|
on Macroeconomics |
|
Issue of 2012‒01‒18
fifty-four papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Levine, Paul (University of Surrey); Pearlman, Joseph (London Metropolitan University) |
| Abstract: | We develop a optimal rules-based interpretation of the 'three pillars macroeconomic policy framework': a combination of a freely floating exchange rate, an explict target for inflation, and a mechanism than ensures a stable government debt-GDP ratio around a specified long run. We show how such monetary-fiscal rules need to be adjusted to accommodate specific features of emerging market economies.The model takes the form of two-blocs, a DSGE emerging small open economy interacting with the rest of the world and features, in particular, financial frictions. It is calibrated using India and US data. Alongside the optimal Ramsey policy benchmark, we model the three pillars as simple monetary and fiscal rules including and both domestic and CPI inflation targeting interest rate rules. A comparison with a fixed exchange rate regime is ade. We find that domestic inflation targeting is superior to partially or implicitly (through a CPI inflation target) or fully attempting to stabilizing the exchange rate. Financial frictions require fiscal policy to play a bigger role and lead to an increase in the costs associated with simple rules as opposed to the fully optimal policy. These policy prescriptions contrast with the monetary-fiscal policy stance of the Indian authorities. |
| Keywords: | Monetary policy ; Emerging economies ; Fiscal and monetary rules ; Financial accelerator ; Liability dollarization |
| JEL: | E52 E37 E58 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:11/96&r=mac |
| By: | Maral Shamloo |
| Abstract: | In this paper we study the dynamics of inflation in Macedonia, provide three forecasting tools and draw some policy conclusions from the quantitative results. We explore three forecasting methods for inflation. We use a Dynamic Factor Model (DFM) for short-term, monthly forecasting. We also develop two quarterly models: A Vector Error Correction Model (VECM), and a New Keynesian Phillips Curve (NKPC) for a more structural model of inflation. The NKPC shows a significant effect of output gap and inflation expectations on current inflation, confirming that the expectations channel of monetary transmission mechanism is strong. In terms of forecast-error variance, we show that all three models do very well in one-period ahead forecasting. |
| Keywords: | Forecasting models , Inflation , Interest rates , Macedonia, former Yugoslav Republic of , Monetary policy , |
| Date: | 2011–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/287&r=mac |
| By: | Michal Franta; Roman Horvath; Marek Rusnak |
| Abstract: | We investigate the evolution of the monetary policy transmission mechanism in the Czech Republic over the 1996–2010 period by employing a time-varying parameters Bayesian vector autoregression model with stochastic volatility. We evaluate whether the response of GDP and the price level to exchange rate or interest rate shocks changes over time, with a focus on the period of the recent financial crisis. Furthermore, we augment the estimated system with a lending rate and credit growth to shed light on the relative importance of financial shocks for the macroeconomic environment. Our results suggest that output and prices have become increasingly responsive to monetary policy shocks, probably reflecting financial sector deepening, more persistent monetary policy shocks, and overall economic development associated with disinflation. On the other hand, exchange rate pass-through has weakened somewhat over time, suggesting improved credibility of inflation targeting in the Czech Republic with anchored inflation expectations. We find that credit shocks had a more sizeable impact on output and prices during the period of bank restructuring with difficult access to credit. In general, our results show that financial shocks are less important for the aggregate economy in an environment of a stable financial system. |
| Keywords: | Monetary policy transmission, sign restrictions, time-varying parameters. |
| JEL: | E44 E52 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2011/13&r=mac |
| By: | Claeys Peter; Maravalle Alessandro |
| Abstract: | The Financial Crisis has hit particularly hard countries like Ireland or Spain. Procyclical fiscal policy has contributed to a boom-bust cycle that undermined fiscal positions and deepened current account deficits during the boom. We set up an RBC model of a small open economy, following Mendoza (1991), and introduce the effect of fiscal policy decisions that change over the cycle. We calibrate the model on data for Ireland, and simulate the effect of different spending policies in response to supply shocks. Procyclical fiscal policy distorts intertemporal allocation decisions. Temporary spending boosts in booms spur investment, and hence the need for external finance, and so generates very volatile cycles in investment and the current account. This economic instability is also harmful for the steady state level of output. Our model is able to replicate the relation between the degree of cyclicality of fiscal policy, and the volatility of consumption, investment and the current account observed in OECD countries. |
| Keywords: | RBC, current account, small open economy, fiscal rule, spending |
| JEL: | E32 E62 F41 H62 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:ter:wpaper:0090&r=mac |
| By: | G. PEERSMAN |
| Abstract: | I find that the Eurosystem can stimulate the economy beyond the policy rate by increasing the size of its balance sheet or the monetary base, that is so-called quantitative easing. The transmission mechanism turns out to be different compared to traditional interest rate innovations: (i) whilst the effects on economic activity and consumer prices reach a peak after about one year for an interest rate innovation, this is more than six months later for a shift in the monetary base that is orthogonal to the policy rate (ii) interest rate spreads charged by banks decline persistently after quantitative easing policies, whereas the spreads increase significantly after a fall in the policy rate (iii) there is no significant short-run liquidity effect after an interest rate innovation, that is additional bank loans are generated by a greater credit multiplier. In contrast, the multiplier declines considerably after an expansion of the Eurosystem’s balance sheet. |
| Keywords: | Unconventional monetary policy, SVARs |
| JEL: | C32 E30 E44 E51 E52 |
| Date: | 2011–07 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:11/734&r=mac |
| By: | Ruy Lama; Carlos Urrutia |
| Abstract: | We build a small open economy, real business cycle model with labor market frictions to evaluate the role of employment protection in shaping business cycles in emerging economies. The model features matching frictions and an endogenous selection effect by which inefficient jobs are destroyed in recessions. In a quantitative version of the model calibrated to the Mexican economy we find that reducing separation costs to a level consistent with developed economies would reduce output volatility by 15 percent. We also use the model to analyze the Mexican crisis episode of 2008 and conclude that an economy with lower separation costs would have experienced a smaller drop in output and in measured total factor productivity with no significant change in aggregate employment. |
| Keywords: | Business cycles , Economic models , Economic recession , Emerging markets , Employment , External shocks , Labor markets , |
| Date: | 2011–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/293&r=mac |
| By: | Xu, T.T. |
