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on Macroeconomics |
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Issue of 2012‒01‒03
87 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Martin Menner (Universidad de Alicante) |
| Abstract: | A periodic "Gesell Tax" on money holdings as a way to overcome the zero-lower-bound on nominal interest rates is studied in a framework where money is essential. For this purpose, I characterize the efficiency properties of taxing money in a full-fledged macroeconomic business cycle model of the third-generation of monetary search models. Both, inflation and "Gesell taxes" maximize steady state capital stock, output, consumption, investment and welfare at moderate levels. The Friedman rule is sub-optimal, unless accompanied by a moderate “Gesell tax”. In a recession scenario a Gesell tax speeds up the recovery in a similar way as a large fiscal stimulus but avoids "crowding out" of private consumption and investment. |
| Keywords: | monetary search-theory, negative interest rates, Gesell tax, capital formation, DSGE model |
| JEL: | D83 E19 E32 E49 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:ivi:wpasad:2011-26&r=mac |
| By: | Junsang Lee; Keisuke Otsu |
| Abstract: | In this paper, we construct a dynamic stochastic general equilibrium model in order to investigate the impact of credit spread shocks on the U.S. business cycle. We find that the shocks to the investment specific technology and the preference weights on consumption and leisure are the main sources of output fluctuation. Shocks to the credit spread and productivity are the main source of the fluctuation in the investment to output ratio. Credit spread shocks also had a significant impact on the output during the recent financial crisis. |
| Keywords: | Credit Spread; Business Cycles; Investment Specific Technology |
| JEL: | E13 E32 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1123&r=mac |
| By: | Scheffknecht, Lukas; Geiger, Felix |
| Abstract: | We merge a financial market model with leverage-constrained, heterogeneous agents with a reduced-form version of the New-Keynesian standard model. Agents in both submodels are assumed to be boundedly rational. The fi nancial market model produces endogenously arising boom-bust cycles. It is also capable to generate highly non-linear deleveraging processes, fi re sales and ultimately a default scenario. Asset price booms are triggered via self-fulfilling prophecies. Asset price busts are induced by agents' choice of an increasingly fragile balance sheet structure during good times. Their vulnerability is inevitably revealed by small, randomly occurring shocks. Our transmission channel of financial market activity to the real sector embraces a recent strand of literature shedding light on the link between the active balance sheet management of financial market participants, the induced procyclical fluctuations of desired risk compensations and their final impact on the real economy. We show that a systematic central bank reaction on financial market developments dampens macroeconomic volatility considerably. Furthermore, restricting leverage in a countercyclical fashion limits the magnitude of financial cycles and hence their impact on the real economy. -- |
| Keywords: | behavioral economics,New-Keynesian macroeconomics,monetary policy,agent-based financial market model,leverage,macroprudential regulation,financial stability,asset price bubbles,systemic risk |
| JEL: | E31 E41 E47 E52 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fziddp:372011&r=mac |
| By: | Christopher Ragan (McGill University) |
| Abstract: | Sticking with the status quo was only one option under debate among monetary experts in the lead-up to renewal of the Bank of Canada’s inflation-targeting mandate, which was announced this week. Several other routes were available. Two of them – namely, targeting nominal GDP or targeting full employment – were arguably non-starters. Two other approaches, however, held more promise: (i) moving to a price-level targeting regime, or (ii) sticking with inflation targeting but with a lower, say 1 percent, target. Nevertheless, the renewal of the status quo keeps in place a coherent monetary policy regime that has served Canadians well. |
| Keywords: | Monetary Policy, Canada, Bank of Canada, inflation targeting |
| JEL: | E4 E52 E58 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:cdh:ebrief:125&r=mac |
| By: | Eric M. Leeper; Todd B. Walker |
| Abstract: | The Great Recession and worldwide financial crisis have exploded fiscal imbalances and brought fiscal policy and inflation to the forefront of policy concerns. Those concerns will only grow as aging populations increase demands on government expenditures in coming decades. It is widely perceived that fiscal policy is inflationary if and only if it leads the central bank to print new currency to monetize deficits. Monetization can be inflationary. But it is a misperception that this is the only channel for fiscal inflations. Nominal bonds, the predominant form of government debt in advanced economies, derive their value from expected future nominal primary surpluses and money creation; changes in the price level can align the market value of debt to its expected real backing. This introduces a fresh channel, not requiring monetization, through which fiscal deficits directly affect inflation. The paper begins by pointing out similarities and differences between the Weimar Republic after World War I and the United States today. It describes various ways in which fiscal policy can directly affect inflation and explains why these fiscal effects are difficult to detect in time series data. |
| Keywords: | monetary-fiscal interactions; fiscal theory; monetization |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:364&r=mac |
| By: | Daniel Sámano |
| Abstract: | The global financial crisis of late 2008 could not have provided more convincing evidence that price stability is not a sufficient condition for financial stability. In order to attain both, central banks must develop macroprudential instruments in order to prevent the occurrence of systemic risk episodes. For this reason testing the effectiveness of different macroprudential tools and their interaction with monetary policy is crucial. In this paper we explore whether two policy instruments, namely, a capital adequacy ratio rule in combination with a Taylor rule may provide a better macroeconomic outcome than a Taylor rule alone. We conduct our analysis by appending a macroeconometric financial block to an otherwise standard semistructural small open economy neokeynesian model for policy analysis estimated for the Mexican economy. Our results show that with the inclusion of the second instrument, the central bank may obtain substantial gains. Specifically, the central authority can isolate financial shocks and dampen their effects over macroeconomic variables. |
| Keywords: | Macroprudential policy, monetary policy, capital requirements. |
| JEL: | E44 E52 E61 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2011-17&r=mac |
| By: | Gbaguidi, David Sedo |
| Abstract: | The main topic of this paper is to challenge the rational nature of the agents' expectations and the structural effectiveness of the behaviorally micro-based New Keynesian Phillips Curve (NKPC). Building on previous results, we model this trade-off between the U.S inflation rate and a Unit Labor Cost-based measure of the real activity through a Markov Switching Intercept and Heteroscedastic - Vectorial AutoRegressive (MSIH-VAR) specification. This specification allows the adequate capture of the rationality in the agents' expectations process. It underlies a finite number of expected inflation rate regimes, which highlight the agents' adaptive beliefs on the achievements of these regimes. Moreover, the results confirm the structural stability of the NKPC over the inflation rate regimes as its deep parameters seem to be unaffected by the regimes switching. |
| Keywords: | Inflation; New Keynesian Phillips Curve; Regime Switching |
| JEL: | E0 C32 E31 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35481&r=mac |
| By: | Ian Christensen; Césaire Meh; Kevin Moran |
| Abstract: | This paper assesses the merits of countercyclical bank balance sheet regulation for the stabilization of financial and economic cycles and examines its interaction with monetary policy. The framework used is a dynamic stochastic general equilibrium model with banks and bank capital, in which bank capital solves an asymmetric information problem between banks and their creditors. In this economy, the lending decisions of individual banks affect the riskiness of the whole banking sector, though banks do not internalize this impact. Regulation, in the form of a constraint on bank leverage, can mitigate the impact of this externality by inducing banks to alter the intensity of their monitoring efforts. We find that countercyclical bank leverage regulation can have desirable stabilization properties, particularly when financial shocks are an important source of economic fluctuations. However, the appropriate contribution of countercyclical capital requirements to stabilization after a technology shock depends on the size of the externality and on the conduct of the monetary authority. |
| Keywords: | Monetary policy framework; Transmission of monetary policy; Financial institutions; Financial system regulation and policies; Economic models |
| JEL: | E44 E52 G21 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:11-32&r=mac |
| By: | Olivier Blanchard (International Monetary Fund, MIT, NBER); Marianna Riggi (Bank of Italy) |
| Abstract: | In the 1970s, large increases in the price of oil were associated with sharp decreases in output and large increases in inflation. In the 2000s, even larger increases in the price of oil were associated with much milder movements in output and inflation. Using a structural VAR approach, Blanchard and Gali (2009) argued that this reflected a change in the causal relation from the price of oil to output and inflation. They then argued that this change could be due to a combination of three factors, namely, a smaller share of oil in production and consumption, lower real wage rigidity and better monetary policy. Their argument, based on simulations of a simple new-Keynesian model, was informal. Our purpose in this paper is to take the next step, and to estimate the explanatory power and contribution of each of these factors. To do so, we use a minimum distance estimator that minimizes, over the set of structural parameters and for each of two samples (pre- and post-1984), the distance between the empirical SVAR-based impulse response functions and those implied by a new-Keynesian model. Our empirical results point to an important role for all three factors. |
| Keywords: | oil prices, wage rigidities, monetary policy credibility. |
| JEL: | E20 E32 E52 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_835_11&r=mac |
| By: | Thorsten Drautzburg (University of Chicago - Department of Economics); Harald Uhlig (University of Chicago - Department of Economics) |
| Abstract: | We quantify the fiscal multipliers in response to the American Recovery and Reinvestment Act (ARRA) of 2009. We extend the benchmark Smets-Wouters (2007) New Keynesian model, allowing for credit-constrained households, the zero lower bound, government capital and distortionary taxation. The posterior yields modestly positive short-run multipliers around 0.52 and modestly negative long-run multipliers around -0.42. The multiplier is sensitive to the fraction of transfers given to credit-constrained households, the duration of the zero lower bound and the capital. The stimulus results in negative welfare effects for unconstrained agents. The constrained agents gain, if they discount the future substantially. |
| Keywords: | Fiscal Stimulus; New Keynesian model; liquidity trap; zero lower bound; fiscal multiplier |
| JEL: | E62 E63 E65 H20 H62 |
| Date: | 2011–05 |
| URL: | http://d.repec.org/n?u=RePEc:bfi:wpaper:2011-005&r=mac |
| By: | Yahong Zhang |
| Abstract: | What are the effects of financial market imperfections on unemployment and vacancies in Canada? The author estimates the model of Zhang (2011) – a standard monetary dynamic stochastic general-equilibrium model augmented with explicit financial and labour market frictions – with Canadian data for the period 1984Q2–2010Q4, and uses it to examine the importance of financial shocks on labour market fluctuations in Canada. She finds that the estimated value of the elasticity of external finance, the key parameter capturing financial frictions, is much higher than the value suggested in the literature. This gives rise to a larger amplification effect from the financial accelerator mechanism, which helps the model generate a more volatile labour market. The author finds that the model accounts well for the cyclical behaviour of unemployment and vacancies observed in the data. She also finds that financial shocks are one of the main sources of fluctuations in the Canadian labour market. Overall, financial shocks contribute about 30 per cent of the fluctuations in unemployment and vacancies for the Canadian economy. |
| Keywords: | Economic models, Financial markets, Labour markets |
| JEL: | E32 E44 J6 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:11-10&r=mac |
| By: | Aliyu, Shehu Usman Rano |
| Abstract: | This paper seeks to assess the reactions of Nigeria’s stock market to monetary policy innovations during the period of global financial crisis on the basis of monthly data over the period January, 2007 to August, 2011. In particular, stock market return was regressed against major monetary policy instruments; money stock (M1, and M2) and monetary policy rate (MPR). The theoretical basis for the paper stems from the works of new classical macroeconomics, rational expectation hypothesis. Lucas (1972) postulates that the unanticipated and not anticipated monetary shock influences real economic activity. Using the GARCH by developed Engle and Bollerslev (1986) and EGARCH by Nelson (1991) methodologies, the paper empirically assessed the impact monetary policy innovations exerts on stock returns in the Nigeria’s Stock Exchange (NSE) market during the period of the crisis. Results from the empirical analysis revealed that the unaticipated component of policy innovations on M2 and MPR exerts distabilizing effect on NSE’s returns, whereas the anticipated component does not. This lends support to the REH argument for the Nigerian stock market. The pqper strongly recommends realistic and timely policy pronouncements by the MPC to achieve stability in the market. |
