nep-mac New Economics Papers
on Macroeconomics
Issue of 2012‒02‒08
nine papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The financial accelerator and monetary policy rules By Christoph Thoenissen; Gunes Kamber
  2. Fiscal Multipliers over the Business Cycle By Pascal Michaillat
  3. The ECB and the Interbank Market By Domenico Giannone; Michèle Lenza; Huw Pill; Lucrezia Reichlin
  4. Eyes on Romania: what to look when investing here? By Tatomir, Cristina F.; Popovici, Oana
  5. Econophysics of a religious cult: the Antoinists in Belgium [1920-2000] By Marcel R. Ausloos
  6. Evaluating point and density forecasts of DSGE models By Wolters, Maik Hendrik
  7. A term structure model with level factor cannot be realistic and arbitrage free By Dubecq , S.; Gourieroux , C.
  8. Un Indicatore per la Lombardia e per le Province di Milano e Pavia (Nuova versione) By Donatella Baiardi; Carluccio Bianchi
  9. The Risk Premium and Long-Run Global Imbalances By YiLi Chien; Kanda Naknoi

  1. By: Christoph Thoenissen; Gunes Kamber
    Abstract: The ability of financial frictions to amplify the output response of monetary policy, as in the financial accelerator model of Bernanke et al. (1999), is analyzed for a wider class of policy rules where the policy interest rate responds to both in inflation and the output gap. When policy makers respond to the output gap as well as in inflation, the standard financial accelerator model reacts less to an interest rate shock than does a comparable model without an operational financial accelerator mechanism. In recessions, when firm-specific volatility rises, financial acceleration due to financial frictions is further reduced, even under pure inflation targeting.
    Keywords: Financial acceleration; financial frictions; monetary policy.
    JEL: E32 E52
    Date: 2011–12
  2. By: Pascal Michaillat
    Abstract: This paper illustrates why fiscal policy becomes more effective as unemployment rises in recessions. The theory is based on the equilibrium unemployment model of Michaillat (forthcoming), in which jobs are rationed in recessions. Fiscal policy takes the form of government spending on public-sector jobs. Recessions are periods of acute job shortage without much competition for workers among recruiting firms; hiring in the public sector does not crowd out hiring in the private sector much; therefore fiscal policy reduces unemployment effectively. Formally the fiscal multiplier—the reduction in unemployment rate achieved by spending one dollar on public-sector jobs—is countercyclical. An implication is that available estimates of the fiscal multiplier, which measure the average effect of fiscal policy over the business cycle, do not apply in recessions because the multiplier is much higher in recessions than on average.
    Keywords: Fiscal multiplier, unemployment, business cycle, job rationing, matching frictions
    JEL: E24 E32 E62 J64
    Date: 2012–01
  3. By: Domenico Giannone; Michèle Lenza; Huw Pill; Lucrezia Reichlin
    Abstract: This paper analyses the impact on the macroeconomy of the ECB’s non-standard monetary policy implemented in the aftermath of the collapse of Lehman Brothers in the Fall of 2008. We study in particular the effect of the expansion of the intermediation of transactions across central bank balance sheets as dysfunctional financial markets seize up, which we regard as a key channel of transmission for non-standard monetary policy measures. Our approach is similar to Lenza et al. 2009 but we introduce the important innovation of distinguishing between private intermediation of interbank transactions in the money market and central bank intermediation of bank-to-bank transactions across the Eurosystem balance sheet. We do this by exploiting data drawn from the aggregate Monetary and Financial Institutions (MFI) balance sheet which allows us to construct a new measure of the ‘policy shock’ represented by the ECB’s increasing role as a financial intermediary. We find that bank loans to households and, in particular, to non-financial corporations are higher than would have been the case without the ECB’s intervention. In turn, the ECB’s support has a significant impact on economic activity: two and a half years after the failure of Lehman Brothers, the level of industrial production is estimated to be 2% higher, and the unemployment rate 0.6 percentage points lower, than would have been the case in the absence of the ECB’s non-standard monetary policy measures.
    Keywords: non-standard monetary policy measures; interbank market
    JEL: E50 E58
    Date: 2012–01
  4. By: Tatomir, Cristina F.; Popovici, Oana
    Abstract: In this paper we identify a framework of the main macroeconomic indicators an investor must look when investing in a country, depending on his activity business sector. Using a qualitative method of research on the Romanian case in period of 2000-2010, we establish that a series of leading indicators, as Gross Domestic Product (GDP) growth rate, inflation rate and industrial production, are appropriate to get a brief snapshot of the economic outlook of a country. The following period, since 2011 to 2014, confirm our results. Beside the traditional indicators, we set as significant the degree of business cycles synchronization with the European Union (EU) in order to predict the next path of the Romanian economy. We use a structural divergence index for assessing the similarity of economic structure between Romania and EU. The results of this study confirm that Romania lags behind EU, offering the possibility to decide the next step of an investor’s business strategy.
