|
on Macroeconomics |
|
Issue of 2011‒12‒13
fifty-four papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Auray, Stephane (Crest-Ensai, Universites Lille Nord de France (ULCO), France); de Blas, Beatriz (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.) |
| Abstract: | We simulate and estimate a new Keynesian search and matching model with sticky wages in which capital has to be financed with cash, at least partially. Our objective is to assess the ability of this framework to account for the persistence of output and inflation observed in the data. We find that our setup generates enough output and inflation persistence with standard stickiness parameters. The key factor driving these results is the inclusion of investment in the CIA constraint, rather than any other nominal or real rigidity. The model reproduces labor market dynamics after a positive increase in productivity: hours fall, nominal wages hardly react, and real wages go up. Regarding money supply shocks, we investigate the conditions under which our model specification generates the liquidity effect, a fact which is absent in most sticky price models. |
| Keywords: | persistence; sticky prices; staggered bargaining wages; monetary facts; labor market facts; cash-in-advance. |
| JEL: | E32 E41 E52 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:uam:wpaper:201110&r=mac |
| By: | Cristiano Cantore (University of Surrey); Paul Levine (University of Surrey); Giovanni Melina (University of Surrey) |
| Abstract: | We analyse the effects of a government spending expansion in a dynamic stochastic general equilibrium (DSGE) model with Mortensen-Pissarides labour market frictions, deep habits and a constant-elasticity-of-substitution (CES) production function. The combination of deep habits and CES technology is crucial. The presence of deep habits enables the model to deliver output and unemployment multipliers in the high range of recent empirical estimates, while an elasticity of substitution between capital and labour in the range of available estimates allows it to produce a scenario compatible with the observed jobless recovery. An accommodative monetary policy with respect to the output gap alongside sticky prices plays an important role for the stabilisation properties of the fiscal stimulus. |
| Keywords: | Fiscal policy; deep habits; labour market search-match frictions; unemployment; CES production function |
| JEL: | E24 E62 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:sur:surrec:1111&r=mac |
| By: | Muhammad Naveed Tahir (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France) |
| Abstract: | In this paper we investigate the impact of financial globalization on the behaviour of inflation targeting emerging market economies with respect to exchange rate – do central banks respond to exchange rate movements or not. We use quarterly data for six emerging market inflation targeting economies from the date of their inflation targeting adoption to 2009 Q4. The study uses small open economy new Keynesian model à la Gali and Monacelli (2005), and employs multi-equation GMM technique to investigate the relationship. We find that the response of central bank to the exchange rate in case of Brazil, Chile, Mexico and Thailand is statistically significant while insignificant for Korea and Czech Republic. Theoretically, it should not be so as even under flexible inflation targeting central bank responds to inflation deviation and output gap ; we think that the peculiar characteristics of emerging markets, like fear of floating, weak financial system and low level of central bank credibility make exchange rate important for these economies. |
| Keywords: | Inflation Targeting; Exchange Rate; Emerging Markets |
| JEL: | E52 F41 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1130&r=mac |
| By: | Muhammad Naveed Tahir (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure de Lyon) |
| Abstract: | In this paper we investigate the impact of financial globalization on the behaviour of inflation targeting emerging market economies with respect to exchange rate - do central banks respond to exchange rate movements or not. We use quarterly data for six emerging market inflation targeting economies from the date of their inflation targeting adoption to 2009 Q4. The study uses small open economy new Keynesian model à la Gali and Monacelli (2005), and employs multi-equation GMM technique to investigate the relationship. We find that the response of central bank to the exchange rate in case of Brazil, Chile, Mexico and Thailand is statistically significant while insignificant for Korea and Czech Republic. Theoretically, it should not be so as even under flexible inflation targeting central bank responds to inflation deviation and output gap; we think that the peculiar characteristics of emerging markets, like fear of floating, weak financial system and low level of central bank credibility make exchange rate important for these economies. |
| Keywords: | Inflation Targeting; Exchange Rate; Emerging Markets |
| Date: | 2011–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00646601&r=mac |
| By: | Cloyne, J.S. |
| Abstract: | This thesis analyses the macroeconomic effects of changes in fiscal policy. Chapter 1 provides an overview. Chapter 2 estimates the macroeconomic effects of tax changes in the United Kingdom. Identification is achieved by constructing an extensive new 'narrative' dataset of 'exogenous' tax changes in the post-war U.K. economy. Using this dataset I find that a 1 per cent cut in taxes increases GDP by 0.6 per cent on impact and by 2.5 per cent over three years. These findings are remarkably similar to narrative-based estimates for the United States. Furthermore, 'exogenous' tax changes are shown to have contributed to major episodes in the U.K. post-war business cycle. The long appendix contains the detailed historical narrative and dataset. Chapter 3 estimates the endogenous feedback from output, debt and government spending to fiscal instruments in the United States. The central innovation is to make direct use of narrative-measured tax shocks in a DSGE model estimated using Bayesian methods. I therefore assume the tax shocks are observable, rather than latent variables. I show that the feedback from debt to the fiscal instruments is weaker than previously estimated and that the capital tax multiplier is higher. Moreover, the data are more consistent with a model with endogenous feedback than one with an exogenous fiscal policy specification. Chapter 4 examines the transmission mechanism of government spending shocks by constructing and estimating a DSGE model for the United States. I show that the endogenous response of different taxes and the strength of wealth effect on labour supply play a powerful role. Given that there is little prior information on the strength of these mechanisms, I estimate the key parameters in the model. I show that this estimated model can match the empirical responses of key variables that are a challenge for many models of this type. |
| Date: | 2011–09–28 |
| URL: | http://d.repec.org/n?u=RePEc:ner:ucllon:http://discovery.ucl.ac.uk/1331876/&r=mac |
| By: | Gert Peersman (Ghent University, Sint-Pietersnieuwstraat 25, B-9000 Ghent, Belgium.) |
| Abstract: | I find that the Eurosystem can stimulate the economy beyond the policy rate by increasing the size of its balance sheet or the monetary base. The transmission mechanism turns out to be different compared to traditional interest rate innovations: (i) whilst the effects on economic activity and consumer prices reach a peak after about one year for an interest rate innovation, this is more than six months later for a shift in the monetary base that is orthogonal to the policy rate (ii) interest rate spreads charged by banks decline persistently after a rise in the monetary base, whereas the spreads increase significantly after a fall in the policy rate (iii) there is no significant short-run liquidity effect after an interest rate innovation, that is additional bank loans are generated by a greater credit multiplier. In contrast, the multiplier declines considerably after an expansion of the Eurosystem’s balance sheet. JEL Classification: C32, E30, E44, E51, E52. |
| Keywords: | Unconventional monetary policy, SVARs. |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20111397&r=mac |
| By: | Selva Demiralp (Koc University); Hakan Kara (Central Bank of Turkey Research and Monetary Policy Department); Pýnar Özlü (Central Bank of Turkey Research and Monetary Policy Department) |
