nep-mac New Economics Papers
on Macroeconomics
Issue of 2011‒11‒01
43 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. How flexible can inflation targeting be and still work? By Kuttner, Kenneth; Posen, Adam
  2. Monetary Policy Transmission in Vector Autoregressions: A New Approach Using Central Bank Communication By Matthias Neuenkirch
  3. Trend inflation, the labor market wedge, and the non-vertical Phillips curve By Di Bartolomeo Giovanni; Tirelli Patrizio; Acocella Nicola
  4. Monetary Policy Implementation in the Eurozone – the Concept of Endogenous Money By Svatopluk Kapounek
  5. Inflation targets and endogenous wage markups in a New Keynesian model By Di Bartolomeo Giovanni; Tirelli Patrizio; Acocella Nicola
  6. Endogenous Monetary Policy: A Leviathan Central Bank in a Lagos-Wright Economy By Parag Waknis
  7. The Stock Market Crash of 2008 Caused the Great Recession: Theory and Evidence By Farmer, Roger E A
  8. The Financial Accelerator and the real economy. Self-reinforcing feedback loops in a core macro econometric model for Norway By Roger Hammersland and Cathrine Bolstad Træe
  9. Business Cycle Effects of Credit and Technology Shocks in a DSGE Model with Firm Defaults By Pesaran, Hashem; Xu, TengTeng
  10. Aggregate instability under balanced-budget consumption taxes: a re-examination By Carine Nourry; Thomas Seegmuller; Alain Venditti
  11. Business cycles By Peter Skott
  12. Land-price dynamics and macroeconomic fluctuations By Zheng Liu; Pengfei Wang; Tao Zha
  13. Quantity Rationing of Credit and the Phillips Curve By George A. Waters
  14. A Case for Interest Rate Inertia in Monetary Policy By Bask, Mikael
  15. Government Spending Cyclicality: Evidence from Rainfall Shocks as an Instrument for Cyclical Income By Brückner, Markus; Gradstein, Mark
  16. Costly Contracts and Consumer Credit By Igor Livshits; James MacGee; Michèle Tertilt
  17. The History of Macroeconomics from Keynes’s General Theory to the Present By Michel DE VROEY; Pierre MALGRANGE
  18. Quantity Rationing of Credit By George A. Waters
  19. Monetary Policy under Leviathan Currency Competition By Parag Waknis
  20. Household consumption through recent recessions By Thomas Crossley; Hamish Low; Cormac O'Dea
  21. The Impact of Labor Market Entry Condition on Initial Job Assignment, Human Capital Accumulation, and Wages By Beatrice Brunner; Andreas Kuhn
  22. Monitoring sub-central government spending in Spain By Laura Fernández-Caballero; Diego J. Pedregal; Javier J. Pérez
  23. What Do Participation Fluctuations Tell Us About Labor Supply Elasticities? By Haefke, Christian; Reiter, Michael
  24. The Leverage Cycle in Luxembourg?s Banking Sector By Gastón Andrés Giordana; Ingmar Schumacher
  25. Endogenous credit cycles By Chao Gu; Randall Wright
  26. The Japanese Financial Sector's Transition from High Growth to the‘Lost Decades':A Market Economy Perspective By Wataru Takahashi
  27. Sticky prices: a new monetarist approach By Allen Head; Lucy Qian Liu; Guido Menzio; Randall Wright
  28. Refining Macroeconomic Policies to Sustain Growth in Brazil By Annabelle Mourougane
  29. How Housing Slumps End By Agustin S. Benetrix; Barry Eichengreen; Kevin H. O'Rourke
  30. Housing and the Macroeconomy: The Role of Bailout Guarantees for Government Sponsored Enterprises By Jeske, Karsten; Krueger, Dirk; Mitman, Kurt
  31. Making the Case for a Low Intertemporal Elasticity of Substitution By R. Anton Braun; Tomoyuki Nakajima
  32. Housing and the Macroeconomy: The Role of Bailout Guarantees for Government Sponsored Enterprises By Karsten Jeske; Dirk Krueger; Kurt Mitman
  33. Welfare-improving Government Behaviour and Inequality - Inspection Using a Heterogeneous-agent Model By Miguel Viegas; Ana Paula Ribeiro
  34. évaluation macroéconomique et sectorielle de la fiscalité carbone en France . By Callonnec, Gaël; Reynès, Frédéric; Tamsamani, Yasser Yeddir
  35. Drivers of Systemic Banking Crises: The Role of Bank-Balance-Sheet Contagion and Financial Account Structure By Rudiger Ahrend; Antoine Goujard
  36. Heterodox macro after the crisis By Peter Skott
  37. Pension reform, employment by age and long-run growth By Tim BUYSE; Freddy HEYLEN; Renaat VAN DE KERCKHOVE
  38. Consumption Externalities and Equilibrium Dynamics with Heterogenous Agents By Kazuo Mino; Yasuhiro Nakamoto
  39. Doubling U.S. Exports under the President's National Export Initiative: Is it realistic? Is it desirable? By Peter B. Dixon; Maureen T. Rimmer
  40. Raising Investment in Brazil By Jens Arnold
  41. Identifying supply and demand in the Hungarian corporate loan market By Sándor Sóvágó
  42. Banking crises and recessions: what can leading indicators tell us? By Corder, Matthew; Weale, Martin
  43. The Global Economic Recession and Industrial Structure: Evidence from Four Asian Dragons By Hsieh, Wen-jen

  1. By: Kuttner, Kenneth (Monetary Policy Committee Unit, Bank of England); Posen, Adam (Monetary Policy Committee Unit, Bank of England)
    Abstract: This paper takes up the issue of the flexibility of inflation targeting regimes, with the specific goal of determining whether the monetary policy of the Bank of England, which has a formal inflation target, has been any less flexible than that of the Federal Reserve, which does not have such a target. The empirical analysis uses the speed of inflation forecast convergence, estimated from professional forecasters' predictions at successive forecast horizons, to gauge the perceived flexibility of the central bank's response to macroeconomic shocks. Based on this criterion, these is no evidence to suggest that the Bank of England's inflation target has compelled it to be more aggressive in pursuit of low inflation than the Federal Reserve.
