nep-mac New Economics Papers
on Macroeconomics
Issue of 2012‒05‒02
27 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Reserves, Liquidity and Money: An Assessment of Balance Sheet Policies By Jagjit S. Chadhay; Luisa Corrado; Jack Meaning
  2. The Effect of Conventional and Unconventional Monetary Policy Rules on Inflation Expectations: Theory and Evidence By Roger E.A. Farmer
  3. Money, credit, monetary policy and the business cycle in the euro area By Giannone, Domenico; Lenza, Michele; Reichlin, Lucrezia
  4. Asymmetric Labor Market Institutions in the EMU and the Volatility of Inflation and Unemployment Differentials By Abbritti, Mirko; Mueller, Andreas I.
  5. Business cycle synchronization during US recessions since the beginning of the 1870's By Antonakakis, Nikolaos
  6. How forward looking are central banks? Some evidence from their forecasts By Michał Brzoza-Brzezina; Jacek Kotłowski; Agata Miśkowiec
  7. Does Monetary Cooperation or Confrontation Lead to Successful Fiscal Consolidation? By Tomas Hellebrandt; Adam S. Posen; Marilyne Tolle
  8. Capital Controls with International Reserve Accumulation: Can this Be Optimal? By Bacchetta, Philippe; Benhima, Kenza; Kalantzis, Yannick
  9. Voting by monetary policy committees: evidence from the CEE inflation-targeting countries By Alexander Jung; Gergely Kiss
  10. Reproducing Business Cycle Features: Are Nonlinear Dynamics a Proxy for Multivariate Information? By James Morley; Jeremy Pigger; Pao-Lin Tien
  11. Liquidity Effects of Quantitative Easing on Long-Term Interest Rates By Signe Krogstrup; Samuel Reynard; Barbara Sutter
  12. Government spending in a model where debt effects output gap By Bell, Peter N
  13. Inflation expectations in Poland By Tomasz Łyziak
  14. News shocks and the slope of the term structure of interest rates By André Kurmann; Christopher Otrok
  15. Government Size and Business Cycle Volatility; How Important Are Credit Constraints? By Markus Leibrecht; Johann Scharler
  16. Monetary Policy in Chile: Institutions, Objectives, and Instruments By Francisco Rosende; Matías Tapia
  17. Forecasting Korean inflation By In Choi; Seong Jin Hwang
  18. Updating Inflation Expectations By Michael J. Lamla; Samad Sarferaz
  19. Inside Liquidity in Competitive Markets By Michiel Bijlsma; Andrei Dubovik; Gijsbert Zwart
  20. Regional Effects of Federal Tax Shocks By Bernd Hayo; Matthias Uhl
  21. The transformative impact of business models By Ghafele, Roya; Gibert, Benjamin
  22. 2012-13 Determinants of bank credit in small open economies: The case of six Pacific Island Countries By Parmendra Sharma, Neelesh Gounder
  23. Correcting real exchange rate misalignment : conceptual and practical issues By Eden, Maya; Nguyen, Ha
  24. Informative Advertising in Directed Search. By Pedro Gomis-Porqueras; Benoit Julien; Chengsi Wang
  25. Robust policy choice under Calvo and Rotemberg pricing By Sienknecht, Sebastian
  26. Why is Agricultural Employment Increasing in Turkey? By Seyfettin Gursel; Zumrut Imamoglu
  27. First Time Underwater: The Impact of the First-time Homebuyer Tax Credit By Dean Baker

  1. By: Jagjit S. Chadhay (School of Economics, Keynes College, University of Kent); Luisa Corrado (Faculty of Economics, University of Rome "Tor Vergata"); Jack Meaning (School of Economics, Keynes College, University of Kent)
    Abstract: The financial crisis and its aftermath has stimulated a vigorous debate on the use of macro-prudential instruments for both regulating the banking system and for providing additional tools for monetary policy makers. The widespread adoption of non-conventional monetary policies has provided some evidence on the efficacy of liquidity and asset purchases for o¤setting the lower zero bound. Central banks have thus been reminded as to the effectiveness of extended open market operations as a supplementary tool of monetary policy. These tools are essentially fiscal instruments, as they issue central bank liabilities backed by ?scal transfers. And so having written these tools into the fiscal budget constraint, we can examine the consequences of these operations within the context of a micro-founded macroeconomic model of banking and money. We can mimic the responses of the Federal Reserve balance sheet to the crisis. Specifically, we examine the role of reserves for bond and capital swaps in stabilising the economy and also the impact of changing the composition of the central bank balance sheet. We find that such policies can significantly enhance the ability of the central bank to stabilise the economy. This is because balance sheet operations supply (remove) liquidity to a financial market that is otherwise short (long) of liquidity and hence allows other financial spreads to move less violently over the cycle to compensate.
