nep-mac New Economics Papers
on Macroeconomics
Issue of 2012‒01‒10
eleven papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Business cycles in a small open economy: The case of Hong Kong. By Paulina Etxeberria-Garaigorta.; Amaia Iza
  2. Testing for Explosive Behaviour in Relative Inflation Measures: Implications for Monetary Policy By Vipin Arora; Pedro Gomis-Porqueras; Shuping Shi
  3. Multilateral Economic Cooperation and the International Transmission of Fiscal Policy By Giancarlo Corsetti; Gernot J. Müller
  4. Clarity of Central Bank Communication About Inflation By Ales Bulír; Martin Cihák; David-Jan Jansen
  5. Fiscal multipliers are not necessarily that large: a comment on Eggertsson (2010) By Lorant, Kaszab
  6. Low Interest Rates and Housing Bubbles: Still No Smoking Gun By Kenneth Kuttner
  7. Energy and the State of Nations By Lindenberger, Dietmar; Kuemmel, Rainer
  8. Taxation and Migration: Policies to Manage a Resource Boom By Ratbek Dzhumashev; Jaai Parasnis
  9. La calidad institucional en Argentina en el largo plazo By María Florencia Aráoz
  10. Fiscal Deficit cannot be reduced by increasing Taxes (A point to ponder from Pakistan) By Hasan, Dr. Syed Akif; Subhani, Dr. Muhammad Imtiaz; Osman, Ms. Amber
  11. An investigation of granger causality between tax revenues and government expenditures By Hasan, Dr. Syed Akif; Subhani, Dr. Muhammad Imtiaz; Osman, Ms. Amber

  1. By: Paulina Etxeberria-Garaigorta. (Department of Economics, University of Pennsylvania, visiting scholar.); Amaia Iza (Departamento de Fundamentos del Análisis Económico II, Universidad del País Vasco)
    Abstract: This paper analyzes the business cycle properties of the Hong Kong economy during the 1982-2004 period, which includes the financial crisis experienced in 1997-98. We show that output, output growth rate and real interest rates volatilities in Hong Kong are higher than their respective average volatilities among developed economies. In this paper, we build a stochastic neoclassical small open economy model that seeks to replicate the main business cycle characteristics of Hong Kong, and through which we try to quantify the role played by exogenous Total Factor Productivity (transitory and permanent), real interest rates shocks and financial frictions. The main findings are that the trend volatility has to be higher than the volatility of the transitory fluctuations around the trend; that the volatility of real interest rates are mainly due to country risk spread, and that financial frictions matter to explain real interest rates countercyclicality.
    Keywords: Business cycles, Financial Frictions, Total Factor Productiviy, Country Risk Spread,
    JEL: E13 E32 F41
    Date: 2011–12–29
  2. By: Vipin Arora; Pedro Gomis-Porqueras; Shuping Shi
    Abstract: In this paper we test for large deviations in headline measures of the price level relative to core measures using the recently proposed test of Phillips et al. (2011a). We find evidence of explosive behaviour in the headline price index of personal consumption expenditures (PCE) relative to the core PCE (less food and energy prices) on three occasions from 1982-2010. Two of these episodes correspond to energy supply shocks (OPEC price collapse of 1986 and Hurricane Katrina). The third one is during March 2008 through September 2008 which seems to be driven by both food and energy prices as these indices exhibit explosive behaviour. We also find evidence suggesting that inflation expectations behave differently under normal and explosive periods. In particular, unemployment and interest rates also help predict inflation expectations during explosive episodes relative to normal times. Furthermore, explosive episodes in the relative measure between headline and core inflation is found to be more important than the relative volatile periods implied by a Markov-switching model when studying inflation expectations. The findings of this paper suggest that explosive behaviour of headline versus core PCE should be taken into account when conducting monetary policy as it is a key determinant in consumers’ inflation expectations.
