|
on Macroeconomics |
|
Issue of 2011‒10‒22
thirty-one papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Marcel Bluhm (Xiamen University and Center for Financial Studies) |
| Abstract: | This paper outlines a new method for using qualitative information to analyze the monetary policy strategy of central banks. Quantitative assessment indicators that are extracted from a central bank's public statements via the balance statistic approach are employed to estimate a Taylor-type rule. This procedure allows to directly capture a policymaker's assessments of macroeconomic variables that are relevant for its decision making process. As an application of the proposed method the monetary policy of the Bundesbank is re-investigated with a new dataset. One distinctive feature of the Bundesbank's strategy consisted of targeting growth in monetary aggregates. The analysis using the proposed method provides evidence that the Bundesbank indeed took into consideration monetary aggregates but also real economic activity and inflation developments in its monetary policy strategy since 1975. |
| Keywords: | Monetary Policy Rule, Statement Indicators, Bundesbank, Monetary Targeting |
| JEL: | E52 E58 N14 |
| Date: | 2011–09–07 |
| URL: | http://d.repec.org/n?u=RePEc:cfs:cfswop:wp201120&r=mac |
| By: | Michaillat, Pascal |
| Abstract: | This paper develops a theory characterizing the effects of fiscal policy on unemployment over the business cycle. The theory is based on a model of equilibrium unemployment in which jobs are rationed in recessions. Fiscal policy in the form of government spending on public-sector jobs reduces unemployment, especially during recessions: the fiscal multiplier---the reduction in unemployment rate achieved by spending one dollar on public-sector jobs---is positive and countercyclical. Although the labor market always sees vast flows of workers and a great deal of matching, recessions are periods of acute job shortage without much competition for workers among recruiting firms. Hence hiring in the public sector reduces unemployment effectively because it does not crowd out hiring in the private sector much. An implication is that empirical studies should control for the state of the economy when fiscal policies are implemented to estimate accurately the amplitude of fiscal multipliers in recessions. |
| Keywords: | business cycle; fiscal multiplier; job rationing; matching frictions; unemployment |
| JEL: | E24 E32 E62 J64 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8610&r=mac |
| By: | Liang Wang (Department of Economics, University of Hawaii) |
| Abstract: | This paper studies the effect of inflation on welfare in a monetary economy with price dispersion and consumer search. When facing greater price dispersion with higher inflation, consumers search harder for lower prices, and increased search raises welfare by intensifying market competition. Producers post inefficiently high prices, and this creates a welfare loss. Both mechanisms are affected by the consumer's monetary balance. I develop a general equilibrium model with search frictions to incorporate the interrelationship of money, search, and endogenous price dispersion. Inflation aspects welfare through three channels: the real balance channel, the search channel, and the price posting channel. I calibrate the model to U.S. data and find that the welfare cost of 10% annual inflation is worth 3.23% of consumption; however, if either the real balance or the price posting channel is closed, the welfare cost significantly decreases to less than 0.15% of consumption. The price posting channel amplifies the welfare-diminishing effect of the real balance channel, and the aggregated negative effect exceeds the positive effect due to the search channel. The search cost only generates a negligible welfare loss. |
| Keywords: | Inflation, Interest Rates, Money, Price Dispersion, Search, Welfare |
| JEL: | E31 E40 E50 D83 |
| Date: | 2011–07–18 |
| URL: | http://d.repec.org/n?u=RePEc:hai:wpaper:201113&r=mac |
| By: | Stefan Gerlach (Institute for Monetary and Financial Stability, Goethe University Frankfurt); Laura Moretti (Center for Financial Studies) |
| Abstract: | We make three points. First, the decade before the financial crisis in 2007 was characterized by a collapse in the yield on TIPS. Second, estimated VARs for the federal funds rate and the TIPS yield show that while monetary policy shocks had negligible effects on the TIPS yield, shocks to the latter had one-to-one effects on the federal funds rate. Third, these findings can be rationalized in a New Keynesian model. |
| Keywords: | Monetary Policy, Long Real Interest Rates, TIPS |
| JEL: | E43 E52 E58 |
| Date: | 2011–09–13 |
| URL: | http://d.repec.org/n?u=RePEc:cfs:cfswop:wp201122&r=mac |
| By: | Görtz, Christoph; Tsoukalas, John |