    Keywords: non-conventional monetary interest on reserves, monetary and ?scal policy instruments, Basel III.
    JEL: E31 E40 E51
    Date: 2012–04–18
  2. By: Roger E.A. Farmer
    Abstract: This paper has three parts. First, I provide a theoretical framework to explain how rational expectations models, where the central bank follows a conventional monetary policy rule, can be used to understand the history of interest rates and inflation in the period between 1951 and the Great Recession of 2008. Second, I use the framework developed in the first part of the paper to illustrate how the purchase of assets other than treasuries, for example, mortgage backed securities and long bonds, can influence inflation expectations when the interest rate is zero. Third, I show that the beginning of unconventional monetary policy in 2008 coincided with a significant increase in inflation expectations. I extend existing models of monetary policy by adding explicit markets for financial securities. Using this extended framework, I show that the purchase of assets, other than short term treasury bills, has a differential impact on the prices of risky securities. Unconventional monetary policy is an important tool in a central bank’s arsenal that can be used to help prevent deflation in the wake of a financial crisis.
    JEL: E31 E4
    Date: 2012–04
  3. By: Giannone, Domenico; Lenza, Michele; Reichlin, Lucrezia
    Abstract: This paper uses a data-set including time series data on macroeconomic variables, loans, deposits and interest rates for the euro area in order to study the features of financial intermediation over the business cycle. We find that stylized facts for aggregate monetary and real variables are remarkably similar to what has been found for the US by many studies while we uncover new facts on disaggregated loans and deposits. During the crisis the cyclical behavior of short term interest rates, loans and deposits remain stable but we identify unusual dynamics of longer term loans, deposits and longer term interest rates.
    Keywords: euro area; loans; monetary policy; Money; non-financial corporations
    JEL: C32 C51 E32 E51 E52
    Date: 2012–04
  4. By: Abbritti, Mirko (University of Navarra); Mueller, Andreas I. (Columbia University)
    Abstract: How does the asymmetry of labor market institutions affect the adjustment of a currency union to shocks? To answer this question, this paper sets up a dynamic currency union model with monopolistic competition and sticky prices, hiring frictions and real wage rigidities. In our analysis, we focus on the differentials in inflation and unemployment between countries, as they directly reflect how the currency union responds to shocks. We highlight the following three results: First, we show that it is important to distinguish between different labor market rigidities as they have opposite effects on inflation and unemployment differentials. Second, we find that asymmetries in labor market structures tend to increase the volatility of both inflation and unemployment differentials. Finally, we show that it is important to take into account the interaction between different types of labor market rigidities. Overall, our results suggest that asymmetries in labor market structures worsen the adjustment of a currency union to shocks.
    Keywords: currency union, labor market frictions, real wage rigidities, unemployment, sticky prices, inflation differentials
    JEL: E32 E52 F41
    Date: 2012–04
  5. By: Antonakakis, Nikolaos
    Abstract: This paper examines the synchronization of business cycles across the G7 countries during US recessions since the 1870's. Using a dynamic measure of business cycle synchronization, results depend on the globalisation period under consideration. On average, US recessions have significantly positive effects on business cycle co-movements only in the period following the breakdown of the Bretton Woods system of fixed exchange rates, while strongly decoupling effects among the G7 economies are documented during recessions that occurred under the classical Gold Standard. During the 2007-2009 recession, business cycles co-movements increased to unprecedented levels.
