulas , Quotas , Voting power ,
    Date: 2011–08–26
  34. By: Michael P. Keane; Richard Rogerson
    Abstract: The response of aggregate labor supply to various changes in the economic environment is central to many economic issues, especially the optimal design of tax policies. This paper surveys recent work that uses structural models and micro data to evaluate the size of this response. Whereas the earlier literature on this issue often concluded that aggregate labor supply elasticities were small, recent work has identified three key reasons that the aggregate elasticity may be quite large. First, earlier estimates abstracted from several key features, including human capital accumulation, leading to estimates that are dramatically negatively biased. Second, failure to understand that aggregate labor supply adjustments can occur along both the hours per worker and employment margins has led economists to misinterpret the implications of previous estimates for aggregate labor supply. Third, structural estimation of responses along the extensive (i.e., employment) margin are typically quite large.
    JEL: E24 J22
    Date: 2011–09
  35. By: Guner, Nezih (MOVE, Barcelona); Kaygusuz, Remzi (Sabanci University); Ventura, Gustavo (Arizona State University)
    Abstract: Based on well-known evidence on labor supply elasticities, several authors have concluded that women should be taxed at lower rates than men. We evaluate the quantitative implications of taxing women at a lower rate than men. Relative to the current system of taxation, setting a proportional tax rate on married females equal to 4% (8%) increases output and married female labor force participation by about 3.9% (3.4%) and 6.9% (4.0%), respectively. Gender-based taxes improve welfare and are preferred by a majority of households. Nevertheless, welfare gains are higher when the U.S. tax system is replaced by a proportional, gender-neutral income tax.
    Keywords: taxation, two-earner households, labor force participation
    JEL: E62 H31 J12 J22
    Date: 2011–09
  36. By: David Rosnick; Dean Baker
    Abstract: There are many economists who argue that temporary tax cuts, like those in the 2009 stimulus and the ones proposed by President Obama last week, have no impact on the economy. They argue that people will save a temporary tax credit rather than spend it. Stanford Economics Professor John Taylor, who served as Under Secretary of the Treasury for International Affairs under President Bush, is one of the economists making this argument. He purports to show that there was no statistically significant increase in private consumption of goods and services as a result of certain types of government transfers made over the last decade. According to his analysis, it is unclear whether an additional dollar of government transfers led to any additional spending, or, alternatively, whether it raised personal savings by more than one dollar. This paper shows that there is very little indication that – based on Taylor’s work – personal transfers from the government fail to stimulate private spending.
    Keywords: stimulus, recession, tax cuts
    JEL: E E6 E64 E65 H H2 H3 H31
    Date: 2011–09
  37. By: Conefrey, Thomas; FitzGerald, John
    Keywords: taxes
    Date: 2011–08
  38. By: Ping, Luo (Asian Development Bank Institute)
    Abstract: Reform of financial regulation is a priority on the international agenda. At the call of the Group of Twenty Finance Ministers and Central Bank Governors (G-20), a number of new international standards have been issued, most notably Basel III. As a member of the G-20, the Financial Stability Board (FSB), and the Basel Committee on Banking Supervision, the People’s Republic of China (PRC) is now on a faster track in adopting international standards. However, the key issue for the PRC—as well as many other emerging markets—is to how to keep focused on the domestic policy agenda while adopting the new global standards.
    Keywords: financial regulation; basel iii; prc financial sector
    JEL: E44 E52 E58 G18 G28
    Date: 2011–09–15
  39. By: Barrell, Ray; FitzGerald, John
    Date: 2011–08
  40. By: Rochelle M. Edge; Ralf R. Meisenzahl
    Abstract: Macroeconomists have long recognized that activity-gap measures are unreliable in real time and that this can present serious difficulties for stabilization policy. This paper investigates whether the credit-to-GDP ratio gap, which has been proposed as a reference point for accumulating countercyclical capital buffers, is subject to similar problems. We find that ex-post revisions to the U.S. credit-to-GDP ratio gap are sizable and as large as the gap itself, and that the main source of these revisions stems from the unreliability of end-of-sample estimates of the series' trend rather than from revised estimates of the underlying data. The paper considers the potential costs of gap mismeasurement. We find that the volume of lending that may incorrectly be curtailed is potentially large, although loan interest-rates appear to increase only modestly.