| Abstract: | This paper assesses the effectiveness of monetary policy communication of the Central Bank of Turkey (CBT) by quantifying the information content of the policy statements released right after the monthly Monetary Policy Committee meetings. First, we quantify the signal regarding the next interest rate decision and ask whether CBT’s words match its deeds, i.e., whether communication improves predictability using the Autoregressive Conditional Hazard model. Our findings suggest that the role of statements in predicting the next policy move have strengthened following the adoption of full-fledged inflation targeting (IT) regime. Second, we identify the surprise component of policy communication directly from market commentaries and assess its impact on the term structure of interest rates. We find that the response of the yield curve to policy statements have become highly significant for the unanticipated changes in the monetary policy communication and the relative importance of communication in driving market yields has increased through time. |
| Keywords: | Central Bank Communication, Predictability, Transparency |
| JEL: | E52 E58 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1128&r=mac |
| By: | Monique Reid (Department of Economics, University of Stellenbosch); Stan du Plessis (Department of Economics, University of Stellenbosch) |
| Abstract: | Central bank communication is widely recognised as crucial to the implementation of monetary policy. This communication should enhance a central bank’s management of the inflation expectations of the financial markets as well as the general public – the latter being a part of the central bank’s audience that has received relatively little research attention. In this paper, the role of the media in transmitting the SARB’s communication to the general public is explored, with the aim of improving our understanding of its impact on the expectations channel of the monetary policy transmission mechanism. A deliberate evaluation of this channel could aid the design of future strategies to communicate with the general public. |
| Keywords: | South Africa, central bank communication, consistency, monetary policy transmission mechanism, transparent monetary policy |
| JEL: | E42 E52 E58 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:sza:wpaper:wpapers147&r=mac |
| By: | Vasiliki Bozani (University of Crete) |
| Abstract: | The purpose of this paper is to present the disadvantages from the use of NAIRU as the key instrument of monetary-policy making to restrain the upward tendency of unemployment. It argues that the development of NAIRU, the most widely known and used model in macroeconomic analysis, although has changed the whole structure of macroeconomic theory and policy significantly, its adoption is consistent with unemployment, instead of economic activity expansion. By setting at the center of analysis the persistently high levels of unemployment and questioning the NAIRU concept itself, this paper aims at signifying the incorrectness of the assumptions upon which NAIRU rests and determines employment policies, though are regarded as a priori given. |
| Keywords: | NAIRU, Unemployment, Capital, Capacity Utilization, Post Keynesian-Kaleckian economics |
| JEL: | E22 E24 E12 |
| Date: | 2011–12–02 |
| URL: | http://d.repec.org/n?u=RePEc:crt:wpaper:1105&r=mac |
| By: | Kuriyama, Akira |
| Abstract: | This study presents an equation of income derived from the Keynesian IS curve and the consumption Euler equation that explains the business cycle. Drawing on multi-period data from Japan, the model confirms the conventional wisdom that the appropriate policy response to an inflationary gap is to increase the interest rate when economic growth accelerates and decrease it when growth decelerates. However, the model indicates that to stabilize a deflationary gap, policymakers should decrease the interest rate when growth accelerates and increase it when growth decelerates. This prescription defies generations of conventional wisdom but fits the historical data remarkably well. |
| Keywords: | BusinessCycle;Partial Differential Equation;Japan;Monetary Policy |
| JEL: | E32 E52 C22 |
| Date: | 2011–03–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35166&r=mac |
| By: | Damian, Monica |
| Abstract: | The first part of the paper assesses the impact of asymmetric shocks on inflation in two new members states of the euro zone: Slovenia and Slovakia. The second part of the paper studies the issue of the inflationary process in Romania in the context of losing autonomous monetary policy after euro adoption. Minimizing the cost of losing monetary autonomy presupposes the fulfilment of the sustainable nominal and real convergence criteria. The unsynchronization of the business cycle indicates a higher probability of asymmetric shocks and thus lead to differences in inflation to the euro area, differences that will persist due to the inertial component. |
| Keywords: | rata inflației; politică monetară; șocuri asimetrice; zona euro |
| JEL: | E31 E52 |
| Date: | 2011–11–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35061&r=mac |
| By: | Jae Won Lee (Rutgers University) |
| Abstract: | This paper analyzes the role of heterogeneous households in propagating shocks over the business cycle by generalizing a basic sticky-price model to allow for imperfect risk-sharing between households that differ in labor incomes. I show that imperfectly insured household consumption distorts household incentive to supply labor hours through an idiosyncratic income effect, which in turn generates strategic complementarities in price setting and thus amplifies business cycle fluctuations. This mechanism diminishes the role of nominal rigidities and makes sticky-price models more consistent with microeconomic evidence on the frequency of price changes. |
| Keywords: | heterogeneous households, Phillips curve, Price stickiness, Strategic complementarities, Consumption insurance |
| JEL: | E13 E30 E44 |
| Date: | 2011–11–04 |
| URL: | http://d.repec.org/n?u=RePEc:rut:rutres:201132&r=mac |
| By: | Zhang, Tongbin; Hu, Bo |
| Abstract: | House prices crash has become an important feature of macroeconomic crisis. We argue that house prices crash driven by contractionary monetary policy is not only a reaction to crisis, but also accelerates and amplifies the fluctuations of major macroeconomic variable. In this paper, we conduct a case study of Hong Kong in the 1997-1998 financial crisis and quantitatively analyze the mechanism by developing a general equilibrium model incorporating financial accelerator mechanism into both household and entrepreneur sectors. After estimating and simulating the model, impulse response results imply that our model can explain the co-movement of house prices, consumption, and investment better than the alternative models. |
| Keywords: | house prices; fianncial accelerator; consumption; investment; Hong Kong |
| JEL: | E32 E44 E37 |
| Date: | 2011–11–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34962&r=mac |
| By: | Jeffrey A. Frankel; Carlos A. Végh; Guillermo Vuletin |
| Abstract: | In the past, industrial countries have tended to pursue countercyclical or, at worst, acyclical fiscal policy. In sharp contrast, emerging and developing countries have followed procyclical fiscal policy, thus exacerbating the underlying business cycle. We show that, over the last decade, about a third of the developing world has been able to escape the procyclicality trap and actually become countercyclical. We trace this critical shift in fiscal policy to the quality of institutions. We provide a formal analysis, which controls for the endogeneity of institutions and other determinants of fiscal procyclicality, that strongly suggests that there is a causal link running from stronger institutions to less procyclical or countercyclical fiscal policy. |
| JEL: | E62 F41 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17619&r=mac |
| By: | Norman R. Swanson (Rutgers University); Oleg Korenok (VCU); Stanislav Radchenko (Goldman Sachs) |
| Abstract: | We take an agnostic view of the Phillips curve debate, and carry out an empirical investigation of the relative and absolute efficacy of Calvo sticky price (SP), sticky information (SI), and sticky price with indexation models (SPI), with emphasis on their ability to mimic inflationary dynamics. We look at evidence for a group of 13 OECD countries, and consider three alternative measures of inflationary pressure, including the output gap, labor share, and unemployment. We find that the SPI model is preferable to the Calvo SP and the SI models because it captures the type of strong inflationary persistence that has in the past characterized the economies in our sample. However, two caveats to this conclusion are that improvement in performance is driven mostly by lagged inflation and that the SPI model overemphasizes inflationary persistence. There appears to be room for improvement in all models in order to induce them to better “track” inflation persistence. |