| Abstract: | The recent financial crisis raises important issues about the role of credit in international business cycles and the transmission of financial shocks across country borders. This paper investigates the international spillover of US credit shocks and the importance of credit in explaining business cycle fluctuations using a global vector autoregressive (GVAR) model with credit, estimated over the period 1979Q2 to 2006Q4 for 26 major advanced and emerging economies. Results from the country-specific models reveal the importance of bank credit in explaining output growth, changes in inflation and long term interest rates in countries with developed banking sector. The generalized impulse response function (GIRF) for a one standard error negative shock to US real credit provides strong evidence of the spillover of US credit shock to the UK, the Euro area, Japan and other industrialized economies. |
| JEL: | C32 G21 E44 E32 |
| Date: | 2012–01–05 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1202&r=mac |
| By: | Jochen Michaelis (University of Kassel) |
| Abstract: | In this paper we introduce the cost channel of monetary policy (e.g., Ravenna and Walsh, 2006) into an otherwise standard New Keynesian model of a two-country monetary union, which is being hit by aggregate, asymmetric and idiosyncratic shocks. The single central bank implements the optimal discretionary monetary policy by setting the union interest rate. The cost channel makes monetary policy less effective in combating in?action, but it is shown that the optimal response to the decline in effectiveness is a stronger use of the instrument. Moreover, we show how the sign of the spillover effects of idiosyncratic shocks depends on the strength of the cost channel. If the cost channel exceeds a well-defined threshold, then the interest rate turns into a supply-side instrument. |
| Keywords: | cost channel; optimal monetary policy; monetary union; open economy macroeconomics |
| JEL: | E E F |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201203&r=mac |
| By: | KANIK, Birol |
| Abstract: | This paper evaluates different types of simple monetary policy rules according to the determinacy and learnability of rational expectations equilibrium criteria within a dynamic stochastic general equilibrium framework. Incorporating housing prices and collateralized borrowing into the standard model allow us to answer important policy questions. One objective is to investigate whether responding to housing prices affects determinacy and learnability of rational expectations equilibrium. For this purpose, we work with a New Keynesian model in which housing plays an accelerator role in business cycles as a collateralized asset. The results show that for current data rule, responding to asset prices does not improve learnable outcomes but for a monetary policy with lagged data and forward-looking rules we see improved learnable outcome if current housing prices are available to monetary authority. Moreover, we examine the effects of interest rate inertia and price stickiness on E-stability of REE. |
| Keywords: | monetary policy rules; determinacy; learning; housing prices |
| JEL: | E5 E4 E3 |
| Date: | 2011–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35782&r=mac |
| By: | Birol Kanik |
| Abstract: | This paper evaluates different types of simple monetary policy rules according to the determinacy and learnability of rational expectations equilibrium criteria within a dynamic stochastic general equilibrium framework. Incorporating housing prices and collateralized borrowing into the standard model allow us to answer important policy questions. One objective is to investigate whether responding to housing prices affects determinacy and learnability of rational expectations equilibrium. For this purpose, we work with a New Keynesian model in which housing plays an accelerator role in business cycles as a collateralized asset. The results show that for current data rule, responding to asset prices does not improve learnable outcomes but for a monetary policy with lagged data and forward-looking rules we see improved learnable outcome if current housing prices are available to monetary authority. Moreover, we examine the effects of interest rate inertia and price stickiness on E-stability of REE. |
| Keywords: | monetary policy rules, determinacy, learning, housing prices |
| JEL: | E3 E4 E5 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1203&r=mac |
| By: | Andrés Fernández |
| Abstract: | Can frictionless small open economy models driven solely by technology shocks account for business cycles in developing countries? We don't find evidence of it. We build a DSGE model that jointly includes a variety of real perturbations in addition to technology shocks, such as procyclical fiscal policies; terms of trade fluctuations; and perturbations to the foreign interest rate coupled with financial frictions and estimate it using Bayesian methods on high and low frequency data from a developing -and "tropical"- country, Colombia. We find interest rate shocks to be crucial andthat financial frictions play a central role as propagating mechanisms of transitory technology shocks. These two driving forces alone can account well for the observed properties of the Colombian business cycle. Other structural shocks such as terms of trade fluctuations and level shifts in the technology process do not appear to be relevant in the past decade and a half, but their importance increases when a longer span of data is considered. |
| Date: | 2011–09–06 |
| URL: | http://d.repec.org/n?u=RePEc:col:000089:009248&r=mac |
| By: | Batini, Nicoletta (IMF and University of Surrey); Levine, Paul (University of Surrey); Lotti, Emanuela (University of Surrey); Yang, Bo (University of Surrey) |
| Abstract: | How does informality in emerging economies affect the conduct of monetary and fiscal policy? To answer this question we construct a two-sector, formal-informal new Keynesian closed-economy. The informal sector is more labour intensive, is untaxed, has a classical labour market, faces high credit constraints in financing investment and is less visible in terms of observed output. We compare outcomes under welfare- optimal monetary policy, discretion and welfare-optimized interest-rate Taylor rules alongside a balanced-budget fiscal regime. We compare the model, first with no frictions in these two markets, then with frictions in only the formal labour market and finally with frictions on both credit markets and the formal labour market. Our main conclusions are first, labour and financial market frictions, the latter assumed to be stronger in the informal sector, cause the time-inconsistency problem to worsen. The importance of commitment therefore increases in economies characterized by a large informal sector with the features we have highlighted. Simple implementable optimized rules that respond only to observed aggregate inflation and formal-sector output can be significantly worse in welfare terms than their optimal counterpart, but are still far better than discretion. Simple rules that respond, if possible, to the risk premium in the formal sector result in a significant welfare improvement. |
| Keywords: | Informal economy ; Emerging economies ; Labour market ; Credit market ; Tax policy ; Interest rate rules |
| JEL: | J65 E24 E26 E32 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:11/97&r=mac |
| By: | Ola Honningdal Grytten (Norwegian School of Economics and Business Administration and Norges Bank (Central Bank of Norway)) |
| Abstract: | On the basis of data from the Historical Monetary Statistics-project by Norges Bank, the present paper serves a threefold purpose. In the first place it gives an overview of financial crisis in Norway from her independence from Denmark in 1814 till present times. Secondly, historical business cycles are mapped and we conclude that the major financial crises were mirrored in significant slumps in the real economy. Thirdly, the paper investigates credit and monetary developments, and concludes that the major financial crises in Norway typically took place after substantial money and credit expansion causing overheating and bubbles to the economy. |