| Keywords: | Monetary Policy; GARCH; EGARCH; Rational Expectation Hypothesis |
| JEL: | E52 E44 G01 |
| Date: | 2011–11–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35581&r=mac |
| By: | Ian Christensen; Césaire Meh; Kevin Moran |
| Abstract: | This paper assesses the merits of countercyclical bank balance sheet regulation for the stabilization of financial and economic cycles and examines its interaction with monetary policy. The framework used is a dynamic stochastic general equilibrium modelwith banks and bank capital, in which bank capital solves an asymmetric information problem between banks and their creditors. In this economy, the lending decisions of individual banks affect the riskiness of the whole banking sector, though banks do not internalize this impact. Regulation, in the form of a constraint on bank leverage, can mitigate the impact of this externality by inducing banks to alter the intensity of their monitoring efforts. We find that countercyclical bank leverage regulation can have desirable stabilization properties, particularly when financial shocks are an important source of economic fluctuations. However, the appropriate contribution of countercyclical capital requirements to stabilization after a technology shock depends on the size of the externality and on the conduct of the monetary authority. <P> |
| Keywords: | Moral hazard, bank capital, countercyclical capital requirements, leverage, monetary policy, |
| JEL: | E44 E52 G21 |
| Date: | 2011–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2011s-76&r=mac |
| By: | Peter Sinclair |
| Abstract: | This paper poses, and then attempts to answer, eleven questions about the principles and practice of inflation targeting under contemporary conditions |
| Keywords: | inflation targeting |
| JEL: | E52 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:bir:birmec:11-23&r=mac |
| By: | Ansgar Belke (Department of Economics, University of Duisburg-Essen, Germany); Niklas Potrafke (Department of Economics, University of Konstanz, Germany) |
| Abstract: | This paper examines whether government ideology has influenced monetary policy in OECD countries. We use quarterly data in the 1980.1-2005.4 period and exclude EMU countries. Our Taylor-rule specification focuses on the interactions of a new time-variant index of central bank independence with government ideology. The results show that leftist governments have somewhat lower short-term nominal interest rates than rightwing governments when central bank independence is low. In contrast, short-term nominal interest rates are higher under leftist governments when central bank independence is high. The effect is more pronounced when exchange rates are flexible. Our findings are compatible with the view that leftist governments, in an attempt to deflect blame of their traditional constituencies, have pushed market-oriented policies by delegating monetary policy to conservative central bankers. |
| Keywords: | monetary policy, Taylor rule, government ideology, partisan politics, central bank independence, panel data |
| JEL: | E52 E58 D72 C23 |
| Date: | 2011–12–21 |
| URL: | http://d.repec.org/n?u=RePEc:knz:dpteco:1148&r=mac |
| By: | Jarko, Fidrmuc; Iikka, Korhonen; Ivana, Bátorová |
| Abstract: | We analyze globalization and business cycles in China and selected OECD countries using dynamic correlation analysis. We show that dynamic correlations of business cycles of OECD countries and China are negative at business-cycle frequencies and positive for short-run developments. Furthermore, trade and financial flows of OECD countries and China reduce the degree of business cycle synchronization within the OECD area, especially at business-cycle frequencies. Thus, different degrees of participation in globalization can explain the differences between the business cycles of OECD countries. |
| Keywords: | Globalization, business cycles, synchronization, trade, FDI, dynamic correlation |
| JEL: | E32 F15 F41 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hitcei:2011-9&r=mac |
| By: | Carolina Arteaga cabrales; Joan Camilo Granados Castro; Jair Ojeda Joya |
| Abstract: | In this paper we study the effect of monetary policy shocks on commodity prices. While most of the literature has found that expansionary shocks have a positive effect on aggregate price indices, we study the effect on individual prices of a sample of four commodities. This set of commodity prices is essential to understand the dynamics of the balance of payments in Colombia. The analysis is based on structural VAR models, we identify monetary policy shocks following [Kim, 1999, 2003] upon quarterly data for commodity prices and their fundamentals for the period 1980q1 to 2010q3. Our results show that commodity prices overshoot their long run equilibrium in response to a contractionary shock in the US monetary policy and, in contrast with literature, the response of the individual prices considered is stronger than what has been found in aggregate indices. Additionally, it is found that the monetary policy explains a substantial share of the fluctuations in prices. |
| Date: | 2011–12–22 |
| URL: | http://d.repec.org/n?u=RePEc:col:000094:009199&r=mac |
| By: | Ansgar Belke; Niklas Potrafke |
| Abstract: | This paper examines whether government ideology has influenced monetary policy in OECD countries. We use quarterly data in the 1980.1-2005.4 period and exclude EMU countries. Our Taylor-rule specification focuses on the interactions of a new time-variant index of central bank independence with government ideology. The results show that leftist governments have somewhat lower short-term nominal interest rates than rightwing governments when central bank independence is low. In contrast, short-term nominal interest rates are higher under leftist governments when central bank independence is high. The effect is more pronounced when exchange rates are flexible. Our findings are compatible with the view that leftist governments, in an attempt to deflect blame of their traditional constituencies, have pushed market-oriented policies by delegating monetary policy to conservative central bankers. |
| Keywords: | Monetary policy, Taylor rule, government ideology, partisan politics, central bank independence, panel data |
| JEL: | E52 E58 D72 C23 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1180&r=mac |
| By: | Gortz, Christoph; John, Tsoukalas |
| Abstract: | Business cycles in the U.S. and G-7 economies are asymmetric: recoveries and expansions tend to be long and gradual and busts tend to be short and sharp. Moreover, this type of asymmetry appears more pronounced in the last two cyclical episodes in the G-7. A large body of work views the last two cyclical U.S. episodes, namely, the``new economy" boom in the late 1990s, and the 2000s housing boom-bust as episodes where over-optimistic beliefs have played a significant role. These episodes have revived interest in expectations driven business cycles models. However, previous work in this area has not addressed the important asymmetry feature of business cycles. This paper takes a step towards addressing this limitation of expectations driven business cycle models. We propose a generalization of the Greenwood et al. (1988) model with vintage capital and learning about capital embodied productivity and show it can deliver fluctuations that are asymmetric as in the U.S. data. Learning, calibrated to match the procyclical forecast precision from the Survey of Professional Forecasters, is crucial for the model's ability to generate asymmetries. Forecast errors generated by the model are shown to: (a) amplify fluctuations, and (b) trigger recessions that mimic in magnitude, duration and depth the typical post WW II U.S. recession. |
| Keywords: | News shocks; expectations; growth asymmetry; Bayesian learning; business cycles |
| JEL: | E2 D83 E3 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35438&r=mac |
| By: | Hideaki Hirata; Keisuke Otsu |
| Abstract: | In this paper, we construct a two-country business cycle accounting model in order to investigate quantitatively the relationship between Japan and the Asian Tigers. Our model is based on Backus, Kehoe and Kydland (1994) in which each economy produces tradable intermediate goods that are aggregated to form final goods within each economy. We apply the business cycle accounting method of Chari, Kehoe and McGrattan (2007) and find that the main source of high frequency fluctuation in output in each economy is the fluctuation of production efficiency within its own economy. Furthermore, the growth in the Asian Tigers'production efficiency had a significant positive effect on Japanese economic growth over the 1980-2009 period through the endogenous terms of trade effect. |
| Keywords: | International Business Cycles; Business Cycle Accounting; Terms of trade; Productivity |
| JEL: | E13 E32 F41 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1120&r=mac |
| By: | Francesco Giavazzi; Alberto Giovannini |
| Abstract: | Financial systems are inherently fragile because of the very function which makes them valuable: liquidity transformation. Thus regulatory reforms, as urgent and desirable as they are, will definitely strengthen the financial system and decrease the risk of liquidity crises, but they will never eliminate it. This leaves monetary policy with a very important task. In a framework that recognizes the interactions between monetary policy and liquidity transformation 'optimal' monetary policy would consist of a modified Taylor rule in which the real rate reflects the possibility of liquidity crises and recognizes the possibility that liquidity transformation gets ubsidized. Failure to recognize this point risks leading the economy into a low interest rate trap: low interest rates induce too much risk taking and increase the probability of crises. These crises, in turn, require low interest rates to maintain the ?nancial system alive. Raising rates becomes extremely difficult in a severely weakened financial system, so monetary authorities remain stuck in a low interest rates trap. This seems a reasonable description of the situation we have experienced throughout the past decade. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:igi:igierp:425&r=mac |
| By: | Han Chen; Vasco Cúrdia; Andrea Ferrero |
| Abstract: | The effects of asset purchase programs on macroeconomic variables are likely to be moderate. We reach this conclusion after simulating the impact of the Federal Reserve’s second large-scale asset purchase program (LSAP II) in a DSGE model enriched with a preferred habitat framework and estimated on U.S. data. Our simulations suggest that such a program increases GDP growth by less than half a percentage point, although the effect on the level of GDP is very persistent. The program’s marginal contribution to inflation is very small. One key reason for our findings is that we estimate a small degree of financial market segmentation. If we enrich the set of observables with a measure of long-term debt, the semi-elasticity of the risk premium to the amount of debt in private-sector hands is substantially smaller than that reported in the recent empirical literature. In this case, our baseline estimates of the effects of LSAP II on the macroeconomy decrease by at least a factor of two. Throughout the analysis, a commitment to an extended period at the zero lower bound for nominal interest rates increases the effects of asset purchase programs on GDP growth and inflation. |
| Keywords: | Macroeconomics ; Gross domestic product ; Federal Reserve System ; Inflation (Finance) ; Debt ; Stochastic analysis |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:527&r=mac |
| By: | Kai Christoffel (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Ivan Jaccard (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Juha Kilponen (Bank of Finland, Rauhankatu 19, FI-00101 Helsinki, Finland and European Financial Stability Facility.) |
| Abstract: | We introduce a specification of habit formation featuring non-separability between consumption and leisure into an otherwise standard New Keynesian model. The model can be estimated with standard Bayesian techniques and the bond pricing implications are evaluated using higher-order approximations. The model is able to reproduce a sizeable risk premium on long-term bonds and the cyclicality of fiscal policy has an impact on the bond premium that is quantitatively important. Technology, government spending, and mark-up shocks are the main drivers of the time-variation in bond premia. JEL Classification: E5, E6, G1. |
| Keywords: | DSGE models, fiscal policy, bond risk premium, monetary policy. |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20111411&r=mac |
| By: | Nikolaos Antonakakis; Gabriele Tondl |
| Abstract: | This paper examines whether European integration, manifesting itself in increased trade and FDI linkages, new specializations and economic policy coordination, contributed to the synchronization of business cycles in the enlarged EU. We estimate the effects on bilateral growth rate correlations in 1995-2008 in a simultaneous equations model which permits to model endogenous relationships and unveil direct and indirect effects. Trade and FDI prove to have a strong impact on synchronization, specifically between incumbent and new EU members. More coordinated fiscal policies and, particularly in EU 15, the alignment of monetary policies promoted synchronization. Nevertheless, flexible exchange rates remained important adjustment instruments for the new member states. Increasing manufacturing specialization is not counteracting synchronization. The achieved EU income convergence, a declared objective of EU policy, supported business cycle synchronization. |
