nep-mac New Economics Papers
on Macroeconomics
Issue of 2012‒04‒03
39 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Labor-Market Frictions and Optimal Inflation By Carlsson, Mikael; Westermark, Andreas
  2. Precautionary demand for money in a monetary business cycle model By Irina A. Telyukova; Ludo Visschers
  3. Expectations and Fluctuations : The Role of Monetary Policy By Rousakis, Michael
  4. Employment Protection and Business Cycles in Emerging Economies By Ruy Lama; Carlos Urrutia
  5. The business cycle implications of banks’ maturity transformation By Andreasen, Martin; Ferman, Marcelo; Zabczyk, Pawel
  6. Real exchange rate adjustment, wage-setting institutions, and fiscal stabilization policy: Lessons of the Eurozone’s first decade By Carlin, Wendy
  7. The nature of financial and real business cycles: The great moderation and banking sector pro cyclicality By Balázs Égert; Douglas Sutherland
  8. Optimal Policy When the Inflation Target is not Optimal By Sergio A. Lago Alves
  9. Fiscal Policy Reaction to the Cycle in the OECD: Pro- or Counter-cyclical? By Balázs Égert
  10. Labor, Output and COnsumption in Business Cycle Models of Emerging Economies: A Comment By Andres Fernandez; Felipe Meza
  11. Inflation dynamics and real marginal costs: new evidence from U.S. manufacturing industries By Ivan PETRELLA; Emiliano SANTORO
  12. House-price crash and macroeconomic crisis: a Hong Kong case study By Zhang, Hewitt; Hu, Yannan; Hu, Bo
  13. Bonds Transaction Services and the Term Structure of Interest Rates: Implications for Equilibrium Determinacy By M. Marzo; P. Zagaglia
  14. Modifying Gaussian term structure models when interest rates are near the zero lower bound By Leo Krippner
  15. Short-Term Gain or Pain? A DSGE Model-Based Analysis of the Short-Term Effects of Structural Reforms in Labour and Product Markets By Matteo Cacciatore; Romain Duval; Giuseppe Fiori
  16. Price Setting with menu cost for Multi-product firms By Fernando E. Alvarez; Francesco Lippi
  17. Assessing macro-financial linkages: A model comparison exercise By Gerke, Rafael; Jonsson, Magnus; Kliem, Martin; Kolasa, Marcin; Lafourcade, Pierre; Locarno, Alberto; Makarski, Krzysztof; McAdam, Peter
  18. Financial Frictions and Total Factor Productivity: Accounting for the Real Effects of Financial Crises By Sangeeta Pratap; Carlos Urrutia
  19. The information content of central bank interest rate projections: Evidence from New Zealand By Gunda-Alexandra Detmers; Dieter Nautz
  20. Do bank characteristics influence the effect of monetary policy on bank risk? By Yener Altunbas; Leonardo Gambacorta; David Marques-Ibanez
  21. Efficient Wage Bargaining in a Dynamic Macroeconomic Model By Maria B. Chiarolla; Oliver Claas
  22. What drives Ireland's housing market? A Bayesian DSGE approach By Gareis, Johannes; Mayer, Eric
  23. Macroeconomic instability in Afghanistan: causes and solutions By Joya, Omar
  24. The impact of the recent financial crisis on bank loan interest rates and guarantees. By Giorgio Calcagnini; Fabio Farabullini; Germana Giombini
  25. Time-consistent fiscal policy under heterogeneity: conflicting or common interests? By Konstantinos Angelopoulos; James Malley; Apostolis Philippopoulos
  26. Lumpy Investment, Lumpy Inventories By Rüdiger Bachmann; Lin Ma
  27. The Cantillon Effect of Money Injection through Deficit Spending By Wenli Cheng; Simon D. Angus
  28. Implicit intraday interest rate in the UK unsecured overnight money market By Jurgilas, Marius; Zikes, Filip
  29. The Short-Term Effects of Structural Reforms: An Empirical Analysis By Romain Bouis; Orsetta Causa; Lilas Demmou; Romain Duval; Aleksandra Zdzienicka
  30. Co-movements of consumption patterns of high and low involvement products By Hasan, Dr. Syed Akif; Subhani, Dr. Muhammad Imtiaz; Osman, Mohammad
  31. Aggregate Risk and the Choice between Cash and Lines of Credit By Acharya, Viral V; Almeida, Heitor; Campello, Murillo
  32. Implementation Cycles : Investment-Specific Technological Change and the Length of Patents By Rousakis, Michael
  33. Financial crises and financial market regulation: the long record of an ‘emerger’ By Sophia Lazaretou
  34. Ein nutzungskostenbasierter Ansatz zur Messung des Faktors Kapital in aggregierten Produktionsfunktionen By Knetsch, Thomas A.
  35. A user cost approach to capital measurement in aggregate production functions By Knetsch, Thomas A.
  37. Disparity in the structure of wages in Pakistan By Hasan, Dr. Syed Akif; Subhani, Dr. Muhammad Imtiaz; Osman, Ms. Amber
  38. Wachstum durch das Nadelöhr begrenzter Budgets By Klein, Rolf
  39. Effects of Global Liquidity on Commodity and Food Prices By Ansgar Belke; Ingo G. Bordon; Ulrich Volz

  1. By: Carlsson, Mikael (Research Department, Central Bank of Sweden); Westermark, Andreas (Research Department, Central Bank of Sweden)
    Abstract: In central theories of monetary non-neutrality the Ramsey optimal inflation rate varies between the negative of the real interest rate and zero. This paper explores how the interaction of nominal wage and search and matching frictions affect the policy prescription. We show that adding the combination of such frictions to the canonical monetary model can generate an optimal inflation rate that is significantly positive. Specifically, for a standard U.S. calibration, we find a Ramsey optimal inflation rate of 1.11 percent per year.