| Keywords: | Business cycles, supply of money and credit, Financial crises |
| JEL: | E32 E51 G01 N13 N14 |
| Date: | 2012–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2011_21&r=mac |
| By: | Harun Alp; Yusuf Soner Baskaya; Mustafa Kilinc; Canan Yuksel |
| Abstract: | This study documents the stylized facts about the business cycles in Turkey using quarterly data between 1987 and 2009. In particular, we document the business cycle turning points and average duration of cycles for Turkey, as well as the optimal smoothing parameter for Hodrick-Prescott (HP) filter estimated in line with our estimate of average business cycle duration for 1987-2009 period, 20 quarters, which is shorter compared to developed countries, and comparable to other developing countries. For filtering procedure, we use this estimated parameter, in addition to 1600, in HP filter and compare our findings. We find that business cycle relationships between macroeconomic variables in Turkey are mostly in accordance with the patterns observed for developing countries, which significantly differ from developed countries’ business cycle facts. In particular, the real side of the economy is characterized by high volatility of consumption and a countercyclical pattern for net exports. Other important findings are that financial variables such as credit or sovereign spreads are very volatile and strongly correlated with output. In addition, the results show that the properties of the relationship between economic activity, prices and the interest rates differs between pre-2001 and post-2001 period, whereas the relationship among the real variables shows a smaller change between these periods. |
| Keywords: | Nominal Business Cycle Facts, Real Business Cycle Facts, Turkish Economy |
| JEL: | E1 E3 E5 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:wpaper:1202&r=mac |
| By: | Gabriel, Vasco (University of Surrey); Levine, Paul (University of Surrey); Pearlman, Joseph (London Metropolitan University); Yang, Bo (University of Surrey and London Metropolitan University) |
| Abstract: | We develop a closed-economy DSGE model of the Indian economy and estimate it by Bayesian Maximum Likelihood methods using Dynare. We build up in stages to a model with a number of features important for emerging economies in general and the Indian economy in particular: a large proportion of credit-constrained consumers, a financial accelerator facing domestic firms seeking to finance their investment, and an informal sector. The simulation properties of the estimated model are examined under a generalized inflation targeting Taylor-type interest rate rule with forward and backward-looking components. We find that, in terms of model posterior probabilities and standard moments criteria, inclusion of the above financial frictions and an infor- mal sector significantly improves the model fit. |
| Keywords: | Indian economy ; DSGE model ; Bayesian estimation ; Monetary interest rate rules ; Financial frictions |
| JEL: | E52 E37 E58 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:npf:wpaper:11/95&r=mac |
| By: | Ivan Petrella (Department of Economics, Mathematics & Statistics, Birkbeck); Emiliano Santoro (Catholic University of Milan; University of Copenhagen) |
| Abstract: | This paper deals with the analysis of price-setting in U.S. manufacturing industries. Recent studies have heavily criticized the ability of the New Keynesian Phillips curve (NKPC) to fit aggregate inflation [see, e.g., Rudd and Whelan, 2006, Can Rational Expectations Sticky-Price Models Explain Inflation Dynamics?, American Economic Review, vol. 96(1), pp. 303-320]. We challenge this evidence, showing that forward-looking behaviour as implied by the New Keynesian model of price-setting is widely supported at the sectoral level. In fact, current and expected future values of the income share of intermediate goods emerge as an effective driver of inflation dynamics. Unlike alternative proxies for the forcing variable, the cost of intermediate goods presents dynamic properties in line with the predictions of the New Keynesian theory. |
| Keywords: | New Keynesian Phillips Curve; Aggregation; Sectoral Data; Intermediate Goods |
| JEL: | E31 L60 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:bbk:bbkefp:1202&r=mac |
| By: | Tatiana Damjanovic; Vladislav Damjanovic; Charles Nolan |
| Abstract: | The unconditional expectation of social welfare is often used to assess alternative macroeconomic policy rules in applied quantative research. It is shown that it is generally possible to derive a linear-quadratic problem that approximates the exact non-linear porblem where the unconditional expectation of the objective is maximised and the steady- state is distorted. Thus, the measure of policy performance is a linear combination of second moments of economic variables which is relatively easy to compute numerically, and can be used to rank alternative policy rules. The approach is applied to a simple Calvo-type model under various monetary policy rules. |
| Keywords: | Linear-quadratic approximation., unconditional expectations, optimal monetary policy, ranking simple policy rules. |
| JEL: | E20 E32 F32 F41 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2011_15&r=mac |
| By: | Serhan Cevik |
| Abstract: | This paper investigates the empirical characteristics of business cycles and the extent of cyclical comovement in the Gulf Cooperation Council (GCC) countries, using various measures of synchronization for non-hydrocarbon GDP and constituents of aggregate demand during the period 1990-2010. By applying the Christiano-Fitzgerald asymmetric band-pass filter and a mean corrected concordance index, the paper identifies the degree of non-hydrocarbon business cycle synchronization—one of the main prerequisites for countries considering to establish a monetary union. The empirical results show low and heterogeneous synchronization in non-hydrocarbon business cycles across the GCC economies, and a decline in the degree of synchronicity in the 2000s, if Kuwait is excluded from the sample, partly because of divergent fiscal policies. |
| Keywords: | Business cycles , Cooperation Council for the Arab States of the Gulf , Economic models , Hydrocarbons , Monetary unions , |
| Date: | 2011–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/286&r=mac |
| By: | Kamiar Mohaddes; Oral Williams |
| Abstract: | This paper uses a pairwise approach to investigate the main factors that have been driving inflation differentials in the Gulf Cooperation Council (GCC) region for the past two decades. The results suggest that inflation differentials in the GCC are largely influenced by the oil cycle, mainly through the credit and fiscal channels. This implies that closer coordination of fiscal policies will be key for facilitating the closer integration of the GCC economies and ahead of the move to a monetary union. The results also indicate that after controlling for cyclical factors, convergence increased even during the recent oil boom. |
| Keywords: | Business cycles , Cooperation Council for the Arab States of the Gulf , Inflation , Oil revenues , Oil sector , |
| Date: | 2011–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/294&r=mac |
| By: | Aurélien Eyquem (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure de Lyon); Hafedh Bouakez (CIRPEE - Centre interuniversitaire sur le risque, les politiques économiques et l'emploi - Centre Interuniversitaire sur le Risque, les Politiques Economiques et l'Emploi, HEC Montréal - HEC MONTRÉAL) |