| Keywords: | sticky price , sticky information, empirical distribution,, model selection |
| JEL: | E12 E3 C32 |
| Date: | 2011–05–14 |
| URL: | http://d.repec.org/n?u=RePEc:rut:rutres:201104&r=mac |
| By: | Correa-López, Mónica (Economic Research Department, BBVA Research, and Department of Economics, School of Social Sciences, The University of Manchester.); de Blas, Beatriz (Departamento de Análisis Económico (Teoría e Historia Económica), Universidad Autónoma de Madrid.) |
| Abstract: | This paper documents stylized facts of international medium-term business cycles by exploring the pattern of comovement between a catching-up economy, Spain, and each of the obvious candidate countries to technological leadership of the 1950-2007 period, the U.S., France, Germany, Italy and the U.K. A remarkable feature of the international medium-term business cycle is the strong, positive lead displayed by the U.S. technology and terms of trade cycles over Spain's macroeconomic aggregates. The corresponding evidence when the counterpart to Spain is a large European economy is weaker, particularly in the case of Europe's medium-term technology cycles. Non-parametric tests results suggest that, over the medium-term cycle, a shift towards more economic integration may not necessarily be associated with increased international comovement. |
| Keywords: | Medium-term business cycles; Stylized facts; International comovement; Technology diffusion. |
| JEL: | E32 F41 F44 O3 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:uam:wpaper:201109&r=mac |
| By: | Alberto Botta (Department of Economics, University of Insubria, Italy) |
| Abstract: | In this paper, we propose a simple post-Keynesian model on the linkages between the financial and real side of an economy. We show how, according to the Minskyan instability hypothesis, financial variables, credit availability and asset prices in particular, may feedback each other and affect economic activity, possibly giving rise to intrinsically unstable economic processes. Through these destabilizing mechanisms, we also explain why governments intervention in the aftermath of the 2007 financial meltdown has been largely useless to restore financial tranquility and economic growth, but transformed a private debt crisis into a sovereign debt one. The paper ends up by looking at the long run and to the interaction between long-term growth potential and public debt sustainability. We explicitly consider the European economic context and the difficulties several EU members currently face to simultaneously support economic recovery and consolidate fiscal imbalances. We stress that: (i) financial turbulences may trigger permanent reductions in long-term growth potential and unsustainable public debt dynamics; (ii) strong institutional discontinuity such as EU financial assistance to member countries may prove to be the only way to restore growth and ensure long-run public debt sustainability. |
| Keywords: | post-Keynesian models, financial instability, debt sustainability, Eurobonds JEL Classification: E12, E44, H63 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:ins:quaeco:qf1114&r=mac |
| By: | Ferré Carracedo, Montserrat |
| Abstract: | The Stability and Growth Pact (SGP) was established to govern discretionary fiscal policy in the European Monetary Union. This article studies the effects created when there is uncertainty about the members’ commitment to respecting the established deficit limits in the SGP. We will show that, even if countries respect the SGP deficit ceiling, the presence of uncertainty about their compliance will bring about higher volatility in key economic variables, which could, in turn, affect unemployment and growth negatively. This finding shows that it is important to reduce uncertainty about the members’ commitment towards the SGP. Keywords: fiscal policy rules, monetary union, Stability and Growth Pact, uncertainty, commitment. JEL No.: E63, F55, H62, H87 |
| Keywords: | Política fiscal, Unió Monetària Europea, Estabilització econòmica, 339 - Comerç. Relacions econòmiques internacionals. Economia mundial. Màrqueting, |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:urv:wpaper:2072/169686&r=mac |
| By: | Cantore, C.; Ferroni, F.; León-Ledesma, M A. |
| Abstract: | We investigate the time varying relation between hours and technology shocks using a structural business cycle model. We propose an RBC model with a Constant Elasticity of Substitution (CES) production function that allows for capital- and labor-augmenting technology shocks. We estimate the model with Bayesian techniques. In the full sample, we find (i) evidence in favor of a less than unitary elasticity of substitution (rejecting Cobb-Douglas) and (ii) a sizable role for capital augmenting shock for business cycles fluctuations. In rolling sub-samples, we document that the transmission of technology shocks to hours worked has been varying over time. We argue that this change is due to the increase of the elasticity of factor substitution. That is, labor and capital became less complementary throughout the sample inducing a change in the sign and size of the response of hours. We conjecture that this change may have been induced by a change in the skill composition of the labor input. |
| Keywords: | Hours Worked and Business Cycles, Bayesian Methods. |
| JEL: | E32 E62 C11 C22 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:351&r=mac |
| By: | Le Bihan, H.; Matheron, J. |
| Abstract: | In this paper, using US as well as French sectoral data and indicators of price rigidity, we re-examine the (lack of) relation between price stickiness and inflation persistence. This has recently been put forward by Bils and Klenow (2004) as evidence against time-dependent price setting models. We obtain that, when filtering out sector-specific shocks along the lines of Boivin et al. (2009), and allowing for an alternative assumption on the marginal cost process, the case against the time-dependent Calvo model is substantially weakened. |
| Keywords: | Sticky prices, Heterogeneity, Inflation persistence. |
| JEL: | E31 E32 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:353&r=mac |
| By: | Keesookpuna, Chutipong; Mitomob, Hitoshi |
| Abstract: | The cloud computing model is a modern concept of computation that provides a number of benefits for its adopters. This online computing model has been widely used in the western world and accepted to have some business and economic impacts. This paper provides some basic knowledge about cloud computing along with its economic benefits. The author proposes that there is an endogenous relationship between the cloud computing and each of the business and economic variables, namely output, employment, and labour productivity. In order to forecast the impacts of the cloud computing adoption, the Vector Autoregressive (VAR) model is constructed. Thailand is selected as ground for investigation. Apart from the bi-directional causality, the results also show prospective positive impacts of the cloud computing adoption on the growth of output, employment, and labour productivity. Despite the macroeconomic benefits, some policy implications include the encouragement of the cloud computing adoption in universities and banks in order to realise the benefit of scalability and efficient usage of computing resources. -- |
| Keywords: | Cloud computing,Macroeconomic indicators,Forecast,Thailand |
| JEL: | E37 L86 O53 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:itse11:52181&r=mac |
| By: | Ingo Fender (Bank for International Settlements); Bernd Hayo (Philipps-University Marburg); Matthias Neuenkirch (Philipps-University Marburg) |
| Abstract: | In this paper, we study the effects of US target rate changes and related communications by members of the Federal Reserve Board of Governors on spreads for emerging market sovereign credit default swaps (CDS). Using GARCH models, we find that during the pre-financial crisis sub-sample (April 2002–July 2007) CDS spreads react more to country-specific factors than to US monetary policy news. This finding is reversed during the financial crisis sub-sample (August 2007–December 2009), when US monetary policy actions and communications affect CDS spreads in a notable way. Finally, our analysis suggests that CDS spreads became more prone to spillover effects during the financial crisis. |