    Keywords: Optimal Monetary Policy; Inflation; Labor-market Distortions
    JEL: E52 H21 J60
    Date: 2012–03–01
  2. By: Irina A. Telyukova; Ludo Visschers
    Abstract: We investigate quantitative implications of precautionary demand for money for business cycle dynamics of velocity and other nominal aggregates. Accounting for such dynamics is a standing challenge in monetary macroeconomics: standard business cycle models that have incorporated money have failed to generate realistic predictions in this regard. In those models, the only uncertainty affecting money demand is aggregate. We investigate a model with uninsurable idiosyncratic uncertainty about liquidity need and find that the resulting precautionary motive for holding money produces substantial qualitative and quantitative improvements in accounting for business cycle behavior of nominal variables, at no cost to real variables
    Keywords: Precautionary demand for money, Business cycle fluctuations, Money velocity fluctuations
    Date: 2011–11
  3. By: Rousakis, Michael (University of Warwick)
    Abstract: How does the economy respond to shocks to expectations? This paper addresses this question within a cashless, monetary economy. A competitive economy features producers and consumers/workers with asymmetric information. Only workers observe current productivity and hence they perfectly anticipate prices, whereas all agents observe a noisy signal about long-run productivity. Information asymmetries imply that monetary policy and consumers' expectations have real effects. Non-fundamental, purely expectational shocks are conventionally thought of as demand shocks. While this remains a possibility, expectational shocks can also have the characteristics of supply shocks : if positive, they increase output and employment, and lower inflation. Whether expectational shocks manifest themselves as demand or supply shocks depends on the monetary policy pursued. Forward-looking policies generate multiple equilibria in which the role of consumers' expectations is arbitrary. Optimal policies restore the complete information equilibrium. They do so by manipulating prices so that producers correctly anticipate their revenue despite their uncertainty about current productivity. I design targets for forward-looking interest-rate rules which restore the complete information equilibrium for any policy parameters. In ation stabilization per se is typically suboptimal as it can at best eliminate uncertainty arising through prices. This offers a motivation for the Dual Mandate of central banks. Key words: Asymmetric information ; producer expectations ; consumer expectations ; business cycles ; supply shocks ; demand shocks ; optimal monetary policy JEL Classification: E32 ; E52 ; D82 ; D83 ; D84
    Date: 2012
  4. By: Ruy Lama (International Monetary Fund); Carlos Urrutia (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))
    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.
    Date: 2011
  5. By: Andreasen, Martin (Bank of England); Ferman, Marcelo (LSE); Zabczyk, Pawel (Bank of England)
    Abstract: This paper develops a DSGE model in which banks use short-term deposits to provide firms with long-term credit. The demand for long-term credit arises because firms borrow in order to finance their capital stock which they only adjust at infrequent intervals. We show within a real business cycle framework that maturity transformation in the banking sector in general attenuates the output response to a technological shock. Implications of long-term nominal contracts are also examined in a New Keynesian version of the model, where we find that maturity transformation reduces the real effects of a monetary policy shock.
    Keywords: Banks; DSGE model; financial frictions; firm heterogeneity; maturity transformation
    JEL: E22 E32 E44 G21
    Date: 2012–03–19
  6. By: Carlin, Wendy
    Abstract: In terms of macroeconomic performance, the Eurozone’s first decade is a story of successful inflation-targeting by the ECB for the common currency area as a whole combined with the persistence of real exchange rate and current account disequilibria at member country level. According to the standard New Keynesian model of a small member of a currency union, policy intervention at country level is not necessary to ensure adjustment to country-specific shocks. Self-stabilization of shocks takes place through the adjustment of prices and wages to ensure that the real exchange rate returns to equilibrium. That this did not happen in the Eurozone appears to be related to the presence of non-rational wage-setters in a number of member countries. A related second departure from the New Keynesian model was the transmission of nonrational inflation expectations to the real interest rate, propagating easy credit conditions in countries with inflation above target. Problems of real exchange rate misalignment among members were exacerbated by the ability of Germany’s wagesetting institutions to deliver self-stabilization. The implications for policy focus on using fiscal policy to target the real exchange rate and / or on reforms to labour markets that deliver real exchange rate oriented wage-setting.
    Keywords: Eurozone; fiscal policy; New Keynesian model; real exchange rate; wage-setting
    JEL: E61 E62 E65 F41 O52
    Date: 2012–03
  7. By: Balázs Égert; Douglas Sutherland
    Abstract: This paper takes a fresh look at the nature of financial and real business cycles in OECD countries using annual data series and shorter quarterly and monthly economic indicators. It first analyses the main characteristics of the cycle, including the length, amplitude, asymmetry and changes of these parameters during expansions and contractions. It then studies the degree of economic and financial cycle synchronisation between OECD countries but also of economic and financial variables within a given country, and gauges the extent to which cycle synchronisation changed over time. Finally, the paper provides some new evidence on the drivers of the great moderation and analyses the banking sector's pro-cyclicality by using aggregate and bank-level data. The main findings show that the amplitude of the real business cycle was becoming smaller during the great moderation, but asset price cycles were becoming more volatile. In part this was linked to developments in the banking sector which tended to accentuate pro-cyclical behaviour.
    Keywords: real business cycles, financial cycles, great moderation, banking system, financial markets
    JEL: E32 E44
    Date: 2012
  8. By: Sergio A. Lago Alves
    Abstract: I assess the optimal policy to be followed by a welfare-concerned central bank when assigned an inflation target that is not necessarily welfare-optimal. I treat the inflation target as the trend inflation and I have three main contributions: (i) a welfare-based loss function fully derived under trend inflation, showing how the non-optimal inflation target acts as an extra inefficiency source; (ii) I show that the trend inflation does affect the relative weight of the output gap: they are inversely related; (iii) under trend inflation, I derive time consistent optimal policies with both unconditional and timeless commitment, and I show how to translate the pursuit of the inflation target into an additional constraint in the minimization step.
    Date: 2012–03
  9. By: Balázs Égert
    Abstract: This paper analyses the reaction of fiscal policy to the cycle in OECD countries. The results suggest that while overall government balances were counter-cyclical in the past and more so in economic downturns than in upswings, discretionary fiscal policy was neutral on average. However, discretionary fiscal policy appears to react to the cycle in a non-linear fashion: fiscal policy in countries with high public debt and high government deficits tends to be pro-cyclical, while countries that have low public debt and that have surpluses are more likely to conduct a counter-cyclical fiscal policy. The paper also finds that asset prices have a significant impact on government balances.
