nep-mac New Economics Papers
on Macroeconomics
Issue of 2012‒05‒22
58 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Fiscal consolidation in an open economy By Christopher J. Erceg; Jesper Lindé
  2. Hemlock for policy response: Monetary policy, exchange rates and labour unions in SEE and CIS during the crisis By Branimir Jovanovic; Marjan Petreski
  3. Monetary Policy and Fiscal Limits with No-Default By Gliksberg, Baruch
  4. Relative price effects of monetary policy shock in Malaysia: a svar study By Abdul Karim, Zulkefly; Zaidi , Mohd. Azlan Shah; W.N.W, Azman-Saini
  5. The High-Frequency Response of the Rand-Dollar Rate to Inflation Surprises By Greg Farrell; Shakill Hassan; Nicola Viegi
  6. Inflation Derivatives Under Inflation Target Regimes By Mordecai Avriel; Jens Hilscher; Alon Raviv
  7. Trend Inflation and the Unemployment Volatility Puzzle By Sergio A. Lago Alves
  8. Financial Constraints, Endogenous Markups, and Self-fulfilling Equilibria By Jess Benhabib; Pengfei Wang
  9. How do financial frictions affect the spending multiplier during a liquidity trap? By J. A. CARRILLO; C. POILLY
  10. Changes in the Effects of Monetary Policy on Disaggregate Price Dynamics By Christiane Baumeister; Philip Liu; Haroon Mumtaz
  11. Sudden Floods, Macroprudential Regulation and Stability in an Open Economy By Pierre-Richard Agénor; K. Alper; L. Pereira da Silva
  12. The failure of Financial Macroeconomics and What to Do About It. By Jean-Bernard Chatelain; Kirsten Ralf
  13. Macroeconomic instability and the incentive to innovate By Masino, Serena
  14. Macroeconomic instability and the incentive to innovate By Masino, Serena
  15. Inventory Investment and the Business Cycle : The usual Suspect By Frédérique Bec; Mélika Ben Salem
  16. Disinflation effects in a medium-scale New Keynesian model: money supply rule versus interest rate rule By Guido Ascari; Tiziano Ropele
  17. Nonlinear Adventures at the Zero Lower Bound By Jesús Fernández-Villaverde; Grey Gordon; Pablo A. Guerrón-Quintana; Juan Rubio-Ramírez
  18. The Impact of Policy Shocks on Financial Structure: Empirical Results from Japan By Moayedi, Vafa; Aminfard, Matin
  19. Monetary Policy, Liquidity, and Growth By Philippe Aghion; Emmanuel Farhi; Enisse Kharroubi
  20. Empirical Evidence on the Generalized Taylor Principle By Mario Jovanovi´c
  21. Milton Friedman, the Demand for Money and the ECB’s Monetary-Policy Strategy By Stephen Hall; P.A.V.B. Swamy; George S. Tavlas
  22. New Paradigms in Central Banking? By Athanasios Orphanides
  23. "The Euro Debt Crisis and Germany's Euro Trilemma" By Jorg Bibow
  24. Fiscal Policy for Commodity Exporting Countries: Chile's Experience By Klaus Schmidt-Hebbel
  25. Does CPI Granger-Cause WPI? New Extensions from Frequency Domain Approach in Pakistan By Muhammad, Shahbaz; Kumar, A.T.K.; Mohammad, Iqbal Tahir
  26. Evaluation of the Effects of Reduced Personal and Corporate Tax Rates on the Growth Rates of the U.S. Economy By Jacques K Ngoie; Arnold Zellner
  27. "Reorienting Fiscal Policy after the Great Recession" By Pavlina R. Tcherneva