| Keywords: | Credit default swaps, emerging markets, Federal Reserve communication, financial crisis, policy spillovers |
| JEL: | E52 G14 G15 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201139&r=mac |
| By: | Javier Andrés (University of Valencia, Spain); José Emilio Boscá (University of Valencia, Spain); Javier Ferri (University of Valencia, Spain) |
| Abstract: | We study the size of fiscal multipliers in response to a government spending shock under different household leverage conditions in a general equilibrium setting with search and matching frictions. We allow for different levels of household indebtedness by changing the intensive margin of borrowing (loan-to-value ratio), as well as the extensive margin, defined as the number of borrowers over total population. The interaction between the consumption decisions of agents with limited access to credit and the process of wage bargaining and vacancy posting delivers two main results: (a) higher initial leverage makes it more likely to find output multipliers higher than one; and (b) a positive government expenditure shock always produces a positive multiplier for vacancies and employment. The latter result is in sharp contrast with models in which some households do not have access to the financial market (RoT consumers), in which the implied labor market responses to fiscal shocks are inconsistent with the empirical evidence. We also find that the impact on GDP of consolidations is lower when consumers have a more limited capacity to borrow, and that increasing government spending in an episode of intense private deleveraging can still generate positive and significant effects on consumption and output, although the fiscal output (employment) multiplier decreases (increases) with the intensity of the credit crunch. In the model with indebted impatient households we also observe that output (employment) multipliers decrease (increase) markedly with the degree of shock persistence and increase with the degree of price stickiness. |
| Keywords: | fiscal multipliers, private leverage, labour market search |
| JEL: | E24 E44 E62 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:iei:wpaper:1103&r=mac |
| By: | Seth B. Carpenter (Division of Monetary Affairs Board of Governors of the Federal Reserve System); Selva Demiralp (Koc University) |
| Abstract: | We explore the effect of volatility in the federal funds market on the expectations hypothesis in money markets. We find that lower volatility in the bank funding markets market, all else equal, leads to a lower term premium and thus longer-term rates for a given setting of the overnight rate. The results appear to hold for the US as well as the Euro Area and the UK. The results have implications for the design of operational frameworks for the implementation of monetary policy and for the interpretation of the changes in the Libor-OIS spread during the financial crisis |
| Keywords: | Monetary transmission mechanism, expectations hypothesis, term premium |
| JEL: | E43 E52 E58 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1129&r=mac |
| By: | Ibrahim Ahmed Elbadawi; Raimundo Soto |
| Abstract: | The 1990s ushered the world not only into a democracy wave, following the collapse of the former Soviet Union, but also a wave of fiscal rules, where the number of countries adopting this fiscal regime steadily rose from only 10 in 1990 to reach 97 in 2009. Countries that depend on hydrocarbons tend to suffer from fiscal policies that are highly susceptible to energy price shocks. This provides incentives for implementing fiscal stabilization instruments in the form of “fiscal rules”. However, the resource-rich but largely democracy-deficit MENA region has been a fiscal rules-free region. Against this backdrop, this paper asks two fundamental questions: why has MENA chose not to adopt fiscal rules? And what role, if any, resources dependence and political institutions might have played in this outcome? We find that lack of democracy and weak systems of political checks and balances that characterize MENA countries appear to have outweighed the positive impacts of oil resources so that fiscal instability persists despite ample oil revenues. The nascent Arab 'democracy spring' might tip the scale in favor of the adoption of fiscal rules by emerging democratic governments in the region. However, stronger systems of political checks and balances are also needed and, unfortunately, not necessarily a certain outcome. A move toward inflation targeting regimes, as proposed for Tunisia and Egypt, might also provide additional impetus for adoption of fiscal rules as the evidence of Chile and other inflation targeters suggests. |
| Keywords: | Fiscal regimes, fiscal stabilization, discrete-choice panel-data models |
| JEL: | E61 E62 E63 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:ioe:doctra:398&r=mac |
| By: | Hans-Werner Sinn; Timo Wollmershaeuser |
| Abstract: | The European Monetary Union is stuck in a severe balance-of-payments imbalance of a nature similar to the one that destroyed the Bretton Woods System. Greece, Ireland, Portugal, Spain and Italy have suffered from balance-of-payments deficits whose accumulated value, as measured by the Target balances in the national central banks’ balance sheets, was 404 billion euros in August 2011. The national central banks of these countries covered the deficits by creating and lending out additional central bank money that flowed to the euro core countries, Germany in particular, and crowded out the central bank money resulting from local refinancing operations. Thus the ECB forced a public capital export from the core countries that partly compensated for the now reluctant private capital flows to, and the capital flight from, the periphery countries. |
| JEL: | E50 E58 E63 F32 F34 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17626&r=mac |
| By: | Abbassi, Puriya; Nautz, Dieter |
| Abstract: | The Eurosystem's main refinancing operations (MRO) are key for the interbank money market and the monetary transmission process in the euro area. This paper investigates how money market rates respond to the information revealed by various aspects of an MRO auction outcome. Our results confirm that the level of MRO rates governed short-term money market rates before the financial crisis. Since the start of the financial crisis, however, the information content of MRO rates has changed. While the levels of MRO rates have lost much of their pre-crisis significance, the spread between the weighted average and the marginal MRO rate has become an important barometer for the actual situation in the money market during the crisis. -- |
| Keywords: | monetary policy implementation,central bank auctions,European Central Bank,money markets and financial crisis |
| JEL: | E43 E52 E58 D44 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:201124&r=mac |
| By: | Matteo Iacoviello (Federal Reserve Board); Marina Pavan (Universitat Jaume I & LEE) |
| Abstract: | We study housing and debt in a quantitative general equilibrium model. In the cross-section, the model matches the wealth distribution, the age pro?les of homeownership and mortgage debt, and the frequency of housing adjustment. In the time-series, the model matches the procyclicality and volatility of housing investment, and the procyclicality of mortgage debt. We use the model to conduct two experiments. First, we investigate the consequences of higher individual income risk and lower downpayments, and ?nd that these two changes can explain, in the model and in the data, the reduced volatility of housing investment, the reduced procyclicality of mortgage debt, and a small fraction of the reduced volatility of GDP. Second, we use the model to look at the behavior of housing investment and mortgage debt in an experiment that mimics the Great Recession: we ?nd that countercyclical ?nancial conditions can account for large drops in housing activity and mortgage debt when the economy is hit by large negative shocks. |
| Keywords: | Housing, Housing Investment, Mortgage Debt, Life-cycle Models, Income Risk, Homeownership, Precautionary Savings, Borrowing Constraints |
| JEL: | E22 E32 E44 E51 D92 R21 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:jau:wpaper:2011/4&r=mac |
| By: | Hector Sala Lorda (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona) |