    Keywords: Dynamic conditional correlation; Business cycle synchronization; Recession; Globalisation
    JEL: F4 E32 N10 F41 E3
    Date: 2012–04
  6. By: Michał Brzoza-Brzezina (National Bank of Poland, Warsaw School of Economics); Jacek Kotłowski (National Bank of Poland, Warsaw School of Economics); Agata Miśkowiec (Warsaw School of Economics)
    Abstract: We estimate forward-looking Taylor rules on data from macroeconomic forecasts of three central banks (Bank of England, National Bank of Poland and Swiss National Bank) in order to determine the extent to which these banks are forward looking in their monetary policy decisions. We find that all three banks are to some extent forward-looking, however to a varying degree. With respect to inflation, the NBP and the SNB look far into the future, while the BoE seems to concentrate on current inflation. As to output, the BoE and the SNB take into account its future or current value while for the NBP this variable is insignificant. We also find that central banks prefer to concentrate on one particular horizon rather than take into account the whole forecast.
    Keywords: Taylor rule, forward-looking monetary policy, feedback horizon
    JEL: C25 E52 E58
    Date: 2012
  7. By: Tomas Hellebrandt (Bank of England); Adam S. Posen (Peterson Institute for International Economics); Marilyne Tolle (Bank of England)
    Abstract: Active accommodation of fiscal consolidations by monetary policy is controversial, as can be seen in current euro area discussions. While many observers acknowledge that there is usually a place for monetary accommodation in response to fiscal consolidation, a sequencing argument is often heard today that fiscal commitment must precede any loosening. Some analysts go further to suggest that toughness by central banks taking a hard line on adjustment is critical to inducing sustained fiscal stabilization. This policy brief looks at the recent historical record of central bank behavior vis-à-vis fiscal authorities, at least until the current crisis period, and whether accommodative approaches ahead of consolidations have proven dangerous or helpful. The authors also try to assess the market credibility of fiscal consolidations as a function of the central banks' monetary stance prior to fiscal consolidation. They find clear evidence of positive associations between the degree of monetary ease in advance of fiscal consolidation programs and both those programs' success and their market credibility. For a wide range of cases of fiscal consolidation, monetary policymakers did not hesitate to pursue accommodative policies and try to improve economic conditions ahead of those programs' implementation.
    Date: 2012–04
  8. By: Bacchetta, Philippe (University of Lausanne, CEPR); Benhima, Kenza (University of Lausanne); Kalantzis, Yannick (Banque de France)
    Abstract: Motivated by the Chinese experience, we analyze a semi-open economy where the central bank has access to international capital markets, but the private sector has not. This enables the central bank to choose an interest rate different from the international rate. We examine the optimal policy of the central bank by modelling it as a Ramsey planner who can choose the level of domestic public debt and of international reserves. The central bank can improve savings opportunities of credit-constrained consumers modelled as in Woodford (1990). We find that in a steady state it is optimal for the central bank to replicate the open economy, i.e., to issue debt financed by the accumulation of reserves so that the domestic interest rate equals the foreign rate. When the economy is in transition, however, a rapidly growing economy has a higher welfare without capital mobility and the optimal interest rate differs from the international rate. We argue that the domestic interest rate should be temporarily above the international rate. We also find that capital controls can still help reach the first best when the planner has more fiscal instruments.
    Date: 2012–04
  9. By: Alexander Jung (European Central Bank); Gergely Kiss (Fitch Ratings)
    Abstract: The aim of this paper is to study preference heterogeneity in monetary policy committees of inflation-targeting (IT) countries in Central and Eastern Europe (CEE) during the period 2005–2010. It employs (individual) voting records of the Monetary Council of the Magyar Nemzeti Bank (the central bank of Hungary) and of the Monetary Policy Council of the National Bank of Poland. Preference heterogeneity in committees is not directly observable. Therefore, we pursue an indirect measurement and conduct an econometric analysis based on (pooled) Taylor-type reaction functions estimated using real-time information on economic and financial indicators and voting records. Recent evidence for the monetary policy committees (MPCs) of advanced economies (see Besley et al., 2008; Jung, 2011) suggests that preference heterogeneity among its members is systematic. Unlike for monetary policy committees of advanced countries, the present paper finds preference heterogeneity to be random for both the members of the Monetary Policy Council of the National Bank of Poland (NBP), and the members of the Monetary Council of the Magyar Nemzeti Bank (MNB). But, similar to the committees of advanced economies, the diversity of views on the inflation forecast is measurable in both committees. A separate cluster analysis shows that different preferences of MPC members may be attributable to their status (chairman, internal member, external member) and that members may also differ in their desired response to changes in the economic outlook.