| Keywords: | Business cycles, transmission channel, FDI, trade, monetary union, EU |
| JEL: | E30 E52 E62 F15 F42 F44 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:wsr:wpaper:y:2011:i:075&r=mac |
| By: | Alan K. Detmeister |
| Abstract: | This paper examines a number of alternative PCE price inflation measures including overall PCE inflation, PCE inflation excluding food and energy, trimmed mean PCE inflation, component-smoothed inflation, variance-weighted inflation, inflation with weights based on disaggregated regressions, and survey measures of inflation expectations. When averaging across a handful of specifications based on the primary uses of a core inflation measure three conclusions arise: 1. Inflation rates for nearly all the measures best track ex-post trend inflation or predict future overall inflation when they are averaged over a considerable number of months. Overall PCE price inflation should be averaged over 18 months or longer. A shorter averaging period is appropriate for core measures, often on the order of 12 months. 2. Even after appropriately averaging each index, core inflation indexes generally perform better than overall inflation. 3. Exclusion indexes, such as PCE excluding food and energy, perform slightly worse than many other possible core inflation measures; trimmed mean PCE, or a variance-weighted index, may be better choice for a summary inflation measure. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2011-56&r=mac |
| By: | Luis Felipe Céspedes; Andrés Velasco |
| Abstract: | According to standard economic theory, fiscal policy should be countercyclical. In the neoclassical smoothing model of Barro (1979), a government should optimally run surpluses in good times and deficits in bad times. That is the same a government should do, though for different reasons, in the standard Keynesian or neo-Keynesian framework. Yet in practice governments often seem to follow a pro-cyclical fiscal policy. Cuddington (1989), Talvi and Vegh (2005) and Sinnott (2009), among others, document that governments save little or even disave in booms. Procyclicality is most evident in Latin America (Gavin et al (1996), Gavin and Perotti (1997), Stein et al (1999)) but is also present in OECD countries (Talvi and Vegh (2005), Arreaza et al (1999), Lane (2003)). |
| Keywords: | commodity prices, optimal fiscal policy, fiscal behavior, institutions |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:365&r=mac |
| By: | David Turner; Francesca Spinelli |
| Abstract: | The differential between the interest rate paid to service government debt and the growth rate of the economy is a key concept in assessing fiscal sustainability. Among OECD economies, this differential was unusually low for much of the last decade compared with the 1980s and the first half of the 1990s. This paper investigates the reasons behind this profile using panel estimation on 23 OECD economies. The results suggest that the fall is partly explained by lower inflation volatility associated with the adoption of monetary policy regimes which credibly target low inflation, which might be expected to continue. However, the low differential is also partly explained by factors which are likely to be reversed in the future, including very low policy rates, the “global savings glut” and the effect which the European Monetary Union had in reducing long-term interest differentials in the pre-crisis period. The differential is also likely to rise in the future because the number of countries which have debt-to-GDP ratios above a threshold at which there appears to be an effect on sovereign risk premia has risen sharply. Moreover, debt is projected to increasingly rise above this threshold in most of these countries.<P>Expliquer le différentiel entre taux d'intérêt et croissance qui sous-tend la dynamique de la dette publique<BR>Le différentiel entre le taux d’intérêt payé sur la dette publique et le taux de croissance de l’économie est un concept clé pour évaluer la viabilité budgétaire. Parmi les économies de l’OCDE, ce différentiel a été exceptionnellement bas pendant une grande partie de la décennie passée en comparaison des années 80 et de la première moitié des années 90. Le présent document cherche à expliquer ce profil à l’aide d’une estimation en panel réalisée sur 23 pays de l’OCDE. Les résultats semblent indiquer que la diminution de l’écart s’explique en partie par une plus faible volatilité de l’inflation associée à l’adoption de régimes de politique monétaire visant de façon crédible un taux d’inflation peu élevé, un facteur qui paraît devoir persister. Cependant, cet écart peu marqué est aussi imputable, pour partie, à des facteurs qui vont sans doute s’inverser dans l’avenir, notamment des taux directeurs très bas, l’ « excédent mondial d’épargne » et l’impact de la réduction des différentiels de taux d’intérêt à long terme opérée au sein de l’Union monétaire européenne au cours de la période qui a précédé la crise. L’écart pourrait aussi se creuser dans l’avenir du fait de la forte augmentation du nombre de pays dont le ratio dette-PIB dépasse un seuil qui, apparemment, déclenche un effet sur la prime de risque souverain. De plus, la dette va sans doute dépasser de plus en plus largement ce seuil dans la plupart de ces pays. |
| Keywords: | fiscal sustainability, interest rate, government debt, interest-rate-growth differential, dette publique, viabilité budgétaire, taux d’intérêt, taux d'intérêt différentiel de croissance |
| JEL: | E43 E62 H63 H68 |
| Date: | 2011–12–19 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:919-en&r=mac |
| By: | Reuven Glick; Sylvain Leduc |
| Abstract: | We present evidence on the effects of large-scale asset purchases by the Federal Reserve and the Bank of England since 2008. We show that announcements about these purchases led to lower long-term interest rates and depreciations of the U.S. dollar and the British pound on announcement days, while commodity prices generally declined despite this more stimulative financial environment. We suggest that LSAP announcements likely involved signaling effects about future growth that led investors to downgrade their U.S. growth forecasts lowering longterm US yields, depreciating the value of the U.S. dollar, and triggering a decline in commodity prices. Moreover, our analysis illustrates the importance of controlling for market expectations when assessing these effects. We find that positive U.S. monetary surprises led to declines in commodity prices, even as long-term interest rates fell and the U.S. dollar depreciated. In contrast, on days of negative U.S. monetary surprises, i.e. when markets evidently believed that monetary policy was less stimulatory than expected, long-term yields, the value of the dollar, and commodity prices all tended to increase. |
| Keywords: | Open market operations ; Monetary policy ; Prices |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2011-30&r=mac |
| By: | Santiago García-Verdú |
| Abstract: | This paper, first, reviews briefly the literature on the term structure of interest rates, citing some of the most important studies done on the topic for the Mexican case in the last years. In addition, the development of the government debt market is described. Second, evidence against the expectation hypothesis is shown and the deviations of the term structure from this hypothesis are examined. Third, it is documented that much of the variability of the term structure is due to changes in its level. Fourth, some of the statistics of the term structure are associated with macroeconomic variables, specifically the short-term rate and the output gap as measured with the IGAE index. Regarding this last point, evidence is found that changes in the term structure of interest rates’ slope are associated with the monetary policy stand along the business cycle. The nominal interest rates used in the analysis go from July 2002 to June 2011. |
| Keywords: | Term Structure of Interest Rates, Expectation Hypothesis, Principal Component Analysis, Nominal Interest Rates. |
| JEL: | E43 G12 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2011-18&r=mac |
| By: | Adrian Pagan (University of Sydney); Tim Robinson (Reserve Bank of Australia) |
| Abstract: | In the wake of the global financial crisis a considerable amount of research has focused on integrating financial factors into macroeconomic models. Two common approaches for doing so include the financial accelerator and collateralised lending, examples of which are Gilchrist, Ortiz and Zakrajšek (2009) and Iacoviello (2005). This paper proposes that two useful ways to evaluate such models are by focusing on their implications for business cycle characteristics and whether the models can match several stylised facts about the impact of financial conditions. One of these facts is that credit crises produce long-duration recessions. We find that while in the Gilchrist <em>et al</em> (2009) model financial factors can impact on particular cycles, they do little change to the average cycle characteristics. Some, but not all, of the stylised facts are captured by the model. |
| Keywords: | financial crises; business cycles |
| JEL: | E13 E32 E44 E51 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2011-04&r=mac |
| By: | Carmen M. Reinhart; M. Belen Sbrancia |
| Abstract: | Historically, periods of high indebtedness have been associated with a rising incidence of default or restructuring of public and private debts. A subtle type of debt restructuring takes the form of "financial repression." Financial repression includes directed lending to government by captive domestic audiences (such as pension funds), explicit or implicit caps on interest rates, regulation of cross-border capital movements, and (generally) a tighter connection between government and banks. In the heavily regulated financial markets of the Bretton Woods system, several restrictions facilitated a sharp and rapid reduction in public debt/GDP ratios from the late 1940s to the 1970s. Low nominal interest rates help reduce debt servicing costs while a high incidence of negative real interest rates liquidates or erodes the real value of government debt. Thus, financial repression is most successful in liquidating debts when accompanied by a steady dose of inflation. Inflation need not take market participants entirely by surprise and, in effect, it need not be very high (by historic standards). For the advanced economies in our sample, real interest rates were negative roughly ½ of the time during 1945-1980. For the United States and the United Kingdom our estimates of the annual liquidation of debt via negative real interest rates amounted on average from 2 to 3 percent of GDP a year. We describe some of the regulatory measures and policy actions that characterized the heyday of the financial repression era. |
| Keywords: | public debt, deleveraging, financial repression, inflation, interest rates |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:363&r=mac |
| By: | Jeong, Sangjun; Jung, Hueechae |
| Abstract: | Credit procyclicality has recently been the focus of considerable attention, but what fuels the often excessive credit growth is rarely questioned. We investigate the relationship between the composition of banks' liabilities and their credit procyclicality. After examining the macroeconomic context where banks rely increasingly on wholesale funding (WSF), we estimate the effect of WSF on the banks’ credit growth using panel data for the commercial banks of Korea between 2000:1 and 2011:2. We find that a higher sensitivity of banks' WSF to the business cycle leads to an excessive response of credit growth to the business cycle, even with a low share of WSF on bank liabilities. This finding suggests that the regulation of banks’ WSF mechanism may contribute to financial stability through a bank credit channel of monetary policy. On the other hand, we find that overseas WSF has a more marked effect on credit procyclicality, which may additionally exacerbate the financial fragility of export-led emerging economies. |
| Keywords: | credit procyclicality; wholesale funding; financial fragility |
| JEL: | E32 E44 G21 |
| Date: | 2011–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35568&r=mac |
| By: | Mohamed Tahar Benkhodja (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France) |
| Abstract: | In this paper, we compare, first, the impact of a windfall and a boom sectors on the economy of an oil exporting country and their welfare implications ; in a second step, we analyze how monetary policy should be conducted to insulate the economy from the main impact of these shocks, namely the Dutch Disease. To do so, we built a Multisector DSGE model with nominal and real rigidities. The main finding is that Dutch disease effect arise after spending and resource movement effects in the following cases : i) flexible prices and wages both in the case of a windfall and in the case of a boom ; ii) flexible wage and sticky price only in the case of a …fixed exchange rate. In other cases, Dutch disease effect can be avoided if : prices are sticky and wages are flexible when the exchange rate is flexible ; iii) prices and wages are sticky whatever the objective of the central bank is in both cases : windfall and boom. We also compare the source of fluctuation that leads to Dutch disease effect and we conclude that the windfall leads to a strong e¤ect in terms of de-industrialization compared to a boom. The choice of flexible exchange rate regime also helps to improve welfare. |
| Keywords: | Monetary Policy, Dutch Disease, Oil Prices, Small Open Economy |
| JEL: | E52 F41 Q40 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1134&r=mac |
| By: | Riccardo Bonci (Banca d’Italia, Regional Economic Research, Perugia branch, Via Nazionale 91, 00184 Roma, Italy.) |