    Keywords: Fiscal policy; pro-cyclicality, counter-cyclicality, OECD countries
    JEL: E32 E62 H30 H60 C33
    Date: 2012
  10. By: Andres Fernandez (Universidad de los Andes); Felipe Meza (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))
    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
  11. By: Ivan PETRELLA; Emiliano SANTORO
    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 behavior 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.
    Date: 2011–12
  12. By: Zhang, Hewitt; Hu, Yannan; Hu, Bo
    Abstract: The crash of house prices has become an important feature of macroeconomic crisis. We argue that the crash of house prices driven by contractionary monetary policy is not only a reaction, but also accelerates and amplifies the fluctuations of major macroeconomic variables. The impulse response of consumption to the house price shock estimated from Bayesian VAR is of same level as that of investment in Hong Kong, which is distinct from the United States. Therefore, in this paper we conduct a case study of Hong Kong in the 1997-1998 financial crisis and quantitatively analyze the mechanism by developing a general equilibrium model incorporating financial accelerator in both household and entrepreneur sectors. In addition, we introduce real estate producers in order to modify the unrealistic mechanism in existing literature. After estimating the parameters with a combination of calibration and Bayesian method, the simulated impulse responses imply that our model can explain the co-movement of house prices, consumption and investment much better than alternative ones. Moreover, the results of variance decomposition show that interest rate shock can explain most of the house price fluctuations, and a substantial fraction of fluctuations in major macroeconomic variables.
    Keywords: house prices; fianncial accelerator; consumption; investment; Hong Kong
    JEL: E32 E44 E37
    Date: 2012–03
  13. By: M. Marzo; P. Zagaglia
    Abstract: We introduce two bonds in a standard New-Keynesian model to study the role of segmentation in bond markets for the determinacy of rational expectations equilibria. We use a strongly-separable utility function to model short-term bonds providing transaction services for the purchase of consumption goods. Long-term bonds, instead, provide the standard services of store of value. We obtain a fully analytical solution for the bond pricing kernel, allowing to endogenize the term spread within the model. In this way, we study equilibrium determinacy properties within a context embedding the full information derived from term structure of interest rates. Our results show that, when utility is weakly separable between consumption and bonds, the Taylor principle holds only conditional to a non-linear relation between output and inflation targeting coefficients of monetary policy rule. Achieving solution determinacy requires to constraint policy coefficients to lie within bounds depending on structural parameters of the model. This paper provides an analytical setting useful for several generalizations to address the stability properties in dynamic models including the term structure of interest rates, induced by policy rules.
    JEL: E43 E63
    Date: 2012–03
  14. By: Leo Krippner (Reserve Bank of New Zealand)
    Abstract: With nominal interest rates near the zero lower bound (ZLB) in many major economies, it is theoretically untenable to apply Gaussian affine term structure models (GATSMs) while ignoring their inherent material probabilities of negative interest rates. I propose correcting that deficiency by adjusting the entire GATSM term structure with an explicit function of maturity that represents the optionality associated with the present and future availability of physical currency. The resulting ZLB-GATSM framework remains tractable, producing a simple closed-form analytic expression for forward rates and requiring only elementary univariate numerical integration (over time to maturity) to obtain interest rates and bond prices. I demonstrate the salient features of the ZLB- GATSM framework using a two-factor model. An illustrative estimation with U.S. term structure data indicates that the ZLB-GATSM "shadow short rate" provides a useful gauge of the stance of monetary policy; in particular becoming negative when the U.S. policy rate reached the ZLB in late 2008, and moving more negative with subsequent unconventional monetary policy easings.
    JEL: E43 G12 G13
    Date: 2012–03
  15. By: Matteo Cacciatore; Romain Duval; Giuseppe Fiori
    Abstract: This paper explores the short-term effects of labour and product market reforms through a dynamic general equilibrium model that features endogenous producer entry, equilibrium unemployment and costly job creation and destruction. Unlike in existing work, the link between labour and product market dynamics and the policy factors driving it are modelled explicitly. The analysis yields three main findings. First, it takes time for reforms to pay off, typically at least a couple of years. This is partly because their benefits materialise through firm entry and increased hiring, both of which are gradual processes, while any reform-driven layoffs are immediate. Second, all reforms appear to stimulate GDP already in the short run, but some of them -- such as job protection reforms -- are found to increase unemployment temporarily. Implementing a broad package of labour and product market reforms enables governments to minimise or even alleviate such transitional costs. Third, reforms are not found to have noticeable deflationary effects, suggesting that the inability of monetary policy to deliver large interest rate cuts in their aftermath -- either because of the zero bound on policy rates or because the country belongs to a large monetary union -- may not be a relevant obstacle to reform implementation. Alternative simple monetary policy rules have little impact on the transitional costs from reforms.<P>Gain ou perte à court terme ? Une analyse à partir d'un modèle DSGE des effets de court terme des réformes sur les marchés du travail et des produits<BR>Cet article évalue les effets de court terme des réformes des marchés du travail et des produits à l’aide d’un modèle d’équilibre général dynamique incorporant une entrée endogène des firmes, un chômage d’équilibre et des coûts de création et destruction d’emplois. Contrairement aux travaux existants, le lien entre les dynamiques des marchés du travail et des produits et les facteurs politiques qui le gouvernent sont modélisés explicitement. L’analyse fournit trois conclusions principales. Premièrement, il faut du temps pour que les réformes paient, typiquement au moins quelques années. Deuxièmement, il apparaît que toutes les réformes stimulent le PIB dès le court terme, mais que certaines d’entre elles -- telles que les réformes de la protection de l’emploi -- augmentent le chômage temporairement. Mettre en oeuvre simultanément un ensemble de réformes des marchés du travail et des produits permet au gouvernement de minimiser voire d’éviter ces coûts transitoires. Troisièmement, les réformes n’apparaissent pas avoir d’effets déflationnistes majeurs, ce qui suggère que l’incapacité de la politique monétaire à mettre en oeuvre de fortes baisses de taux d’intérêt dans leur foulée -- soit du fait du plancher zéro sur les taux directeurs soit du fait de l’appartenance à une large zone monétaire -- n’est pas un obstacle pertinent à la mise en oeuvre des réformes. Des règles monétaires simples alternatives n’ont qu’un faible impact sur les coûts de transition des réformes.