    Keywords: central banking, monetary policy committee, inflation targeting, collective decision-making, voting, preferences, pooled regressions
    JEL: C23 D72 D83 E58
    Date: 2012
  10. By: James Morley (School of Economics, The University of New South Wales); Jeremy Pigger (University of Oregon); Pao-Lin Tien (Wesleyan University)
    Abstract: We consider the extent to which different time-series models can generate simulated data with the same business cycle features that are evident in U.S. real GDP. We focus our analysis on whether multivariate linear models can improve on the previously documented failure of univariate linear models to replicate certain key business cycle features. We find that a particular nonlinear Markov-switching specification with an explicit “bounceback” effect continues to outperform linear models, even when the models incorporate variables such as the unemployment rate, inflation, interest rates, and the components of GDP. These results are robust to simulated data generated either using Normal disturbances or bootstrapped disturbances, as well as to allowing for a one-time structural break in the variance of shocks to real GDP growth.
    Keywords: Business cycle features, nonlinear dynamics, multivariate models.
    JEL: C52 E30
    Date: 2012–03
  11. By: Signe Krogstrup; Samuel Reynard; Barbara Sutter
    Abstract: This paper argues that the expansion in reserves following recent quantitative easing programs of the Federal Reserve may have affected long-term interest rates through liquidity effects. The data lends some support for liquidity effects, in that reserves were negatively correlated with long-term yields at the zero lower bound. Estimates suggest that between January 2009 and 2011, 10-year US Treasury yields fell 46-85 basis points as a result of liquidity effects. The liquidity effect is separate from the portfolio balance effect of the change in the public supply of Treasury bonds, which is estimated to have reduced yields by another 20 basis points during that period.
    Keywords: Quantitative Easing, Reserves, Liquidity Effect, Long-Term Interest Rates, Zero Lower Bound, Monetary Policy, Portfolio Balance
    JEL: E43 E52 E58
    Date: 2012
  12. By: Bell, Peter N
    Abstract: In this paper I present a simple model of government spending where the level of government debt affects the output gap. The structure of the economy is specified such that the output gap has a structural part, which is a function of debt. Based on empirical research, the structural part is assigned a specific functional form. The government faces an optimization problem where they attempt to close the output gap. The optimal change in government debt is found by solving a nonlinear equation. Numerical results show that the optimal change in debt has nonlinear behaviour. The solution to the unconstrained problem is an alternating equilibrium, whereas the solution to the constrained problem is a non linear cycle around the government's upper bound of admissible debt.
    Keywords: Debt; Macroeconomy; Fiscal; Government Spending; Output Gap; Nonlinear; Numerical Method
    JEL: H60 E00
    Date: 2012–04–12
  13. By: Tomasz Łyziak (National Bank of Poland)
    Abstract: This paper presents survey-based direct measures of inflation expectations of consumers, enterprises and financial sector analysts in Poland. It then goes on to provide the results of testing those features of inflation expectations that seem the most important from the point of view of monetary policy and its transmission mechanism. Characteristics of inflation expectations in Poland are diversified across the analysed groups of economic agents. Inflation expectations of financial sector analysts and enterprises outperform those of consumers in terms of their accuracy and information content, however also consumer inflation expectations are to some extent forward-looking.
    Date: 2012
  14. By: André Kurmann; Christopher Otrok
    Abstract: We adopt a statistical approach to identify the shocks that explain most of the fluctuations of the slope of the term structure of interest rates. We find that one single shock can explain the majority of all unpredictable movements in the slope over a 10-year forecast horizon. Impulse response functions lead us to interpret this shock as news about future total factor productivity (TFP). We confirm this interpretation formally by identifying a TFP news shock following recent work by Barsky and Sims (2011). By showing that the 'slope shock' and the 'TFP news shock' are closely related, we provide a new explanation for the relationship between the slope of the term structure and macroeconomic fundamentals and for why the yield curve is one of the most reliable predictors of future economic growth. Our results also provide a new empirical benchmark for structural models at the intersection of macroeconomics and finance.