| Abstract: | We develop a two-sector DSGE model with financial intermediation to investigate the role of news as a driving force of the business cycle. We find that news about future capital quality is a significant source of aggregate fluctuations, accounting for around 37% in output variation in cyclical frequencies. Financial intermediation is essential for the importance and propagation of capital quality shocks. In addition, news shocks in capital quality generate aggregate and sectoral comovement as in the data and is consistent with procyclical movements in the value of capital. From a historical perspective, news shocks to capital quality are to a large extent responsible for the recession following the 1990s investment boom and the latest recession following the financial crisis, but played a much smaller role during the recession at the beginning of the 1990s. This is in line with the belief that revisions of overoptimistic expectations contributed to the last two recessions while movements in fundamentals played a much bigger role for the recession at the beginning of the 1990s. |
| Keywords: | News; Anticipation effects; Business cycles; DSGE; Bayesian estimation |
| JEL: | E2 E3 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34113&r=mac |
| By: | Melecky, Ales; Melecky, Martin |
| Abstract: | The global financial crisis and its ramification into the fiscal area have demonstrated the importance of regular assessment and monitoring of fiscal vulnerabilities, including the sustainability of sovereign debt. This paper extends the analytical framework of Favero and Giavazzi (2007) to facilitate the analysis of the effects of macroeconomic shocks on public debt dynamics in an open economy. It then applies this framework using the data for the Czech Republic and derives some policy implications from such an analysis. The modeling framework nests a linear structural vector auto-regression (SVAR) model estimated with short-run identifying restrictions and a non-linear equation describing the public debt dynamics. The main variables of the system include GDP growth, inflation, the effective interest rate on government debt, government expenditures and revenues, the exchange rate and government debt. The utilized estimation method is the Bayesian approach. |
| Keywords: | Macroeconomic Shocks; Non-linear Public Debt Dynamics; Open Economy; Czech Republic; Structural Vector Autoregression Model; Bayesian Estimation |
| JEL: | E62 H68 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34114&r=mac |
| By: | Campbell, Carl |
| Abstract: | This study demonstrates that a model with efficiency wages and imperfect information produces a Phillips curve relationship. Equations are derived for labor demand and the efficiency wage-setting condition, and shifts in these curves in response to aggregate demand shocks result in a relationship with the characteristics of a Phillips curve. The Phillips curve differs from the efficiency wage-setting condition in that the Phillips curve is a more parsimonious expression and has a coefficient on expected inflation equal to 1. Also derived from this model is the counterpart curve to the Phillips curve in unemployment – inflation space. |
| Keywords: | Phillips curve; Efficiency wages; Imperfect information |
| JEL: | E24 E31 |
| Date: | 2011–10–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34121&r=mac |
| By: | Ko, Jun-Hyung |
| Abstract: | This paper investigates the inflation rate that should be set as the target for the central bank. To this end, we develop a two-sector economy model in the existence of long-lived durables. In contrast to recent studies that have been conducted on how monetary policy can affect the role of durable goods, which examine only the production sector, we introduce a service market. Accordingly, we can endogenously derive the traditional user cost equation and the price-rent ratio. Our main findings are as follows: First, even in cases where both service and production sectors are equally sticky, the user cost is more important than the purchase price, from the perspective of welfare loss. Second, in contrast to the situation in the economy that includes only nondurables, a temporary shock persistently influences output fluctuations. However, this does not mean that welfare loss increases as the degree of durability increases. Third, welfare is found to be a strictly increasing function of durability. |
| Keywords: | Durables; User cost; Price-rent ratio; Optimal monetary policy |
| JEL: | E31 E52 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34147&r=mac |
| By: | Goodness C. Aye (Department of Agricultural Economics, University of Agriculture, Makurdi, Nigeria); Rangan Gupta (Department of Economics, University of Pretoria) |
| Abstract: | This study provides empirical evidence of aggregate, anticipated and unanticipated and asymmetric (positive and negative) effects of monetary policy on real agricultural prices in South Africa over the monthly period of 1970:01-2010:12. For this purpose, we use the Vector Autoregressive (VAR) model coupled with the monetary misperception model to distinguish between anticipated and unanticipated monetary policy shocks. Results show that the actual, anticipated and unanticipated monetary policy had significant effect on real farm prices. These findings are robust when the shocks are modelled as recursive residuals. Moreover, the positive monetary policy was consistently significant either at specific lags or jointly. With exception of the recursive anticipated monetary policy, the negative components were consistently insignificant. Further, the hypothesis of asymmetric effect was supported for the recursive anticipated monetary policy only. The effects observed in this study are quantitatively small and accounts for only a very small percentage (1.5 percent - 6.5 percent) of the variation in real farm prices. |