| Abstract: | This paper provides new evidence on the transmission of monetary policy in the euro area, assessing the impact of an unexpected increase of the short-term interest on the lending and borrowing activity of the different economic sectors. We exploit the information content of the flow-of-funds statistics, that provide the most appropriate framework to analyse the flowing of funds from one sector (the lender) to the other (the borrower). We proceed in two steps. First, we estimate a small VAR model for the euro area over the period 1991Q1 to 2009Q2. Then, we extend the benchmark VAR model in order to include the flow-of-funds series and analyse the response of the latter variables to a contractionary monetary policy shock. We find that the policy tightening is followed by a worsening of the budget deficit; firms cut on their demand for bank loans, partially replacing them with inter-company loans, and draw on their liquidity to try to offset the fall of revenues associated with the slowdown of economic activity; households reduce net borrowing and increase precautionary saving in the short run. Consistent with the bank lending channel of monetary policy at work, the interest rate hike is followed by a short-run deceleration of credit growth, mainly driven by the response of banks. JEL Classification: E32, E4, E52, G11. |
| Keywords: | Monetary policy; flow of funds; credit growth. |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20111402&r=mac |
| By: | Philip Turner |
| Abstract: | Few financial variables are more fundamental than the "risk free" real long-term interest rate because it prices the terms of exchange over time. During the past 15 years, it has dropped from a range of 4 to 5% to a range of 0 to 2%. By late 2011, cyclical factors had driven it close to zero. This paper explores why. Possible persistent factors are: the investment of the large savings generated by developing Asia in highly-rated bonds; accounting and valuation rules for institutional investment; and financial sector regulation. The consequences could be far-reaching: cheaper leverage; less pressure to correct fiscal deficits; larger interest rate exposures in the financial industry; and a more cyclical bond market. During the financial crisis, central banks in the advanced countries have made the long-term interest rate a policy variable as Keynes had always advocated. This policy focus will draw more attention to the macroeconomic and financial consequences of government debt management policies. Coordination between central bank balance sheet policies and government debt management is essential. With government debt very high for years to come, bond market volatility could confront central banks with unenviable choices. |
| Keywords: | Long-term interest rate, bond market, government debt management, financial regulation, central banks |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:367&r=mac |
| By: | Lukasz Rawdanowicz; Eckhard Wurzel; Patrice Ollivaud |
| Abstract: | The management of government debt and assets has important implications for fiscal positions. Debt managers aim to secure non-interrupted funding at lowest medium-term costs subject to risks. Massive crisis-related increases in government debt in most OECD countries and increased risks on the asset side of government balance sheets may imply attaching a larger weight to avoiding risk than prior to the crisis, suggesting to extend debt maturities, possibly above pre-crisis levels. There are a number of trade-offs. Choices on the debt maturity structure interact with unconventional monetary policies. By driving down longer-term yields, the latter increase incentives to extend debt maturities which could counteract the initial monetary policy goal. High debt raises the temptation for eroding it via inflation, but the effectiveness of such policy seems to be limited and might be costly in the long run. Moreover, debt management needs to contribute to ensuring appropriate liquidity and functioning of government bond markets. Building financial assets can be appropriate for some purposes, such as prefunding future temporary spending or transferring wealth to future generations, but the risks are that accumulated funds might be used for current spending or tax reductions. In addition, assets might do little to hedge risks associated with debt servicing costs. Non-financial asset sales can help improve the fiscal situation, but purely revenue-driven privatisations without appropriate regulatory provisions addressing potential market failures should be avoided. Successful balance sheet management requires transparent, accurate and comprehensive measures of not only current but also future assets and liabilities.<P>Problèmes actuels dans la gestion de la dette et des actifs gouvernementaux<BR>La gestion de la dette et des actifs gouvernementaux a des implications importantes sur les situations budgétaires. Les gestionnaires de la dette ont pour but de sécuriser un financement ininterrompu au plus bas coût à moyen terme et en contrôlant les risques. Les augmentations massives de la dette publique liées à la crise dans la plupart des pays de l’OCDE ainsi que l’augmentation des risques sur les actifs du compte du patrimoine public peuvent se traduire par un poids plus élevé donné au contrôle des risques par rapport à la période antérieure à la crise, suggérant d’étendre le délai de remboursement des dettes, peut-être au dessus des niveaux prévalant avant la crise. Il y a un certain nombre d’arbitrages. Les choix sur la structure par échéance de la dette interagissent avec les politiques monétaires non conventionnelles. En réduisant les rendements à long terme, ces dernières accroissent les incitations à étendre le délai de remboursement des dettes ce qui peut neutraliser le but initial de la politique monétaire. Des niveaux élevés de dette accentuent la tentation de les éroder par de l’inflation, cependant l’efficacité de telle politique semble limitée et peut même être coûteuse sur le long terme. En outre, la gestion de la dette doit contribuer à assurer une liquidité appropriée et un bon fonctionnement des marchés d’obligations d’État. Développer des actifs financiers peut être adéquat dans certains cas, par exemple pour provisionner des dépenses temporaires futures, ou pour transférer de la richesse aux générations futures, mais le risque est que ces fonds accumulés soient utilisés pour des dépenses courantes ou pour baisser les impôts. De plus ces actifs ne vont sans doute pas permettre de se couvrir des risques associés au service de la dette. La vente des actifs non financiers peut améliorer la situation budgétaire, mais des privatisations uniquement orientées par la recherche de recettes sans dispositions réglementaires adaptées aux éventuelles défaillances des marchés doivent être évitées. Une gestion réussie du patrimoine public exige de la transparence ainsi que des mesures précises et complètes non seulement des actifs et passifs actuels mais aussi de leurs valeurs futures. |
| Keywords: | public debt, public debt management, contingent liability, monetary policy, public assets, dette publique, gestion de la dette publique, politique monétaire, actifs publics, engagements éventuels |
| JEL: | E6 H63 H81 H82 |
| Date: | 2011–12–21 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:923-en&r=mac |
| By: | Hameed, Irfan; Ume, Amen |
| Abstract: | This research article focuses on the impact of Monetary Policy on GDP. GDP no doubt is affected by the Monetary Policy of the state. The research papers of various authors have been studied in this regard to prove the Hypothesis and after in depth analysis by applying Regression Analysis technique it has been observed that the relationship between the two exists. The data of past 30 years of Pakistan has been used for driving the conclusion. The study proved that the interest rate has minor relationship with GDP but the Growth in Money Supply greatly affects the GDP of an economy, obviously various unknown factors also affects the GDP. Growth in Money Supply has a huge impact on GDP. The Research study can further be used for developmental projects for the Growth of Economy, Quality improvements, Household production, the underground conomy, Health and life expectancy, the environment, Political immunity and ethnic justice. |
| Keywords: | MONETARY POLICY; GROSS DOMESTIC PRODUCT; INFLATION; MONEY SUPPLY |
| JEL: | E51 E52 E61 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35562&r=mac |
| By: | Agnieszka Stążka-Gawrysiak (National Bank of Poland, Economic Institute; Warsaw School of Economics) |
| Abstract: | The goal of this paper is, firstly, to determine which structural characteristics of an economy make it more (or less) prone to macroeconomic booms and busts and, secondly, to empirically assess the risk of a boom-bust cycle in Poland after the euro adoption. We start from identifying booms and busts in private consumption and investment in fourteen “old” EU member states and then we seek to explain the identified boom and bust series using panel probit and pooled probit models. We then use the estimated equations to assess the probability of booms and busts in Poland over the period 2004 to 2009. Our results suggest that credit developments have been the most important driving force of booms and busts in EU-14. The relevance of international capital flows as a boom-bust transmission channel and of the cyclical heterogeneity of countries which undergo a process of monetary integration is also confirmed. We also find evidence that the fiscal channel boils down to a crowding-out effect: a reduction in the general government expenditure “makes room” for a boom in the private expenditure, and the reverse holds for busts. In turn, our results for Poland are inconclusive, which probably means that the models estimated for EU-14 are not adequate to predict the probabilities of booms and busts in this country. |
| Keywords: | Booms and busts, Poland, EMU enlargement, panel data analysis, probit models |
| JEL: | E32 E42 E63 C23 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:103&r=mac |
| By: | Kevin J. Lansing (Norges Bank (Central Bank of Norway) and Federal Reserve Bank of San Francisco) |
| Abstract: | This paper investigates how concentrated ownership of capital influences the pricing of risky assets in a production economy. The model is designed to approximate the skewed distribution of wealth and income in U.S. data. I show that concentrated ownership significantly magnifies the equity risk premium relative to an otherwise similar representative-agent economy because the capital owners' consumption is more strongly linked to volatile dividends from equity. A temporary shock to the technology for producing new capital (an "investment shock") causes dividend growth to be much more volatile than aggregate consumption growth, as in long-run U.S. data. The investment shock can also be interpreted as a depreciation shock, or more generally, a financial friction that affects the supply of new capital. Under power utility with a risk aversion coeffecient of 3.5, the model can roughly match the first and second moments of key asset pricing variables in long-run U.S. data, including the historical equity risk premium. About one-half of the model equity premium is attributable to the investment shock while the other half is attributable to a standard productivity shock. On the macro side, the model performs reasonably well in matching the business cycle moments of aggregate variables, including the pro-cyclical movement of capital's share of total income in U.S. data. |
| Keywords: | Asset pricing, Equity premium, Term premium, Investment shocks, Real business cycles, Wealth inequality |
| JEL: | E25 E32 E44 G12 O40 |
| Date: | 2011–12–22 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2011_18&r=mac |
| By: | Harald Uhlig (University of Chicago - Department of Economics) |
| Abstract: | This paper is a non-technical and somewhat philosophical essay, that seeks to investigate the relationship between economics and reality. More precisely, it asks how reality in the form of empirical evidence does or does not influence economic thinking and theory. In particular, which role do calibration, statistical inference, and structural change play? What is the current state of affairs, what are the successes and failures, what are the challenges? I shall tackle these questions moving from general to specific. For the general perspective, I examine the following four points of view. First, economics is a science. Second, economics is an art. Third, economics is a competition. Forth, economics is politics. I then examine four specific cases for illustration and debate. First, is there a Phillips curve? Second, are prices sticky? Third, does contractionary monetary policy lead to a contraction in output? Forth, what causes business cycles? The general points as well as the specific cases each have their own implication for the central question at hand. Armed with this list of implications, I shall then attempt to draw a summary conclusion and provide an overall answer. |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:bfi:wpaper:2011-006&r=mac |
| By: | Farhi, Emmanuel; Gopinath, Gita; Itskhoki, Oleg |
| Abstract: | We show that even when the exchange rate cannot be devalued, a small set of conventional fiscal instruments can robustly replicate the real allocations attained under a nominal exchange rate devaluation in a standard New Keynesian open economy environment. We perform the analysis under alternative pricing assumptions -- producer or local currency pricing, along with nominal wage stickiness; under alternative asset market structures, and for anticipated and unanticipated devaluations. There are two types of fiscal policies equivalent to an exchange rate devaluation -- one, a uniform increase in import tariff and export subsidy, and two, a value-added tax increase and a uniform payroll tax reduction. When the devaluations are anticipated, these policies need to be supplemented with a consumption tax reduction and an income tax increase. These policies have zero impact on fiscal revenues. In certain cases equivalence requires, in addition, a partial default on foreign bond holders. We discuss the issues of implementation of these policies, in particular, under the circumstances of a currency union. |
| Keywords: | competitive devaluation; currency union; fiscal policy |