    Date: 2011
  41. By: Khanna, Gaurav (University of Michigan); Newhouse, David (World Bank); Paci, Pierella (World Bank)
    Abstract: This paper reviews evidence from 44 middle income countries on how the recent financial crisis affected jobs and workers' income. In addition to providing a rare assessment of the magnitude of the impact across several middle-income countries, the paper describes how labor markets adjusted and how the adjustments varied for different types of countries. The main finding is that the crisis affected the quality of employment more than the number of jobs. Overall, the slow-down in earning growth was considerably higher than that in employment, and the decline in GDP was associated with a sharp decline in output per worker, particularly in the industrial sector. In several counties, hours per workers declined and hourly wages changed little. But both the magnitude and nature of the adjustments varied considerably across countries. For a given drop in GDP, earnings declined more in countries with larger manufacturing sectors, smaller export sectors, and more stringent labor market regulations. In addition, overall employment became more sensitive to GDP growth. These findings have implications that go beyond the recent financial crisis as they highlight (i) the limitations of focusing policies responses on maintaining jobs and providing alterative employment or replacement income for the unemployed and (ii) the critical role of fast-track data systems, capable of monitoring ongoing labor market adjustment during economic downturns, in supporting the design of effective policy responses.
    Keywords: middle-income countries, labor markets, recession
    JEL: E24 E32 J21
    Date: 2011–09
  42. By: Jules H. van Binsbergen; Wouter Hueskes; Ralph Koijen; Evert B. Vrugt
    Abstract: We study a new data set of prices of traded dividends with maturities up to 10 years across three world regions: the US, Europe, and Japan. We use these asset prices to construct equity yields, analogous to bond yields. We decompose these yields to obtain a term structure of expected dividend growth rates and a term structure of risk premia, which allows us to decompose the equity risk premium by maturity. We find that both expected dividend growth rates and risk premia exhibit substantial variation over time, particularly for short maturities. In addition to predicting dividend growth, equity yields help predict other measures of economic growth such as consumption growth. We relate the dynamics of growth expectations to recent events such as the financial crisis and the earthquake in Japan.
    JEL: E32 E43 E44 F01 G10 G12
    Date: 2011–09
  43. By: Benjamin Born (University of Bonn); Michael Ehrmann (European Central Bank); Marcel Fratzscher (European Central Bank)
    Abstract: Central banks regularly communicate about financial stability issues, by publishing Financial Stability Reports (FSRs) and through speeches and interviews. The paper asks how such communications affect financial markets. Building a unique dataset, it provides an empirical assessment of the reactions of stock markets to more than 1000 releases of FSRs and speeches by 37 central banks over the past 14 years. The findings suggest that FSRs have a significant and potentially long-lasting effect on stock market returns, and also tend to reduce market volatility. Speeches and interviews, in contrast, have little effect on market returns and do not generate a volatility reduction during tranquil times, but have had a substantial effect during the 2007-10 financial crisis. The findings suggest that financial stability communication by central banks are perceived by markets to contain relevant information, and they underline the importance of differentiating between communication tools, their content and the environment in which they are employed.
    Keywords: central bank, financial stability, communication, event study
    JEL: E44 E58 G12
    Date: 2011
  44. By: Triandafil, Cristina Maria (Romanian Academy, National Institute of Economic Research)
    Abstract: This study envisages analyzing the convergence criteria in the context of recent macroeconomic developments, focusing on their sustainability. In order to highlight the sustainability of convergence indicators, the paper includes an analysis of the initial dynamics, both in terms of nominal and real plan, highlighting the need for an integrated approach aiming to capture the junction between the two types of convergence processes. Subsequently, sustainability is revealed through the prism of critical aspects, and through the correlation between economic cycles in the European Union. Study findings and proposals tend to review the set of indicators related to the process of nominal convergence towards the integration of real dimension of this process in order to achieve a striking mix.