| Keywords: | Monetary policy, real farm price, asymmetric effects, recursive residuals |
| JEL: | C12 E52 Q11 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:201119&r=mac |
| By: | Delis, Manthos D; Hasan, Iftekhar; Mylonidis, Nikolaos |
| Abstract: | There is a growing consensus that a prolonged period of low interest rates can exert a negative impact on financial stability through the risk-taking incentives of banks. Using micro-level datasets from the US banking sector, this paper finds evidence of a highly significant negative relationship between monetary policy rates and bank-risk taking. This finding remains robust across various specifications, sub-periods and subsamples, thereby confirming the presence of an active risk-taking channel of monetary policy since the 1990s. The results, therefore, support the new responsibilities of the Fed on macro-prudential supervision to monitor systemic risks. |
| Keywords: | Bank risk; monetary policy; US commercial banks; Total loans; New loans |
| JEL: | E43 E52 G21 |
| Date: | 2011–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34084&r=mac |
| By: | Yadav, Swati; Upadhyaya, V; Sharma, Seema |
| Abstract: | Impact of Fiscal Policy Shocks on the Indian Economy Swati Yadav , V.Upadhyay , Seema Sharma Abstract In this paper, we analyse the impact of fiscal shocks on the Indian economy using structural vector autoregression (SVAR) methodology. The study uses quarterly data for the period 1997Q1 to 2009Q2. Two different identification schemes have been used to assess the effects of shocks to government spending and tax revenues on output. The recursive scheme is based on the Cholesky decomposition and the second identification scheme Blanchard & Perrotti (1999) technique of using information on tax system to identify the SVAR model. We find that the impulse responses obtained from both identification schemes behave in a similar fashion but the value of multipliers differs. Also the shock to tax variable has a bigger impact on GDP than the government spending shock. In the extended four variable VAR model the effects of fiscal shocks on private consumption has been assessed using the recursive identification scheme. Findings indicate that the tax variable has larger impact on private consumption as compared to the government spending variable. In the short run the impact of expansionary fiscal shocks follow Keynesian tradition but the long run response is mixed. |
| Keywords: | SVAR; Fiscal shocks; Multipliers |
| JEL: | E12 E32 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34071&r=mac |
| By: | Melecky, Ales; Skutova, Marketa |
| Abstract: | Recently the popularity of fiscal rules has been increasing also due to the impact of macroeconomic and financial shocks on fiscal sustainability. This paper reviews supranational and national fiscal rules implemented in the Visegrad countries (V4). Namely, we base the review and comparison of fiscal rules on the existing literature and the empirical data from the European Commission. According to the Fiscal Rule Strength Index developed by the European Commission, Poland’s debt rule as of 1997 received the highest ranking. Poland also received the highest score based on the aggregated Fiscal Rules Index in 2009. The most influential in this respect is the application of an early adjustment mechanism which is triggered once the debt to GDP ratio exceeds 50%. |
| Keywords: | Nadnárodní fiskální pravidla; Národní fiskální pravidla; V4; EU; Index síly fiskálního pravidla; Index fiskálních pravidel |
| JEL: | E62 H50 H60 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34028&r=mac |
| By: | Kowalski, Tadeusz |
| Abstract: | The aim of this paper is to present and evaluate the theory and principles of economic policy applied before the 2008-2009 crisis1. Against this backdrop we will attempt to describe the evolution of targets and tools of economic policy in view of the experiences of recent years and the conditions of the globalization in this time. The first Section contains an outline of the world economic situation after 1945. Section two includes presentation and evaluation of the evolution of economic policy theory which co-created the conditions for world economic growth and stabilization in recent decades. The third Section describes macroeconomic mechanisms and conditions of economic policy directly preceding the 2007-2011 situation, and provides an analysis of the 2008-2009 crisis implications for the theory and future practice of economic policy. The paper is summed up in a conclusion. |
| Keywords: | quantitative policy; qualitative policy; monetary policy; exchange-rate policy; financial and economic crisis; globalization |
| JEL: | E12 E30 E13 E61 |
| Date: | 2011–08–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:33994&r=mac |
| By: | Yu-chin Chen; Stephen J. Turnovsky; Eric Zivot |