| JEL: | E32 E6 F3 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8721&r=mac |
| By: | Simona E. Cociuba; Malik Shukayev; Alexander Ueberfeldt |
| Abstract: | A view advanced in the aftermath of the late-2000s financial crisis is that lower than optimal interest rates lead to excessive risk taking by financial intermediaries. We evaluate this view in a quantitative dynamic model in which interest rate policy affects risk taking by changing the amount of safe bonds that intermediaries use as collateral in the repo market. In this model with properly-priced collateral, lower than optimal interest rates reduce risk taking. We also consider the possibility that intermediaries can augment their collateral by issuing assets whose risk is underestimated by credit rating agencies, as was observed prior to the crisis. In the presence of such mispriced collateral, lower than optimal interest rates contribute to excessive risk taking and amplify the severity of recessions. |
| Keywords: | Transmission of monetary policy; Financial system regulation and policies |
| JEL: | E44 E52 G28 D53 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:11-31&r=mac |
| By: | Francesco Caprioli (Bank of Italy); Sandro Momigliano (Bank of Italy) |
| Abstract: | We study the effects of fiscal policy on macroeconomic developments in Italy over the period 1982-2010 with a Structural Vector Autoregression (SVAR) model. We include public debt and impose the government budget constraint in the estimation. In contrast with previous research we also include foreign demand, significantly improving estimation accuracy. We find that movements in debt induce stabilizing reactions in fiscal policy. In this context, expenditure and revenue shocks have significant effects on economic activity; these are stronger, as well as more precisely estimated and robust, for expenditure. Expenditure multipliers are higher when we exclude from our sample the initial years and, in particular, when we focus on the post-Maastricht period. |
| Keywords: | fiscal policy, public debt, foreign demand, fiscal multipliers, VAR. |
| JEL: | E62 H30 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_839_11&r=mac |
| By: | Ma, Guonan (BOFIT); Xiandong, Yan (BOFIT); Xi, Liu (BOFIT) |
| Abstract: | This paper examines the evolving role of reserve requirements as a policy tool in China. Since 2007, the Chinese central bank (PBC) has relied more on this tool to withdraw domestic liquidity surpluses, as a cheaper substitute for open-market operation instruments in this period of rapid FX accumulation. China’s reserve requirement system has also become more complex and been used to address a range of other policy objectives, not least being macroeconomic management, financial stability and credit policy. The preference for using reserve requirements reflects the size of China’s FX sterilisation task and the associated cost considerations, a quantity-oriented monetary policy framework challenged to reconcile policy dilemmas and tactical considerations. The PBC often finds it easier to reach consensus over reserve requirement decisions than interest rate decisions and enjoys greater discretion in applying this tool. The monetary effects of reserve requirements need to be explored in conjunction with other policy actions and not in isolation. Depending on the policy mix, higher reserve requirements tend to signal a tightening bias, to squeeze excess reserves of banks, to push market interest rates higher, and to help widen net interest spreads, thus tightening domestic monetary conditions. There are, however, costs to using this policy tool, as it imposes a tax burden on Chinese banks that in turn appear to have passed a significant portion of this cost onto their customers, mostly depositors and SMEs. However, the pass-through onto bank customers appears to be partial. |
| Keywords: | reserve requirements; sterilisation tools; monetary policy; net interest margin and spread; tax incidence; Chinese economy |
| JEL: | E40 E50 E52 E58 E60 H22 |
| Date: | 2011–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2011_030&r=mac |
| By: | Tsutomu Watanabe (Faculty of Economics, The University of Tokyo); Tomoyoshi Yabu (Faculty of Business and Commerce, Keio University) |
| Abstract: | From the beginning of 2003 to the spring of 2004, Japan's monetary authorities conducted large-scale yen-selling/dollar-buying operations in what Taylor (2006) has labeled the "Great Intervention." This paper examines the relationship between this "Great Intervention" and the quantitative easing policy the Bank of Japan was pursuing at that time. First, we find that about 40 percent of the yen funds supplied to the market by yen-selling interventions were not offset by the BOJ's monetary operations and remained in the market for a while; this is in contrast with the preceding period, when almost 100 percent were immediately offset. Second, comparing interventions and other government payments, the extent to which the funds were offset was much smaller in the case of interventions, suggesting that the BOJ differentiated between, and responded differently to, interventions and other government payments. These two findings indicate that it is likely that the BOJ intentionally did not sterilize yen-selling interventions to achieve its policy target of maintaining the current account balances of commercial banks at the BOJ at a high level. Finally, we find that an unsterilized intervention had a greater impact on the yen-dollar rate than a sterilized one, suggesting that it matters whether an intervention is sterilized or not even when the economy is in a liquidity trap |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:cfi:fseres:cf266&r=mac |
| By: | Yana Vaziakova; Geoff Barnard; Tatiana Lysenko |
| Abstract: | many policy recommendations relating to structural reform and framework conditions have been made. This paper, expanding on Annex 1.A1 in the 2011 OECD Economic Survey of the Russian Federation, provides a summary tabulation of the state of implementation of a large number of these past Survey recommendations.<P>Russie : Progrès des réformes structurelles et des conditions-cadres<BR>Au fil des 16 ans depuis la première Étude économique de la Federation Russe de l’OCDE, il y a eu beaucoup de recommandations portant sur la reforme structurelle et les conditions-cadres de l’économie. Cette étude, qui représente une élaboration de l’Annexe 1.A1 de l’Étude économique de la Federation Russe 2011, fournit un sommaire de l’état de la mise en oeuvre d’un grand nombre de ces recommandations. |
| Keywords: | product market regulation, competition, fiscal policy, trade, innovation, monetary policy, foreign direct investment, Russia, structural reforms, framework conditions, bank regulation, réforme structurelle, politique budgétaire, innovation, politique monétaire, concurrence, investissement direct étranger, Russie, réglementation des marchés de produits, conditions cadres, échanges, réglementation financière, propriété de l’État |
| Date: | 2011–12–19 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:920-en&r=mac |
| By: | Alan J Auerbach |
| Abstract: | As the world economy slowly recovers from the very deep and widespread recession of recent years, many countries confront very serious fiscal imbalances. How much time they have to deal with these imbalances is a central question, the salience of which can only have been increased by the ongoing fiscal crisis and bailout in Greece and the immediate fiscal adjustments being discussed or already undertaken in several other countries. There is little doubt that much of the current attention to fiscal imbalances is attributable to the rapid increases in debt to GDP ratios arising from the recession, either directly through the automatic tax and spending responses to slow growth, or indirectly through the countercyclical discretionary fiscal measures undertaken. Table 1 shows the evolution of net general government debt to GDP ratios for several leading economies in recent years, starting in 2007, just as the worldwide recession began. |
| Keywords: | deficit, fiscal gap, fiscal rule, fiscal policy, fiscal sustainability |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:361&r=mac |
| By: | Mariacristina De Nardi; Eric French; David Benson |
| Abstract: | We document some key facts about aggregate consumption and its subcomponents over time. We then document the behavior of some important determinants of consumption, such as consumers’ expectations about their future income, and changes in the consumers’ wealth positions. Finally, we use a simple permanent income model to show that the observed drop in consumption during the Great Recession can be explained by the observed drops in wealth and income expectations. |
| JEL: | E10 E21 E31 H31 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17688&r=mac |
| By: | Jacopo Cimadomo (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper surveys the empirical research on fiscal policy analysis based on real-time data. This literature can be broadly divided in three groups that focus on: (1) the statistical properties of revisions in fiscal data; (2) the political and institutional determinants of projection errors by governments and (3) the reaction of fiscal policies to the business cycle. It emerges that, first, fiscal data revisions are large and initial releases are biased estimates of final values. Second, the presence of strong fiscal rules and institutions leads to relatively more accurate releases of fiscal data and small deviations of fiscal outcomes from government plans. Third, the cyclical stance of fiscal policies is estimated to be more ‘counter-cyclical’ when real-time data are used instead of ex-post data. Finally, more work is needed for the development of real-time datasets for fiscal policy analysis. In particular, a comprehensive real-time dataset including fiscal variables for industrialized (and possibly developing) countries, published and maintained by central banks or other institutions, is still missing. JEL Classification: E62, H60, H68. |
| Keywords: | Fiscal policy, real-time data, data revisions, cyclical sensitivity. |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20111408&r=mac |
| By: | Jósef Sigurdsson |
| Abstract: | This paper studies business cycle dynamics in the Icelandic labour market with the focus on two separate but related dimensions. First, which margin for adjustment of labour input, the extensive margin or the intensive margin, accounts for more variation in total working hours? It finds that both margins are important. Variation in employment accounts for 56% of the overall variation in total hours while variation in hours per worker contributes 44% to variation in total hours. Second, which of the two unemployment transition rates, the separation rate or the job-finding rate, drives the observed fluctuations in unemployment, and how do these transition rates move over the business cycle? The results show that fluctuations in the separation rate explain 70% of the total variation in the unemployment rate. Both transition rates are highly cyclical. The procyclical job finding rate moves roughly contemporaneously with the cycle, while the countercyclical separation rate is found to lead the cycle. |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:ice:wpaper:wp56&r=mac |
| By: | Sigrid Röhrs; Christoph Winter |
| Abstract: | In this paper, we quantitatively analyze to what extent a benevolent government should issue debt in a model where households are subject to idiosyncratic productivity shocks, insurance markets are missing and borrowing is restricted. In this environment, issuing government bonds facilitates saving for self-insurance. Despite this, we find that in a calibrated version of the model that is consistent with the skewed wealth and earnings distribution observable in the U.S., the government should buy private bonds, and not issue public debt in the long run. The reason is that in the U.S., a large fraction of the population has almost no wealth or is even in debt. The wealth-poor, however, do not profit from an increase in the interest rate following an increase in public debt. Instead, they gain from higher wages that result from a reduction in debt. We show that even when the short run costs of higher capital taxation are taken into account, it still pays off to reduce government debt on overall. Moreover, we find that endogenizing household’s borrowing constraints by assuming limited commitment leads to even higher asset levels being optimal in the long run. |
| Keywords: | Government debt, endogenous borrowing constraints, incomplete markets, crowding out |
| JEL: | E2 H6 D52 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:051&r=mac |
| By: | Emmanuel Farhi; Gita Gopinath; Oleg Itskhoki |
| Abstract: | We show that even when the exchange rate cannot be devalued, a <i>small</i> set of <i>conventional</i> fiscal instruments can robustly replicate the real allocations attained under a nominal exchange rate devaluation in a standard New Keynesian open economy environment. We perform the analysis under alternative pricing assumptions— producer or local currency pricing, along with nominal wage stickiness; under alternative asset market structures, and for anticipated and unanticipated devaluations. There are two types of fiscal policies equivalent to an exchange rate devaluation—one, a uniform increase in import tariff and export subsidy, and two, a value-added tax increase and a uniform payroll tax reduction. When the devaluations are anticipated, these policies need to be supplemented with a consumption tax reduction and an income tax increase. These policies have zero impact on fiscal revenues. In certain cases equivalence requires, in addition, a partial default on foreign bond holders. We discuss the issues of implementation of these policies, in particular, under the circumstances of a currency union. |
| JEL: | E32 E60 F30 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17662&r=mac |
| By: | Michal Franta; Jozef Barunik; Roman Horvath; Katerina Smidkova |