| Abstract: | In a Walrasian labor market, the labor income share is constant under the assumptions of a Cobb-Douglas production function and perfect competition. Given the observed decline of the labor share in recent decades, this paper relaxes these assumptions, proposes a time-series calculation of the aggregate price mark-up reflecting the degree of imperfect competition in the product market, and provides estimates of the elasticity of substitution under such product market imperfections. We focus on Spain and the U.S. and show that the elasticity of substitution is above one in Spain and below one in the U.S. We also show that the price markup drives the elasticity of substitution away from one, upwards in Spain, downwards in the U.S. These results are used to explain the declining path of the labor income share, common to both economies, and their contrasted patterns in terms of capital deepening. |
| Keywords: | Elasticity of substitution, Price markup, Factor shares, Capital deepening |
| JEL: | E22 E24 E25 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:uab:wprdea:wpdea1109&r=mac |
| By: | Martin S. Feldstein |
| Abstract: | The creation of the euro should now be recognized as an experiment that has led to the sovereign debt crisis in several countries, the fragile condition of major European banks, the high levels of unemployment, and the large trade deficits that now exist in most Eurozone countries. Although the European Central Bank managed the euro in a way that achieved a low rate of inflation, other countries both in Europe and elsewhere have also had a decade of low inflation without incurring the costs of a monetary union. The emergence of these problems just a dozen years after the start of the euro in 1999 was not an accident or the result of bureaucratic mismanagement but the inevitable consequence of imposing a single currency on a very heterogeneous group of countries, a heterogeneity that includes not only economic structures but also fiscal traditions and social attitudes. This paper reviews (1) the reasons for these economic problems, (2) the political origins of the European Monetary Union, (3) the current attempts to solve the sovereign debt problem, (4) the long-term problem of inter-country differences of productivity growth and competitiveness, (5) the special problems of Greece and Italy, (6) and the pros and cons of a Greek departure from the Eurozone. |
| JEL: | E0 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17617&r=mac |
| By: | AfDB |
| Date: | 2011–11–28 |
| URL: | http://d.repec.org/n?u=RePEc:adb:adbwps:359&r=mac |
| By: | David Haugh |
| Abstract: | Ireland’s banking crisis, one of the most severe in the OECD area, and the associated economic recession have taken a heavy toll on public finances. Large public deficits have accumulated since 2008 and net public debt, which had been eliminated, has soared once again. The rapid deterioration of the fiscal accounts, together with the government guarantee of banks’ liabilities, has led to Ireland losing the confidence of the sovereign bond market and requiring financial assistance from the international community. With one of the highest levels of gross public debt relative to GDP in the OECD, high bond spreads and weak nominal GDP growth, returning to a healthy fiscal position poses a significant challenge. A sustained effort will be needed to eliminate the budget deficit, regain the confidence of financial markets and to seek to increase trend growth through appropriate structural reforms. The economic adjustment programme supported by the IMF and the EU foresees a gradual consolidation of the public finances to stabilise and reduce the debt to GDP ratio and restore fiscal sustainability. The programme builds on significant progress that has already been made to contain the deterioration of fiscal accounts and the government plans to introduce further fiscal adjustment in 2012 and later years in line with the programme. The programme also foresees a strengthening of the fiscal framework, with large institutional changes intended to secure a path of fiscal sustainability in the medium-term. The consolidation effort is also underpinned by efforts to increase public sector efficiency, which provides a growth-friendly avenue for reducing the deficit in a durable way.<p> This Working Paper relates to the 2011 OECD Economic Survey of Ireland (www.oecd.org/eco/surveys/ireland).<P>Rétablir la viabilité budgétaire en Irlande<BR>La crise bancaire irlandaise, l’une des plus graves de la zone OCDE, et la récession qui l’a accompagnée ont lourdement pesé sur les finances publiques. Le pays connaît d’importants déficits depuis 2008 et la dette publique nette, qui avait été éliminée, est en forte résurgence. Á cause de la dégradation rapide des comptes budgétaires et de la garantie donnée par l’État aux engagements des banques, l’Irlande a perdu la confiance du marché des obligations souveraines et a dû recourir à l’aide de la communauté internationale. Sachant que le ratio dette brute/PIB est l’un des plus élevés de l’OCDE, que la prime sur les taux obligataires est importante et que la croissance du PIB nominal est faible, le retour à une situation budgétaire saine représente un sérieux défi. Un effort soutenu sera nécessaire pour résorber le déficit, regagner la confiance des marchés financiers et augmenter la croissance tendancielle par des réformes structurelles appropriées. Le programme d’ajustement économique soutenu par le FMI et l’UE prévoit un redressement graduel des finances publiques afin de stabiliser, puis de réduire, le ratio dette/PIB et de rétablir la viabilité budgétaire. Il s’appuie sur les progrès significatifs déjà réalisés, qui ont permis de contenir la dégradation des comptes budgétaires, et le gouvernement envisage de procéder en 2012 années suivants à un ajustement supplémentaire conforme au programme. Celui-ci prévoit aussi un renforcement du cadre de la gestion budgétaire comportant de grands changements institutionnels destinés à assurer la viabilité à moyen terme. L’effort de redressement bénéficie aussi des mesures prises pour rendre le secteur public plus efficace, ce qui est un moyen favorable à la croissance de réduire durablement le déficit. <p> Ce Document de travail se rapporte à l'Étude économique de l'OCDE de l’Irlande 2011 (www.oecd.org/eco/etudes/irlande). |
| Keywords: | public debt, fiscal policy, public sector efficiency, public expenditure, fiscal rules, fiscal consolidation, debt sustainability, potential output, Ireland, fiscal frameworks, fiscal council, contestability, performance indicators, public sector agencies, dette publique, politique fiscale, dépenses publiques, efficience du secteur public, Irlande, consolidation budgétaire, règles fiscales, viabilité de la dette, conseil fiscal, cadre fiscal, contestabilité, indicateurs de performance, organismes du secteur public, croissance de production potentielle |
| JEL: | E62 E65 H11 H50 H61 H62 H63 H68 |
| Date: | 2011–12–02 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:909-en&r=mac |
| By: | Carlos Carvalho (PUC-Rio); Jae Won Lee (Rutgers University) |
| Abstract: | We develop a multi-sector sticky-price DSGE model that can endogenously deliver differential responses of prices to aggregate and sectoral shocks. Input-output production linkages induce across-sector pricing complementarities that contribute to a slow response of prices to aggregate shocks. In turn, input-market segmentation at the sectoral level induces within-sector pricing substitutability, which helps the model deliver a fast response of prices to sector-specific shocks. We estimate the model using aggregate and sectoral price and quantity data for the U.S., and find that it accounts extremely well for a range of sectoral price facts. |
| Keywords: | heterogeneity, price stickiness, sectoral data, FAVAR, sectoral shocks |
| JEL: | E30 E31 E32 |
| Date: | 2011–11–04 |
| URL: | http://d.repec.org/n?u=RePEc:rut:rutres:201133&r=mac |
| By: | Caleiro, António |
| Abstract: | A retrospective analysis of the Portuguese business cycle synchronization with some business cycles of reference allows us to draw conclusions that support the vital need to invest in domestic production that, by its nature, being exportable and/or being substitute of imports. From this point of view, the increase in competitiveness that is required in the global model of development as a driver of productivity growth is also important given the gains associated with business cycle synchronization with the European business cycle obtained through the exports. This second aspect, less obvious but equally important for a sustained growth path, is the main focus of this paper. |
| Keywords: | Business Cycles; Synchronization Analysis; Portugal; Análise de Sincronização; Ciclos Económicos |
| JEL: | E02 E32 E61 |
| Date: | 2011–11–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34993&r=mac |