| Abstract: | This paper shows that for five small commodity-exporting countries that have adopted inflation targeting monetary policies, world commodity price aggregates have predictive power for their CPI and PPI inflation, particularly once possible structural breaks are taken into account. This conclusion is robust to using either disaggregated or aggregated commodity price indexes (although the former perform better), the currency denomination of the commodity prices, and to using mixed-frequency data. In pseudo out-of-sample forecasting, commodity indexes outperform the random walk and AR(1) processes, although the improvements over the latter are sometimes modest. |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:udb:wpaper:uwec-2011-14&r=mac |
| By: | Mohsin, Hasan M; Ashraf, Muhammad Shahzad |
| Abstract: | Studies upon impact of macro variables on firm’s dividend policy are very limited and specifically rare in Pakistan perspective. Main purpose of this research paper is to observe impact of restricted monetary policy on dividend behavior of Pakistani firms. During restricted monetary policy, cost of external funds increases and firms prefer to utilize internal funds leading to reduction in dividend payout. Behaviour of 100 listed firms, selected purposefully, has been observed for the period from 2001 to 2009 by using Lintner’ modified model.. During the research period of nine years, monetary policy has been gone through both loose and tight phases. Proposed model is dynamic one as lagged dependent variable has been used as explanatory variable. Due to certain limitations with selection of monetary policy instrument, overall stance of State Bank of Pakistan (SBP) in its annual reports has been used as a dummy variable in the model. Results of all the three estimations reveal almost same results. First lagged dividend has been proved to be most deterministic factor of dividend policy followed by current earnings. Monetary policy and lagged dividends interactive variables provide mixed results. First interactive variable has negative coefficients in all three, fixed effect, random effects and GMM, models but with insignificant p values. Second monetary policy interactive variable has positive coefficients with significant values in random effects and GMM model. Firms seem to follow relatively stable dividend policies with lower adjustment factor. As model is dynamic, GMM estimation is preferred. Monetary policy has not been observed as significant determinant of dividend policy of Pakistani firms. |
| Keywords: | Dividend payment; Monetary Policy |
| JEL: | E5 N2 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34052&r=mac |
| By: | Li, Han Hao; Miller, Marcus; Zhang, Lei |
| Abstract: | The traditional theory of commercial banking explains maturity transformation and liquidity provision assuming no asymmetric information and no excess profits. It captures the possibility of bank runs and business cycle risk; but it ignores the moral hazard problems connected with risk-taking by large banks counting on state bail outs. In this paper market concentration and risk-shifting is incorporated in an analytically tractable fashion; and the modified framework is used to consider measures to restore competition and stability--including, in particular, those recommended for the UK by the Independent Commission on Banking (2011), chaired by Sir John Vickers. |
| Keywords: | bailouts; money and banking; regulation; risk-taking; seigniorage |
| JEL: | E41 E58 G21 G28 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8602&r=mac |
| By: | John Y. Campbell; João F. Cocco |
| Abstract: | This paper solves a dynamic model of a household's decision to default on its mortgage, taking into account labor income, house price, inflation, and interest rate risk. Mortgage default is triggered by negative home equity, which results from declining house prices in a low inflation environment with large mortgage balances outstanding. Not all households with negative home equity default, however. The level of negative home equity that triggers default depends on the extent to which households are borrowing constrained. High loan-to-value ratios at mortgage origination increase the probability of negative home equity. High loan-to-income ratios also increase the probability of default by tightening borrowing constraints. Comparing mortgage types, adjustable-rate mortgage defaults occur when nominal interest rates increase and are substantially affected by idiosyncratic shocks to labor income. Fixed-rate mortgages default when interest rates and inflation are low, and create a higher probability of a default wave with a large number of defaults. Interest-only mortgages trade off an increased probability of negative home equity against a relaxation of borrowing constraints, but overall have the highest probability of a default wave. |
| JEL: | E21 G21 G33 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17516&r=mac |