    Keywords: Interest rates ; Vector autoregression
    Date: 2012
  15. By: Markus Leibrecht (Leuphana University Lueneburg, Department of Economics, Germany); Johann Scharler (University of Innsbruck, Department of Economics, Austria)
    Abstract: In this paper we analyze how the availability of credit in uences the relationship between government size as a proxy for scal stabilization policy and the amplitude of business cycle uctuations in a sample of advanced OECD countries. Interpreting relatively low loan-tovalue ratios as an indication for tight credit constraints, we nd that government size exerts a stabilizing eect on output and consumption growth uctuations only when credit constraints are relatively tight. Our results are robust with respect to dierent measures of government size and provide support for the hypothesis that credit market frictions play a crucial role in the transmission of scal policy.
    Keywords: Business cycle, volatility, scal policy, stabilization policy
    JEL: E62 E32
    Date: 2012–04
  16. By: Francisco Rosende; Matías Tapia
    Abstract: The behavior of inflation in Chile over the last 30 years has striking similarities to the experience of many industrialized and developing economies. The successful reduction of inflation, in a context of health GDP growth, reflects a combination of factors, ranging from better policies (both in terms of objectives and actual policy management) to a global supply shock that reduced inflation everywhere. Thus, the reduction of inflation in Chile was not solely luck or solely inspiration from the monetary authorities, but rather a (successful) combination of both. The paper performs two empirical exercises to analyze the behavior of inflation in the last 3 decades. Using the structural break methodology developed by Bai and Perron, we find that inflation process has changed twice since 1977, both changes roughly coinciding with relevant changes in both the monetary policy framework and international conditions. The second exercises uses the UC-SV model developed by Stock and Watson (2007). Comparing our results for Chile with a similar exercise for the G7, we confirm the strong similarities between the timing and characteristics of the inflation process in Chile and the industrialized world. This paper can be seen as the first part of wider agenda that tries to understand the features of inflation in Chile, with an emphasis on placing them on an international context. Future research will try to empirically analyze those mechanisms, shedding some light on the competing hypotheses and their relative weight.
    Keywords: Inflation, monetary policy, structural breaks, unobserved components
    JEL: E31 E52 E58
    Date: 2012
  17. By: In Choi (Department of Economics, Sogang University, Seoul); Seong Jin Hwang
    Abstract: This paper studies the performance of various forecasting models for Ko- rean inflation rates. The models studied in this paper are the AR(p) model, the dynamic predictive regression model with such exogenous variables as the un- employment rate and the term spread, the inflation target model, the random- walk model, and the dynamic predictive regression model using estimated fac- tors along with the unemployment rate and the term spread. The sampling period studied in this paper is 2000M11-2011M06. Among the studied models, the dynamic predictive regression model using estimated factors along with the unemployment rate and the term spread tends to perform best at the 6-month horizon when the factors are extracted from I(0) series and the variables for the factor extraction are selected by the criterion of the correlation of each variable with the inflation rate. The dynamic predictive regression models with the unemployment rate and the term spread also work well at shorter horizons.
    Keywords: inflation forecasting, Phillips curve, term spread, factor model, principal-component estimation, generalized principal-component estimation
    Date: 2012–02
  18. By: Michael J. Lamla (ETH Zurich); Samad Sarferaz (ETH Zurich)
    Abstract: This paper investigates how inflation expectations evolve. In particular, we analyze the time-varying nature of the propensity to update expectations and its potential determinants. For this purpose we set up a flexible econometric model that tracks the formation of inflation expectations of consumers at each moment in time. We show that the propensity to update inflation expectations changes substantially over time and is related to the quantity and the quality of news.
    Keywords: inflation expectation formation, time-varying parameters, Bayesian methods disagreement, media coverage, stochastic volatility.