    Keywords: Explosive behaviour, core inflation, relative measure, inflation expectations
    JEL: C5 E31
    Date: 2011–12
  3. By: Giancarlo Corsetti; Gernot J. Müller
    Abstract: During the global financial crisis 2007–2009 fiscal policy was widely used as a stabilization tool. Policymakers allowed a large build-up of public debt resulting from both automatic and discretionary expansionary measures. At the same time, calls for policy coordination stressed that international spillovers of fiscal policy might be sizeable. We reconsider the case for fiscal coordination by providing new evidence on the cross-border effects of discretionary fiscal measures. We rely on a vector autoregression model as well as on a quantitative business cycle model. We find that i) large spillover effects cannot be ruled out and, in contrast to conventional wisdom, ii) financial factors rather than trade flows lie at the heart of the international transmission mechanism. We discuss the implications of these results for policy coordination when markets price sovereign default risk, and put pressure on governments for implementing budget consolidation measures.
    JEL: E62 F42
    Date: 2011–12
  4. By: Ales Bulír; Martin Cihák; David-Jan Jansen
    Abstract: This paper examines whether the clarity of central bank communication about inflation has changed with the economic environment. We use readability statistics and content analysis to study the clarity of communication on the inflation outlook by seven central banks between 1997 and 2010. Overall, we find no strong indications that central banks were less clear in explaining their policies when faced with higher uncertainty or a less favorable inflation outlook. The global financial crisis, however, did have a negative impact on clarity of central bank communication.
    Keywords: monetary policy; communication; inflation; clarity; transparency
    JEL: E52 E58
    Date: 2011–12
  5. By: Lorant, Kaszab
    Abstract: This paper comments on Eggertsson (2010a) who argued that some fiscal policy measures like an increase in government spending or sales tax cut can be very effective in the recent peculiar environment of zero Federal Funds rate in the US. In particular, we show that the size of multipliers depends on the type of factor market structure (economy-wide or specific) we assume. Regarding the robustness of the results of Eggertsson (2010a) we argue that multipliers under zero nominal interest rate are a magnitude higher than those with positive interest only if the fiscal stimulus is sufficiently long (around ten years under specific labor market). Our work confirms and extends the results of Christiano (2010) who questioned the quantitative nature of the wage tax hike multiplier of Eggertsson (2010a).
    Keywords: iscal policy; multipliers; homogenous factor market; heterogenous factor market; zero nominal interest
    JEL: E62 E52
    Date: 2011–09–30
  6. By: Kenneth Kuttner (Williams College)
    Abstract: This paper revisits the relationship between interest rates and house prices. Surveying a number of recent studies and bringing to bear some new evidence on the question, this paper argues that in the data, the impact of interest rates on house prices appears to be quite modest. Specifically, the estimated effects are uniformly smaller than those implied by the conventional user cost theory of house prices, and they are too small to explain the previous decade’s real estate boom in the U.S. and elsewhere. However in some countries, there does appear to have been a link between the rapid expansion of the monetary base and growth in house prices and housing credit.
    JEL: E52 E44 E65
    Date: 2012–01
  7. By: Lindenberger, Dietmar (Energiewirtschaftliches Institut an der Universitaet zu Koeln); Kuemmel, Rainer (Energiewirtschaftliches Institut an der Universitaet zu Koeln)
    Abstract: The mathematical conditions for the existence of macroeconomic production functions that are state functions of the economic system are pointed out. The output elasticities and the elasticities of substitution of energy-dependent Cobb-Douglas, CES and LinEx production functions are calculated. The output elasticities, which measure the productive powers of production factors and whose numerical values have been obtained for Germany, Japan, and the USA, are for energy much larger and for labor much smaller than the cost shares of these factors. Energy and its conversion into physical work accounts for most of the growth that mainstream economics attributes to “technological progress” and related concepts. It decisively determines the economic state of nations. Consequences for automation and globalization and perspectives on growth are discussed.