    Keywords: Inflation targeting; inflation expectations; monetary policy
    JEL: E42 E58 E65
    Date: 2011–10–01
  2. By: Matthias Neuenkirch (University of Marburg)
    Abstract: In this paper, we study the role central bank communication plays in the monetary policy transmission mechanism. We employ the Swiss Economic Institute’s Monetary Policy Communicator to measure the future stance of the European Central Bank’s monetary policy. Our results indicate that, first, communication influences prices and output. Second, communication partly crowds out the effects of the short-term interest rate as the latter’s influence is lower and its implementation lag increases compared to a benchmark model without central bank communication. Future work on monetary policy transmission should incorporate both a short-term interest rate and a communication indicator.
    Keywords: Central Bank Communication, European Central Bank, Monetary Policy Shocks, Monetary Policy Transmission, Vector Autoregression
    JEL: E52 E58
    Date: 2011
  3. By: Di Bartolomeo Giovanni; Tirelli Patrizio; Acocella Nicola
    Abstract: Recent developments in macroeconomics resurrect the view that welfare costs of inflation arise because the latter acts as a tax on money balances. Empirical contributions show that wage re-negotiations take place while expiring contracts are still in place. Bringing these seemingly unrelated aspects together in a stylized general equilibrium model, we find a disciplining effect of a positive inflation target on the wage markup and identify a long-term trade-off between inflation and output. This has important policy implications, ranging from the opportunity of revising the target in response to shocks, to the possibility of exploiting inflation as a tool to increase tax revenues via its employment- enhancing effect.
    Keywords: trend inflation, long-run Phillips curve, inflation targeting, real money balances
    JEL: E52 E58 E24
    Date: 2011–10
  4. By: Svatopluk Kapounek (Department of Finance, FBE MENDELU in Brno)
    Abstract: The author focuses on the current problems of the common monetary policy implementation in the Eurozone in context of output stabilization function. The author focuses on the money demand function stability and its estimation. The stable money demand function ensures that the money supply would have predictable impact on the macroeconomic variables such as inflation and real economic growth. The instability is described by Poskeynesianś assumptions of money endogeneity. Although central banks may have certain control over the money supply, they cannot fix the stock of money in a country. According to the Postkeynesianś assumptions, the enterprises do not need ex ante stock of savings in order to carry out investment decisions. The causality is directed from economic activity to money demand. Interaction between the money demand and supply is arranged by multiplier effect of deposits.
    Keywords: monetary transmission mechanism, money endogeneity, European integration process, Post- Keynesian economics
    JEL: E5
    Date: 2011–10
  5. By: Di Bartolomeo Giovanni; Tirelli Patrizio; Acocella Nicola
    Abstract: Empirical contributions show that wage re-negotiations take place while expiring contracts are still in place. This is captured by assuming that nominal wages are pre-determined. As a consequence, wage setters act as Stackelberg leaders, whereas in the typical New Keynesian model the wage-setting rule implies that they play a Nash game. We present a DSGE New Keynesian model with pre-determined wages and money entering the representative household's utility function and show how these assumptions are sufficient to identify an inverse relationship between the inflation target and the wage markup (and thus employment) both in the short and the long run. This is due to the complementary effects that wage claims and the inflation target have on money holdings. Model estimates suggest that a moderate long-run inflation rate generates non-negligible output gains.
    Keywords: E52, E58, J51, E24
    Date: 2011–10
  6. By: Parag Waknis (University of Connecticut and University of Massachusetts Dartmouth)
    Abstract: This paper studies the nature of optimal monetary policy under a Leviathan monetary authority in a microfounded model of money based on ?. Such a monetary authority is a reality whenever and wherever fiscal policy is a primary driver of the monetary policy. Under no commitment, we characterize and solve for a Markov perfect equilibrium as well as for equilibrium with reputation concerns. For the Markov equilibrium, a generalized Euler equation is derived to characterize optimal policy that trades off the current benefit of increasing consumption against the reduced ability to do so in the future. Under reputation equilibrium, centralized market interaction is modeled as an infinitely repeated game of perfect monitoring, between a Leviathan monetary authority (a large player) and the economic agents (small players). Such a game has multiple equilibriums but the large-small player dynamics pins down the equilibrium set of payoffs and features less than maximum inflation tax. Depending on howwe interpret the Leviathan central bank, the factors determining the realized equilibrium differ. Higher fiscal profligacy of the underlying political authority leads to a higher monetary growth rate and inflation tax, while existence of threat of competition in case of a private money supplier or threat of external aggression in case of a self interested sovereign leads to a lower one. The realized equilibrium monetary growth rate and the associated inflation tax is thus, affected by the intensity of context contingent factors. Concentrating only on Markov strategies in this repeated game shows that the Markov perfect equilibrium features maximum inflation tax.
    Keywords: Endogenous monetary policy, Leviathan, central bank, inflation tax, money search
    JEL: E52 E61
    Date: 2011–10
  7. By: Farmer, Roger E A
    Abstract: This paper argues that the stock market crash of 2008, triggered by a collapse in house prices, caused the Great Recession. The paper has three parts. First, it provides evidence of a high correlation between the value of the stock market and the unemployment rate in U.S. data since 1929. Second, it compares a new model of the economy developed in recent papers and books by Farmer, with a classical model and with a textbook Keynesian approach. Third, it provides evidence that fiscal stimulus will not permanently restore full employment. In Farmer’s model, as in the Keynesian model, employment is demand determined. But aggregate demand depends on wealth, not on income.