| By: | Triandafil, Cristina Maria (Romanian Academy, National Institute of Economic Research) |
| Abstract: | This study envisages analyzing the convergence criteria in the context of recent macroeconomic developments, focusing on their sustainability. In order to highlight the sustainability of convergence indicators, the paper includes an analysis of the initial dynamics, both in terms of nominal and real plan, highlighting the need for an integrated approach aiming to capture the junction between the two types of convergence processes. Subsequently, sustainability is revealed through the prism of critical aspects, and through the correlation between economic cycles in the European Union. Study findings and proposals tend to review the set of indicators related to the process of nominal convergence towards the integration of real dimension of this process in order to achieve a striking mix. |
| Keywords: | nominal and real convergence, convergence criteria, sustainability of convergence, economic cycles |
| JEL: | E20 E60 E61 E52 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:ror:wpince:111205&r=mac |
| By: | Mikhail Golosov; Maxim Troshkin; Aleh Tsyvinski |
| Abstract: | We study optimal labor and savings distortions in a lifecycle model with idiosyncratic shocks. We show a tight connection between its recursive formulation and a static Mirrlees model with two goods, which allows us to derive elasticity-based expressions for the dynamic optimal distortions. We derive a generalization of a savings distortion for non-separable preferences and show that, under certain conditions, the labor wedge tends to zero for sufficiently high skills. We estimate skill distributions using individual data on the U.S. taxes and labor incomes. Computed optimal distortions decrease for sufficiently high incomes and increase with age. |
| JEL: | E62 H21 H24 H31 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17642&r=mac |
| By: | Steven J. Davis; Till M. von Wachter |
| Abstract: | We develop new evidence on the cumulative earnings losses associated with job displacement, drawing on longitudinal Social Security records for U.S. workers from 1974 to 2008. In present value terms, men lose an average of 1.4 years of pre-displacement earnings if displaced in mass-layoff events that occur when the national unemployment rate is below 6 percent. They lose a staggering 2.8 years of pre-displacement earnings if displaced when the unemployment rate exceeds 8 percent. These results reflect discounting at a 5% annual rate over 20 years after displacement. We also document large cyclical movements in the incidence of job loss and job displacement and present evidence on how worker anxieties about job loss, wage cuts and job opportunities respond to contemporaneous economic conditions. Finally, we confront leading models of unemployment fluctuations with evidence on the present value earnings losses associated with job displacement. The model of Mortensen and Pissarides (1994) extended to include search on the job generates present value losses only one-fourth as large as observed losses. Moreover, present value losses in the model vary little with aggregate conditions at the time of displacement, unlike the pattern in the data. |
| JEL: | E24 J3 J6 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17638&r=mac |
| By: | Birmingham, Colin (Central Bank of Ireland); Conefrey, Thomas (Central Bank of Ireland) |
| Abstract: | This paper carries out an empirical analysis of the sensitivity of the Irish economy to an unanticipated external demand shock using a Bayesian VAR model which includes a number of Irish macroeconomic variables such as GDP, unemployment and wages. A 1% increase in US GDP growth leads to an increase in Irish GDP growth of 1.3% in the model. We also assess the relative importance of demand shocks in Ireland’s other key trading partners, the UK and the euro area. The Irish GDP response to shocks in our main trading partners is roughly proportional to our export shares to these regions. We feed the results of the VAR analysis into a mortgage delinquency model to derive the implication of changes in external demand on mortgage delinquency. The results suggest that a negative one standard deviation shock to US GDP growth leads to an increase of 1600 in the number of mortgages in arrears for at least 90 days. |
| Keywords: | Trade Shock, Bayesian VAR, Stress Testing |
| JEL: | F47 G21 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:10/rt/11&r=mac |
| By: | Liu, Luke |
| Abstract: | Prior to the Global Financial Crisis in 2008, securitization has been widely perceived as a way to disperse credit risks, and to enhance financial system’s capacity in dealing with defaults. This paper develops a model of securitization and financial stability in the form of amplification effects. This model has illustrated three different scenarios: A negative shock in the economy will lead to downturn of the economy and falling of the asset prices, deteriorating balance sheets and tightening financing conditions. However, if there is no shock or a positive shock, banks can improve its profitability significantly through securitization. While securitization decreases the probability of systemic crisis, banks tend to suffer more when the crisis happens as a result of over-borrowing and over-investing. This paper uses a three-period theoretical model to demonstrate the impact of securitization on the financial stability, and provides clear analytical guidelines for a new regulatory framework of securitization that account for systemic risk and systemic externalities. |
| Keywords: | Asset Price; Asset Securitization; Systemic Risk; Financial Stability |
| JEL: | E0 C02 G21 P34 |
| Date: | 2011–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35000&r=mac |
| By: | Fatih Guvenen |
| Abstract: | This article reviews macroeconomic models with heterogeneous households. A key question for the relevance of these models concerns the degree to which markets are complete. This is because the existence of complete markets imposes restrictions on (i) how much heterogeneity matters for aggregate phenomena and (ii) the types of cross-sectional distributions that can be obtained. The degree of market incompleteness, in turn, depends on two factors: (i) the richness of insurance opportunities provided by the economic environment and (ii) the nature and magnitude of idiosyncratic risks to be insured. First, I review a broad collection of empirical evidence---from econometric tests of “full insurance,” to quantitative and empirical analyses of the permanent income (“self insurance”) model that examine how it fits the facts about life cycle allocations, to studies that try to directly measure where economies place between these two benchmarks (“partial insurance”). The empirical evidence I survey reveals significant uncertainty in the profession regarding the magnitudes of idiosyncratic risks as well as whether or not these risks have increased since the 1970s. An important difficulty stems from the fact that inequality often arises from a mixture of idiosyncratic risk and fixed (or predictable) heterogeneity, making the two challenging to disentangle. I also discuss applications of incomplete markets models to trends in wealth, consumption, and earnings inequality both over the life cycle and over time, where this challenge is evident. Third, I discuss “approximate” aggregation---the finding that some incomplete markets models generate aggregate implications very similar to representative-agent models. What approximate aggregation does and does not imply is illustrated through several examples. Finally, I discuss some computational issues relevant for solving and calibrating such models and I provide a simple yet fully parallelizable global optimization algorithm that can be used to calibrate heterogeneous agent models. |
| JEL: | E1 E13 E21 E24 E32 E6 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17622&r=mac |
| By: | Bayoumi, Tamim; Bui, Trung |
| Abstract: | The financial crisis that struck the global economy in late 2008 had its origins in excesses in the US housing market. Its reverberations, however, were felt around the world and nowhere more keenly than in Western Europe. While North Atlantic trade links were in relative stasis, the North Atlantic furnished a uniquely close relationship across financial institutions, as a combination of dominant US financial markets, European competition policy, and differences in financial regulation made the European banking system heavily dependent on dollar wholesale funding. Empirical estimates and macroeconomic model simulations indicate that growth spillovers predominantly flow westwards across the North Atlantic. The bellwether nature of US financial markets creates uniquely large spillovers to the rest of the world even in normal times, and these spillovers are only enhanced if disruptions to bank wholesale funding markets are added -- as occurred during the recent global crisis. |