| Abstract: | A robust prediction across a wide range of open-economy macroeconomic models is that an unanticipated increase in public spending in a given country appreciates it currency in real terms. This result, however, contradicts the findings of a number of recent empirical studies, which instead document a signifi...cant and persistent depreciation of the real exchange rate following an expansionary government spending shock. In this paper, we rationalize the findings of the empirical literature by proposing a small-open-economy model that features three key ingredients : incomplete and imperfect international financial markets, sticky prices, and a not-too-aggressive monetary policy. The model predicts that in response to an unexpected increase in public expenditures, the risk-adjusted long-term real interest rate falls, causing the real exchange rate to depreciate. We establish this result both analytically, within a special version of the model, and numerically for the more general case. |
| Keywords: | Real exchange rate; public spending shocks; small open economy; sticky prices; monetary policy |
| Date: | 2012–01–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00655972&r=mac |
| By: | Hafedh Bouakez (HEC Montréal and CIRPÉE, 3000 chemin de la Côte-Sainte-Catherine, Montréal, Québec, Canada H3T 2A7.); Aurélien Eyquem (Université de Lyon, Lyon, F-69007, France ; Ecole Normale Supérieure de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne, Ecully, F-69130, France ; and GREDI, Canada) |
| Abstract: | A robust prediction across a wide range of open-economy macroeconomic models is that an unanticipated increase in public spending in a given country appreciates it currency in real terms. This result, however, contradicts the findings of a number of recent empirical studies, which instead document a significant and persistent depreciation of the real exchange rate following an expansionary government spending shock. In this paper, we rationalize the findings of the empirical literature by proposing a small-open-economy model that features three key ingredients : incomplete and imperfect international financial markets, sticky prices, and a not-too-aggressive monetary policy. The model predicts that in response to an unexpected increase in public expenditures, the risk-adjusted long-term real interest rate falls, causing the real exchange rate to depreciate. We establish this result both analytically, within a special version of the model, and numerically for the more general case. |
| Keywords: | Real exchange rate, public spending shocks, small open economy, sticky prices, monetary policy. |
| JEL: | F31 F41 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1139&r=mac |
| By: | Nicolás De Roux |
| Abstract: | I use the measures of frequency of price adjustment in Nakamura and Steinsson (2008) to show that stickier price industries have higher levels of output response to monetary policy shocks. Using a Vector Auto-regression model, I build different measures of response to a monetary policy shock of 14 US industries. These measures are shown to be related to the level of price rigidity. More precisely, I find that if firms within an industry change prices twice as often as firms in another industry, output deviation from trend in response to a negative shock of 25 basis points will be 69 percentage points smaller in the less sticky industry. This result is stronger when I account for measurement error in the level of response. |
| Date: | 2011–09–14 |
| URL: | http://d.repec.org/n?u=RePEc:col:000089:009244&r=mac |
| By: | Andrés Fernández; Felipe Meza |
| Abstract: | Motivated by the fact that, over the business cycle, labor dynamics in emerging economies differ in nontrivial ways from those observed in developed economies, we assess the relative importance of trend shocks in emerging economies in the business cycle model of Aguiar and Gopinath (2007) when labor data is explicitly taken into account. We study Mexico and Canada as representatives of emerging and developed economies, respectively. We find for Mexico that, in the benchmark case with Cobb-Douglas preferences, the income effect on consumption of trend shocks is too strong, delivering countercyclical and counterfactual fluctuations in employment. The model faces a trade-off between, on the one hand, having sizeable growth shocks, thereby having a good match in terms of relatively high consumption volatility, and, on the other, having procyclical employment dynamics. This is remedied when both quasilinear preferences are assumed and the identification strategy explicitly takes into consideration labor dynamics. In this case trend shocks continue to be relatively stronger in emerging economies. Additionally, we find that differences in labor dynamics across emerging and developing economies are associated with the relatively large informal labor sector in emerging economies. It is in this dimension, when trying to match the dynamics of formal employment, that we find less evidence supporting an important role of trend shocks as being the main driving force of business cycles in emerging economies. |
| Date: | 2011–09–13 |
| URL: | http://d.repec.org/n?u=RePEc:col:000089:009249&r=mac |
| By: | Mohamed Tahar Benkhodja (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure de Lyon) |
| Abstract: | In this paper, we 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 |
| Date: | 2011–12–22 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00654511&r=mac |
| By: | Campbell Leith; Ioana Moldovan; Simon Wren-Lewis |
| Abstract: | In models with a representative infinitely lived household, modern versions of tax smoothing imply that the steady-state of government debt should follow a random walk. This is unlikely to be the case in OLG economies, where, the equilibrium interest rate may differ from the policy-maker’s rate of time preference such that it may be optimal to reduce debt today to reduce distortionary taxation in the future. Moreover, the level of the capital stock (and therefore output and, possibly, consumption) in these economies is likely to be sub-optimally low, and reducing government debt will ‘crowd in’ additional capital. Using an elaborate version of the model of perpetual youth developed by Blanchard (1985) and Yaari (1965), we derive the optimal steady state level of government assets. We show how and why this level of government assets falls short of the level of debt that achieves the optimal capital stock and the level that eliminates income taxes. |
| Keywords: | Non-Ricardian consumers, macroeconomic stability, distortionary taxes |
| JEL: | E21 E32 E63 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2011_23&r=mac |
| By: | Jim Malley; Ulrich Woitek |
| Abstract: | Employing an endogenous growth model with human capital, this paper explores how productivity shocks in the goods and human capital producing sectors contribute to explaining aggregate fluctuations in output, consumption, investment and hours. Given the importance of accounting for both the dynamics and the trends in the data not captured by the theoretical growth model, we introduce a vector error correction model (VECM) of the measurement errors and estimate the model’s posterior density function using Bayesian methods. To contextualize our findings with those in the literature, we also assess whether the endogenous growth model or the standard real business cycle model better explains the observed variation in these aggregates. In addressing these issues we contribute to both the methods of analysis and the ongoing debate regarding the effects of innovations to productivity on macroeconomic activity. |
| Keywords: | Endogenous growth, human capital, real business cycles, VEC Mmeasurement errors, Bayesian estimation |
| JEL: | C11 C52 E32 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2011_20&r=mac |
| By: | Francesco Spadafora; Emidio Cocozza; Andrea Colabella |