    Keywords: stock market; unemployment
    JEL: E2 E3 E6
    Date: 2011–10
  8. By: Roger Hammersland and Cathrine Bolstad Træe (Statistics Norway)
    Abstract: This paper gives a brief description and studies the salient features of a core macro-econometric model that allows for self-reinforcing co-movements between credit, asset prices and real economic activity, often denominated a financial accelerator in the literature. In contrast to the economic literature that cultivates highly stylized model representations aimed at illustrating the working and the implications of such a feature, the model of this paper integrates no less than two mutually reinforcing financial accelerator mechanisms in a full-fledged core macroeconomic model framework. Noteworthy, the impulse response pattern overall of such a model turns out to be very much in line with the ones one would have expected using a SVAR/DSGE modelling framework, though the amplitude of shocks is in most cases stronger than the ones pertaining to these kind of models. This is due to the working of the financial accelerators that contribute to magnify the effects of shocks to the economy. Furthermore, a forecast comparison undertaken between our model and an alternative macro econometric model not furnished with a financial block, suggests that financial feedback mechanisms have got the potential of boosting the forecasting property of theory-informed macro econometric models. Hence, in addition to enhancing the practical relevance of a model by incorporating a mechanism of high real-world authenticity, financial accelerators seem to come with a couple of values added. Namely, to i) guarantee against a systematic underestimation of the effects of macroeconomic shocks and to ii) be forecast-promoting
    Keywords: The Financial Accelerator; Structural Vector Error Correction Modelling; Core Macroeconomic Modelling; Impulse response analysis
    JEL: E1 E32 E44
    Date: 2011–10
  9. By: Pesaran, Hashem (University of Cambridge); Xu, TengTeng (Bank of Canada)
    Abstract: This paper proposes a theoretical framework to analyze the impacts of credit and technology shocks on business cycle dynamics, where firms rely on banks and households for capital financing. Firms are identical ex ante but differ ex post due to different realizations of firm specific technology shocks, possible leading to default by some firms. The paper advances a new modelling approach for the analysis of financial intermediation and firm defaults that takes account of the financial implications of such defaults for both households and banks. Results from a calibrated version of the model highlight the role of financial institutions in the transmission of credit and technology shocks to the real economy. A positive credit shock, defined as a rise in the loan to deposit ratio, increases output, consumption, hours and productivity, and reduces the spread between loan and deposit rates. The effects of the credit shock tend to be highly persistent even without price rigidities and habit persistence in consumption behaviour.
    Keywords: bank credit, financial intermediation, firm heterogeneity and defaults, interest rate spread, real financial linkages
    JEL: E32 E44 G21
    Date: 2011–10
  10. By: Carine Nourry (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579); Thomas Seegmuller (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579); Alain Venditti (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579)
    Abstract: We re-examine the destabilizing role of balanced-budget fiscal policy rules based on consumption taxation. Using a one-sector model with infinitely-lived households, and assuming that preferences are of the Greenwood-Hercovitz-Huffman [8] (GHH) type, we show that non-linear consumption taxation may destabilize the economy, promoting expectation-driven fluctuations, if the tax rate is counter-cyclical. We also exhibit a Laffer curve, which explains the multiplicity of steady states when the tax rate is counter-cyclical. All these results are mainly driven by the absence of income effect. Finally, a numerical illustration shows that consumption taxation may be a source of instability for most OECD countries.
    Keywords: Indeterminacy; endogenous business cycles; consumption taxes; balanced-budget rule; infinite-horizon model
    Date: 2011–10–19
  11. By: Peter Skott (University of Massachusetts Amherst)
    Abstract: This note outlines and discusses some of the strands in the post-Keynesian literature on business cycles. Most post-Keynesians have focused on endogenously generated cycles, but the mechanism varies: some focus on the goods market, others on financial markets, the labor market, or political intervention. The merits of formal modeling of the cycles have also come in for debate. JEL Categories:
    Date: 2011–10
  12. By: Zheng Liu; Pengfei Wang; Tao Zha
    Abstract: We argue that positive co-movements between land prices and business investment are a driving force behind the broad impact of land-price dynamics on the macroeconomy. We develop an economic mechanism that captures the co-movements by incorporating two key features into a DSGE model: We introduce land as a collateral asset in firms’ credit constraints and we identify a shock that drives most of the observed fluctuations in land prices. Our estimates imply that these two features combine to generate an empirically important mechanism that amplifies and propagates macroeconomic fluctuations through the joint dynamics of land prices and business investment.
    Keywords: Real property
    Date: 2011
  13. By: George A. Waters (Department of Economics, Illinois State University)
    Abstract: Quantity rationing of credit, when some ?firms are denied loans, has macroeconomics effects not fully captured by measures of borrowing costs. This paper develops a monetary DSGE model with quantity rationing and derives a Phillips Curve relation where in?flation dynamics depend on cyclical unemployment, a risk premium and the fraction of fi?rms receiving ?financing. Unemployment arising from disruptions in credit ?flows is defi?ned to be cyclical. GMM estimates using data from a survey of bank managers con?firms the importance of these variables for in?flation dynamics.
    Keywords: Quantity Rationing, Phillips Curve, Cyclical Unemployment, GMM
    JEL: E24 E31 E51
    Date: 2011–10
  14. By: Bask, Mikael (Department of Economics)
    Abstract: We argue that it is not necessary for the central bank to react to the exchange rate to have a desirable outcome in the economy. Indeed, when the Taylor rule includes contemporaneous data on the variables in the rule, the central bank can disregard from the exchange rate as long as there is enough with interest rate inertia in monetary policy. The reason is that interest rate inertia and a reaction to the current nominal exchange rate change are perfect substitutes in monetary policy. Hence, we give a rationale for the central bank to focus on the interest rate change rather than the interest rate level to have a desirable outcome in the economy, which we define as a determinate rational expectation equilibrium that is stable under least squares learning.
    Keywords: Determinacy; Foreign Exchange; Interest Rate Inertia; Least Squares Learning; Monetary Policy; Taylor Rule
    JEL: E52 F31
    Date: 2011–10–19
  15. By: Brückner, Markus; Gradstein, Mark
    Abstract: This research revisits the cyclicality of fiscal policies. To identify and estimate more precisely the magnitude of a causal effect of cyclical income on government spending, we employ annual rainfall data as an instrument for national income in the context of sub-Saharan countries. Our results confirm procyclical behavior of government spending and of tax revenues; debt and deficit are found to be countercyclical. Specifically, government spending is procyclical during upturns and acyclical during downturns. We also find that its procyclicality is correlated with corruption, especially among democracies.
    Keywords: cyclicality; Fiscal policy
    JEL: E62
    Date: 2011–10
  16. By: Igor Livshits (University of Western Ontario); James MacGee (University of Western Ontario); Michèle Tertilt (University of Mannheim, Stanford University, NBER and CEPR)
    Abstract: Financial innovations are a common explanation of the rise in consumer credit and bankruptcies. To evaluate this story, we develop a simple model that incorporates two key frictions: asymmetric information about borrowers’ risk of default and a fixed cost to create each contract offered by lenders. Innovations which reduce the fixed cost or ameliorate asymmetric information have large extensive margin effects via the entry of new lending contracts targeted at riskier borrowers. This results in more defaults and borrowing, as well as increased dispersion of interest rates. Using the Survey of Consumer Finance and interest rate data collected by the Board of Governors, we find evidence supporting these predictions, as the dispersion of credit card interest rates nearly tripled, and the share of credit card debt of lower income households nearly doubled.