| Abstract: | This paper shows how fan charts generated from Bayesian vector autoregression (BVAR) models can be useful for assessing 1) the forecasting accuracy of central banks’ prediction models and 2) the credibility of stress tests carried out to evaluate financial stability. Using unique data from the Czech National Bank (CNB), we compare our BVAR fan charts for inflation, GDP growth, interest rate and the exchange rate to those of the CNB, which are based on past forecasting errors. Our results suggest that in terms of the Kullback-Leibler Information Criterion, BVAR fan charts typically do not outperform those of the CNB, providing a useful cross-check of their accuracy. However, we show how BVAR fan charts can rigorously deal with the non-negativity constraint on the nominal interest rate and usefully complement the official fan charts. Finally, we put forward how BVAR fan charts can be useful for assessing financial stability and propose a simple method for evaluating whether the assumptions of banks’ stress tests about the macroeconomic outlook are sufficiently adverse. |
| Keywords: | Bayesian vector autoregression, fan chart, inflation targeting, stress tests, uncertainty. |
| JEL: | E52 E58 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2011/10&r=mac |
| By: | Stanova N. |
| Abstract: | This paper introduces a small-scale experimental model intended as a first stage to developing a fully-fledged system dynamics macroeconomic model of a new generation.The model economy incorporates important real-world features that are missing in the mainstream macroeconomic literature. The agents representing the demand and supply side dispose over a limited information set. Their interactions are not constrained by a priori imposition of equilibrium conditions. The exercise shows that, unlike in general equilibrium models, booms and busts in output and price endogenously arise due to the stock variable representation of demand and supply and modelling the agents’decisions as autonomous. It is also demonstrated that bad times and good times are driven by the same causal mechanisms. The insights are paramount for an appropriate understanding of the true possibilities of macroeconomic policies and provide fruitful material for further exploration. |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:ant:wpaper:2011022&r=mac |
| By: | Chad Bown; Meredith Crowley |
| Abstract: | This paper uses highly detailed, quarterly data for five major industrialized economies to estimate the impact of> macroeconomic fluctuations on import protection policies over 1988:Q1–2010:Q4. First, estimates on a pre-Great Recession sample of data provide evidence of two key relationships. We confirm that appreciations in bilateral real exchange rates lead to substantial increases in antidumping and related forms of import protection: e.g., a 4 percent appreciation results in 60–90 percent more products being subject to import protection. We also provide evidence of a previously overlooked result that policy-imposing countries historically imposed such bilateral import restrictions on trading partners that were going through periods of weak economic growth.> Second, we use the model to then provide the first estimates that link macroeconomic fluctuations to a change in policy-imposing behavior during the Great Recession so as to explain the realized protectionist response. During the Great Recession, the U.S. and other policy-imposing economies became less responsive to exchange rate appreciations. Furthermore, the U.S. and other economies “switched” from their historical behavior and shifted implementing new import protection away from those trading partners that were contracting and toward those experiencing economic growth. In a final exercise, we document how the model’s estimates imply that a 9–20 percent appreciation of China's real exchange rate vis-à-vis the U.S. dollar during the sample period would allow for China’s exporters to have received the "average" import protection treatment under antidumping that the U.S. imposed against other countries. |
| Keywords: | Antidumping duties ; Business cycles ; Foreign exchange rates ; Recessions |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2011-16&r=mac |
| By: | Jaroslav Borovicka (University of Chicago - Federal Reserve Bank of Chicago); Lars Peter Hansen (University of Chicago - Department of Economics) |
| Abstract: | Dynamic stochastic equilibrium models of the macro economy are designed to match the macro time series including impulse response functions. Since these models aim to be structural, they also have implications for asset pricing. To assess these implications, we explore asset pricing counterparts to impulse response functions. We use the resulting dynamic value decomposition (DVD) methods to quantify the exposures of macroeconomic cash flows to shocks over alternative investment horizons and the corresponding prices or compensations that investors must receive because of the exposure to such shocks. We build on the continuous-time methods developed in Hansen and Scheinkman (2010), Borovicka et al. (2011) and Hansen (2011) by constructing discrete-time shock elasticities that measure the sensitivity of cash flows and their prices to economic shocks including economic shocks featured in the empirical macroeconomics literature. By design, our methods are applicable to economic models that are nonlinear, including models with stochastic volatility. We illustrate our methods by analyzing the asset pricing model of Ai et al. (2010) with tangible and intangible capital. |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:bfi:wpaper:2011-012&r=mac |
| By: | Franziska Bremus |
| Abstract: | This study assesses how banking sector integration and especially cross-border lending affect macroeconomic stability. I use a two-country general equilibrium model with heterogeneous banks that are hit by idiosyncratic shocks. According to the concept of granularity, idiosyncratic shocks to large firms (or: banks) do not have to cancel out under a skewed distribution of firm sizes. Given the highly skewed distribution of bank sizes, macroeconomic stability may thus be affected by shocks to large banks. Hence, to grasp the impact of financial liberalization on aggregate fluctuations, the presence of large banks as measured by high concentration in the banking industry has to be accounted for. I study the role of different forms of banking sector integration - i.e. arms-length crossborder lending versus lending via foreign affiliates - for the stability of aggregate lending. I find that banking sector integration decreases the aggregate volatility of lending due to intensified competition. The model implies that cross-border lending is more stable under lending via foreign affiliates than under arms-length cross-border lending. |
| Keywords: | Cross-border banking, large banks, granularity, volatility |
| JEL: | E44 F41 G21 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1178&r=mac |
| By: | Jaroslav Borovicka; Lars Hansen |
| Abstract: | Dynamic stochastic equilibrium models of the macro economy are designed to match the macro time series including impulse response functions. Since these models aim to be structural, they also have implications for asset pricing. To assess these implications, we explore asset pricing counterparts to impulse response functions. We use the resulting dynamic value decomposition (DVD) methods to quantify the exposures of macroeconomic cash flows to shocks over alternative investment horizons and the corresponding prices or compensations that investors must receive because of the exposure to such shocks. We build on the continuous-time methods developed in Hansen and Scheinkman (2010), Borovicka et al. (2011) and Hansen (2011) by constructing discrete-time shock elasticities that measure the sensitivity of cash flows and their prices to economic shocks including economic shocks featured in the empirical macroeconomics literature. By design, our methods are applicable to economic models that are nonlinear, including models with stochastic volatility. We illustrate our methods by analyzing the asset pricing model of Ai et al. (2010) with tangible and intangible capital. |
| Keywords: | Asset pricing ; Macroeconomics ; Markov processes |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2012-01&r=mac |
| By: | Harun Mirza; Lidia Storjohann |
| Abstract: | The problem of weak identification has recently attracted attention in the analysis of structural macroeconomic models. Using robust methods can result in large confidence sets making inference difficult. We overcome this problem in the analysis of a forward-looking Taylor rule by seeking stronger instruments. We suggest exploiting information from a large macroeconomic data set by generating factors and using them as additional instruments. This approach results in a stronger instrument set and hence smaller weak-identification robust confidence sets. It allows us to conclude that there has been a shift in monetary policy from the pre-Volcker regime to the Volcker-Greenspan tenure. |
| Keywords: | Taylor Rule, Weak Instruments, Factor Models |
| JEL: | E31 E52 C22 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:bon:bonedp:bgse13_2012&r=mac |
| By: | Cristian Badarinza (Goethe University Frankfurt, Department of Money and Macroeconomics, House of Finance, Grueneburgplatz 1,D-60323 Frankfurt am Main, Germany.); Marco Buchmann (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.) |
| Abstract: | In this paper we discuss the role of the cross-sectional heterogeneity of beliefs in the context of understanding and assessing macroeconomic vulnerability. Emphasis lies on the potential of changing levels of disagreement in expectations to influence the propensity of the economy to switch between different regimes, a hypothesis that finds robust empirical support from a regime-switching model with endogenous transition probabilities for output growth and realized stock market volatility in the US. JEL Classification: C53, D8, E32. |
| Keywords: | Heterogeneous beliefs, business cycles, regime-switching, forecasting, endogenous transition probabilities. |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20111407&r=mac |
| By: | Grossmann, Volker; Steger, Thomas M.; Trimborn, Timo |
| Abstract: | This paper shows that dynamic inefficiency can occur in dynamic general equilibrium models with fully optimizing, infinitely-lived households even in a situation with underinvestment. We identify necessary conditions for such a possibility and illustrate it in a standard R&D-based growth model. Calibrating the model to the US, we show that a moderate increase in the R&D subsidy indeed leads to an intertemporal free lunch (i.e., an increase in per capita consumption at all times). Hence, Milton Friedman's conjecture There ain't no such thing as a free lunch (TANSTAAFL) may not apply. -- |
| Keywords: | intertemporal free lunch,dynamic inefficiency,R&D-based growth,transitional dynamics |
| JEL: | E20 H20 O41 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:leiwps:101&r=mac |
| By: | Steven J. Davis (University of Chicago - Booth School of Business); Till Von Wachter (Columbia Business School - Economics Department) |
| 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 re-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 less than 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. |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:bfi:wpaper:2011-009&r=mac |
| By: | Daniel Artana; Sebastián Auguste |
| Abstract: | El presente trabajo presenta un enfoque metodológico que permite medir a nivel de planta y de sectores la informalidad y la productividad en forma conjunta de manera tal de poder entender mejor y probar las distintas hipótesis sobre la relación entre ambas variables. Se destaca que la decisión de ser formal o informal en general no es dicotómica, sino que es un matiz, y se decide en qué grado se cumple con las reglas. De todas las reglas que se deberían cumplir para ser formal se pone énfasis en la informalidad impositiva. Se destaca que debido a la tecnología de evasión y de monitoreo de las agencias tributarias, distintas firmas pueden evadir en forma diferente en cada impuesto. Así, se requiere contar con una medida global de informalidad impositiva en lugar de una medida de informalidad laboral, que ha sido lo más usual. La metodología se desarrolla teniendo en cuenta el uso de Censos Industriales. Los estudios económicos utilizan estos Censos cada vez más para medir y analizar la productividad, pero en general no han sido utilizados para medir informalidad. La metodología propuesta es una aproximación útil para entender la relación entre informalidad y productividad. |
| Keywords: | Economía :: Productividad, Sector privado :: PYME, Economía :: Política industrial, Economía :: Política fiscal, Economía :: Desarrollo y crecimiento económicos, Informalidad, productividad, Pymes, pequeñas y medianas industrias, censo industrial, sector informal, informalidad impositiva, informalidad laboral |
| JEL: | E26 H26 O4 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:60818&r=mac |
| By: | Charles Goodhart |
| Abstract: | The overriding practical problem now is the tension between the global financial and market system and the national political and power structures. The main analytical short-coming lies in the failure to incorporate financial frictions, especially default, into our macro-economic models. Neither a move to a global sovereign authority, nor a reversion towards narrower economic nationalism, seems likely to take place in the near future. Meanwhile, the adjustment to economic imbalances remains asymmetric, with almost all the pressure on deficit countries. Almost by definition surplus countries are “virtuous”. But current account surpluses have to be matched by net capital outflows. Such capital flows to weaker deficit countries have often had unattractive returns. A program to give earlier and greater warnings of the risks of investing in deficit countries could lead to earlier policy reaction, and reduce the risk of crisis. |
| JEL: | E32 E42 E44 F02 F21 F33 F34 F4 F42 F51 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17682&r=mac |
| By: | Michael W.L. Elsby; Bart Hobijn; Aysegul Sahin; Robert G. Valletta |