    JEL: E31 E37 E52 D83
    Date: 2012
  19. By: Michiel Bijlsma; Andrei Dubovik; Gijsbert Zwart
    Abstract: <p>In CPB Discussion Paper 209 we study incentives of financial intermediaries to reserve liquidity given that they can rely on the interbank market for their liquidity needs. Intermediaries can partially pledge their assets to each other, but not to the rest of the economy. Therefore liquidity provision is endogenous. </p><p>We show that if the probability of a crisis is large or if assets are slightly pledgeable, then all intermediaries reserve liquidity. However, if the probability of a crisis is small or if assets are highly pledgeable, then intermediaries segregate ex ante: some reserve no liquidity, others reserve to the maximum and become liquidity providers. This segregation arises, because in the latter case the crisis short-term rate exceeds the returns on long-term investments, while at the same time higher liquidity holdings also increase survival probability. Together, these two effects result in increasing marginal returns to liquidity in the crisis state, and, consequently, segregation ex ante. In either equilibrium, aggregate liquidity is too small if assets are not fully pledgeable. Minimum liquidity requirements only improve welfare in the symmetric equilibrium. Marginally lowering the interest rate causes a marginal crowding-out of private liquidity with public liquidity in the symmetric equilibrium, but a full crowding-out in the asymmetric equilibrium.</p>
    JEL: E43 G20 G33
    Date: 2012–04
  20. By: Bernd Hayo (University of Marburg); Matthias Uhl (University of Marburg)
    Abstract: This paper studies regional output asymmetries following U.S. federal tax shocks. We estimate a vector autoregressive model for each U.S. state, utilizing the exogenous tax shock series recently proposed by Romer and Romer (2010) and find considerable variations: estimated output multipliers lie between –0.2 in Utah and –3.3 in Hawaii. Statistically, the difference between state and national output effect is significant in about half the U.S. states. Analyzing the determinants of differences in the magnitude of regional tax multipliers suggests that industry composition of output and sociodemographic characteristics help explain the observed asymmetry across U.S. states in the transmission of federal tax policy.
    Keywords: Fiscal Policy Tax Policy Narrative Approach U.S. States Regional Effects Asymmetries in Fiscal Policy Transmission
    JEL: E32 E62 H20 R10 R11
    Date: 2012
  21. By: Ghafele, Roya; Gibert, Benjamin
    Abstract: The macroeconomic impact of advances in information and communications technologies is significant but problematic to assess. Research on these developments has been isolated to specific disciplines, easily outpaced by new innovations and few studies describe the multiple changes and their macroeconomic consequences in a holistic way. The increasing ability to organize, price and transmit information to the market is ushering in an era where economic actors are highly responsive to the market. Technological advance alone does not capture the benefits of these developments. It is the innovative business model that lies at the heart of this revolution in responsiveness. We outline four major economic shifts in this study by reference to some paradigmatic business models. These shifts include pricing strategy innovations and their effect on the creation and expansion of market spaces, structural shifts in electronic markets and the effects on transaction costs, the deeper interaction between firms and consumers and the effects on more efficient matching of supply and demand, and finally the economic impact of elasticity and infinite scalability in computing resources when delivered as a utility by cloud computing providers. These advances do not only increase the commercial possibilities, they actively alter the competitive landscape and the role of the firm and consumer. This paper establishes some key areas where the increased responsiveness of economic actors is increasingly stimulating innovation, efficiency and productivity.
    Keywords: pricing strategies; expansion of market spaces; economic impact of elasticity and infinite scalability; cloud computing
    JEL: E02 M00 L22
    Date: 2011
  22. By: Parmendra Sharma, Neelesh Gounder
    Keywords: Bank private sector credit, South Pacific, cross-country analysis
    JEL: E51 G21 C23 E44
  23. By: Eden, Maya; Nguyen, Ha
    Abstract: This paper studies the issue of real exchange rate misalignment and the difficulties in settling international real exchange rate disputes. The authors show theoretically that determining when a country should be sanctioned for real exchange rate"manipulations"is difficult: in some situations a country's real exchange rate targeting can be beneficial to other countries, while in others it is not. Regardless, it is difficult to establish whether a misaligned real exchange rate is intentionally manipulated rather than unintentionally caused by other policies or by various distortions in the economy. The paper continues by illustrating the difficulty in measuring real exchange rate misalignment, and provides a critical assessment of existing methodologies. It concludes by proposing a new method for measuring real exchange rate misalignment based on differences in marginal products between producers of tradable and non-tradable goods.