| Abstract: | This paper analyzes the impact of the global crisis on six South-Eastern European countries. The main objective is to compare macro-financial conditions and policies in the run-up to the crisis as well as to compare the policy responses to it, so as to highlight, inter alia, possible country-specific constraints. While sharing a common pre-crisis pattern of strong capital inflows and robust growth, a key difference in the conduct of macroeconomicpolicies is that some countries adopted expansionary (and procyclical) fiscal policies. These moves exacerbated external vulnerabilities and compromised the ability to discretionarily use the fiscal instrument in acountercyclical fashion. |
| Keywords: | Banks , Capital flows , Credit expansion , Credit risk , Current account deficits , Eastern Europe , Economic growth , External debt , Financial crisis , Financial sector , Fiscal consolidation , Fiscal policy , Global Financial Crisis 2008-2009 , Monetary policy , |
| Date: | 2011–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/300&r=mac |
| By: | Alexandre Janiak; Paulo Santos Monteiro |
| Abstract: | Employment volatility is larger for young workers than for prime aged. At the same time, in economies with high tax rates the share of total market hours supplied by the young workers is smaller. These two observations imply a negative correlation between government size (measured by the share of taxes in total output) and aggregate hours volatility. This paper assesses in a calibrated model the quantitative importance of these empirical facts to account for the relationship between government size and macroeconomic stability. |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:edj:ceauch:284&r=mac |
| By: | Dag Kolsrud and Ragnar Nymoen (Statistics Norway) |
| Abstract: | A standard model of equilibrium unemployment consists of static equations for real wage ambitions (wage curve) and real wage scope (price curve), which jointly determine the NAIRU. The heuristics of the model states that unless the rate of unemployment approaches the NAIRU from any given initial value, inflation will be increasing or decreasing over time. We formalize this influential heuristic argument with the aid of a dynamic model of the wage-price spiral where the static theory's equations are re-interpretated as attractor relationships. We show that NAIRU unemployment dynamics are sufficient but not necessary for inflation stabilization, and that the dynamic wage-price spiral model generally has a dynamically stable solution for any pre-determined rate of unemployment. We also discuss a restricted version of the model that conforms to the accelerationist view that inflation increases/falls if unemployment is not at its ‘natural rate’. |
| Keywords: | AS-AD; equilibrium-correction; imperfect competition; macroeconomics; NAIRU; Phillips curve; unemployment; wage-price spiral. |
| JEL: | E24 E30 J50 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:671&r=mac |
| By: | Stéphane Auray (CREST (Ensai), Université du Littoral Côte d’Opale (EQUIPPE), Université de Shebrooke (GREDI) and CIRPEE); Aurélien Eyquem (Université de Lyon, Lyon, F-69007, France ; Ecole Normale Supérieure de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne, Ecully, F-69130, France ; and GREDI, Canada); Paul Gomme (Concordia University and CIREQ) |
| Abstract: | Recent financial crises in Europe as well as the periodic battles in the U.S. over the debt ceiling point to the importance of fiscal discipline among developed countries. This paper develops an open economy model, calibrated to the U.S. and a subset of the EMU, to evaluate the impact of various permanent tax changes. The first set of experiments considers a targeted one percentage point reduction in the government deficit-to-GDP ratio through raising one of : the consumption tax, the labor income tax, or the capital income tax. In terms of welfare, the consumption tax is found to be the least costly of the tax increases. A second set of experiments looks at deficit-neutral tax changes : partially replacing the capital income tax with either a higher labor income tax or higher consumption tax ; and partially replacing the labor income tax with an increased consumption tax. Reducing reliance on capital income taxation is welfare-enhancing, although it leads to short term losses. Reducing labor income taxation improves international competitiveness and is welfare-improving. |
| Keywords: | Fiscal policies, open economies, public deficits, tax reforms |
| JEL: | E31 E62 F41 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1138&r=mac |
| By: | Stéphane Auray (EQUIPPE - ECONOMIE QUANTITATIVE, INTEGRATION, POLITIQUES PUBLIQUES ET ECONOMETRIE - Université des Sciences et Technologies de Lille - Lille I, CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique); Aurélien Eyquem (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure de Lyon, GREDI - Groupe de recherche en économie et développement international - Université de Sherbrooke); Paul Gomme (CIREQ - Centre interuniversitaire de recherche en économie quantitative - Université de Montréal, Université Concordia - Université Concordia) |
| Abstract: | Recent financial crises in Europe as well as the periodic battles in the U.S. over the debt ceiling point to the importance of fiscal discipline among developed countries. This paper develops an open economy model, calibrated to the U.S. and a subset of the EMU, to evaluate the impact of various permanent tax changes. The first set of experiments considers a targeted one percentage point reduction in the government deficit-to-GDP ratio through raising one of : the consumption tax, the labor income tax, or the capital income tax. In terms of welfare, the consumption tax is found to be the least costly of the tax increases. A second set of experiments looks at deficit-neutral tax changes : partially replacing the capital income tax with either a higher labor income tax or higher consumption tax ; and partially replacing the labor income tax with an increased consumption tax. Reducing reliance on capital income taxation is welfare-enhancing, although it leads to short term losses. Reducing labor income taxation improves international competitiveness and is welfare-improving. |
| Keywords: | fiscal policies; open economies; public deficits; tax reforms |
| Date: | 2012–01–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00655931&r=mac |
| By: | Cronin, David (Central Bank of Ireland); Dowd, Kevin (Cass Business School, City University, London) |
| Abstract: | This paper sets out a methodology for constructing fan charts for the government deficit and debt ratios over the medium-term. It relies on information contained in Stability/Convergence Programme Updates, a model of the relevant stochastic process (for example, the real GDP process) or processes, and a parameter estimate of the sensitivity of the primary budget balance to the output gap for the member state under consideration. A model of the dynamic deficit-debt relationship allows the impact of random output growth to work its way through the fiscal arithmetic in a consistent and traceable way to produce fan charts over a five-year forecast horizon. The initial set of fiscal fan charts included here for Ireland use the indicative public finance projections set out in the 2011 Update for Ireland. The range of possible fiscal outcomes in the charts assumes no fiscal policy response to any change in the budgetary position over the period such as could arise from changes in growth rates. This assumption of “no policy change” is a standard one in the construction of fan charts. Governments will, however, generally be in a position to adjust fiscal policy towards meeting a specific fiscal target, such as reaching a deficit position of less than 3 percent of GDP in the medium-term. A second set of fan charts is included which indicates how the probabilistic range of fiscal outcomes could be affected by a tightening of fiscal policy in 2013-2015. |
| Keywords: | Programme Updates, fan charts, fiscal arithmetic, stochastic processes, prediction regions |