| By: | Dagmar Hartwig Lojsch (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Marta Rodríguez-Vives (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Michal Slavík (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper explains the various concepts of government debt in the euro area with particular emphasis on its size and composition. In terms of size, the paper focuses on different definitions that are in use, in particular the concept of gross general government debt used in the surveillance of the euro area countries, the total liabilities from the government balance sheet approach, and the net debt concept which subtracts government financial assets from the liability side. In addition, it discusses “hidden debt” in the form of implicit and contingent liabilities. In terms of composition, the paper provides information about euro area government debt broken down by maturity, holder or the currency of issue. All these indicators illustrate a sharp increase in government debt in most euro area countries as a result of the crisis. This in turn has several policy implications: (i) the growing government debt ratios need to be stabilised and put on a downward path which improves market confidence; (ii) fiscal surveillance needs to put more emphasis on government debt indicators than in the past; (iii) government financial assets could play a role when analysing solvency issues; (iv) implicit and other off-balance-sheet government liabilities need to be carefully monitored and reported; (v) the gross debt concept should remain the key basis for fiscal surveillance in the EU and for the Excessive Deficit Procedure in particular; (vi) beyond the size of government debt its composition is also a key factor behind public finance vulnerabilities. JEL Classification: E10, E62, G15, H30, H6. |
| Keywords: | Fiscal policies, government debt, sustainability, stability and growth pact. |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20110132&r=mac |
| By: | Ahmad, Ehtisham |
| Abstract: | The 1994 reforms in China were remarkably successful in stabilizing the economy and raising revenues for the benefit of sustainable growth and permitting the central government to redistribute resources to poorer regions through an equalization framework. However, the rise of informal local borrowing in the absence of effective own-source revenues raises possible risks and imbalances in the future. There is thus a need to reconsider the fundamentals of intergovernmental fiscal relations, building on the basis laid in the 1994 reforms. |
| Keywords: | Financial Economics, H2, H5, H6, H7, |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:ags:ubzefd:115922&r=mac |
| By: | Eijffinger, Sylvester C W; Nijskens, Rob |
| Abstract: | During the recent financial crisis, central banks have provided liquidity and governments have set up rescue programmes to restore confidence and stability, often against the LLR principle advocated by Bagehot. Using a model of a systemic bank suffering from liquidity shocks, we find that the unregulated bank keeps too much liquidity and monitors too little. A central bank can alleviate the liquidity problem, but induces moral hazard. Therefore, we introduce an additional authority that is able to bail out the bank either by injecting capital at a fixed return or by receiving an equity claim. This authority faces a trade-off: demanding a fixed premium increases investment but worsens moral hazard. Request for an equity claim by the fiscal authority reduces excessive risk taking at the expense of investment. This resembles the current situation on financial markets, in which banks take less risk but also provide less credit to the economy |
| Keywords: | Bailout; Bank Regulation; Capital; Lender of Last Resort; Liquidity |
| JEL: | E58 G21 G28 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8603&r=mac |
| By: | Chao Gu; Randall Wright |
| Abstract: | We study models of credit with limited commitment, which implies endogenous borrowing constraints. We show that there are multiple stationary equilibria, as well as nonstationary equilibria, including some that display deterministic cyclic and chaotic dynamics. There are also stochastic (sunspot) equilibria, in which credit conditions change randomly over time, even though fundamentals are deterministic and stationary. We show this can occur when the terms of trade are determined by Walrasian pricing or by Nash bargaining. The results illustrate how it is possible to generate equilibria with credit cycles (crunches, freezes, crises) in theory, and as recently observed in actual economies. |
| JEL: | E32 E44 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17510&r=mac |
| By: | Marcelle, Chauvet; Jeremy, Piger |
| Abstract: | The Great Recession of 2007-2009 has not only caused a large wealth loss, it was also followed by a sluggish subsequent recovery. Two years after officially emerging from the recession, the economy was still growing at a low pace and payroll employment was far from reaching its previous peak. However, assessment of the employment situation was markedly different across different series. The two most important employment series, payroll employment (ENAP) and civilian employment (TCE), have recently been displaying divergent patterns. This has been a source of great uncertainty regarding labor market conditions. This paper investigates the differences in the cyclical dynamics of these series and the implications for monitoring business cycle on a current basis. Univariate and multivariate Markov switching models are applied to revised and real time unrevised data. We find that the main differences across these series occur around