| Keywords: | economic crisis; financial deregulation; financial integration; North Atlantic economy |
| JEL: | E02 F34 N00 N10 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8688&r=mac |
| By: | Juan F. Jimeno (Banco de España); Carlos Thomas (Banco de España) |
| Abstract: | We compare labor market outcomes under firm-level and sector-level bargaining in a one-sector Mortensen-Pissarides economy with firm-specific productivity shocks. Our main theoretical results are twofold. First, unemployment is lower under firm-level bargaining Second, introducing efficient opting-out of sector-level agreements suffices to bring unemployment down to its level under decentralized bargaining. For an archetypical contintental European calibration, we find that the unemployment rate is about 5 percentage points lower under firm-level bargaining or efficient opting out than under sector-level bargaining. |
| Keywords: | Collective bargaining, firm-specific shocks, wage compression, unemployment |
| JEL: | E10 J64 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1131&r=mac |
| By: | Richard Herd; Sam Hill; Vincent Koen |
| Abstract: | Substantial fiscal consolidation was achieved under the aegis of the 2003 Fiscal Responsibility and Budget Management Act. While deficits widened anew in 2008 and 2009, against the backdrop of the global financial and economic crisis, efforts to reduce them have resumed since. To ensure continued progress, as well as stronger government finances in the longer term, the medium-term fiscal framework needs to be improved, notably by embedding the annual budget in a detailed three-year rolling programme. Expenditure needs to be controlled better, in particular as regards subsidies, which the central government has indeed been trying to rein in, though with difficulty in the face of rising world oil prices. Expenditure also needs to become more effective, in particular in the areas of health care, education and social assistance. On the revenue side, tax reforms have been tabled, both for direct taxes and for the complex and inefficient system of indirect taxes. Corporate income tax rates are being cut, though the headline rate remains high. Lower taxation for large special economic zones deserves to be maintained for some time. For the personal income tax, which only a fairly small proportion of the population pays, thresholds are set to be raised considerably. A goods and services tax is to be introduced, which should help reduce the segmentation of the national market for goods and services. Customs duties have been reduced on average but remain high for some categories of imports, implying scope for further reduction over time.<p>This Working Paper relates to the 2011 OECD Economic Survey of India (www.oecd.org/eco/surveys/india)<P>Perspectives et réformes budgétaires en Inde<BR>La loi de 2003 sur la responsabilité et la gestion budgétaires a permis d’avancer sur la voie de l’assainissement des finances publiques. Certes, le déficit s’est de nouveau aggravé en 2008-2009, du fait de la crise financière et économique mondiale, mais de nouvelles mesures ont été prises ensuite pour le réduire. Afin d’assurer la poursuite des progrès en ce domaine et de consolider la situation à plus longue échéance, il faut améliorer le cadre budgétaire à moyen terme, notamment en intégrant la loi de finances annuelle à un programme glissant, détaillé, étalé sur trois exercices. Il faut aussi mieux maîtriser les dépenses, en particulier les subventions, que l'administration centrale a d’ailleurs tenté de freiner, quoique non sans difficultés face à la montée des cours mondiaux du pétrole. Enfin, il est nécessaire de renforcer l'efficience des dépenses, surtout dans les domaines de la santé, de l’éducation et de l’aide sociale. En matière de recettes, des réformes ont été présentées ; elles portent à la fois sur la fiscalité directe et sur le système, complexe et inefficient, des impôts indirects. Les autorités sont en train d’alléger l'impôt sur les sociétés, bien que son taux nominal demeure élevé. Il convient de conserver pendant un certain temps les allégements en faveur des grandes zones économiques spéciales. S’agissant de l’impôt sur le revenu des personnes physiques, qui n'est acquitté que par une faible proportion de la population, les seuils d’imposition devraient être sensiblement relevés. Une taxe sur les biens et les services doit être mise en place, ce qui devrait réduire la segmentation du marché national. Les droits de douane ont été abaissés en moyenne, mais restent élevés pour certaines catégories d’importations, ce qui laisse des marges de réduction à l'avenir.<p>Ce Document de travail se rapporte à l'Etude économique de l'OCDE de l’Inde 2011 (www.oecd.org/eco/etudes/inde) |
| Keywords: | taxation, transfers, fiscal policy, tariffs, subsidies, India, poverty, debt, saving, fiscal institution, expenditure, government budgets, transferts, politique budgétaire, pauvreté, subventions, dette, dépenses, Inde, taxation, épargne, institution budgétaire, budgets des gouvernements, tarifs |
| JEL: | E60 E61 E62 E65 E66 E69 H2 H50 H51 H53 H54 H55 H6 H70 H71 H72 H74 H81 H83 I18 I32 I38 O23 O53 |
| Date: | 2011–12–02 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:911-en&r=mac |
| By: | Acharya, Viral V.; Rajan, Raghuram G |
| Abstract: | What determines the sustainability of sovereign debt? In this paper, we develop a model where myopic governments seek electoral popularity but can nevertheless commit credibly to service external debt. They do not default when they are poor because they would lose access to debt markets and be forced to reduce spending; they do not default when they become rich because of the adverse consequences to the domestic financial sector. Interestingly, the more myopic a government, the greater the advantage it sees in borrowing, and therefore the less likely it will be to default (in contrast to models where sovereigns repay because they are concerned about their long term reputation). More myopic governments are also likely to tax in a more distortionary way, and create more dependencies between the domestic financial sector and government debt that raise the costs of default. We use the model to explain recent experiences in sovereign debt markets. |
| Keywords: | ability to pay; political economy; sovereign default; willingness to pay |
| JEL: | E62 G2 H63 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8668&r=mac |
| By: | Yan, Isabel K.; Kumhof, Michael |
| Abstract: | Some emerging economies have recently experienced large government surpluses and accelerating foreign exchange reserve accumulation far in excess of what would be implied by the literature on optimal reserves. China in particular has repeatedly stressed that there may be an upper limit to how many reserves it is willing to hold. Using a dynamic general equilibrium model, we show that the credible expectation of such a limit would lead to a balance of payments anti-crisis, which is characterized by an economic boom, real appreciation, growing demand for domestic currency, and domestic inflation, in the period prior to the limit being reached. |
| Keywords: | Balance of payments anti-crises; foreign exchange reserves; foreign exchange intervention; inflation targeting; exchange rate targeting |
| JEL: | E58 E52 F41 E63 |
| Date: | 2011–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35231&r=mac |
| By: | Monfort, A.; Renne, J-P. |
| Abstract: | In this paper, we propose a model of the joint dynamics of euro-area sovereign yield curves. The arbitrage-free valuation framework involves five factors and two regimes, one of the latter being interpreted as a crisis regime. These common factors and regimes explain most of the fluctuations in euro-area yields and spreads. The regime-switching feature of the model turns out to be particularly relevant to capture the rise in volatility experienced by fixed-income markets over the last years. In our reduced-form set up, each country is characterized by a hazard rate, specified as some linear combinations of the factors and regimes. The hazard rates incorporate both liquidity and credit components, that we aim at disentangling. The estimation suggests that a substantial share of the changes in euro-area yield differentials is liquidity-driven. Our approach is consistent with the fact that sovereign default risk is not diversifiable, which gives rise to specific risk premia that are incorporated in spreads. Once liquidity-pricing effects and risk premia are filtered out of the spreads, we obtain estimates of the actual –or real-world– default probabilities. The latter turn out to be significantly lower than their risk-neutral counterparts. |