    Keywords: energy; economic growth; macroeconomic production functions; output elasticities
    JEL: E23 O41 Q43
    Date: 2011–12–28
  8. By: Ratbek Dzhumashev; Jaai Parasnis
    Abstract: The Australian economy is currently experiencing a resource boom and policy responses to this boom such as migration and taxation, as well as the broader role of monetary and fiscal policies are the subject of academic as well as public debate. This paper investigates the impact of a resource boom in a dynamic macroeconomic model, focusing on the allocation of resources across sectors and changes in income distribution. Further, the paper contributes to the current policy debate by analysing the role and effectiveness of government policy through its migration policy and taxation of the mining sector, in addressing the short run and steady state impacts of a resource boom. Results illustrate that while increased immigration is an appropriate short run response, long run welfare can be enhanced by higher taxation of the mining sector. Indeed, results show that increased tax revenue can fund appropriate transfers to mitigate the adverse effects on labour income and provision of public goods to increase productivity in the rest of the economy.
    Keywords: Dutch Disease, natural resources, economic growth, income distribution
    JEL: E25 E60 H20 Q33 Q38
    Date: 2011–12
  9. By: María Florencia Aráoz
    Abstract: La evolución de la economía argentina en el período 1862-2008 ha sido por lo menos desconcertante. Entre 1860 y 1930 Argentina creció a un ritmo con pocos paralelos en la historia económica mundial. En los años siguientes, sin embargo, comenzó un proceso de desaceleración y estancamiento que paulatinamente la alejó de esa posición privilegiada. Diversos autores han intentado explicar las causas de este comportamiento y aunque algunos destacan el papel negativo de un marco institucional débil, este enfoque ha sido escasamente abordado desde una perspectiva empírica y de largo plazo. Este trabajo presenta el primer indicador multidimensional de calidad institucional para Argentina en el largo plazo (1862-2008) tomando en cuenta variables que aseguren o refuercen el respeto por los derechos de propiedad, tales como Cambios en la Constitución Nacional y en las Constituciones Provinciales, la estabilidad del sistema político, medida a través de las interrupciones al orden democrático, declaraciones de Estado de Sitio e Intervenciones Federales, así como variables vinculadas al funcionamiento de la economía, tales como Presupuesto, Independencia del Banco Central, Coparticipación de Impuestos, entre otras. La calidad institucional medido por el indicador propuesto sugiere que la calidad institucional fue relativamente alta hasta aproximadamente 1930 cuando no sólo el nivel promedio baja sino que también la volatilidad del mismo aumenta.
    Keywords: Instituciones, Indicadores, Argentina
    JEL: E02 C43 O17
    Date: 2011–12
  10. By: Hasan, Dr. Syed Akif; Subhani, Dr. Muhammad Imtiaz; Osman, Ms. Amber
    Abstract: In Pakistan the budget deficits have consistently at increasing trend from 1995 to onwards which is being financed by the governments of now and then through external and domestic borrowing which are resulting a high debt levels due to high interest cost associated with it and this all pave the way for an increase in forthcoming taxes levy by the government time to time. This paper is an empirical investigation of the proposition that Fiscal deficit cannot be reduced by increasing taxes. The finding reveals that an increase in taxes is not the better choice for tackling the jinni of fiscal deficit.
    Keywords: Fiscal deficit; Tax Collection; Error correction model (ECM); ADF unit root test
    JEL: E62
    Date: 2012
  11. By: Hasan, Dr. Syed Akif; Subhani, Dr. Muhammad Imtiaz; Osman, Ms. Amber
    Abstract: The nexus between government revenue and government expenditure always wins the attention of policy makers and think tanks while they work four making fiscal policies for an economy. This paper is an empirical investigation on the unidirectional causality between government expenditures and the revenues, which government collects from public in shape of various levied taxes. Annual data for Pakistan from the period of 1979 to 2010 for governmental expenditures and its tax revenue have been collected. While, the unidirectional and bidirectional causality were interrogated via applying Granger causality for the outlined variables. The results indicate that there is an uni-directional causality between the expenditures and revenues, which runs from tax revenues to govt. expenditures, that is the previous lags of tax revenue has a causal impact on the current govt. spending.
    Keywords: tax revenue; government expenditure; fiscal policy; granger causality;economy
    JEL: E62
    Date: 2011

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