    JEL: E24 E32 J64
    Date: 2012–03–26
  16. By: Fernando E. Alvarez; Francesco Lippi
    Abstract: We model the decisions of a multi-product firm that faces a fixed “menu” cost: once it is paid, the firm can adjust the price of all its products. We characterize analytically the steady state firm’s decisions in terms of the structural parameters: the variability of the flexible prices, the curvature of the profit function, the size of the menu cost, and the number of products sold. We provide expressions for the steady state frequency of adjustment, the hazard rate of price adjustments, and the size distribution of price changes, all in terms of the structural parameters. We study analytically the impulse response of aggregate prices and output to a monetary shock. The size of the output response and its duration increase with the number of products, they more than double as the number of products goes from 1 to ten, quickly converging to the ones of Taylor’s staggered price model.
    JEL: E31 E4 E52 E60
    Date: 2012–03
  17. By: Gerke, Rafael; Jonsson, Magnus; Kliem, Martin; Kolasa, Marcin; Lafourcade, Pierre; Locarno, Alberto; Makarski, Krzysztof; McAdam, Peter
    Abstract: The recent global financial crisis has increased interest in macroeconomic models that incorporate financial linkages. Here, we compare the simulation properties of five mediumsized general equilibrium models used in Eurosystem central banks which incorporate such linkages. The financial frictions typically considered are the financial accelerator mechanism (convex \spread costs related to firms' leverage ratios) and collateral constraints (based on asset values). The harmonized shocks we consider illustrate the workings and mechanisms underlying the financial-macro linkages embodied in the models. We also look at historical shock decompositions of real GDP growth across the models since 2005 in order to shed light on the common driving factors underlying the recent financial crisis. In these exercises, the models share qualitatively similar and interpretable features. This gives us confidence that we have some broad understanding of the mechanisms involved. In addition, we also survey the current and developing trends in the literature on financial frictions. --
    Keywords: Financial Frictions,Credit Constraints,Financial Accelerator,Model Comparison,Eurosystem central bank models
    JEL: E32 E44 E47 E52
    Date: 2012
  18. By: Sangeeta Pratap (Hunter College and Graduate Center City University of New York); Carlos Urrutia (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))
    Abstract: Financial crises in emerging economies are accompanied by a large fall in total factor productivity. We explore the role of financial frictions in exacerbating the misallocation of resources and explaining this drop in TFP. We build a two-sector model of a small open economy with a working capital constraint to the purchase of intermediate goods. The model is calibrated to Mexico before the 1995 crisis and subject to an unexpected shock to interest rates. The financial friction generates an endogenous fall in TFP and output and can explain more than half of the fall in TFP and 74 percent of the fall in GDP per worker.
    Keywords: Financial crises, total factor productivity, financial frictions
    JEL: E32 F41 G01
    Date: 2011
  19. By: Gunda-Alexandra Detmers; Dieter Nautz (Reserve Bank of New Zealand)
    Abstract: The Reserve Bank of New Zealand was the first central bank to publish interest rate projections as a tool for forward guidance of monetary policy. This paper provides new evidence on the information content of interest rate projections for market expectations about future short-term rates before and during the financial crisis. While the information content of interest rate projections decreases with the forecast horizon in both periods, we find that their impact on market expectations has declined significantly since the outbreak of the crisis.
    JEL: E52 E58
    Date: 2012–02
  20. By: Yener Altunbas (Centre for Banking and Financial Studies, University of Wales, Bangor, Gwynedd, LL57 2DG, United Kingdom.); Leonardo Gambacorta (Bank for International Settlements, Monetary and Economics Department, Centralbahnplatz 2, CH-4002 Basel, Switzerland.); David Marques-Ibanez (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: We analyze whether the impact of monetary policy on bank risk depends upon bank characteristics. We relate the materialization of bank risk during the financial crisis to differences in the monetary policy stance and bank characteristics in the pre-crisis period for a large sample of listed banks operating in the European Union and the United States. We find that the insulation effect produced by capital and liquidity buffers on bank risk was lower for banks operating in countries that, prior to the crisis, experienced a particularly prolonged period of low interest rates. JEL Classification: E44, E52, G21.
    Keywords: Risk-taking channel, monetary policy, credit crisis, bank characteristics.
    Date: 2012–03
  21. By: Maria B. Chiarolla (Bielefeld University); Oliver Claas (Institute of Mathematical Economics, Bielefeld University)
    Abstract: This paper analyzes the implications of bilateral bargaining over wages and employment between a producer and a union representing a finite number of identical workers in a monetary macroeconomic model of the AS--AD type with government activity. Wages and aggregate employment levels are set according to an efficient (Nash) bargaining agreement while the commodity market is cleared in a competitive way. It is shown that, for each level of union power, measured by the share it obtains of the total production surplus, efficient bargaining implies no efficiency loss in production. Depending on the level of union power, temporary equilibria may exhibit voluntary overemployment or underemployment with the competitive equilibrium being a special case. Due to the price feedback from the commodity market and to income-induced demand effects, all temporary equilibria with a positive labor share are not Nash bargaining-efficient with respect to the set of feasible temporary equilibrium allocations. While higher union power induces a larger share of the surplus and a higher real wage, it always implies lower output and employment. Moreover, the induced nominal equilibrium wage is not always a monotonically increasing function of union power. Therefore, all temporary equilibria with efficient bargaining are only ``Second-best'' Pareto optimal, i.\,e.\ bargaining power and production efficiency do not lead to temporary optimality. The dynamic evolution of money balances, prices, and wages is analyzed being driven primarily by government budget deficits and expectations by consumers. It is shown that for each fixed level of union power, the features of the dynamics under perfect foresight are structurally identical to those of the same economy under competitive wage and price setting. These are: stationary equilibria with perfect foresight do not exist, except on a set of parameters of measure zero; balanced paths of monetary expansion or contraction are the only possibilities inducing constant allocations; for small levels of government demand, there exist two balanced paths generically, one of which with high employment and production is always unstable, while the other one may be stable or unstable.