  28. The correlation between money and output in the United Kingdom: resolution of a puzzle By Edward Nelson
  29. How does Fiscal Consolidation Impact on Income Inequality? By L, Agnello.; R, M. Sousa.
  30. Hoarding of International Reserves and Sterilization in Dollarized and Indebted Countries : an effective monetary policy? By Layal Mansour
  31. Changes in bank lending standards and the macroeconomy By William F. Bassett; Mary Beth Chosak; John C. Driscoll; Egon Zakrajsek
  32. Fiscal Institutions in Resource-Rich Economies: Lessons from Chile and Norway By Klaus Schmidt-Hebbel
  33. Interest rate risk and bank equity valuations By William B. English; Skander J. Van den Heuvel; Egon Zakrajsek
  34. Protectionism Isn’t Counter‐Cyclic (anymore) By Andrew K. Rose
  35. A dynamic factor model of the yield curve as a predictor of the economy By Marcelle Chauvet; Zeynep Senyuz
  36. Credit and Liquidity Risks in Euro-area Sovereign Yield Curves By Alain Monfort; Jean-Paul Renne
  37. Bringing Belgian Public Finances to a Sustainable Path By Tomasz Koźluk Koźluk; Alain Jousten; Jens Høj
  38. Labor share, informal sector and development By Maarek, Paul
  39. Trend growth expectations and US house prices before and after the crisis By Hoffmann, Mathias; Krause, Michael U.; Laubach, Thomas
  40. A Disaggregate Characterisation of Recessions By Fabrizio Coricelli; Aikaterini Karadimitropoulou; Miguel A. León-Ledesma
  41. Has the U.S. Finance Industry Become Less Efficient? On the Theory and Measurement of Financial Intermediation By Thomas Philippon
  42. Evaluating the Macroeconomic Effects of Government Support Measures to Financial Institutions in the EU By Jan in 't Veld; Werner Roeger
  43. Macroeconomic Effects of the German Government’s Building Rehabilitation Program By Kronenberg, Tobias; Kuckshinrichs, Wilhelm; Hansen, Patrick
  44. The response of capital goods shipments to demand over the business cycle By Jeremy J. Nalewaik; Eugenio P. Pinto
  45. House Price Dynamics: Fundamentals and Expectations By Eleonora Granziera; Sharon Kozocki
  46. "Guaranteed Green Jobs: Sustainable Full Employment" By Antoine Godin
  47. State Productivity Growth: Catching Up and the Business Cycle By Ball, V. Eldon; San Juan, Carlos; Ulloa, Camilo
  48. Flujos de capital y política fiscal en las economías emergentes de América Latina By Ignacio Lozano; Ligia Alba Melo B.; Jorge Enrique Ramos F.
  49. Bayesian Forecast Combination for Inflation Using Rolling Windows: An Emerging Country Case By Luis Fernando Melo; Rubén Albeiro Loaiza Maya
  50. Financial Integration in Emerging Europe: an Enviable Development Opportunity with Tail Risks. By Aleksandra Iwulska; Naotaka Sugawara; Juan Zalduendo
  51. Evolution of Financing Needs in Indian Infrastructure By Sinha, Pankaj; Arya, Deepshikha; Singh, Shuchi
  52. Lifetime Labor Supply and Human Capital Investments By Rodolfo Manuelli; Ananth Seshadri; Yongseok Shin
  53. Microfinance in India: self help groups - bank linkage model By Lipishree Das, Dr.
  54. House price cycles in emerging economies By Alessio Ciarlone
  55. The Contribution of Housing to the Dynamics of Inequalities By Modibo Sidibe
  56. The Impact of Retail Payment Innovations on Cash Usage By Ben Fung; Kim Huynh; Leonard Sabetti
  57. Retirement: Does Individual Unemployment Matter? Evidence from Danish Panel Data 1980–2009 By Filges, Trine; Larsen, Mona; Pedersen, Peder J.
  58. Cashless banking in Nigeria and its implications By Olajide, Victor C.

  1. By: Christopher J. Erceg; Jesper Lindé
    Abstract: This paper uses a New Keynesian DSGE model of a small open economy to compare how the effects of fiscal consolidation differ depending on whether monetary policy is constrained by currency union membership or by the zero lower bound on policy rates. We show that there are important differences in the impact of fiscal shocks across these monetary regimes that depend both on the duration of the zero lower bound and on features that determine the responsiveness of inflation.