| JEL: | C15 C63 E62 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:15/rt/11&r=mac |
| By: | Melanie-Kristin Beck; Bernd Hayo (University of Marburg); Matthias Neuenkirch (University of Marburg) |
| Abstract: | We study the correlation between pairs of bond and stock markets in Canada and the United States between January 1998 and December 2006 in the framework of Diagonal-BEKK models. Our research question is whether monetary policy action and communication by the Bank of Canada and the Federal Reserve significantly affect the co-movement of financial markets. We find that target rate changes and various forms of communication by both central banks increase correlations within Canadian bond and stock markets as well as between Canadian and US financial markets. |
| Keywords: | Bank of Canada, Central Bank Communication, Diagonal-BEKK Models, Dynamic Correlations, Federal Reserve, Financial Markets |
| JEL: | E52 F30 G12 G15 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201201&r=mac |
| By: | Jonathan Kearns (Reserve Bank of Australia); Philip Lowe (Reserve Bank of Australia) |
| Abstract: | The 2000s was a particularly eventful decade for both the international and Australian economies. There were: two recessions in many countries; the largest international financial crisis since the Great Depression; the ongoing rapid development of Asia; asset booms and busts; and, Australia experienced the longest sustained increase in commodity prices and the terms of trade in the nation's history. This paper provides an overview of the Australian economy's performance in the decade. Several key topics are elaborated on, including the development of Asia and implications for Australia, policy frameworks, and the opportunities and challenges facing the Australian economy, with a particular focus on the expansion of household balance sheets and the rapid growth in the mining economy. |
| Keywords: | Australian macroeconomy; economic performance; household balance sheets; terms of trade; monetary policy; fiscal policy |
| JEL: | E52 E62 F02 G20 N15 N17 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2011-07&r=mac |
| By: | Jiri Podpiera |
| Abstract: | Emerging markets are particularly vulnerable to boom-bust credit cycles, due to excessive capital flows, shallow equity markets, and companies’ high leverage and open FX positions. While the policy debate on how to respond to boom-bust credit cycles remains unsettled, it has been conjectured that credit subsidies may provide a particularly effective policy tool to counter a credit bust. This paper reports on a rare policy experiment where credit subsidies were used to buffer the impact of the global financial crisis on Serbia in 2009. Model simulations suggest that credit subsidies in Serbia helped to mitigate the slump in output. |
| Keywords: | Business cycles , Capital flows , Credit subsidies , Economic models , Emerging markets , Exchange rates , Interest rate subsidies , |
| Date: | 2011–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/285&r=mac |
| By: | F. HEYLEN; A. HOEBEECK; T. BUYSE |
| Abstract: | We study the evolution of the public debt to GDP ratio during 40 fiscal consolidation episodes in 21 OECD countries in 1980-2008. We test within a multivariate regression framework seven hypotheses put forward in the literature on the success or failure of consolidation programmes. These hypotheses concern (i) the composition of the consolidation programme, (ii) its size and persistence, (iii) the gravity of the debt situation, (iv) the influence of the international macroeconomic environment, (v) the role of labour and product market institutions and institutional reform, (vi) the ideological orientation of the government, and (vii) the role of strict fiscal rules. We add a new hypothesis emphasizing the influence of public sector efficiency. We also improve on the literature methodologically by controlling for one-off budgetary measures. Consolidation programmes imply a stronger reduction of the public debt ratio when they mainly rely on spending cuts (except public investment), are large but of short duration, take place when growth in the international economy is high and interest rates are low, are accompanied by product market deregulation, are adopted by left-wing governments, are embedded in a regime of strict and wide fiscal rules, and are executed by highly efficient administrations. Public sector efficiency is important also for the composition hypothesis. Government wage bill cuts do not contribute to lower public debt ratios when public sector efficiency is high. On the hypothesis that consolidation is more likely to succeed in a situation of fiscal emergency, our evidence is mixed. Finally, we find no evidence that labour market deregulation contributes to a reduction of the public debt ratio during consolidation periods. |
| Keywords: | public debt, fiscal consolidation, fiscal policy composition, fiscal rules, labour and product market institutions, government efficiency |
| JEL: | E62 H62 H63 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:11/763&r=mac |
| By: | Konstantinos Angelopoulos; James Malley; Apostolis Philippopoulos |
| Abstract: | This paper studies the aggregate and distributional implications of Markov-perfect tax-spending policy in a neoclassical growth model with capitalists and workers. Focusing on the long run, our main ndings are: (i) it is optimal for a benevolent government, which cares equally about its citizens, to tax capital heavily and to subsidise labour; (ii) a Pareto improving means to reduce inefficiently high cap- ital taxation under discretion is for the government to place greater weight on the welfare of capitalists; (iii) capitalists and workers inter- ests, regarding the optimal amount of "capitalist bias", are not aligned implying a trade-off between efficiency and equity. |
| Keywords: | Optimal fiscal policy, Markov-perfect equilibrium, heterogenous agents |
| JEL: | E62 H21 |
| Date: | 2011–04 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2011_06&r=mac |
| By: | Ekrame Boubtane; Dramane Coulibaly; Christophe Rault |
| Keywords: | Immigration, GROWTH, unemployment, Granger causality |
| JEL: | E20 F22 J61 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2011-29&r=mac |
| By: | Deniz Igan; Heedon Kang |
| Abstract: | With another real estate boom-bust bringing woes to the world economy, a quest for a better policy toolkit to deal with these boom-busts has begun. Macroprudential measures could be in such a toolkit. Yet, we know very little about their impact. This paper takes a step to fill this gap by analyzing the Korean experience with these measures. We find that loan-to-value and debt-to-income limits are associated with a decline in house price appreciation and transaction activity. Furthermore, the limits alter expectations, which play a key role in bubble dynamics. |
| Keywords: | Business cycles , Economic models , Household credit , Housing prices , Loans , |
| Date: | 2011–12–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/297&r=mac |
| By: | Colin Busby (C.D. Howe Institute); William B.P. Robson (C.D. Howe Institute) |
| Abstract: | Investment in plant and equipment per worker by business in Canada has long lagged that in the United States and other major developed countries, likely contributing to disappointing productivity growth in Canada. Fiscal and regulatory changes that would increase the rewards to investment and enhance competitive pressures to innovate would help ensure that Canadian workers in all provinces have the tools to keep pace with rivals abroad and achieve high and growing incomes in the years ahead. |
| Keywords: | Fiscal and Tax Competitiveness, Economic Growth and Innovation, Canada, Canadian provinces, business investment, capital spending, new investment per worker, OECD countries |
| JEL: | E20 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:cdh:ebrief:126&r=mac |