    Date: 2012–03
  22. By: Gareis, Johannes; Mayer, Eric
    Abstract: In this paper we study the drivers of fluctuations in the Irish housing market by developing a dynamic stochastic general equilibrium (DSGE) model of Ireland as a member of the European Monetary Union (EMU). We estimate the model with Bayesian methods using time series for both Ireland and the rest of the EMU for the period from 1997:Q1 to 2008:Q2. We find that housing preference (demand) and technology shocks are the main drivers of fluctuations in house prices and residential investment. Moreover, we find that adding housing collateral does not improve the fit of our model to the data. A standard regression analysis shows that a good part of the variation of housing preference shocks is explained by unmodeled demand factors that have been considered in the empirical literature as important determinants of Irish house prices. --
    Keywords: housing,monetary policy,Bayesian estimation
    JEL: E44 E52 F41
    Date: 2012
  23. By: Joya, Omar
    Abstract: This dissertation contributes to an increasing literature on macroeconomic instability in developing countries. It makes a critical review of the literature and classifies the sources of instability under exogenous and endogenous factors. It then argues that the impact of exogenous shocks is determined by the structural characteristics of the economy which act as a risk-management mechanism. The paper also explains that macroeconomic instability is both a cause and a reflection of underdevelopment. Whilst macroeconomic instability constraints the long-term growth and thus development, it is also the result of the co-existence of various ‘underdeveloped structures’ in the economy. The paper also presents a case study on Afghanistan. Through a diagnostic approach, it identifies the sources of instability in the country and proposes a series of policies and reforms in order to overcome macroeconomic instability in Afghanistan.
    Keywords: Macroeconomic stability; Macroeconomic volatility; Macroeconomic instability; Developing countries; Afghanistan; Diagnostic approach; Policy analysis
    JEL: O11 E32 Y40 O53 E60
    Date: 2011–09
  24. By: Giorgio Calcagnini (Department of Economics, Society & Politics, Università di Urbino "Carlo Bo"); Fabio Farabullini (Bank of Italy); Germana Giombini (Department of Economics, Society & Politics, Università di Urbino "Carlo Bo")
    Abstract: The paper analyzes the role of guarantees on loan interest rates before and during the recent financial crisis in Italian firm financing. The paper improves on existing literature by distinguishing between real and personal guarantees. Further, the paper investigates the potential different role of guarantees in the bank-borrower relationship during the recent financial crisis. This paper draws from individual Italian bank and firm data taken from the Banks’ Supervisory Reports to the Bank of Italy and the Central Credit Register over the period 2006-2009. Our analysis demonstrates that collateral affects the cost of credit of Italian firms by systematically reducing the interest rate of secured loans, while personal guarantees increase it. These effects are amplified during the crisis. Furthermore, guarantees are a more powerful instrument for ex-ante riskier borrowers than for safer borrowers. Indeed, riskier borrowers obtain significantly lower interest rates on secured loans than interest rate they would be charged on unsecured loans.
    Keywords: Financial crisis, Guarantees, Multilevel model.
    JEL: E43 G21 D82
    Date: 2012
  25. By: Konstantinos Angelopoulos (University of Glasgow); James Malley (University of Glasgow); Apostolis Philippopoulos (Athens University of Economics and Business,CESifo)
    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 findings are: (i) it is optimal for a benevolent government, which cares equally about its citizens, to tax capital heavily and to subsidize labour; (ii) a Pareto improving means to reduce inefficiently high capital taxation under discretion is for the government to place greater weight on the welfare of capitalists; (iii) capitalists and workers preferences, regarding the optimal amount of "capitalist bias", are not aligned implying a conflict of interests.
    Keywords: Optimal fiscal policy; Markov-perfect equilibrium; heterogeneous agents
    JEL: E62 H21
    Date: 2011–12
  26. By: Rüdiger Bachmann; Lin Ma
    Abstract: How do microeconomic frictions and microeconomic heterogeneity affect macroeconomic dynamics? We revisit the recent claim in the literature that nonconvex capital adjustment costs do not matter for aggregate dynamics. We argue that the neutrality of fixed adjustment frictions in general equilibrium hinges on the assumption of capital good homogeneity. With only one type of capital good to save and invest in, fixed capital investment dynamics are tightly linked to consumption dynamics, which are similar across lumpy and frictionless investment models. With capital goods heterogeneity, households optimally substitute between different ways of saving, which renders their consumption/saving decisions more sensitive to capital adjustment frictions. We quantify our arguments by introducing inventories into a two-sector lumpy investment model. We find that with inventories, frictionless fixed capital adjustment leads to an initial response of fixed capital investment to productivity shocks that is 50% higher than with capital adjustment frictions, calibrated to the fraction of plants undergoing lumpy investment episodes. We argue more generally that the details of how general equilibrium is introduced into the physical environment of a model matters for the aggregate relevance of microeconomic frictions and microeconomic heterogeneity.
    JEL: E20 E22 E3 E32
    Date: 2012–03
  27. By: Wenli Cheng; Simon D. Angus
    Abstract: This paper develops a simple dynamic model to study some of the implications of Cantillon’s insight that new money enters an economy at a specific point and that it takes time for the new money to permeate the economy. It applies a process analysis and uses numerical simulations to map out how the economy changes from one period to the next following a money injection. It finds that, within the region of stability, a money injection can generate oscillating changes in real variables for a considerably long period of time before converging back to the initial steady state. It also finds that a money injection benefits first recipients of the new money, but hurts later recipients and savers. Our simulation suggests that in our model savers can lose from a money injection even if they are first recipients of the new money.
    JEL: E51 E52 E37
    Date: 2012–03
  28. By: Jurgilas, Marius (Norges Bank); Zikes, Filip (Bank of England)
    Abstract: This paper estimates the intraday value of money implicit in the UK unsecured overnight money market. Using transactions data on overnight loans advanced through the UK large-value payments system (CHAPS) in 2003-09, we find a positive and economically significant intraday interest rate. While the implicit intraday interest rate is quite small pre-crisis, it increases more than tenfold during the financial crisis of 2007-09. The key interpretation is that an increase in the implicit intraday interest rate reflects the increased opportunity cost of pledging collateral intraday and can be used as an indicator to gauge the stress of the payment system. We obtain qualitatively similar estimates of the intraday interest rate using quoted intraday bid and offer rates and confirm that our results are not driven by the intraday variation in the bid-ask spread.