| Keywords: | default risk, liquidity risk, term structure of interest rates, regime-switching, euro-area spreads. |
| JEL: | E43 E44 E47 G12 G24 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:352&r=mac |
| By: | Alok Johri; Bidyut Kumar Talukdar |
| Abstract: | Many recent studies have argued that it is useful to introduce a third input into the neoclassical production technology which encapsulates the productivity enhancing knowledge created in the process of production. This input, often called organizational capital, has been shown to improve the predictions of dynamic general equilibrium models, especially at the business cycle frequency. In this paper, we study the impact of organizational capital on optimal capital taxation in the Ramsey tradition and find that the planner would choose to tax capital income in the presence of organizational capital even in environments where earlier models predicted zero taxes or even subsidies. |
| Keywords: | optimal taxation, Ramsey model, learning-by-doing, organizational capital |
| JEL: | E6 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:mcm:deptwp:2011-09&r=mac |
| By: | Eleonora Pierucci; Luigi Ventura |
| Abstract: | By means of panel and time series regression analyses, and by resorting to a variance decomposition due to Asdrubali et al. (1996) we show that income flows to and from abroad did not play, in general, a large risk sharing role for a pool of EU countries over the horizon 1976-2007. This is particularly true in a pre-globalization period, but remains true for some countries, even in the finance globalization era. We then extend the analysis to consider a measure of cash flow, instead of income, available for consumption, and observe that capital flows to and from abroad have played a largely destabilizing role, to an extent that one might have not expected beforehand. Key to this result is also the study of asymmetries in smoothing positive and negative shocks by the different possible channels. These findings seem to provide some useful insights onto the origin of the recent global financial crisis |
| Keywords: | Risk Sharing, Financial Globalization, Capital Flows |
| JEL: | E2 E6 F15 |
| Date: | 2011–01 |
| URL: | http://d.repec.org/n?u=RePEc:rtr:wpaper:0124&r=mac |
| By: | Jurgen von Hagen (University of Bonn, Indiana University and CEPR. Lennestrasse. 37, D-53113 Bonn, Germany.); Haiping Zhang (School of Economics, Singapore Management Unversity) |
| Abstract: | Recent literature has proposed two alternative types of financial frictions, i.e., limited commitment and incomplete markets, to explain the patterns of international capital flows between developed and developing countries observed in the past two decades. This paper integrates both types of frictions into a two-country overlapping-generations framework to facilitate a direct comparison of their eects. In our model, limited commitment distorts the investment made by agents with different productivity, which creates a wedge between the interest rates on equity capital vs. credit capital; while incomplete markets distort the investment among projects with different riskiness, which creates a wedge between the risk-free rate and the mean rate of return to risky capital. We show that the two approaches are observationally equivalent with respect to their implications for international capital flows, production eciency, and aggregate output. |
| Keywords: | financial development, financial frictions, foreign direct investment, incomplete markets, limited commitment, international capital flows |
| JEL: | E44 F41 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:siu:wpaper:17-2011&r=mac |
| By: | Liu, Jing; Cao, Shutao |
| Abstract: | This paper studies the industry productivity dynamics in China’s manufacturing sector from 1998 to 2007, and in particular, explores to what extent the privatization of state-owned enterprises (SOEs) contributes to the aggregate productivity growth. Our results show that, though non-SOEs on average are more productive than SOEs, the average productivity growth among SOEs is greater than the privately-owned firms. Industry concentration, taxation, and credit market all account for this difference in growth between SOEs and non-SOEs. In addition, industry productivity growth is mainly attributed to the growth of non-SOEs, entry of non-SOE firms, and the exit of SOEs. However, non-SOE firms that are transformed directly from SOEs make a small but negative contribution to industry productivity growth. |
| Keywords: | Productivity Growth, Industry Dynamics, Ownership Change, Reallocation |
| JEL: | E6 D24 O4 |
| Date: | 2011–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34584&r=mac |
| By: | Saltari, Enrico; Giuseppe, Travaglini |
| Abstract: | In this paper we show that financing constraints affect the optimal level of capital stock even when the financing constraint is ineffective. This happens when the firm rationally anticipates that access to external financing resources may be rationed in the future. We will show that with these expectations, the optimal investment policy is to invest less in any given period, thereby lowering the desired optimal capital stock in the long run. |
| Keywords: | Investment; capital stock; constraints; uncertainty |
| JEL: | E51 E22 E44 |
| Date: | 2011–11–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35094&r=mac |
| By: | Alessio Moro (University of Cagliari); Galo Nuño (Banco de España) |
| Abstract: | Housing prices diverge from construction prices after 1997 in four major countries. Besides, TFP differences between construction and the general economy account for the evolution of construction prices in the U.S. and Germany, but not in the U.K. and Spain. |
| Keywords: | Housing prices, TFP, growth accounting, Cobb-Douglas |
| JEL: | E01 E23 E25 E32 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1133&r=mac |
| By: | Sala, Hector (Universitat Autònoma de Barcelona); Silva, José I. (University of Girona) |
| Abstract: | In this paper we show that vocational training is an important determinant of productivity growth. We construct a multi-country, multi-sectoral dataset, and quantify empirically to what extent vocational training has contributed to increase the growth rate of labor productivity in Europe between 1999 and 2005. We find that one extra hour of training per employee accelerates the rate of productivity growth by around 0.55 percentage points. |
| Keywords: | continuous vocational training, labor productivity growth |
| JEL: | E22 J24 O41 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6171&r=mac |
| By: | von Kalckreuth, Ulf; Schmidt, Tobias; Stix, Helmut |
| Abstract: | Standard transaction cost arguments can only partially explain why the share of cash transactions is still high in many countries. This paper shows that consumers' desire to monitor liquidity is one of the reasons. Consumers make use of a distinctive feature of cash - a glance into one's pocket provides a signal for both the remaining budget as well as the level of past expenses. We propose a theoretical framework which incorporates this feature of cash, and derives implications not only for cash usage as such but also for a broader set of paymentrelated activities. Survey data from Germany on consumers' payment and withdrawal patterns are used to test these implications empirically. The data are consistent with all theoretical predictions: consumers who need to keep control over their remaining liquidity and who have elevated costs of information processing and storage will conduct a larger percentage of their payments using cash, hold fewer non-cash payment instruments, withdraw less often and hold larger cash balances than other consumers. Such consumers also use payment cards for some transactions; they switch to non-cash payment instruments only at higher transaction values than other consumers, however. Our model provides an explanation of why cash usage has declined only slowly in some countries despite broad diffusion of non-cash means of payment. -- |
| Keywords: | payment behavior,payment instruments,withdrawal behavior,payment cards,payment innovation,cash usage,currency demand,survey data |
| JEL: | E41 E58 D12 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:201122&r=mac |