    Date: 2012
  2. By: Branimir Jovanovic; Marjan Petreski
    Abstract: The objective of this paper is to assess whether the level of unionization and the rigidity of the exchange rate affected wages and monetary policy in SEE and CIS during the ongoing economic crisis. Towards that end, a New Keynesian model with price and wage rigidities is used. The model is estimated with a panel GMM over the period January 2002 – March 2011 on sample of 19 countries. Several findings emerge. First, the output gap is found not to depend on the real interest rate, in accordance with the underdeveloped financial markets in these economies. Second, inflation is found not to depend on the output gap, but on the wage gap, which stresses the relevance of the labour unions for the inflation dynamics in these countries. Third, the labour wedge that arises from the monopolistic competition in the labour market works mainly through the wage gap, not the output gap, in accordance with the high unemployment in these countries. Fourth, monetary policy responded counter-cyclically during the crisis in countries with weak trade unions, differently from countries with strong unions: in crisis times, weak economy drags wages down in low-unionized countries and monetary policy relaxes in these countries, both due to lower wages and due to the weaker economy; on the other hand, strong unions prevent a weak economy to drag wages down in crisis times and central banks in these countries are found not to react to economic activity, prices or wages. Fifth, the fixed exchange rate is found to restrain monetary policy in times of crisis, too – in countries with flexible exchange rates, monetary policy during the crisis responds to movements in output gap and reserves, in contrast to countries with fixed exchange rate, where monetary policy does not respond to any domestic macroeconomic variable.
    Keywords: monetary policy, fixed exchange rate, wage bargaining, unionization, SEE, CIS
    JEL: E52 F0 F31 J51 P20
    Date: 2012–05
  3. By: Gliksberg, Baruch (Department of Economics, University of Haifa)
    Abstract: This paper discusses monetary and fiscal interactions in fiscal stress with no outright default. Two distortions prevail in the economy: income taxes and liquidity constraints. Possible obstructions to fiscal policy include: a ceiling on the equilibrium Debt-to-GDP ratio; zero elasticity of tax revenues; a political intolerance of rising tax rates; A Laffer curve emerges endogenously. In equilibrium, fiscal solvency is brought about through adjustments to the level of nominal prices. Three regimes achieve this goal: FC - an interaction of a fiscal rule that targets both output and public debt with a neutral monetary policy; FD - an interaction of a fiscal rule that targets the primary deficit with an active monetary policy; FDA - an interaction of an austere fiscal rule with a passive monetary policy.
    Keywords: Distorting Taxes; Finance Constraint; Fiscal Limits; Fiscal Rules; Fiscal Theory of Prices;
    JEL: E42 E62 E63 H60
    Date: 2012–04–30
  4. By: Abdul Karim, Zulkefly; Zaidi , Mohd. Azlan Shah; W.N.W, Azman-Saini
    Abstract: Studies on Malaysia monetary policy mostly examine the effect of monetary policy change on output and inflation in aggregate terms. While sectoral output effects of monetary policy have also been investigated, there is however a lack in the study on the effect of policy change on disaggregated inflation. This paper attempts to examine the later issue by employing structural vector autoregressive (SVAR) model. By estimating the model separately for each sub-group of Malaysian consumer price index, we find that a modest monetary policy shock results in varying degree of responses in disaggregated inflation. In other words, some sub-group inflation react instantly while others respond sluggishly to a monetary policy shock. In contrast to aggregate inflation response, there is also evidence of price puzzle. The results give some insight to monetary authority on how to control inflation in aggregate as well as in disaggregate terms and in turn manage the cost of living issues in Malaysia.
    Keywords: monetary policy; SVAR; inflation; relative price
    JEL: C32 E31 E52
    Date: 2011–06–15
  5. By: Greg Farrell (South African Reserve Bank and Wits University); Shakill Hassan (South African Reserve Bank and University of Cape Town); Nicola Viegi (Department of Economics, University of Pretoria)
    Abstract: We examine the high-frequency response of the rand-dollar nominal rate within ten-minute intervals around five minutes before, five minutes after) official inflation announcements, and show that the rand appreciates (respectively, depreciates) on impact when inflation is higher (respectively, lower) than expected. The effect only applies after the adoption of inflation targeting, and is stronger for good news. Our findings are rationalisable by the belief, among market participants, in a credible (though perhaps not particularly aggressive) inflation targeting policy in South Africa; and can be used to monitor changes in currency market perceptions about the monetary policy regime.
    Keywords: High-frequency exchange rates, inflation surprises, Taylor rules, inflation targeting, credibility
    JEL: E31 E52 F30 F31
    Date: 2012–05
  6. By: Mordecai Avriel (Technion-Israel Institute of Technology); Jens Hilscher (International Business School, Brandeis University); Alon Raviv (International Business School, Brandeis University)
    Abstract: Inflation targeting -- the central bank practice of attempting to keep inflation levels within fixed bounds around a quantitative target -- has been adopted by more than twenty economies. Such practice has an important impact on the stochastic nature of inflation and, consequently, on the pricing of inflation derivatives. We develop a flexible model of inflation targeting in which the central bank's intervention to steer inflation towards the target depends on past deviations and the policymaker's ability or will to enforce the target. We use our model to price inflation derivatives and demonstrate the impact of inflation targeting on derivative pricing.