    Keywords: consumer credit; endogenous financial contracts; bankruptcy
    JEL: E21 E49 G18 K35
    Date: 2011
  17. By: Michel DE VROEY (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Pierre MALGRANGE (CEPREMAP, Paris)
    Abstract: This paper is a contribution to the forthcoming Edward Elgar Handbook of the History of Economic Analysis volume edited by Gilbert Faccarello and Heinz Kurz. Its aim is to introduce the reader to the main episodes that have marked the course of modern macroeconomics: its emergence after the publication of Keynes’s General Theory, the heydays of Keynesian macroeconomics based on the IS-LM model, disequilibrium and non-Walrasian equilibrium modelling, the invention of the natural rate of unemployment notion, the new classical attack against Keynesian macroeconomics, the first wave of new Keynesian models, real business cycle modelling and, finally, the second wage of new Keynesian models, i.e. DSGE models. A main thrust of the paper is the contrast we draw between Keynesian macroeconomics and stochastic dynamic general equilibrium macroeconomics. We hope that our paper will be useful for teachers of macroeconomics wishing to complement their technical material with a historical addendum.
    Keywords: Keynes, Lucas, IS-LM model, DSGE models
    JEL: B E E E
    Date: 2011–06–30
  18. By: George A. Waters (Department of Economics, Illinois State University)
    Abstract: Quantity rationing of credit, when ?firms are denied loans, has greater potential to explain macroeconomics ?fluctuations than borrowing costs. This paper develops a DSGE model with both types of financial frictions. A deterioration in credit market con?fidence leads to a temporary change in the interest rate, but a persistent change in the fraction of ?firms receiving ?financing, which leads to a persistent fall in real activity. Empirical evidence confi?rms that credit market con?fidence, measured by the survey of loan officers, is a signi?cant leading indicator for capacity utilization and output, while borrowing costs, measured by interest rate spreads, is not.
    Keywords: Quantity Rationing, Credit, VAR
    JEL: E10 E24 E44 E50
    Date: 2011–10
  19. By: Parag Waknis (University of Connecticut and University of Massachusetts Dartmouth)
    Abstract: In this paper, we use a dual currency Lagos-Wright model to explore the nature of optimal monetary policy under currency competition using different timing protocols. The central banks are utility maximizing players. To characterize equilibrium with reputation, we model the centralized market sub period of the Lagos-Wright economy as an infinitely repeated game between the two Leviathan central banks (long run players) and a continuum of competitive agents (short run players). Concentrating on Markov strategies in such a game shows that the Markov perfect equilibrium features highest inflation tax. However, allowing for reputation concerns improves the inflation outcome. Such a game typically features multiple equilibriums but the competition between the banks allows the use of renegotiation proof-ness as an equilibrium selection mechanism. Accordingly, equilibrium featuring the lowest inflation tax is weakly renegotiation proof, suggesting that better inflation outcome is more likely in the case of Leviathan currency competition than in the single Leviathan bank case.
    Keywords: Monetary policy, currency competition, Leviathan, inflation tax, money search
    JEL: E52 E61
    Date: 2011–10
  20. By: Thomas Crossley (Institute for Fiscal Studies and University of Cambridge); Hamish Low (Institute for Fiscal Studies and Trinity College, Cambridge); Cormac O'Dea (Institute for Fiscal Studies)
    Abstract: <p><p><p><p><p>This paper examines trends in household consumption and saving behaviour in each of the last three recessions in the UK. We identify several dimensions along which the most recent recession (the so-called 'Great Recession') has been different from those that occurred in the 1980s and 1990s. These include its depth and length as well as the composition of the cutbacks in expenditure - with a greater reliance on cuts to nondurable expenditure than was seen in previous recessions. We show that, both inside and outside recessions, the extent to which the growth in durable purchases is more volatile than growth in nondurable purchases has declined over the past 15 years. Finally, we present evidence that suggests that two aspects of fiscal policy in the UK in 2008 and 2009 - the temporary reduction in the rate of VAT and a car scrappage scheme - had some success in encouraging households to bring forward some durable purchases.</p></p></p></p></p>
    Date: 2011–10
  21. By: Beatrice Brunner; Andreas Kuhn
    Abstract: We estimate the effects of labor market entry conditions on wages for male individuals first entering the Austrian labor market between 1978 and 2000. We find a large negative effect of unfavorable entry conditions on starting wages as well as a sizeable negative long-run effect. Specifically, we estimate that a one percentage point increase in the initial local unemployment rate is associated with an approximate shortfall in lifetime earnings of 6.5%. We also show that bad entry conditions are associated with lower quality of a worker's first job and that initial wage shortfalls associated with bad entry conditions only partially evaporate upon involuntary job change. These and additional findings support the view that initial job assignment, in combination with accumulation of occupation or industry-specific human capital while on this first job, plays a key role in generating the observed wage persistencies.
    Keywords: initial labor market conditions, endogenous labor market entry, initial job assignment, specific human capital
    JEL: E3 J2 J3 J6 M5
    Date: 2010–12
  22. By: Laura Fernández-Caballero (Banco de España); Diego J. Pedregal (Universidad de Castilla-La Mancha); Javier J. Pérez (BANCO DE ESPAÑA)
    Abstract: The evolution of Regional and Local governments’ spending in Spain is currently under close scrutiny by national and international investors and analysts, international organizations and rating agencies. Indeed, some 50% of general government spending and some 70% of public employment are managed by Regions and Municipalities, which consequently have to bear a great portion of the overall fiscal consolidation plan currently under way. Despite recent efforts of the Spanish government at increasing transparency, the significant shortages of the existing data render the task of monitoring regional and local governments’ public spending in real-time a complicated endeavor. Within this framework, we exploit all available short-term information on sub-national governments’ spending from scattered sources, and find a subset of indicators usable for real-time policy analysis. In particular: (i) we compile a dataset on quarterly and monthly regional government’s spending variables, by reviewing all available, scattered sources, and put together a database usable for economic and policy analysis; (ii) we exploit the compiled information, and other additional sources, by fitting time-series mixed-frequencies models to the data, and show the forecasting and monitoring capabilities of the selected short-term fiscal indicators; (iii) we show that official annual budgetary targets do present a reasonable forecasting performance when used as indicators of regional and local spending targets in national accounts terms, in particular when used in combination with time series indicators.