    Keywords: Interbank money market; intraday liquidity
    JEL: E42 E58 G21
    Date: 2012–03–19
  29. By: Romain Bouis; Orsetta Causa; Lilas Demmou; Romain Duval; Aleksandra Zdzienicka
    Abstract: Drawing on new empirical analysis of 30 years of structural reforms across the OECD, this paper sheds light on the impact of reforms over time, identifies the horizon over which their full effects materialise, and investigates whether such effects vary with prevailing economic conditions and institutions. Impulse responses of aggregate outcomes (GDP growth, employment rate) to various labour, product market and tax reforms are estimated at different horizons. This analysis indicates that the benefits from reforms typically take time to fully materialise. When significant effects are found in the short run, reforms seldom involve significant aggregate economic losses; on the contrary they often deliver some benefits. The absence of major depressing effects does not lend support to the view that reforms should be in general accompanied by substantial macroeconomic policy easing in order to deliver some short-term gains. Nevertheless, there is also tentative evidence that some labour market reforms (e.g. of unemployment benefit systems and job protection) pay off more quickly in good times than in bad times, and can even entail short-term losses in severely depressed economies.<P>L'impact à court terme des réformes structurelles : une analyse empirique<BR>Cet article s’appuie sur des données portant sur trente années de reformes structurelles dans les pays de l’OCDE et analyse l’impact de ces reformes au cours du temps. Nous cherchons plus particulièrement à identifier l’horizon temporel à partir duquel ces effets se matérialisent ainsi qu’à déterminer la façon dont le positionnement dans le cycle économique ou les arrangements institutionnels en vigueur dans chaque pays affectent les résultats. L’analyse empirique repose sur l’estimation, à différents horizons temporels, de taux de réponse des variables de performances (taux de croissance du PIB, taux d’emploi) à des reformes mises en oeuvre dans le domaine fiscal, sur le marché du travail ainsi que sur le marché des produits. D’après nos résultats, les effets des reformes mettent généralement du temps à se matérialiser. Lorsque des effets significatifs sont obtenus dès le court terme, l’analyse indique que les réformes ne génèrent que très rarement des coûts macroéconomiques alors qu’un certain nombre d’entre elles produisent rapidement des bénéfices. L’absence d’effet récessif majeur semble donc infirmer l’idée selon laquelle les reformes devraient généralement être accompagnées de politiques macroéconomiques accommodantes permettant de compenser les coûts qui y seraient associés. Cependant, les résultats indiquent également que les effets bénéfiques des réformes du marché du travail (tels que celles du système d’assurance chômage ou de la protection du travail) se matérialisent surtout dans des situations de croissance économique alors qu’une détérioration des performances à court terme peut survenir lorsqu’elles sont appliquées en période de ralentissement économique.
    JEL: E02 E21 E22 E24 E60 J21 J23 J38 J58 J68
    Date: 2012–03–26
  30. By: Hasan, Dr. Syed Akif; Subhani, Dr. Muhammad Imtiaz; Osman, Mohammad
    Abstract: This study examines the co-movement of the buying patterns of the high and low involvement products in Pakistan in the presence of various economic players. Yearly data is collected from 1991 to 2010 containing unemployment rate, inflation rate, per capita income (MP) and interest rate (average) and the consumptions of High and low involvement products. Results reveal that there are the fluctuating trends in unemployment rate, inflation rate, per capita income and interest rate for the different time intervals while the consumptions of high and low involvement product is found to be co integrated for the outlined years during the fluctuating trends of outlined economical players.
    Keywords: High involvement product; Low involvement products; economical players; co-integration
    JEL: E2
    Date: 2012
  31. By: Acharya, Viral V; Almeida, Heitor; Campello, Murillo
    Abstract: We model corporate liquidity policy and show that aggregate risk exposure is a key determinant of how firms choose between cash and bank credit lines. Banks create liquidity for firms by pooling their idiosyncratic risks. As a result, firms with high aggregate risk find it costly to get credit lines and opt for cash in spite of higher opportunity costs and liquidity premium. Likewise, in times when aggregate risk is high, firms rely more on cash than on credit lines. We verify these predictions empirically. Cross-sectional analyses show that firms with high exposure to systematic risk have a higher ratio of cash to credit lines and face higher spreads on their lines. Time-series analyses show that firms' cash reserves rise in times of high aggregate volatility and in such times credit lines initiations fall, their spreads widen, and maturities shorten. Also consistent with the mechanism in the model, we find that exposure to undrawn credit lines increases bank-specific risks in times of high aggregate volatility.
    Keywords: asset beta; bank lines of credit; cash holdings; liquidity management; loan maturity; loan spreads; systemic risk
    JEL: E22 E5 G21 G31 G32
    Date: 2012–03
  32. By: Rousakis, Michael (University of Warwick)
    Abstract: This paper shows that implementation cycles, introduced in Shleifer (1986) , are possible in the presence of capital and the absence of borrowing constraints. In a two-sector economy, patents on cost-saving ideas which take the form of investment-specific technological change arrive exogenously at a sequential, perfectly smooth rate : in odd-numbered periods, they reach a firm producing capital of type 1 and, in the even-numbered ones, a firm producing capital of type. Firms can make profits out of these once. While the immediate appropriation (henceforth, "implementation") of patents is always a possibility, for accordingly formed expectations, firms can alternatively implement their patents simultaneously. This is because investment-specific technological change naturally introduces a one-period discrepancy between the time rms implement their patents and the time they receive revenue out of them. The implementation of a patent implies a sharp fall in investment which, in turn, causes a boom in current consumption. As a result, the consumption boom takes place before the wealth boom. This not only eliminates the need to smooth consumption away from the wealth boom to the period before it as conjectured, but, further, it implies that the interest rate paid when revenue is realized -and wealth expands- falls. Consequently, present discounted profits rise and implementation cycles can become a possibility. In a policy extension, I show that prolonging patent rights to two periods rules out "implementation cycles" and may lead to a welfare improvement. Key words: Implementation cycles ; capital ; savings ; monopoly ; demand externalities ; multiple equilibria ; patent rights JEL Classification: D42 ; D51 ; E21 ; E22 ; E32 ; O33 ; O34
    Date: 2012
  33. By: Sophia Lazaretou (Bank of Greece)
    Abstract: The main goal of this paper is to trace the long record of financial crises and financial market regulation from the perspective of an emerging economy. Two questions are addressed: first, what explains the incidence and severity of financial crises in an emerging market economy? And, second, what is the role of learning: how does the country learn from its past experience in financial crises to improve institutions and develop better techniques so as to successfully manage successive crisis events? To answer the above questions, I first present evidence on financial crises in Greece over a long time span. Greece has been chosen as an appropriate case-study since it is a country with a rich history in financial crises. I try to identify a variety of crisis events, thus providing a chronology. Moreover, I present a number of facts about the incidence, frequency and severity of crises events. Second, I discuss the key determinants of the crises, which are closely related to country-specific factors, such as credit expansion, fiscal imbalances, and the limited reserve coverage of the monetary base. And third, I deal with the evolution of the regulation. I place emphasis on the post-crisis regulatory responses that changed the country’s institutional developments.