    Keywords: Infl?ation derivatives, Infl?ation targeting, Target zones, Option pricing
    JEL: G12 G13
    Date: 2012–04
  7. By: Sergio A. Lago Alves
    Abstract: I show that the combination of small positive trend inflation with staggered prices may account for the large relative volatilities found in US labor market data. The model does not have any wage rigidity and is hit only by an aggregate technology shock. The calibration procedure uses standard parameter values. Controlling for the sample average of the CPI inflation rate and the degree of price stickiness, the model solves the Shimer (2005) puzzle and explains the volatilities observed during two important sample periods: full sample (1951-2005) and Great Moderation (1985-2005).
    Date: 2012–05
  8. By: Jess Benhabib; Pengfei Wang
    Abstract: We show that self-fulfilling equilibria and indeterminacy can easily arise in a simple financial accelerator model with reasonable parameter calibrations and without increasing returns in production. A key feature for generating indeterminacy in our model is the countercyclical markup due to the procyclical loan to output ratio. We illustrate, via simulations, that our financial accelerator model can generate rich business cycle dynamics, including hump-shaped output in response to demand shocks as well as serial autocorrelation in output growth rates.
    JEL: E02 E2 E44
    Date: 2012–05
    Abstract: We show that credit market imperfections substantially increase the government-spending multiplier when the economy enters a liquidity trap. This …finding is explained by the tight association between capital goods and …rmscollateral, a relationship that we highlight as the capital-accumulation channel. During a liquidity trap, a government spending expansion reduces the real interest rate, leading to a period of cheap credit. Entrepreneurs use this time to accumulate capital, which persistently improves their balance sheets and reduces their future costs of credit. A public spending expansion can thus encourage private investment, yielding consequently a large spending multiplier. This effect is further reinforced by Fishers debt- deation channel.
    Keywords: Financial Frictions, Zero Lower Bound, Fiscal Policy
    JEL: E62 E52
    Date: 2012–03
  10. By: Christiane Baumeister; Philip Liu; Haroon Mumtaz
    Abstract: We examine the evolution of the effects of monetary policy shocks on the distribution of disaggregate prices and quantities of personal consumption expenditures to assess the contribution of monetary policy to changes in U.S. inflation dynamics. Given that the transmission of monetary policy to aggregate inflation is determined by the responses of its underlying components, the degree of monetary non-neutrality is ultimately the result of relative price effects at the sectoral level. We provide evidence of considerable heterogeneity in sectoral price responses by introducing time variation in a factoraugmented vector autoregression model. Over time the majority of individual prices respond negatively after a contractionary monetary policy shock and the price dispersion diminishes. We link these empirical findings to a multi-sector DSGE model and show that they are consistent with firms’ heterogeneous pricing decisions and changes in the importance of the cost channel of monetary policy and the degree of wage flexibility.
    Keywords: Econometric and statistical methods; Transmission of monetary policy
    JEL: E30 E32
    Date: 2012
  11. By: Pierre-Richard Agénor; K. Alper; L. Pereira da Silva
    Abstract: We develop a dynamic stochastic model of a middle-income, small open economy with a two-level banking intermediation structure, a risk-sensitive regulatory capital regime, and imperfect capital mobility. Firms borrow from a domestic bank and the bank borrows on world capital markets, in both cases subject to an endogenous premium. A sudden flood in capital flows generates an expansion in credit and activity, and asset price pressures. Countercyclical regulation, in the form of a Basel III-type rule based on real credit gaps, is effective at promoting macroeconomic stability (defined in terms of the volatility of a weighted average of inflation and the output gap) and financial stability (defined in terms of the volatility of a composite index of the nominal exchange rate and house prices). However, because the gain in terms of reduced volatility may exhibit diminishing returns, a countercyclical regulatory rule may need to be supplemented by other, more targeted, macroprudential instruments.