    Keywords: Regional and local public finances; government expenditure; fiscal forecasting
    JEL: E17 E62 H68 H72
    Date: 2011–10
  23. By: Haefke, Christian (IHS - Institute for Advanced Studies, Vienna); Reiter, Michael (IHS - Institute for Advanced Studies, Vienna)
    Abstract: In this paper we use information on the cyclical variation of labor market participation to learn about the aggregate labor supply elasticity. For this purpose, we extend the standard labor market matching model to allow for endogenous participation. A model that is calibrated to replicate the variability of unemployment and participation, and the negative correlation of unemployment and GDP, implies an aggregate labor supply elasticity along the extensive margin of around 0.3 for men and 0.5 for women. This is in line with recent micro-econometric estimates.
    Keywords: matching models, labor market participation, labor supply elasticity
    JEL: E24 E32 J21 J64
    Date: 2011–10
  24. By: Gastón Andrés Giordana; Ingmar Schumacher
    Abstract: In this article we investigate the leverage cycle in Luxembourg?s banking sector using individual bank-level data for the period 2003 Q1 to 2010 Q1. We discuss the mechanics behind the leverage cycle in Luxembourg?s banks and show that these banks predominantly adjust leverage by changing both loans and deposits. One of our findings is that Luxembourg?s banks have a procyclical leverage. This procyclicality is not due to marking-to-market but because Luxembourg?s banks are liquidity providers to the EU banking sector. This also explains the different evolution of leverage compared to the US commercial banks (Adrian and Shin [1]) that, even though their balance sheet structure is similar to that of the Luxembourgish banks, target a constant leverage. To further understand what drives leverage in Luxembourg?s banks we empirically investigate the role of bank characteristics as well as real, financial and expectation variables that proxy for macroeconomic conditions in the pre-crisis and crisis period. We find that off-balance sheet exposures have different effects in the pre-crisis and crisis period, and that the share of liquid assets in the portfolio only affects the amount of security holdings. In terms of macroeconomic variables, we find that the Euribor-OIS spread is a significant driver of the build-up in leverage in the pre-crisis period. The reason is that most banks in Luxembourg are either branches or subsidiaries. This, firstly, makes leverage a less relevant indicator of riskiness for investors. Secondly, it implies that in times of liquidity shortages, mother companies or groups demand further liquidity from their branch or subsidiary. The downturn in leverage during the crisis can be accredited to reductions in expectations, which we proxy by an economic sentiment indicator. It can also be explained by increasing bond prices which induce depositors to shift their funds from bank deposits into bonds. We find no important role for GDP growth.
    Keywords: leverage dynamics, banking sector, GMM estimation, crisis effect
    JEL: E51 E52 E58 G21 G28
    Date: 2011–10
  25. 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.
    Date: 2011
  26. By: Wataru Takahashi (Research Institute for Economics and Business Administration, Kobe University)
    Abstract: This paper looks at Japan's experience in transforming its financial system. While the country is considered a model of successful Asian economic development, it has encountered many difficulties as introducing market economy. During the 1960s and 1970s, Japan experienced high economic growth, contributed by its regulated financial sector. Cooperation among the government, banks and corporations created a strong system, in which main banks played an important role. They supported companies and, sometimes, in addition to their role in the corporate governance of client enterprises, they also rescued troubled companies. In addition, banks extended loans to businesses in promising sectors, thereby assuming risks similar to those taken by venture capitalists. However, during the 1970s and 1980s, Japan's financial system, under pressure from the changing economic environment, was compelled to adjust. Economic growth led to changes in the money flow, as Japanese big business began to lose its appetite for borrowing. Instead, there developed circumvented financing outside the domestic market that, with the growing bond market and accumulation of other financial assets, led to financial liberalization.In the late 1980s, this liberalization resulted in a combination of loose monetary conditions after the Plaza Agreement, an economic boom, and the bursting of the asset bubble. Then, between 1991 and 2000, Japan experienced a “lost decade.†Now, in order to pull itself out of its economic malaise, Japan continues to focus on market orientation in a bid to achieve economic reform but, so far, this has been little benefit. One of the main challenges Japan still faces is developing a new set of institutional complementarities.
    Keywords: Institutional Complementarities, Network Capitalism, Personalized System
    JEL: E44 N15 O16
    Date: 2011–10
  27. 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.