| Abstract: | Since the end of the Great Recession in mid-2009, the unemployment rate has recovered slowly, falling by only one percentage point from its peak. We find that the lackluster labor market recovery can be traced in large part to weakness in aggregate demand; only a small part seems attributable to increases in labor market frictions. This continued labor market weakness has led to the highest level of long-term unemployment in the U.S. in the postwar period, and a blurring of the distinction between unemployment and nonparticipation. We show that flows from nonparticipation to unemployment are important for understanding the recent evolution of the duration distribution of unemployment. Simulations that account for these flows suggest that the U.S. labor market is unlikely to be subject to high levels of structural long-term unemployment after aggregate demand recovers. ; Powerpoint supplement available at http://www.frbsf.org/economics/economist s/wp11-29bk_supplement.pdf |
| Keywords: | Labor market ; Recessions |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2011-29&r=mac |
| By: | Gábor P. Kiss (Magyar Nemzeti Bank (central bank of Hungary)) |
| Abstract: | This study defines various fiscal indicators for different analytical purposes, adjusting for the distorting effect of creative accounting. It presents these indicators using the example of Hungary. The study abandons the general view that an identical balance is produced from the two traditional definitions of the general government deficit, as deficit indicators resulting from the flow of funds calculated as the balance of revenues and expenditures (above the line) and changes in financial assets and liabilities (below the line) may vary. Firstly, the treatment of the loss of contributions transferred to private pension funds causes a difference, as in contrast to a tax cut, this does not constitute a flow of funds, but nevertheless increases the amount of public debt. Secondly, while accrualbased accounting is justified for defining assets and liabilities, accrual-based and cash-flow recording may be applied in relation to flow of funds, depending on which is more appropriate for estimating the effect or fiscal impulse on the economy. Accrual-based accounting adjusts fluctuations in cash-flow recording, but it identifies the economic impact only if there are neither liquidity constraints nor unexpected fiscal measures in the economy. In this case namely, the economic agents do not react to cash-flow fluctuations. If, however, the economic agents are either subject to liquidity constraints or unexpected measures are taken, they are also affected by the sudden changes in cash-flows. Contrary to conventions, the study draws a distinction between the two types of deficit indicators through the introduction of different terms. It continues to define the indicator identifying flow of funds as deficit, while it terms changes in assets and liabilities as a financing requirement. On the one side, the indicator defined as deficit constitutes the basis of the calculation of the impact on the economy and external balance (‘impulse’). The composition of this fiscal impulse plays a decisive role, particularly the impulse on households and changes in indirect taxes. On the other side, the analysis of the financing requirement – that is, changes in assets and liabilities – provides the basis for determining which revenues and expenditures are deemed to be temporary and which are of a permanent (‘underlying’) nature. The study determines the categories of the augmented deficit, indicating flow of funds, and the augmented financing requirement, measuring changes in financial assets and liabilities, on the basis of the IMF method for filtering the effects of creative accounting. Statistical recording, namely, needs to be augmented with the financial requirement of organisations conducting quasi-fiscal operations and the simultaneously accumulating quasi-fiscal debt. The ‘one-off’ capital transfer related to the subsequent assumption of this quasi-fiscal debt needs to be filtered out. In our experience, the augmented deficit has advantage of being consistent in a macroeconomic sense and methodologically more stable than the statistical deficit, as the latter frequently requires revisions. Naturally, the actual figures of the augmented deficit may change to a certain degree, as the analytical adjustments need to augment data with estimates in the case of the quasi-fiscal operations and creative accounting. As a favourable change in relation to the data requirement, from 2010 theofficial budget accounting includes public investments which are statistically recorded as private investments. |
| Keywords: | cyclical adjustment, creative accounting, fiscal impulse, structural (underlying) deficit |
| JEL: | E32 H62 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:mnb:opaper:2011/92&r=mac |
| By: | Purvi Sevak (Hunter College); Lucie Schmidt (Williams College) |
| Abstract: | Economic theory suggests that individual decisions about consumption, saving, and labor supply should be directly linked to subjective expectations about future events. This project uses panel data from the Health and Retirement Study from 1994-2008 merged to data on a number of local and high frequency macroeconomic indicators to estimate how individual expectations respond to fluctuations in the local and national macroeconomy. Our results suggest that individuals revise their expectations in response to both local and national macroeconomic fluctuations in ways that appear to make sense, and that this is stronger for respondents with higher levels of education. |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp259&r=mac |
| By: | Nicolas E. Magud; Carmen M. Reinhart; Esteban R. Vesperoni |
| Abstract: | The prospects of expansionary monetary policies in the advanced countries for the foreseeable future have renewed the debate over policy options to cope with large capital inflows that are, at least partly, driven by low interest rates in the financial centers. Historically, capital flow bonanzas have often fueled sharp credit expansions in advanced and emerging market economies alike. Focusing primarily on emerging markets, we analyze the impact of exchange rate flexibility on credit markets during periods of large capital inflows. We show that credit grows more rapidly and its composition tilts to foreign currency in economies with less flexible exchange rate regimes, and that these results are not explained entirely by the fact that the latter attract more capital inflows than economies with more flexible regimes. Our findings thus suggest countries with less flexible exchange rate regimes may stand to benefit the most from regulatory policies that reduce banks’ incentives to tap external markets and to lend/borrow in foreign currency; these policies include marginal reserve requirements on foreign lending, currency-dependent liquidity requirements, and higher capital requirement and/or dynamic provisioning on foreign exchange loans. |
| JEL: | E5 F2 G15 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17670&r=mac |
| By: | Jarkko Jääskelä (Reserve Bank of Australia); Penelope Smith (Reserve Bank of Australia) |
| Abstract: | This paper describes and quantifies the macroeconomic effects of different types of terms of trade shocks and their propagation in the Australian economy. Three types of shocks are identified based on their impact on commodity prices, global manufactured prices, and global economic activity. The first two shocks, a world demand shock and a commodity-market specific shock are fairly standard. The third shock, a globalisation shock that may result, for instance, from the increasing importance of China, India and eastern Europe in the global economy is more novel. The globalisation shock is associated with a decline in manufactured prices, a rise in commodity prices, and an increase in global economic activity. Determining the underlying source of variation in the terms of trade is shown to be important for understanding the impact on the Australian economy as all three shocks propagate through the economy in different ways. The relative contribution of each shock to inflation, output, interest rates, and the exchange rate has also varied over time. The main conclusion of the paper is that a higher terms of trade tends to be expansionary but is not always inflationary. A key result is that the floating exchange rate has provided an important buffer to the external shocks that move the terms of trade. |
| Keywords: | terms of trade; sign-restricted VAR |
| JEL: | E32 E52 F36 F40 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2011-05&r=mac |
| By: | Lahura, Erick (Central Bank of Peru) |
| Abstract: | This paper investigates the empirical relationship between credit and output in Peru. The analysis is based on the estimation of vector error correction models and the identification of structural shocks. The models considered include real output, real credit growth (in domestic currency, foreign currency and both), and terms of trade. Using quarterly data for the period 1994-2011, the results suggest that real credit growth contain useful information to understand the evolution of the non-deterministic component of real output. In particular, the results show that: (i) there exist a stable long-run relationship between real credit growth, output and terms of trade, (ii) real credit growth is useful in forecasting output in the long-run, and (iii) a structural permanent shock in real credit has positive permanent effects on output. Therefore, credit aggregates could be useful as indicator variables for policymakers. |
| Keywords: | Credit growth, output growth, vector error correction models, structural shocks. |
| JEL: | E51 C32 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:rbp:wpaper:2011-018&r=mac |
| By: | Acharya, Viral V.; Mora, Nada |
| Abstract: | Can banks maintain their advantage as liquidity providers when they are heavily exposed to a financial crisis? The standard argument - that banks can - hinges on deposit inflows that are seeking a safe haven and provide banks with a natural hedge to fund drawn credit lines and other commitments. We shed new light on this issue by studying the behavior of bank deposit rates and inflows during the 2007-09 crisis. Our results indicate that the role of the banking system as a stabilizing liquidity insurer is not one of the passive recipient, but of an active seeker, of deposits. We find that banks facing a funding squeeze sought to attract deposits by offering higher rates. Banks offering higher rates were also those most exposed to liquidity demand shocks (as measured by their unused commitments, wholesale funding dependence, and limited liquid assets), as well as with fundamentally weak balance-sheets (as measured by their non-performing loans or by subsequent failure). Such rate increases have a competitive effect in that they lead other banks to offer higher rates as well. Overall, the results present a nuanced view of deposit rates and flows to banks in a crisis, one that reflects banks not just as safety havens but also as stressed entities scrambling for deposits. |
| Keywords: | financial crisis; flight to safety; liquidity; liquidity risk; solvency risk |
| JEL: | E4 G01 G11 G21 G28 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8706&r=mac |
| By: | Nicolas Chatelais (Centre d'Economie de la Sorbonne) |
| Abstract: | In this paper, we try to understand the economic policies choice of countries in terms of size. According to the case whether a country is large or small, it will have different incentives in the choice of its growth strategy. Theoretically, a large country would prefer use a policy which stimulate its domestic demand while a small country will choose a strategy improving its competitiveness and its attractiveness, because net exports contribute significantly to economic growth. In a monetary union framework, like the euro area, these choices are critical. Thus we highlight the European construction, in particular the Economic and Monetary Union (EMU) is an asymmetric process promoting both small countries and the implementation of non-cooperative growth policies. Among them, we are particularly interested in the introduction of a tax competition as a growth policy in some countries. This policy should be regarded as an opportunist strategy of small countries harmful to the overall growth of the EU. |
| Keywords: | Country size, free-riding, non-cooperative behaviors, European Union, small countries. |
| JEL: | E02 E62 F2 H30 H32 H73 H77 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:11082&r=mac |
| By: | Berriel, Tiago C.; Zilberman, Eduardo |
| Abstract: | This paper introduces cash transfers targeting the poor in an incomplete marketsmodel with heterogeneous agents facing idiosyncratic risk. These transfers change thedegree of insurance in the economy and a ect precautionary motives asymmetrically,leading the poorest households to decrease savings proportionally more than theirricher counterparts. In a model economy calibrated to Brazil, once the cash transferprogram is adopted, wealth inequality and social welfare increase, poverty decreases,while employment and income inequality remain about the same. Imperfect access to nancial markets is important for these results, whereas whether the program is fundedwith lump sum or distortive taxes is not. |
| Date: | 2011–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:fgv:epgewp:726&r=mac |
| By: | Sisak Balázs (Magyar Nemzeti Bank (central bank of Hungary)) |
| Abstract: | The goal of this study is to determine the reasons behind high cash demand in several Central European countries, especially Hungary. We distinguish between legal and illegal cash demand in an attempt to model the former. In our approach, legal cash demand can be explained by transactional and saving motives (hoarding). We apply both direct calculation and an econometric approach in order to isolate transactional demand. Regarding the econometric approach, a number of different models are estimated to eliminate, as far as possible, endogeneity bias. We examine transactional and residual cash stock (legal hoarding and illegal cash demand) of several Central European and Western countries that have their own currency (did not introduce euro). We find that transactional cash demand is strongly influenced by the level of improvement of the payment system. There are explicit signs that interest rates negatively influence nontransactional cash demand. However, we find examples where this is not the case. In these instances, the increase of non-transactional cash demand may be caused by illegal cash demand. |