| By: | Annicchiarico Barbara; Pelloni Alessandra |
| Abstract: | We study the implications of having different sources of nominal rigidities on the relationship between productivity growth and shocks volatility in a model with procyclical R&D and imperfect competition in goods and labour markets. We show that the effects of uncertainty on long-term growth not only depends on the source of fluctuations, as recent literature shows, but also, and crucially, on whether prices and/or wages are rigid. |
| Keywords: | productivity, growth, volatility |
| JEL: | E32 E52 O42 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:ter:wpaper:0089&r=mac |
| By: | Robin Pope; Reinhard Selten |
| Abstract: | The public debt may hamper US GDP say studies that estimate debt tipping effects as if there were a single world currency. This means that such studies ignore the likely biggest cause of changes in growth rates, namely damage from exchange rate liquidity shocks because we do not live in the fairyland of a single world currency. The conclusions of these studies are accordingly invalid. They deflect attention from a prime danger, namely an exchange-rate-precipitated global meltdown. These studies are misleading in other respects too. Their estimates of growth determinants implicitly or explicitly conflate the differential growth effects of government expenditures and with those of government debt. They fail to allow for the increase in wastefulness of private production. This is despite the fact that over the last 40 years, there have been private activities, including key segments of the financial and the pharmaceutical industries, whose expansion has damaged overall health and growth. The upshot is misdirected policy analysis and advice. Policy should instead be directed to adequate employment-generating fiscal stimulus in a global downturn, to averting further damage from exchange rate liquidity shock by creating a single world money and to ensuring that for profit activities in the pharmaceutical and financial industries are adequately regulated, and where this is infeasible, shut down and replaced with fiscally stimulated productive activities. |
| Keywords: | Hitler, exchange rates, employment multipliers, private sector inefficiency, central bank cooperation, central bank conflict, public debt, tipping points, uncertainty, financial sector, pharmaceutical sector, World War 2, Korean War, fiscal stimulus |
| JEL: | E6 F31 G01 H62 I18 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:bonedp:bgse15_2011&r=mac |
| By: | Sandrine Cazes (International Labour Office, Employment Analysis and Research Unit); Sher Verick (ILO Decent Work Team for South Asia and ILO Country Office for India); Fares Al-Hussami |
| Abstract: | The global financial crisis deeply impacted labour markets around the globe, particularly in a number of OECD countries. However, in such cases as the United States, some commentators have argued that the subsequent rise in unemployment has exceeded previous estimates of the elasticity of the unemployment rate with respect to output growth, a statistical relationship known as Okun’s law. In line with the literature on this topic, the estimates of Okun’s coefficients presented in this paper display considerable variation across countries, which captures the heterogeneity in the responsiveness of unemployment to the global financial crisis. In the United States, Canada, Spain and other severely affected economies, the coefficient increased sharply, departing from pre-crisis levels in the 2000s. In other countries where unemployment has remained subdued, namely Germany and the Netherlands, the coefficient has fallen dramatically. While different factors can potentially explain how the crisis has been transmitted to the labour market, the role of labour market institutions is the focus of this paper. In this regard, empirical evidence exploring the relationship between the shift in Okun’s coefficients and such institutions confirms that the responsiveness in the unemployment rate during the Great Recession was lower in countries where workers are afforded greater employment protection (such as Germany). |
| Keywords: | unemployment / employment / employment security / labour legislation / comment / economic recession / OECD countries / USA |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ilo:emwpap:2012-106&r=mac |
| By: | Guido Menzio (Department of Economics, University of Pennsylvania); Irina A. Telyukova (Department of Economics, University of California, San Diego); Ludo Visschers (Universidad Carlos III de Madrid) |
| Abstract: | We develop a life-cycle model of the labor market in which different worker-firm matches have different quality and the assignment of the right workers to the right firms is time consuming because of search and learning frictions. The rate at which workers move between unemployment, employment and across different firms is endogenous because search is directed and, hence, workers can choose whether to seek low-wage jobs that are easy to find or high-wage jobs that are hard to find. We calibrate our theory using data on labor market transitions aggregated across workers of different ages. We validate our theory by showing that it correctly predicts the pattern of labor market transitions for workers of different ages. Finally, we use our theory to decompose the age profiles of transition rates, wages and productivity into the effects of age variation in work-life expectancy, human capital and match quality. |
| Keywords: | Directed Search; Labor Reallocation; Lifecycle |
| JEL: | E24 J63 J64 |
| Date: | 2012–01–04 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:12-002&r=mac |
| By: | Willa Boots J. Tolo |
| Abstract: | This paper uses a panel of 23 emerging markets for the period 1965–2008 to study the determinants of per capita GDP growth in the Philippines. The Philippines is an outlier in terms of agricultural exports, investment, research and development, population growth, and political uncertainty. Panel regressions reveal that these factors, along with the deficit, inflation, trade openness, the current account balance and the frequency of crisis episodes are siginificant determinants of growth. A growth index confirms that these determinants also capture the absolute and relative performance of each country over time and suggests that the Philippines has lacked a sustained period of relatively strong economic reforms. |
| Keywords: | Agricultural sector , Current account balances , Economic growth , Emerging markets , Fiscal policy , |
| Date: | 2011–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/288&r=mac |
| By: | Robert C. Feenstra; Hong Ma; J. Peter Neary; D.S. Prasada Rao |
| Abstract: | The latest World Bank estimates of real GDP per capita for China are significantly lower than previous ones. We review possible sources of this puzzle and conclude that it reflects a combination of factors, including substitution bias in consumption, reliance on urban prices which we estimate are higher than rural ones, and the use of an expenditure-weighted rather than an output-weighted measure of GDP. Taking all these together, we estimate that real per-capita GDP in China was 50% higher relative to the U.S. in 2005 than the World Bank estimates. |
| JEL: | E01 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17729&r=mac |
| By: | Avichai Snir; Daniel Levy |