    Date: 2011
  28. By: Annabelle Mourougane
    Abstract: This paper identifies refinements to the macroeconomic framework that will help Brazil to achieve strong performance in a new environment in which population will age at a rapid pace, heavy reliance on oil resources will increase public revenue volatility and uncertainties regarding the external environment are higher, possibly permanently. More specifically, the country needs to pursue fiscal consolidation and remove existing rigidities in the budget process. Over the medium term, moving to a headline budget target would ensure long-term sustainability of public (including social security) accounts, and introducing an expenditure ceiling and removing widespread revenue earmarking would help restrain expenditure. Adopting the proposals to simplify the tax system currently under discussion would improve the business environment, and the government should persevere in its effort to secure political support for them from the states. A pressing challenge is to adapt current transfer mechanisms to ensure regional and inter-generational equity in sharing oil revenues. The establishment of the social fund, which is designed to save part of the oil windfalls and whose investment returns will be allocated to social spending, could help these equity objectives to be reached, so long as it is well designed. The ongoing surge in capital inflows complicates the task of monetary policy and should be addressed through a range of policies, in which fiscal consolidation features prominently. Additional measures such as macro-prudential policies or a temporary tax on short-term capital inflows could also help to prevent the formation of asset price bubbles. This Working Paper relates to the 2011 OECD Economic Review of Brazil 2011 (<P>Ajuster les politiques macroéconomiques pour soutenir la croissance<BR>Ce papier identifie les changements du cadre macroéconomique qui aideront le Brésil à réaliser des performances robuste dans un nouvel environnement dans lequel la population va vieillir rapidement, une forte dépendance vis-à-vis des revenus pétroliers vont accroître la volatilité des revenus publics et les incertitudes sur l’environnement international seront plus fortes, peut-être de manière durable. Plus précisément, le pays doit poursuivre l'assainissement de ses finances publiques et supprimer les facteurs de rigidité qui caractérisent la procédure budgétaire. Sur le moyen terme, l'adoption d'une cible de solde budgétaire global garantirait la viabilité à long terme des comptes publics (sécurité sociale comprise), tandis qu'un plafonnement des dépenses faciliterait leur maîtrise. La mise en oeuvre des propositions de simplification de la fiscalité actuellement à l'étude améliorerait l'environnement des entreprises, et le gouvernement devrait poursuivre ses efforts afin d'emporter l'adhésion politique des États fédérés à ces propositions. Il est urgent d’adapter les mécanismes actuels de transfert afin d’assurer l’équité régionale et intergénérationnelle en matière de partage des recettes pétrolières. La mise en place d’un fonds social, visant à économiser une partie de la manne pétrolière et dont le retour sur investissement servira à financer les dépenses sociales, pourrait contribuer à réaliser ces objectifs d’équité, pour autant que ce mécanisme soit conçu de façon satisfaisante. L'envolée actuelle des entrées de capitaux complique la tâche aux autorités monétaires et ce problème devrait être traité par divers moyens, au premier rang desquels figure l'assainissement des finances publiques. Des initiatives complémentaires, telles que des mesures macroprudentielles ou une taxe temporaire sur les entrées de capitaux à court terme, pourraient également contribuer à empêcher la formation de bulles des prix des actifs. Ce document de travail se rapporte à l’Étude économique de l’OCDE du Brésil 2011 (
    Keywords: fiscal policy, monetary policy, Brazil, politique budgétaire, politique monétaire, Brésil
    JEL: E5 E6 F4
    Date: 2011–10–21
  29. By: Agustin S. Benetrix; Barry Eichengreen; Kevin H. O'Rourke
    Abstract: We construct a simple probit model of the determinants of real house price slump endings. We find that the probability of a house price slump ending is higher, the smaller was the pre-slump house price run-up; the greater has been the cumualtive house price decline; the lower are real mortgage interest rates; and the higher is GDP growth. Slumps are longer, other things being equal, where housing supply is more elastic, but shorter the more developed are financial institutions. For slumps of a given size, shorter sharper slumps are associated with worse macroeconomic performance in the short run, but with better performance in the long run. This suggests that for sufficiently low discount rates, policy makers should not impede the decline in real house prices, and this conclusion is reinforced by the finding that after a certain duration, house price slumps can become self-reinforcing. On the other hand, we also find evidence that during downturns, falling house prices can lead to lower private sector credit flows. Policy makers thus face a delicate balancing act. While they should not intervene to artifically prop up overvalued house prices, they should ensure that their macroeconomic and banking policies are such as to make a bottoming-out more likely. This suggests that they should keep real interest rates low, and ensure that banks are well-capitalised.
    Keywords: House prices, Slumps, Probit, VAR
    JEL: E32 C41 R30
    Date: 2011
  30. By: Jeske, Karsten; Krueger, Dirk; Mitman, Kurt
    Abstract: This paper evaluates the macroeconomic and distributional effects of government bailout guarantees for Government Sponsored Enterprises (such as Fannie Mae and Freddy Mac) in the mortgage market. In order to do so we construct a model with heterogeneous, infinitely lived households and competitive housing and mortgage markets. Households have the option to default on their mortgages, with the consequence of having their homes foreclosed. We model the bailout guarantee as a government provided and tax-financed mortgage interest rate subsidy. We find that eliminating this subsidy leads to substantially lower equilibrium mortgage origination and increases aggregate welfare, but has little effect on foreclosure rates and housing investment. The interest rate subsidy is a regressive policy: eliminating it benefits low-income and low-asset households who did not own homes or had small mortgages, while lowering the welfare of high-income, high-asset households.
    Keywords: Default Risk; Government-Sponsored Enterprises; Housing; Mortgage Market
    JEL: E21 G11 R21
    Date: 2011–10
  31. By: R. Anton Braun (Federal Reserve Bank of Atlanta); Tomoyuki Nakajima (Kyoto University)
    Abstract: We provide two ways to reconcile small values of the intertemporal elasticity of substitution (IES) that range between 0.35 and 0.5 with empirical evidence that the IES is large. This is done using a model in which all agents have identical preferences and the same access to asset markets. We also conduct an encompassing test. That test indicates that specifications of the model with small values of the IES are more plausible than specifications with a large IES.
    Keywords: Uncertainty; Intertemporal elasticity of substitution; Risk aversion; Business Cycles; Growth.
    JEL: E21 E32 O41
    Date: 2011–10
  32. By: Karsten Jeske (Mellon Capital Management Corporation, San Francisco, CA); Dirk Krueger (Department of Economics, University of Pennsylvania); Kurt Mitman (Department of Economics, University of Pennsylvania)
    Abstract: This paper evaluates the macroeconomic and distributional effects of government bailout guarantees for Government Sponsored Enterprises (such as Fannie Mae and Freddy Mac) in the mortgage market. In order to do so we construct a model with heterogeneous, infinitely lived households and competitive housing and mortgage markets. Households have the option to default on their mortgages, with the consequence of having their homes foreclosed. We model the bailout guarantee as a government provided and tax-financed mortgage interest rate subsidy. We find that eliminating this subsidy leads to substantially lower equilibrium mortgage origination and increases aggregate welfare, but has little effect on foreclosure rates and housing investment. The interest rate subsidy is a regressive policy: eliminating it benefits low-income and low-asset households who did not own homes or had small mortgages, while lowering the welfare of high-income, high-asset households.
    Keywords: Housing, Mortgage Market, Default Risk, Government-Sponsored Enterprises
    JEL: E21 G11 R21
    Date: 2011–10–12
  33. By: Miguel Viegas (GOVCOPP, DEGEI, Universidade de Aveiro); Ana Paula Ribeiro (Faculdade de Economia da Universidade do Porto and CEF.UP)
    Abstract: This paper aims at characterizing debt consolidation processes put forward by some European countries in order to assess welfare and, in particular, the inequality effects involved. For that we built a general equilibrium heterogeneous-agent model capable of exploring the relationship between fiscal policy variables and the endogenous crosssection distribution of income and wealth. Results show that, with the exception of the Belgian case, all consolidation strategies entail positive welfare gains. The transition costs affect all episodes and are determinant in sorting among the welfareenhancing strategies. Our results confirm the superiority of the adjustments based on unproductive expenditures over those based on tax increases or social transfer reductions. Finally, all strategies involve lower welfare inequality costs.