    Keywords: convergenta nominala si reala, criterii de convergenta, sustenabilitatea convergentei, ciclurile economice
    JEL: E20 E60 E61 E52
    Date: 2011–09
  45. By: Craigwell, Roland; Mathouraparsad, Sebastien; Maurin, Alain
    Abstract: In the Caribbean Basin, as in many other parts of the world, unemployment, with rates between 15 and 30 percent, has become one of the major problems affecting these societies. This article highlights the specific characteristics of Caribbean unemployment, contrasting them with those observed in the industrialized and developed nations. Secondly, it summarizes the main ideas that have been proposed to explain the problem of unemployment hysteresis and discusses their appropriateness in the case of the countries under consideration. Finally, it uses the framework of threshold models and processes with nonlinearities in the mean to empirically examine the hypothesis of hysteresis. The results supported these non- linear specifications: for Barbados, an LSTAR model is preferred while in the case of Trinidad and Tobago, an ESTAR specification is selected.
    Keywords: Unemployment persistence; Unit root tests; Non-linear models
    JEL: E24 J64 C2
    Date: 2011
  46. By: Decker, Philipp; Pierdzioch, Christian; Stadtmann, Georg
    Abstract: In diesem Beitrag wird analysiert, wie sich die Teilnahme an einer Lehrveranstaltung aus dem Bereich des E-Learning auf das Klausurergebnis auswirkt. Der Leistungsunterschied zwischen Teilnehmern und Nichtteilnehmern lasst sich nicht allein auf die Partizipation an der Veranstaltung zuruckfuhren, sondern gibt als Average Treatment Effect (ATE) die durchschnittliche Performance der Lehrveranstaltung hinsichtlich des studentischen Lernerfolgs an. Zur Kontrolle der Partizipationsneigung wurden die Teilnehmer im Rahmen eines Experiments in zwei Gruppen eingeteilt, denen teilweise unterschiedliche Lehrinhalte vermittelt wurden. Durch den Vergleich der beiden Teilnehmergruppen untereinander konnte der Average Effect of the Treatment on the Treated (ATT) ermittelt werden. Es zeigte sich, dass der Unterschied zwischen den Teilnehmern und den Verweigerern starker ausgeprägt ist, als zwischen den beiden Teilnehmergruppen des Experiments (ATE > ATT). --
    Keywords: Klausurerfolg,Veranstaltungsteilnahme,E-Learning
    JEL: E62 D84 C33
    Date: 2011
  47. By: Heibø Modalsli, Jørgen (Dept. of Economics, University of Oslo)
    Abstract: This paper reconciles neoclassical models of economic growth ("Solow") with the formation of social classes during economic transition ("Marx"). An environment with missing capital markets and no labor divisibility is shown to lead to a steady state with no aggregate inefficiencies, but a very polarized wealth distribution. When capital cannot be rented, people must choose between self-production, potentially including hiring workers, and wage employment. As the first path is more profitable for the rich than the poor, inequality increases. The model is calibrated to illustrate polarization and increasing inequality in early modern Europe, starting from a continuous pre-industrial wealth distribution. During the early industrializing period, when labor markets operate and capital markets do not, inequality increases and a distinct working class emerges. Even if capital markets later improve, the polarization is persistent. The mechanism also has relevance for modern developing countries, where capital market access is limited. If a substantial amount of capital is needed in order to earn the market return, the poor have few incentives to save.
    Keywords: Inequality; polarization; social class; economic growth; capital market frictions
    JEL: E21 G32 O11 O43
    Date: 2011–09–14
  48. By: Fernando Borraz (Banco Central del Uruguay y Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Alejandro Fried (Banco Central del Uruguay); Diego Gianelli (Banco Central del Uruguay y Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: Analizamos las calificaciones de deuda soberana a partir de modelos logit para una muestra de 53 países entre 2000 y 2010. Dado que la literatura sobre el tema omite un tratamiento diferencial para variables explicativas no estacionarias incorporamos un factor de tendencia que interactúa con el nivel de actividad para balancear las ecuaciones. Concluimos que las calificaciones de deuda soberana dependen de un conjunto de variables macroeconómicas e institucionales y que Uruguay al cierre del 2010 contaba con meritos suficientes para acceder al Grado Inversor. Sin perjuicio de ello, el alto nivel de dolarización interactuaría con los restantes fundamentos generándole a su calificación una alta volatilidad cíclica.