recessions. The employment measures have diverged considerably around the last three recessions in 1990-1991, in 2001, and in 2007-2009, but especially during their subsequent recoveries. In particular, while the probabilities of recession for models that include ENAP depict jobless recoveries, the probabilities of recessions from models with TCE fall right around the trough of the last three recessions, as determined by the NBER. This significantly impacts the identification of turning points in multivariate models in sample and in recursive real time analysis, with models that use TCE being more accurate compared to the NBER dating, and delivering faster call of troughs in real time. Models that include ENAP series, on the other hand, yield delays in signaling business cycle troughs, especially the most recent ones. |
| Keywords: | Employment; Business Cycle; Turning Point; Real Time; Markov-Switching; Dynamic Factor Model; Jobless Recovery |
| JEL: | E32 C22 |
| Date: | 2010–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34103&r=mac |
| By: | Allen Head; Lucy Qian Liu; Guido Menzio; Randall Wright |
| Abstract: | Why do some sellers set nominal prices that apparently do not respond to changes in the aggregate price level? In many models, prices are sticky by assumption; here it is a result. We use search theory, with two consequences: prices are set in dollars, since money is the medium of exchange; and equilibrium implies a nondegenerate price distribution. When the money supply increases, some sellers may keep prices constant, earning less per unit but making it up on volume, so profit stays constant. The calibrated model matches price-change data well. But, in contrast with other sticky-price models, money is neutral. |
| JEL: | E0 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17520&r=mac |
| By: | Bishnu, Monisankar; Ghate, Chetan; Gopalakrishnan, Pawan |
| Abstract: | We construct a model of endogenous investment specific techological change in which the stock of public capital influences the real price of capital goods. We show that the growth and welfare maximizing tax rates coincide in the planned economy. When factor income taxes finance public investment infintely many tax-subsidy combinations can decentralize the planner's allocations. The optimal capital income tax can be positive in this environment. We then augment the model to incorporate administrative costs. A unique combination of factor income taxes now decentralizes the planner's allocations. A simple calibration exercise suggests that changes in factor income taxes does not cause a significant change in the optimal growth rate or welfare. Our framework broadens the environment in which investment specific technological change occurs, and characterizes the role of optimal factor income taxation in raising long run growth and welfare. |
| Keywords: | Investment Specific Technological Change; Endogenous Growth; Capital Income Taxation; Public Policy; Administrative Costs |
| JEL: | E2 H2 E6 O4 |
| Date: | 2011–10–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34111&r=mac |
| By: | Yiting Li; Guillaume Rocheteau; Pierre-Olivier Weill |
| Abstract: | We study an over-the-counter (OTC) market with bilateral meetings and bargaining where the usefulness of assets, as means of payment or collateral, is limited by the threat of fraudulent practices. We assume that agents can produce fraudulent assets at a positive cost, which generates endogenous upper bounds on the quantity of each asset that can be sold, or posted as collateral in the OTC market. Each endogenous, asset-specific, resalability constraint depends on the vulnerability of the asset to fraud, on the frequency of trade, and on the current and future prices of the asset. In equilibrium, the set of assets can be partitioned into three liquidity tiers, which differ in their resalability, their prices, their sensitivity to shocks, and their responses to policy interventions. The dependence of an asset's resalability on its price creates a pecuniary externality, which leads to the result that some policies commonly thought to improve liquidity can be welfare reducing. |
| JEL: | E41 E44 E5 E58 G1 G12 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17500&r=mac |
| By: | Kisswani, Khalid/ M.; Nusair, Salah/ A. |
| Abstract: | We examine the dynamics of convergence of the ASEAN5 plus the big three for nominal interest rates, inflation rates, and real interest rates. We test for convergence relative to the U.S and Japan, using monthly data over the period January 1990 - December 2010, using non-linear unit root tests. The results show strong evidence of stationary inflation and real interest rate differentials in all but China’s inflation differential relative to the U.S., and stationary nominal interest differentials in most of the cases. We interpret these results as convergence in inflation rates and real interest rates in all cases, and as nominal interest convergence in most of the cases. Moreover, examining the impact of the Asian crisis shows less number of convergences before the crisis and more convergences after the crisis. This suggests that convergence has increased after the 1997/98 Asian crisis, and that the crisis has pulled the economies together. |