    Keywords: Currencies and Exchange Rates,Economic Stabilization,Debt Markets,Macroeconomic Management,Economic Theory&Research
    Date: 2012–04–01
  24. By: Pedro Gomis-Porqueras (Department of Economics, Monash University); Benoit Julien (School of Economics, University of New South Wales); Chengsi Wang (School of Economics, University of New South Wales)
    Abstract: We consider a directed search environment where capacity constrained sellers reach uncoordinated buyers through costly advertising while buyers observed all prices probabilistically. We show that: (i) the equilibrium advertising intensity has an inverted U-shape in market tightness, (ii) the equilibrium advertising intensity is higher under an auction mechanism than under posted pricing, and (iii) the equilibrium price and measure of informed buyers may be positively correlated even in large markets.
    Keywords: costly advertising, directed search, imperfect observability, sales mechanism.
    JEL: E52 E63
    Date: 2012–04
  25. By: Sienknecht, Sebastian
    Abstract: This paper examines the robustness of welfare-based policy choices across the nonlinear Calvo and Rotemberg pricing assumptions. Comparisons between simple interest rate rules turn out to be robust and independent of the price dispersion inherent in the Calvo setting. This robustness is violated if there is a policy alternative that controls for price dispersion.
    Keywords: Calvo pricing; Rotemberg pricing; welfare analysis; robustness analysis
    JEL: E30 E58 E52
    Date: 2012–04–18
  26. By: Seyfettin Gursel (Bahcesehir University Center for Economic and Social Research (Betam)); Zumrut Imamoglu (Bahcesehir University Center for Economic and Social Research (Betam))
    Abstract: The decrease in the share of agricultural employment in Turkey has been reversed recently, especially during the global crisis. Agricultural employment increased by 17 percent between 2007 and 2010 and its share in total employment increased by 1.7 percentage points above its 2007 level. This paper studies the causes of the increase in agricultural employment. Is the surge in agricultural employment stemming from a decrease in the non-agricultural employment opportunities and the decrease in non-agricultural wages during the crisis? Or, have increasing food prices around the world caused an increase in agricultural income, making the agricultural sector more attractive for employment? We use a two-sector small-open economy model to analyze the effect of changes in world agricultural prices on sectoral employment. In order to quantify the implications of our model we exploit the regional variation in agricultural employment across 26 regions in Turkey. We use panel data covering agricultural prices and production, non-agricultural wages, employment and regional inflation between 2004 and 2010. We find that agricultural prices play an important role in explaining the observed variation in agricultural employment in Turkey. We fail to find evidence on the effect of non-agricultural wages on agricultural employment.
    Keywords: Regional employment, agricultural employment, economic development
    JEL: E32 R10
    Date: 2011–10
  27. By: Dean Baker
    Abstract: One of the items that Congress added to the American Recovery and Reinvestment Act of 2009, President Obama’s stimulus package, was a first-time homebuyer tax credit. The tax credit gave people buying their first home, or who had not been homeowners for at least three years, a tax credit equal to 10 percent of the purchase price of the home, up to $8,000. The intention was to spur home buying and put an end to the plunge in home prices, which were dropping at an annual rate of close to 20 percent at the time. According to the Government Accountability Office, 2.3 million people took advantage of the credit, at a cost to the government of $16.2 billion. This delayed the deflation of the bubble, but did not stop it. By the end of 2011, nationwide home prices had fallen by 8.4 percent since the credit-induced peak reached in the second quarter of 2010. They are continuing to fall into 2012. The temporary boost to the market from the credit allowed many homeowners to sell their homes at prices that were still partially inflated by the bubble. This was good for these homeowners, as well as their creditors, who might have otherwise been forced to accept short sales. However, it was bad news for homebuyers who were persuaded to buy homes at prices that were often still above trend values This paper briefly outlines the impact of the homebuyer credit. The first part produces a set of calculations of the amount of wealth transferred to sellers and creditors as a result of the credit. These calculations are intended to determine the additional amount that homebuyers paid for homes as a result of the credit, as opposed to a situation in which the housing market had been allowed to continue its decline unchecked. The second part of the paper focuses on some of the cities where the credit appears to have had the greatest impact. It looks at the extent to which buyers of less expensive homes – the segment of the market most influenced by the credit – experienced losses as a result of buying homes at bubble-inflated prices.
    Keywords: housing, tax credit, ARRA, housing bubble
    JEL: E E6 E62 H H2 R R2 R21 R28 R3 R38
    Date: 2012–04

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