    Keywords: financial crises; emerging economies; sudden stops; financial market regulation.
    JEL: E5 N2
    Date: 2011–10
  34. By: Knetsch, Thomas A.
    Abstract: Es wird eine Methode zur Messung des Produktionsfaktors Kapital vorgeschlagen, in der Vermögensarten nach ihrem Nutzungswert im Produktionsprozess gewichtet werden. Dazu werden Nutzungskosten für die einzelnen Anlageklassen mit Hilfe von Daten der Volkswirtschaftlichen Gesamtrechnungen sowie anderer Quellen geschätzt. Im Beobachtungszeitraum von 1991 bis 2010 nahm der aggregierte Kapitaleinsatz der Unternehmen erkennbar stärker zu als der amtlich ausgewiesene Kapitalstock. In der Gesamtwirtschaft gilt dies nur für die zyklischen Expansionsphasen. Da das Statistische Bundesamt mit Bestandswerten gewichtet, sind die voneinander abweichenden Wägungsschemata in Verbindung mit den nach Vermögensarten variierenden Akkumulationsgeschwindigkeiten für die Unterschiede verantwortlich. Im Rahmen angebotsseitiger Zerlegungen des Wirtschaftswachstums ergeben sich daraus Differenzen in den Schätzungen der Totalen Faktorproduktivität. Parametrische Produktionsfunktionsschätzungen werden von diesem Methodenunterschied indessen nicht wesentlich beeinflusst. -- A method is proposed to measure capital services in production. This means that productive assets are weighted according to their user costs. The user costs of the individual asset classes are estimated based on data from the national accounts and other sources. The results show that, in the observation period between 1991 and 2010, enterprises' capital services expand faster than the offcially published capital stock. For the economy as a whole, this applies only to phases of cyclical expansion. As the capital stock is aggregated using asset prices, the differences can be explained by the dfferent weighting methods in conjunction with the varying speeds at which the individual asset types have accumulated over time. In growth accounting, different estimates of total factor productivity emerge. The methodological difference, however, does not significantly affect the estimates of parametric production function specifications.
    Keywords: Kapitalstock,Aggregation,Produktionsfunktion,TFP,Capital stock,aggregation,production function,TFP
    JEL: E01 O47 C43
    Date: 2012
  35. By: Knetsch, Thomas A.
    Abstract: A method is proposed to measure capital services in production. This means that productive assets are weighted according to their user costs. The user costs of the individual asset classes are estimated based on data from the national accounts and other sources. The results show that, in the observation period between 1991 and 2010, enterprises' capital services expand faster than the offcially published capital stock. For the economy as a whole, this applies only to phases of cyclical expansion. As the capital stock is aggregated using asset prices, the differences can be explained by the dfferent weighting methods in conjunction with the varying speeds at which the individual asset types have accumulated over time. In growth accounting, different estimates of total factor productivity emerge. The methodological difference, however, does not significantly affect the estimates of parametric production function specifications. -- Es wird eine Methode zur Messung des Produktionsfaktors Kapital vorgeschlagen, in der Vermögensarten nach ihrem Nutzungswert im Produktionsprozess gewichtet werden. Dazu werden Nutzungskosten für die einzelnen Anlageklassen mit Hilfe von Daten der Volkswirtschaftlichen Gesamtrechnungen sowie anderer Quellen geschätzt. Im Beobachtungszeitraum von 1991 bis 2010 nahm der aggregierte Kapitaleinsatz der Unternehmen erkennbar stärker zu als der amtlich ausgewiesene Kapitalstock. In der Gesamtwirtschaft gilt dies nur für die zyklischen Expansionsphasen. Da das Statistische Bundesamt mit Bestandswerten gewichtet, sind die voneinander abweichenden Wägungsschemata in Verbindung mit den nach Vermögensarten variierenden Akkumulationsgeschwindigkeiten für die Unterschiede verantwortlich. Im Rahmen angebotsseitiger Zerlegungen des Wirtschaftswachstums ergeben sich daraus Differenzen in den Schätzungen der Totalen Faktorproduktivität. Parametrische Produktionsfunktionsschätzungen werden von diesem Methodenunterschied indessen nicht wesentlich beeinflusst.
    Keywords: Capital stock,aggregation,production function,TFP,Kapitalstock,Aggregation,Produktionsfunktion,TFP
    JEL: E01 O47 C43
    Date: 2012
  36. By: Shinji Takagi (Graduate School of Economics, Osaka University); Kenichi Hirose (Otaru University of Commerce); Issei Kozuru (Kosei Securities Testing the Effectiveness of Market-B)
    Abstract: The paper tests the effectiveness of marginal reserve requirements employed by the Japanese authorities in the 1970s to influence short-term capital flows, thereby contributing to the ongoing debate on the use of capital controls\market- or price-based ones in particular. While the case for using market-based controls almost entirely relies on the mixed evidence from the experience of Chile with unremunerated reserve requirements in the 1990s, testing for their effectiveness on the volume of inflows is hampered by the endogeneity of such a measure, which is typically imposed or intensified when inflows surge. We address this problem by applying the method of propensity score matching and find that an increase in marginal reserve requirements modestly reduced the volume of short-term capital inflows through non-resident free-yen accounts. The impact was not statistically significant, however, implying that the price elasticity of short-term capital flows was small. We conclude that market-based controls must be nearly prohibitive, perhaps combined with administrative measures, to be effective in a meaningful way.The paper presents a political economy model of official foreign exchange market intervention and tests the model against the recent experience of Japan. In several industrial countries, the government is responsible for intervention decisions while the central bank is given operational independence in its conduct of monetary policy. The paper models the interaction between the two agencies, empirically tests the central bank reaction function, and considers conditions under which intervention might change monetary policy. Daily Japanese intervention data give broad support to the prediction of the model with respect to central bank behavior. Although it is difficult to be definitive about the hidden motive of central bank actions, during the extraordinary period of 2001-04 when Japan remained under deflationary pressure, the central bank, faced with large political costs of sterilization, accommodated a considerable portion of the massive interventions made by the government. Under normal conditions coordination between the two agencies might be desirable, not least to make the signal of any intervention credible, but giving an alternative agency the authority over intervention decisions can be a means of enhancing democratic accountability for an independent central bank while preserving the credibility of monetary policy.