| Keywords: | interest rates convergence; inflation convergence; nonlinear unit root tests |
| JEL: | E43 E31 |
| Date: | 2011–07–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34179&r=mac |
| By: | Julio, Juan Manuel |
| Abstract: | A closed formula for the Hodrick & Prescott, HP, filter subject to linear restrictions is derived. This filter is also known as the HP filter with priors. When the formula is applied to the ordinary HP filter linear restrictions apply only within the sample. However, when this formula is applied to the extended HP filter and extensions that correct for GDP revisions and delays, linear restrictions apply out of sample also. |
| Keywords: | Business Cycles, Hodrick-Prescott Filter |
| JEL: | E32 C22 |
| Date: | 2011–10–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34202&r=mac |
| By: | Josheski, Dushko; Lazarov, Darko; Fotov, Risto; Koteski, Cane |
| Abstract: | In this paper the issue of causality between wages and prices in UK has been tested. OLS relationship between prices and wages is positive; productivity is not significant in determination of prices or wages too. These variables from these statistics we can see that are stationary at 1 lag, i.e. they are I(1) variables, except for CPI variables which is I(2) variable. From the VECM model, If the log wages increases by 1%, it is expected that the log of prices would increase by 5.24 percent. In other words, a 1 percent increase in the wages would induce a 5.24 percent increase in the prices.About the short run parameters, the estimators of parameters associated with lagged differences of variables may be interpreted in the usual way.Productivity was exogenous repressor and it is deleted since it has coefficient no different than zero. The relation (causation) between these two variables is from CPI_log→ real_wage_log .Granger causality test showed that only real wages influence CPI or consumer price index that proxies prices, this is one way relationship, price do not influence wages in our model. |
| Keywords: | VECM; Granger causality; real wages; prices; cointegration ; OLS |
| JEL: | E24 J01 C22 |
| Date: | 2011–10–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34095&r=mac |
| By: | Hein, Eckhard |
| Abstract: | In a Kaleckian distribution and growth model with workers’ debt we examine the short- and long-run effects of three stylized facts of ‘finance-dominated capitalism’: a fall in animal spirits of the firm sector with respect to real investment in capital stock, re-distribution of income at the expense of the wage share, and increasing lending of rentiers to workers for consumption purposes. In particular, we specify the conditions for long-run stability of the workers’ debt-capital ratio. We thus identify the threshold for this ratio to turn unstable causing increasing financial fragility and finally financial crisis due to systemic stock-flow or stock-stock dynamics. |
| Keywords: | Finance-dominated capitalism; distribution; household debt; financial fragility; growth; Kaleckian model |
| JEL: | E25 E12 O41 E22 E21 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34115&r=mac |
| By: | Todd A. Gormley; Simon Johnson; Changyong Rhee |
| Abstract: | Can a government credibly promise not to bailout firms whose failure would have major negative systemic consequences? Our analysis of Korea’s 1997-99 crisis, suggests an answer: No. Despite a general “no bailout” policy during the crisis, the largest Korean corporate groups (chaebol) – facing severe financial and governance problems – could still borrow heavily from households through issuing bonds at prices implying very low expected default risk. The evidence suggests “too big to fail” beliefs were not eliminated by government promises, presumably because investors believed that this policy was not time consistent. Subsequent government handling of potential and actual defaults by Daewoo and Hyundai confirmed the market view that creditors would be protected. |
| JEL: | E44 G18 G21 G3 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17518&r=mac |
| By: | Rosa Matilde Guerrero; Kurt S. Focke; Simón Cueva Armijos |
| Abstract: | El sistema financiero de Honduras sufrió el impacto de la crisis financiera de 2009 con un deterioro de los indicadores de calidad de activos y de rentabilidad, que posteriormente experimentaron una recuperación en 2010. En el último año se ha podido notar una preferencia de los agentes por la liquidez en el sistema, reflejando la volatilidad del mismo en relación con la crisis económica. Aunque estimaciones econométricas sugieren que las variaciones de la morosidad reflejan también las fluctuaciones en la actividad económica, las instituciones del sistema financiero hondureño tienen una sensibilidad diversa frente a la volatilidad macroeconómica. y el sistema mantiene índices de concentración relativamente elevados en cuanto a activos, cartera y depósitos. Por ello, es necesario fortalecer la supervisión bancaria y la Red de Seguridad Financiera, con un enfoque más preventivo y prácticas claramente orientadas al control de riesgos, para fortalecer la estabilidad del sistema financiero. |
| JEL: | E60 E66 G20 G21 G28 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:11958&r=mac |