    Keywords: fiscal consolidation dynamics, European Union, heterogeneous agent model, inequality, welfare.
    JEL: E17 E60 H60 I30
    Date: 2011–10
  34. By: Callonnec, Gaël; Reynès, Frédéric (Centre de recherche en économie de Sciences Po); Tamsamani, Yasser Yeddir
    Abstract: Cet article évalue l’impact macroéconomique et sectoriel d’une taxe carbone en France en utilisant le modèle Three-ME qui combine deux caractéristiques importantes pour cette analyse. (1) Le modèle possède une structure sectorielle détaillée avec une fine description du système fiscal français, en particulier de la fiscalité appliquée à l’énergie. (2) Il a les principales propriétés des modèles d’inspiration néo-keynésienne car il tient compte de la lenteur des processus d’ajustement des prix et des quantités. Les modèles d’équilibre général d’inspiration walrasienne mettent souvent en évidence les conséquences à long terme d’une taxe carbone sur l’économie mais ils négligent les effets à court et moyen terme notamment sur l’emploi et sur la compétitivité des entreprises. Or l’acceptabilité des réformes environnementales dépend souvent de leurs répercussions sur la sphère économique et sociale à court terme. Ayant des propriétés néokeynésiennes, Three-ME permet de mesurer ces répercussions. Nos résultats confirment sous certaines conditions la possibilité d’un double dividende économique et environnemental autant à court terme qu’à long terme. L’amélioration de la situation économique dépend néanmoins des mesures d’accompagnement mises en oeuvre telles que les exonérations et les modalités de redistribution de la taxe. Il apparaît aussi que ces mesures d’accompagnement réduisent sensiblement l’ampleur du dividende environnemental.
    Keywords: taxe carbone, modèle macroéconomique néo-keynésien, analyse sectorielle.;
    Date: 2011
  35. By: Rudiger Ahrend; Antoine Goujard
    Abstract: This paper examines whether the composition of a country’s external liabilities and assets has an incidence on its risk of suffering financial turmoil. Particular emphasis is put on the role of international financial integration, using newly-constructed measures of contagion shocks. These new measures capture well the contagion observed e.g. in the wake of the Mexican and Asian crises, and confirm that contagion shocks observed in 2009/10 dwarfed those observed during previous financial crises.<p> Using a panel of 184 developed and emerging economies from 1970 to 2009, the empirical analysis finds that the structure of the financial account has an important influence on financial stability. A key result is that a bias in external liabilities towards debt strongly increases the risk of a systemic banking crisis. Moreover, certain forms of international financial integration are found to amplify contagion shocks and increase crisis risk, such as integration through international bank lending, and in particular through short-term bank debt.
    JEL: E44 F34 F36 G32
    Date: 2011–10–26
  36. By: Peter Skott (University of Massachusetts Amherst)
    Abstract: Macroeconomics is in crisis and this creates openings for alternative perspectives. The dominant heterodox traditions, however, have shortcomings that need to be addressed, both to improve our understanding of the real world and to take advantage of the opportunities offered by the irrelevance of most mainstream macro. This paper discusses three examples of areas that need attention: (i) investment functions (where popular specifications lack behavioral and empirical support), (ii) income distribution (where key developments have received little attention) and(iii) the relation between income inequality and financial markets (where extensions of existing models may help explain financial instability) JEL Categories: E12, E21, E22
    Keywords: investment, earnings inequality, financial instability
    Date: 2011–10
  37. By: Tim BUYSE (SHERPPA, Ghent University); Freddy HEYLEN (SHERPPA, Ghent University and UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Renaat VAN DE KERCKHOVE (SHERPPA, Ghent University)
    Abstract: We study the effects of pension reform in a four-period OLG model for an open economy where hours worked by three active generations, education of the young, the retirement decision of older workers, and aggregate per capita growth, are endogenous. Next to the characteristics of the pension system, our model assigns an important role to the composition of fiscal policy. We find that the model explains the facts remarkably well for many OECD countries. Our simulation results prefer an intelligent pay-as-you-go pension system above a fully-funded private system. When it comes to promoting employment, human capital, growth, and welfare, positive effects in a PAYG system are the strongest when it includes a tight link between individual labor income (and contributions) and the pension, and when it attaches a high weight to labor income earned as an older worker to compute the pension assessment base.
    Keywords: employment by age, endogenous growth, retirement, pension reform, overlapping generations
    JEL: E62 H55 J22 O41
    Date: 2011–06–30
  38. By: Kazuo Mino (Kyoto University); Yasuhiro Nakamoto (Kyusyu Sangyo University)
    Abstract: This paper explores the effect of consumption externalities on equilibrium dynamics of a standard neoclassical growth model in which there are two types of agents. To emphasize the presence of heterogenous agents, we distinguish intergroup consumption externalities from intragroup consumption externalities. We show that if there are intragroup consumption externalities alone, then the steady state equilibrium satisfies saddle-point stability and the equilibrium path of the economy is uniquely determined. In contrast, even if the intragroup consumption externalities do not exist, the intergroup external effects of consumption may yield either unstability or local indeterminacy of the steady-state equilibrium. In addition to analytical considerations, we show the relationship between the stability and the consumption externalities in numerical examples.
    Keywords: consumption externalities, heterogeneous agents, progressive taxation, equilibrium determinacy
    JEL: E52 O42
    Date: 2011–10
  39. By: Peter B. Dixon; Maureen T. Rimmer
    Abstract: President Obama's National Export Initiative is targeted at doubling U.S. exports between 2010 and 2015. We apply USAGE to quantify what the NEI would need to do to foreign import-demand curves and domestic export-supply curves to achieve this target. USAGE is a dynamic economy-wide model of the U.S. incorporating recession-relevant factor market specifications including excess capacity and wage/labor-demand elasticities that vary with the level of employment. In our central simulation, export-promotion policies compatible with the President's target reduce the cost of the current recession from about 70 million one-year jobs for the period 2008-2020 to 45 million jobs.