    Keywords: foreign exchange market intervention; central banking; quantitative easing; Japanese intervention
    JEL: E42 E58 F31
    Date: 2012–04
  37. By: Hasan, Dr. Syed Akif; Subhani, Dr. Muhammad Imtiaz; Osman, Ms. Amber
    Abstract: Perpetual Disparities in all norms of lives are one of those essences of Pakistan which have been like a ghost that always exploits to its victims. This paper investigates and identifies the Disparities in the wage Structure of Pakistan. Data for the wages from 9 different sectors which includes Mining and Quarrying, Manufacturing, Electric Gas and Water, Construction, Whole and Retail Trade, Transportation, Financial Real Estate have been taken from Labor force survey for 2000- 2010, which is available at State Bank and Economic Survey of Pakistan. The main objective/ proposition of this study is to compare the wages of the outlined sectors with the wage structure of agriculture sector. The Split technique for means has been deployed to interrogate the data and the propositions of this research. It is revealed in this paper that wages of all the selected sectors are at higher side as compared to the agriculture sector of Pakistan, and despite of the claim that Pakistan is an agririan country, the agriculture sector has been ignored in terms of wages offered to the employees work for it.
    Keywords: Disparity; Wages; Real Wages; Sectorial Wages; Income Distribution; Inequality
    JEL: E24
    Date: 2012
  38. By: Klein, Rolf
    Abstract: Untersucht wird das Zusammenspiel von Angebot und Nachfrage im Rahmen von Wachstumsprozessen. Es wird gezeigt, dass auch unter klassischen, auf dem Tausch basierenden Annahmen die Wirtschaftsentwicklung durch die Nachfrage maßgeblich beeinflusst wird. Wachstum setzt die Bereitschaft der Wirtschaftsteilnehmer voraus, die Zusammensetzung ihrer Budgets zu verändern. Jedes zusätzliche Angebot muss durch das Nadelöhr der bestehenden Budgets. Ohne eine Änderung der Präferenzen der zahlungskräftigen Nachfrager ist Wachstum nicht möglich. Erfindungen, gesellschaftliche Veränderungen, neue Moden oder auch geänderte Vorschriften können die Integration zusätzlicher Angebote erleichtern. Die Veränderungsbereitschaft bzw. -resistenz der Nachfrager bietet sich damit als ein erklärendes Element für die Entwicklung von Volkswirtschaften an, die ihr Produktionspotential nicht ausschöpfen. Veränderungen der Nachfragestruktur können die Wirtschaft wachsen oder schrumpfen lassen. Steigerungen der Nachfrage, die aus breit gestreuten und damit am Ende kompensierten Einsparungen bestritten werden - nämlich in Form eines neuen Matchings der Tauschbeziehungen - erzeugen Wachstum. Umgekehrt bewirken auf bestimmte Angebote konzentrierte Einsparungen, die zu diffus verteilten Ausgaben des Ersparten führen, Schrumpfung. Um einzuschätzen, ob Änderungen der staatlichen bzw. staatlich beeinflussten Nachfrage, ob technische Innovationen, gesellschaftliche Veränderungen oder Lohnänderungen Wachstum fördern, ist zu fragen, ob per Saldo die Integration zusätzlicher Angebote in die Budgets gefördert wird. Entscheidungen des Staates, ob als Fiskus oder als Normsetzer, können die Struktur der Nachfrage und damit die Wirtschaftsentwicklung beeinflussen, strategisch oder auch absichtslos. -- Growth through the bottleneck of limited budgets: The interplay between supply and demand in the context of growth processes is examined. It is demonstrated that economic development is also significantly influenced by demand under classic, exchange-based hypotheses. Growth assumes that economic operators are willing to change the composition of their budgets. Any additional product must pass through the confines of an existing budget. Growth is not possible without a change in the preferences of solvent buyers. Factors like inventions, changes in society, new fashions or amended regulations can facilitate the integration of additional products. The willingness or resistance to change of potential buyers is thus a possible element in explaining the development of economies that do not fully utilize their production potential. Changes in the structure of demand can cause an economy to grow or shrink. Increases in demand funded by broadly spread savings that are ultimately recompensed – i.e. in form of a new matching of exchange relationships – create growth. Conversely, savings concentrated on certain products that lead to money saved being spent diffusely result in negative growth. In order to assess whether changes in state or state-influenced demand, technical innovations, shifts in society or wage adjustments are conducive to growth, the question has to be asked whether the integration of additional products into the budget is ultimately being encouraged. Government decisions, whether as a fiscal body or setter of standards, can influence the structure of demand and hence economic developments, strategically or unintentionally.
    Keywords: Wirtschaftswachstum,Nachfrage,Nachfragestruktur,neoklassisch,Budgetrestriktion,Fiskalpolitik,Wachstumspolitik,technischer Fortschritt
    JEL: E13 E62 H30 O40
    Date: 2011–11
  39. By: Ansgar Belke; Ingo G. Bordon; Ulrich Volz
    Abstract: This paper investigates the relationship between global liquidity and commodity and food prices applying a global cointegrated vector-autoregressive model. We use different measures of global liquidity and various indices of commodity and food prices for the period 1980-2011. Our results support the hypothesis that there is a positive long-run relation between global liquidity and the development of food and commodity prices, and that food and commodity prices adjust significantly to this cointegrating relation. Global liquidity, in contrast, does not adjust, it drives the relationship.
    Keywords: Commodity prices, food prices, global liquidity, cointegration, CVAR analysis
    JEL: E52 E58 C32
    Date: 2012

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