    Keywords: sovereign debt, sovereign credit ratings, investment grade, credit ratings agencies
    JEL: E44 F37 G15
    Date: 2011–08
  49. By: Michael D. Bordo; Owen F. Humpage; Anna J. Schwartz
    Abstract: If official interventions convey private information useful for price discovery in foreign-exchange markets, then they should have value as a forecast of near-term exchange-rate movements. Using a set of standard criteria, we show that approximately 60 percent of all U.S. foreign-exchange interventions between 1973 and 1995 were successful in this sense. This percentage, however, is no better than random. U.S. intervention sales and purchases of foreign exchange were incapable of forecasting dollar appreciations or depreciations. U.S. interventions, however, were associated with more moderate dollar movements in a manner consistent with leaning against the wind, but only about 22 percent of all U.S. interventions conformed to this pattern. We also found that the larger the size of an intervention, the greater was its probability of success, although some interventions were inefficiently large. Other potential characteristics of intervention, notably coordination and secrecy, did not seem to influence our success rates.
    JEL: E52 E58 F31 N22
    Date: 2011–09
  50. By: Kuboniwa, Masaaki
    Abstract: We present estimations of a Cobb-Douglas production function with a steady change in TFP (total factor productivity) for the Russian economy, using quarterly data for the favorable period 1998Q3–2008Q2 and the period 1995Q1–2010Q2 as well. Compiling our baseline data on capital and labor adjusted for utilization, we explicitly present estimations of the coefficients (the capital distribution ratio and TFP) of production function, which show that TFP is the major growth source, followed by the capital contribution. We also show results of measurement of Russia‟s GDP gaps as the differences between potential and actual GDPs based on the production function and the Hodrick-Prescott filter.
    Keywords: Growth, TFP, Cobb-Douglas, Russia
    JEL: E01 P24
    Date: 2011–02
  51. By: Zsófia L. Bárány
    Abstract: While there has been intense debate in the empirical literature about the effects of minimum wages on inequality in the US, its general equilibrium effects have been given little attention. In order to quantify the full effects of a decreasing minimum wage on inequality, I build a dynamic general equilibrium model, based on a two-sector growth model where the supply of high-skilled workers and the direction of technical change are endogenous. I find that a permanent reduction in the minimum wage leads to an expansion of low-skilled employment, which increases the incentives to acquire skills, thus changing the composition and size of high-skilled employment. These permanent changes in the supply of labour alter the investment flow into R&D, thereby decreasing the skill-bias of technology. The reduction in the minimum wage has spill-over effects on the entire distribution, affecting upper-tail inequality. Through a calibration exercise, I find that a 30 percent reduction in the real value of the minimum wage, as in the early 1980s, accounts for 15 percent of the subsequent rise in the skill premium, 18.5 percent of the increase in overall inequality, 45 percent of the increase in inequality in the bottom half, and 7 percent of the rise in inequality at the top half of the wage distribution.
    Keywords: Minimum wage, education, technology, wage inequality
    JEL: E24 E65 J31
    Date: 2011–09
  52. By: Bonleu, A.; Cette, G.; Horny, G.
    Abstract: This empirical analysis aims at assessing the effect of the economic climate and the intensity of capital utilisation on companies’ capital retirement behaviour. It is conducted using individual company data, as well as original data on the degree of utilisation of production factors. The sample includes 6,998 observations over the period 1996-2008. This database is, to our knowledge, unique for the empirical analysis of the intensity of capital utilisation on firms’ capital retirement behaviour. We adjust for endogeneity biases by means of instrumental variables. The main results obtained from the estimation of capital retirement models may be summarised as follows: i) The retirement rate decreases with the variations in cyclical pressures measured by the changes in output and the workweek of capital; this relation corresponds to a countercyclical decelerator effect on capital retirement; ii) The capital retirement rate increases with the structural intensity of capital utilisation; this effect, which corresponds to a wear and tear one, is nevertheless small compared to the decelerator one; iii) The profit rate does not have a significant impact on the retirement rate. Compared with the existing literature, here mainly Mairesse and Dormont (1985), the contribution of these results is to show, through the use of unique survey data, that the effect of the intensity of capital utilisation on capital retirement is structurally positive, via a wear and tear effect, and cyclically negative, via a decelerator effect which completes that already taken into account via the effect of changes in value added.
    Keywords: Capital, Capital measure, Capital retirement, Capital utilisation.
    JEL: E22 D24 O16
    Date: 2011

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