    Keywords: Export promotion National Export Initiative U S recession Factor-market specification Excess capacity
    JEL: E17 C68 E62 E65 F16
    Date: 2011–04
  40. By: Jens Arnold
    Abstract: Low investment rates are limiting Brazil’s future potential growth rate. This paper analyses a number of potential reasons for these low investment rates and discusses policy options to achieve faster capital accumulation. A shortage of domestic saving appears to be a major constraint to higher investment rates in Brazil. Due to high levels of current expenditures, in particular pension entitlements, public sector saving is negative. In addition to being costly, the pension system redistributes income to individuals with relatively low saving propensities, thereby reducing private saving as well. In order to control pension expenses in the future, this paper suggests a number of parametric pension system reforms. Beyond a scarcity of domestic savings, major curbs on investment include the high level of real interest rates, whose reasons are not easy to pin down, and thin long term credit markets, which are dominated by the national development bank BNDES. Going forward, engaging commercial lenders in the provision of long term funding will be necessary to cover the country’s investment needs. This will require leveling the playing field, which can only be achieved by removing BNDES’ exclusive access to low-cost funding from a workers’ welfare fund and through budget transfers. Another factor limiting investment is the fragmented tax system, which raises firms’ compliance costs and adds to an already high tax burden. Finally, regulatory reforms, including the removal of remaining entry restrictions as well as reductions in trade protection, may reduce firms’ costs and enhance investment incentives. This Working Paper relates to the 2011 OECD Economic Review of Brazil 2011 (<P>Accroître l'investissement au Brésil<BR>La faiblesse des taux d’investissement limite le futur taux de croissance potentielle du Brésil. Cet article analyse des possibles raisons pour cette faiblesse et propose des réformes qui pourraient accélérer l’accumulation de capital. Un déficit de l’épargne intérieure semble constituer un sérieux obstacle à une accélération des taux d’investissement au Brésil. L’épargne du secteur public est négative en raison de l’importance des dépenses, notamment au titre des droits à retraite. Outre son caractère onéreux, le système de retraite redistribue des revenus à ceux qui sont relativement peu enclins à épargner, et entame ainsi l’épargne privée. Pour pouvoir maîtriser demain les dépenses de retraite, cet article propose une série de réformes des paramètres du système des retraites. Parmi les principaux freins à l’investissement figurent le niveau élevé des taux d’intérêt réels, qui ne s’explique pas aisément, et l’atrophie des marchés du crédit à long terme, dans lesquels la banque nationale de développement, la BNDES, joue un rôle dominant. Dans l’avenir, il faudra inciter les organismes de crédit privés à procurer des financements sur le long terme pour financer les besoins du pays en investissement. Ceci impliquera un besoin d’établir des règles du jeu équitables, en éliminant l’accès privilégié de la BNDES à des financements nettement moins onéreux que ceux des banques par le biais du fonds d’aide aux salariés et grâce à des transfers du gouvernement. De plus, l’investissement est limité par la fragmentation du système fiscal, qui alourdit le coût de la discipline pour les entreprises et accentue une pression fiscale déjà forte. Enfin, l’adoption de mesures visant à réformer la réglementation, et notamment la suppression des restrictions à l’entrée sur le marché qui persistent, ainsi que l’assouplissement de la protection douanière, pourrait diminuer les coûts supportés par les entreprises et renforcer les incitations à l’investissement. Ce document de travail se rapporte à l’Étude économique de l’OCDE du Brésil 2011 (
    Keywords: taxation, financial markets, investment, pensions, Brazil, saving, directed credit, BNDES, marchés financiers, investissement, impôt, retraites, Brésil, épargne, crédit administré, BNDES
    JEL: E21 E22 G21 G28 H20 H55 O16
    Date: 2011–10–21
  41. By: Sándor Sóvágó (Magyar Nemzeti Bank (central bank of Hungary))
    Abstract: During the recent crisis bank lending to the non-financial corporate sector declined substantially in Hungary and this slump proceeds in the aftermath of the recession as well. However it is not evident whether it is a result of the slow recovery of the real economy (the lack of credit demand), or it is caused by the balance sheet adjustment of financial intermediaries, that is tight credit supply is prevalent. In this paper we identify supply and demand in the corporate loan market in Hungary and decompose the developments of lending to supply and demand factors. Doing this a simultaneous econometric model is estimated on a panel dataset, which covers the major banks in the industry. The model takes into account the results of the Bank Lending Survey of MNB, which provides some information about lending standards and banks’ willingness to lend. Our results suggest that tight supply conditions have played an important role in the decline of lending, especially after the outbreak of the crisis. At the same time, demand has been contracted as well during the recession, although it has started to recover in 2010. At the end of 2010 we may conclude that the decline in supply and demand accounted for the drop in corporate lending in a ratio of around 2/3-1/3, respectively.
    Keywords: corporate lending, credit supply, bank lending survey
    JEL: E44
    Date: 2011
  42. By: Corder, Matthew (Monetary Policy Committee Unit, Bank of England); Weale, Martin (Monetary Policy Committee Unit, Bank of England)
    Abstract: It is widely suggested that there is some relationship between banking crises and recessions. We assess whether there is evidence for interdependency between recessions and banking crises using both non-parametric tests and unconditional bivariate probit models and find strong evidence for interdependence. We then consider whether leading indicators can help predict banking crises and recessions and if these variables can explain the previously obvserved interdependence. Inclusion of exogenous variables means that the observed interdependence between banking crises and recessions disappears - indicating that the observed interdependence is a result of easily observable common causes rather than unobserved links.
    Keywords: Crises; recessions; interdependency; bivariate probit analysis
    JEL: E37 G21
    Date: 2011–09–01
  43. By: Hsieh, Wen-jen (Asian Development Bank Institute)
    Abstract: The collapse of exports that has attended the current global economic recession threatens the export-led economic growth of the four Asian dragons. To better understand the economic performances and future prospects of the four dragons, this paper first examines the economic structural changes that have taken place in Hong Kong, China; the Republic of Korea; Singapore; and Taipei,China, as well as the gradual shifting of the sources of economic growth away from the manufacturing sector and toward the service sector. Following this, a panel data set for the four dragons for the period 1995–2008 is constructed and a fixed-effects model applied to the data.
    Keywords: global economic recession; asian dragons; new service development; industrial structure
    JEL: E60 F01 O12
    Date: 2011–10–25

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