| Keywords: | cash demand, shadow economy, payment system, panel econometrics |
| JEL: | E26 E41 E42 C23 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:mnb:wpaper:2011/10&r=mac |
| By: | Akihisa Shibata (Institute of Economic Research, Kyoto University); Tarishi Matsuoka (Japan Society for the Promotion of Science and Graduate School of Economics, Kyoto University) |
| Abstract: | This paper introduces a bubbly asset into the Matsuyama (2007) model with credit market imperfections and multiple technologies and shows that there can exist multiple bubbly steady states and bubbles may cause underdevelopment traps by preventing the adoption of high productivity technology. |
| Keywords: | asset bubbles; credit market imperfections; technology adoption |
| JEL: | E44 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:804&r=mac |
| By: | Eriksson, Stefan (Department of Economics); Stadin, Karolina (Department of Economics) |
| Abstract: | This paper studies the determinants of hiring. We use the search-matching model with imperfect competition in the product market from Carlsson, Eriksson and Gottfries (2011) to derive an equation for total hiring in a local labor market, and estimate it on Swedish panel data. When product markets are imperfectly competitive, product demand shocks have a direct effect on employment. Our results show that product demand is important for hiring. Moreover, we show that conventional measures of vacancies do not fully capture the effect of product demand on hiring. Finally, we show that the number of unemployed workers has a positive effect on hiring as predicted by search-matching models. |
| Keywords: | Hiring; Search-matching; Imperfect Competition; Unemployment |
| JEL: | E24 J23 J64 |
| Date: | 2011–12–21 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uunewp:2011_019&r=mac |
| By: | John Hatgioannides (City University); Marika Karanassou (Queen Mary, University of London and IZA) |
| Abstract: | In this paper we aim to trace the roots of the ongoing economic mayhem and to unmask the chorus of the tragedy which plays on the world stage. The main thesis of our work is that, despite the triumphant rhetoric praising the merits of perfect competition, the global fields of the dysfunctional market system have mushroomed in what we call <i>Warrant Economics for the Free-Market Aristocracy</i>. Warrant Economics unfolds in two symbiotic tenets that constitute the subtle architecture of the neoliberal edifice: (i) the systemic creation and preservation of inequality via Call-Put policy options, and (ii) the systemic exploitation of inequality via novel and toxic forms of securitisation. In effect, the power structure of insiders' capitalism that we describe, through the costless appropriation of an intricate cobweb of Call-Put structures, has distorted competition and accelerated economic concentration. We view the income distribution effect, which favours the top 1%, and the business concentration effect, which gravitates competition towards oligopolistic/monopolistic industries, as the two sides of the Warrant Economics coin. We argue that the Warrant Economics state of capitalism has been legitimised by a degenerating research programme blossomed under the fallacy that economics is the "physics of society". In this faculty of thought, we perceive the Great Recession as a symptom of Warrant Economics, rather than as a tsunami-like event. |
| Keywords: | Warrant Economics, Call-Put policy options, Securitisation, Monopoly, Income distribution, Great Recession, Sovereign debt |
| JEL: | E66 G01 G10 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:qmw:qmwecw:wp686&r=mac |
| By: | Marco Cozzi (Queen's University) |
| Abstract: | This paper considers the macroeconomic implications of a set of empirical studies finding a high degree of dispersion in preference heterogeneity. It develops a model with both uninsurable idiosyncratic income risk and risk aversion heterogeneity to quantify their effects on wealth inequality. The results show that with the available estimates of the risk aversion distribution from PSID data the model can match the observed degree of wealth inequality in the U.S., accounting for the wealth Gini index in several cases. The model replicates well several features of the wealth distribution. However, the share of wealth held by the top 1% is still substantially underestimated. It is also shown that models without risk aversion heterogeneity underestimate the size of precautionary savings, and that the results are robust to both different income process specifications and to self-selection into risky jobs. |
| Keywords: | Wealth Inequality, Heterogeneous Agents, Incomplete Markets, Computable General Equilibrium |
| JEL: | E21 D52 D58 C68 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:qed:wpaper:1286&r=mac |
| By: | Fiorella De Fiore (European Central Bank (ECB) - Directorate General Research); Harald Uhlig (University of Chicago - Department of Economics) |
| Abstract: | We present a dynamic general equilibrium model with agency costs, where heterogeneous firms choose among two alternative instruments of external finance - corporate bonds and bank loans. We characterize the financing choice of firms and the endogenous financial structure of the economy. The calibrated model is used to address questions such as: What explains differences in the financial structure of the US and the euro area? What are the implications of these differences for allocations? We find that a higher share of bank finance in the euro area relative to the US is due to lower availability of public information about firms' credit worthiness and to higher efficiency of banks in acquiring this information. We also quantify the effect of differences in the financial structure on per-capita GDP. |
| Keywords: | Financial structure; agency costs; heterogeneity |
| JEL: | E20 E44 C68 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:bfi:wpaper:2011-004&r=mac |
| By: | Sazedj, Sharmin; Tavares, José |
| Abstract: | Barack Obama’s victory in the 2009 presidential elections in the United States is widely credited to his personal charisma and his extraordinary rhetorical powers, as revealed throughout the campaign. President Obama was inaugurated in the midst of the worst economic crisis in the country, when individuals and organizations yearned for leadership and signs of change. We code an array of rhetorical features in Obama´s main speeches and press conferences and assess their impact on stock returns of the Dow Jones, S&P 500, and NASDAQ indices, at 3 and 7 day time horizons. We find that words matter. Paragraphs matter, too. We also uncover how some of Obama´s rhetorical abilities that are politically effective seem to be perceived negatively by economic agents, and have a significant negative impact on stock returns. |
| Keywords: | Barack Obama; financial markets; political economy; speech content |
| JEL: | E44 G12 G14 H12 O51 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:8713&r=mac |
| By: | Ojo, Marianne |
| Abstract: | This paper aims to highlight why the harmonization of two major legislative frameworks, namely, Basel III and the Dodd Frank Act, will contribute immensely to resolving future global as well as regional financial crises. More specifically, the paper also aims to highlight the significance and importance of addressing the main transmission channels of financial instability and systemic risks at micro and macro prudential level as well as the need for consideration and redress of the obstacles confronted by Basel III – with particular regards to the impediment imposed by the Dodd Frank Wall Street Reform and Consumer Protection Act. |
| Keywords: | Basel III; Dodd Frank; credit ratings; financial crises; regulation; financial stability; systemic risks |
| JEL: | E02 K2 G2 D8 G01 |
| Date: | 2011–12–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35475&r=mac |
| By: | Francesco Caselli; Antonio Ciccone |
| Abstract: | How much would output increase if underdeveloped economies were to increase their levels of schooling? We contribute to the development accounting literature by describing a non-parametric upper bound on the increase in output that can be generated by more schooling. The advantage of our approach is that the upper bound is valid for any number of schooling levels with arbitrary patterns of substitution/complementarity. We also quantify the upper bound for all economies with the necessary data, compare our results with the standard development accounting approach, and provide an update on the results using the standard approach for a large sample of countries. |
| JEL: | E0 E00 E01 O0 O1 O10 O11 O15 O3 O30 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17656&r=mac |
| By: | Jean-Christophe Pereau (GREThA, Université Montesquieu Bordeaux IV); Nicolas Sanz (CEREGMIA, Université des Antilles et de la Guyane) |
| Abstract: | Dans le modèle WS-PS, lorsque les hypothèses de non-atomicitédes agents économiques et de libre entrée des entreprises sur le marché des biens sont retenues, l'économie peut être caractérisée par l'existence de plusieurs équilibres caractérisés par des niveaux d'emploi global et de salaire réel distincts. Nous montrons alors qu'une politique monétaire plus accomodante entraîne une diminution de l'emploi et des salaires réels à l'équilibre haut, en période de forte activité, mais qu'elle peut au contraire contribuer à les augmenter à l'équilibre bas, en période de récession. |
| Keywords: | emploi, formation des salaires, politique monétaire |
| JEL: | E24 E52 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:crg:wpaper:dt2011-02&r=mac |
| By: | Nicolas Chatelais (Centre d'Economie de la Sorbonne) |
| Abstract: | In this paper, we focus on the concept of size of country (or economy). Specifically, within the European Union (EU), we look for growth discrepancies between countries according to their size. We try to explain growth differential using arguments related to the size of countries. Thus, we highlight that the European construction, in particular, the Economic and Monetary Union (EMU) is an asymmetric process favoring both small countries and the development of non-cooperative growth policies. Among them, we are particularly interested in the introduction of tax competition as a growth policy in some countries. This policy should be seen as an opportunist strategy of small countries harmful for the overall growth of the EU. |
| Keywords: | Country size, free-riding, non-cooperative behaviors, European Union, small countries. |
| JEL: | E02 E62 F2 H30 H32 H73 H77 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:11081&r=mac |
| By: | Eric van Wincoop |
| Abstract: | The 2008-2009 financial crises, while originating in the United States, witnessed a drop in asset prices and output that was at least as large in the rest of the world as in the United States. A widely held view is that this was the result of global transmission through leveraged financial institutions. We investigate this in the context of a simple two-country model. The paper highlights what the various transmission mechanisms associated with balance sheet losses are, how they operate, what their magnitudes are and what the role is of different types of borrowing constraints faced by leveraged institutions. For realistic parameters we find that the model cannot account for the global nature of the crisis, both in terms of the size of the impact and the extent of transmission. |
| JEL: | E32 F3 F4 G12 G2 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17686&r=mac |
| By: | Jeroen Klomp; Jakob de Haan |
| Abstract: | Using data for more than 200 banks from 21 OECD countries for the period 2002 to 2008, we examine the impact of bank regulation and supervision on banking risk using quantile regressions. In contrast to most previous research, we find that banking regulation and supervision has an effect on the risks of high-risk banks. However, most measures for bank regulation and supervision do not have a significant effect on low-risk banks. As banking risk and bank regulation and supervision are multifaceted concepts, our measures for both concepts are constructed using factor analysis. |
| Keywords: | Financial soundness; Bank regulation and supervision; Banking risk; Quantile regression |
| JEL: | E44 G2 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:323&r=mac |
| By: | Nicolas Chatelais (Centre d'Economie de la Sorbonne) |
| Abstract: | In this paper, we pursue several goals ; we first check if the downward trend in corporate income tax rates in Europe reflects a strategy of tax competition, and not a "yardstick competition" in neighboring countries. We estimate the scale of fiscal externalities on neighboring countries in terms of taxable domestic resources outflows. Then, we discriminate the European countries according to their size in order to verify the theory of Bucovetsky (1991) and Wilson (1991) which predict a higher elasticity of tax bases in small countries. We use a panel of 25 European countries over the period 1995-2007 using tools from spatial econometrics. We show that the common trend to lower the corporate income tax rate can be partially explained by the existence of fiscal spillovers throw international flows of resources. Tax rates setting behaviors are interdependent and are evidences of tax competition in Europe. |
| Keywords: | Strategic interactions, tax behaviors, spatial econometrics, European Union, tax competition, small countries, tax base elasticity. |
| JEL: | E62 F21 F22 F23 H30 H32 H73 H77 R12 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:11079&r=mac |