| Abstract: | If producers have more information than consumers about goods’ attributes, then they may use non-price (rather than price) adjustment mechanisms and, consequently, the market may reach a new equilibrium even if prices remain sticky. We study a situation where producers adjust the quantity (per package) rather than the price in response to changes in market conditions. Although consumers should be indifferent between equivalent changes in goods' prices and quantities, empirical evidence suggests that consumers often respond differently to price changes and equivalent quantity changes. We offer a possible explanation for this puzzle by constructing and empirically testing a model in which consumers incur cognitive costs when processing goods’ price and quantity information. The model is based on evidence from cognitive psychology and explains consumers’ decision whether or not to process goods’ price and quantity information. Our findings explain why producers sometimes adjust goods’ prices and sometimes goods’ quantities. In addition, they predict variability in price adjustment costs over time and across economic conditions. |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:emo:wp2003:1104&r=mac |
| By: | Jeremy Greenwood; Nezih Guner; Georgi Kocharkov; Cezar Santos |
| Abstract: | Marriage has declined since 1960, with the drop being bigger for non-college educated individuals versus college educated ones. Divorce has increased, more so for the non-college educated vis-à-vis the college educated. Additionally, assortative mating has risen; i.e., people are more likely to marry someone of the same educational level today than in the past. A unified model of marriage, divorce, educational attainment and married female labor-force participation is developed and estimated to fit the postwar U.S. data. The role of technological progress in the household sector and shifts in the wage structure for explaining these facts is gauged. |
| JEL: | E13 J12 J22 O11 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17735&r=mac |
| By: | Gianni De Nicoló; Marcella Lucchetta |
| Abstract: | We study versions of a general equilibrium banking model with moral hazard under either constant or increasing returns to scale of the intermediation technology used by banks to screen and/or monitor borrowers. If the intermediation technology exhibits increasing returns to scale, or it is relatively efficient, then perfect competition is optimal and supports the lowest feasible level of bank risk. Conversely, if the intermediation technology exhibits constant returns to scale, or is relatively inefficient, then imperfect competition and intermediate levels of bank risks are optimal. These results are empirically relevant and carry significant implications for financial policy. |
| Keywords: | Banks , Competition , Economic models , Financial stability , |
| Date: | 2011–12–16 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:11/295&r=mac |
| By: | Tim Landvoigt; Monika Piazzesi; Martin Schneider |
| Abstract: | This paper uses an assignment model to understand the cross section of house prices within a metro area. Movers' demand for housing is derived from a lifecycle problem with credit market frictions. Equilibrium house prices adjust to assign houses that differ by quality to movers who differ by age, income and wealth. To quantify the model, we measure distributions of house prices, house qualities and mover characteristics from micro data on San Diego County during the 2000s boom. The main result is that cheaper credit for poor households was a major driver of prices, especially at the low end of the market. |
| JEL: | E21 G10 R20 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17723&r=mac |
| By: | Zsolt Darvas; Jean Pisani-Ferry |
| Abstract: | Highlights 1) The European Union growth agenda has become even more pressing because growth is needed to support public and private sector deleveraging, reduce the fragility of the banking sector, counter the falling behind of southern European countries and prove that Europe is still a worthwhile place to invest. 2) The crisis has had a similar impact on most European countries and the US: a persistent drop in output level and a growth slowdown. This contrasts sharply with the experience of the emerging countries of Asia and Latin America. 3) Productivity improvement was immediate in the US, but Europe hoarded labour and productivity improvements were in general delayed. Southern European countries have hardly adjusted so far. 4) There is a negative feedback loop between the crisis and growth, and without effective solutions to deal with the crisis, growth is unlikely to resume. National and EU-level policies should aim to foster reforms and adjustment and should not risk medium-term objectives under the pressure of events. A more hands-on approach, including industrial policies, should be considered. |
| Keywords: | economic growth, deleveraging, productivity, convergence, economic adjustment, structural reform scoreboard, composition of fiscal adjustments, growth policy under constraints |
| JEL: | E60 F43 O40 |
| Date: | 2011–10 |
| URL: | http://d.repec.org/n?u=RePEc:mkg:wpaper:1105&r=mac |
| By: | Forte, Antonio |
| Abstract: | In this study I compare the credit condition with the economic growth in Italy from January 2007 onward. Starting from the literature on the creditless recovery, I highlight the specific features of the Italian situation in which, notwithstanding the prolonged and deep economic crisis, the credit has persistently continued to grow. A comparison with the German case confirms the peculiar characteristics of the Italian condition. An econometric study supports this idea and, in order to depict this Italian economic situation, I propose a new expression: the recoveryless credit growth. |
| Keywords: | Italy; credit; recovery |
| JEL: | E32 E50 |
| Date: | 2012–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35775&r=mac |
| By: | Gurgul, Henryk; Lach, Lukasz |
| Abstract: | The aim of this contribution is an investigation of causal interdependences between electricity consumption and GDP in Poland. Our research was conducted for total electricity consumption as well as for the industrial consumption of electricity. In order to reflect the causality between GDP and electricity consumption properly we performed our investigations in a threedimensional framework with employment chosen as an additional variable. We used reliable quarterly data from the period Q1 2000 - Q4 2009. In order to check the stability of the causalities the investigations were performed on two samples: a full sample and a pre-crisis (i.e. Q1 2000 - Q3 2008) subsample. We applied both traditional methods as well as some recently developed econometric tools. We found feedback between total electricity consumption and GDP as well as between total electricity consumption and employment. We also found unidirectional causality running from industrial electricity consumption to employment and no direct causal links between industrial electricity consumption and GDP. In addition, all these findings were, in general, not seriously affected by the financial and economic crisis of 2008. A significant exception is the causal effect of industrial electricity consumption on employment, which was more pronounced after the crisis of 2008. |
| Keywords: | electricity consumption; causality |
| JEL: | E21 |
| Date: | 2011–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35785&r=mac |
| By: | Mo, Pak Hung |
| Abstract: | Despite decades of experience and research, the effects of minimum wage legislation (MWL) on long-run economic performance have rarely been studied since Stigler’s (1946) classic exposition about the shortcomings of MWL. In this study, we use a novel method to estimate the magnitude and transmission channels by which MWL affect productivity and GDP growth. Our results suggest that countries with MWL have a growth rate of about 20 to 30 percent lower than the sample mean. Although the initial impacts are small, in the ‘steady state’ where the marginal effect of the legislation years equals zero, a country will have a growth rate of about 30 to 38 percent lower than the average. |
| Keywords: | minimum wage; GDP growth; private investment; government size; government investment; population growth |
| JEL: | E02 O38 O43 C52 O15 I38 J58 D78 O12 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:35820&r=mac |