    Keywords: foreign direct investment; leading indicators; business cycles synchronization
    JEL: E31 F21 F41
    Date: 2011–10
  5. By: Marcel R. Ausloos
    Abstract: In the framework of applying econophysics ideas in religious topics, the finances of the Antoinist religious movement organized in Belgium between 1920 and 2000 are studied. The interest of investigating financial aspects of such a, sometimes called, sect stems in finding characteristics of conditions and mechanisms under which definitely growth AND decay features of communities can be understood. The legally reported yearly income and expenses between 1920 and 2000 are studied. A three wave asymmetric regime is observed over a trend among marked fluctuations at time of crises. The data analysis leads to propose a general mechanistic model taking into account an average GDP growth, an oscillatory monetary inflation and a logistic population drift.
    Date: 2012–01
  6. By: Wolters, Maik Hendrik
    Abstract: This paper investigates the accuracy of point and density forecasts of four DSGE models for inflation, output growth and the federal funds rate. Model parameters are estimated and forecasts are derived successively from historical U.S. data vintages synchronized with the Fed’s Greenbook projections. Point forecasts of some models are of similar accuracy as the forecasts of nonstructural large dataset methods. Despite their common underlying New Keynesian modeling philosophy, forecasts of different DSGE models turn out to be quite distinct. Weighted forecasts are more precise than forecasts from individual models. The accuracy of a simple average of DSGE model forecasts is comparable to Greenbook projections for medium term horizons. Comparing density forecasts of DSGE models with the actual distribution of observations shows that the models overestimate uncertainty around point forecasts.
    Keywords: DSGE models; forecasting; model uncertainty; forecast combination; density forecasts; real-time data; Greenbook
    JEL: E0 E32 C53 E31 E37
    Date: 2012–01–23
  7. By: Dubecq , S.; Gourieroux , C.
    Abstract: A large part of the term structure literature interprets the first underlying factors as a level factor, a slope factor, and a curvature factor. In this paper we consider factor models interpretable as a level factor model, a level and a slope factor model, respectively. We prove that such models are compatible with no-arbitrage restrictions and the positivity of rates either under rather unrealistic conditions on the dynamic of the short term interest rate, or at the cost of explosive long-term interest rates. This introduces some doubt on the relevance of the level and slope interpretations of factors in term structure models.
    Keywords: Interest Rate, Term Structure, Affine Model, No Arbitrage, Level Factor, Slope Factor.
    JEL: E43 E44 G12
    Date: 2012
  8. By: Donatella Baiardi (Department of Economics and Quantitative Methods, University of Pavia); Carluccio Bianchi (Department of Economics and Quantitative Methods, University of Pavia)
    Abstract: This paper aims to construct a high-frequency coincident indicator of economic activity for Lombardy and for the provinces of Milan and Pavia, by using the dynamic factor model approach introduced by Stock e Watson (1998a e 1998b). The principal component analysis is first used to summarize the information contained in a large dataset in a limited number of common factors capable of capturing the main features of local business fluctuations. The EM (Expectation Maximization) algorithm then allows to compute the desired territorial indicators by taking into account the official annual data on regional GDP or provincial valueadded growth.
    Keywords: Coincident Economic Activity Indicators, Italian Regions, Diffusion Indexes
    JEL: E32 C32 C82
    Date: 2012–01
  9. By: YiLi Chien; Kanda Naknoi
    Abstract: Our paper investigates whether the valuation effect caused by a large risk premium and a low risk-free rate can help to explain the enormous US current account and trade deficit observed in the past decade. To answer this question, we set up an endowment growth model in which investors are endowed with heterogeneous trading technologies. In our model, the average US investors load up more aggregate risk by investing in a risky asset abroad and issuing a risk-free asset. Thanks to the large risk premium as well as the low risk-free rate, the US can sustain a long-run trade deficit even as a debtor country. Quantitatively, we find that the valuation effect caused solely by the high risk premium and the low risk-free rate in our model, which is calibrated to match the external assets and liabilities of US economy, can account for more than half of the observed trade deficit and current account deficit. Our results suggest that the current US trade deficit might not necessarily lead to net export increases or dollar depreciation in the future.
    Keywords: Global Imbalances; External Account; Risk Premium; Asset Pricing; Limited Participation
    JEL: E21 F32 F41 G12
    Date: 2011–10

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