    Date: 2012
  12. By: Jean-Bernard Chatelain (Centre d'Economie de la Sorbonne - Paris School of Economics); Kirsten Ralf (Ecole Supérieure du Commerce Extérieur (ESCE))
    Abstract: The bargaining power of international banks is currently still very high as compared to what it was at the time of the Bretton Woods conference. As a consequence, systemic financial crises are likely to remain recurrent phenomena with large effects on macroeconomic aggregates. Mainstream macroeconomic models dealing with financial frictions failed to explain at least eight features of the ongoing crisis. We therefore suggest two complementary assumptions : (I) A systemic bankruptcy risk stable equilibrium may be feasible, besides another stable equilibrium related to a stability corridor, (II) inefficient financial markets rarely ensure that the price of an asset is equal to its "fundamental long term value". Both assumptions are compatible with a structural research programme taking into account the Lucas' critique (1976) but may start a creative destruction process of the Lucas' view of business cycles theory.
    Keywords: Asset prices, liquidity trap, monetary policy, financial stability, business cycles, liquidity trap, dynamic stochastic general equilibrium models.
    JEL: E3 E4 E5 E6
    Date: 2012–05
  13. By: Masino, Serena
    Abstract: This paper investigates the channels through which macroeconomic volatility prevents or hinders innovative investment undertakings financed by the domestic business sector. The analysis is based on a sample of 48 countries, representing all levels of development, and uses various measures of macroeconomic instability, such as political, real and monetary volatility. The results suggest a negative impact of macroeconomic instability on the share of R&D financed by the domestic business sector. These outcomes highlight the desirability of counter-cyclical policy interventions aiming to prevent the avoidance or abandonment of private R&D undertakings in unstable macroeconomic environments.
    Keywords: Macroeconomic Volatility; Political Instability; R&D Investment; Innovation
    JEL: O11 O33 O31 C33
    Date: 2012–04
  14. By: Masino, Serena
    Abstract: This paper investigates the channels through which macroeconomic volatility prevents or hinders innovative investment undertakings financed by the domestic business sector. The analysis is based on a sample of 48 countries, representing all levels of development, and uses various measures of macroeconomic instability, such as political, real and monetary volatility. The results suggest a negative impact of macroeconomic instability on the share of R&D financed by the domestic business sector. These outcomes highlight the desirability of counter-cyclical policy interventions aiming to prevent the avoidance or abandonment of private R&D undertakings in unstable macroeconomic environments.
    Keywords: Macroeconomic Volatility; Political Instability; R&D Investment; Innovation
    JEL: O11 O33 O31 C33
    Date: 2012–04
  15. By: Frédérique Bec (CREST, THEMA); Mélika Ben Salem (CEE, PSE, Université Paris Est)
    Keywords: inventory investment, threshold models, bounce-back effects, asymmetric business cycles
    JEL: E32 C22
    Date: 2012–04
  16. By: Guido Ascari (University of Pavia); Tiziano Ropele (Bank of Italy)
    Abstract: Empirical studies show that successful disinflations entail a period of output contraction. Using a medium-scale New Keynesian model, we compare the effects of disinflations of different speed and timing, implemented through either a money supply or an interest rate rule. In terms of transitional output loss, cold-turkey disinflations under an interest rate rule are less costly than those under a money supply rule and are accomplished more rapidly. Furthermore, gradual or anticipated disinflations deliver lower sacrifice ratios. From a welfare perspective, despite the transitional economic contraction, disinflations are overall welfare-improving. Interestingly, the overall welfare gain is not affected by how the disinflation is actually implemented: what really matters is the achievement of a permanently lower inflation rate.
    Keywords: disinflation, sacrifice ratio, nonlinearities
    JEL: E31 E5
    Date: 2012–04
  17. By: Jesús Fernández-Villaverde; Grey Gordon; Pablo A. Guerrón-Quintana; Juan Rubio-Ramírez
    Abstract: Motivated by the recent experience of the U.S. and the Eurozone, we describe the quantitative properties of a New Keynesian model with a zero lower bound (ZLB) on nominal interest rates, explicitly accounting for the nonlinearities that the bound brings. Besides showing how such a model can be efficiently computed, we find that the behavior of the economy is substantially affected by the presence of the ZLB. In particular, we document 1) the unconditional and conditional probabilities of hitting the ZLB; 2) the unconditional and conditional probabilty distributions of the duration of a spell at the ZLB; 3) the responses of output to government expenditure shocks at the ZLB, 4) the distribution of shocks that send the economy to the ZLB; and 5) the distribution of shocks that keep the economy at the ZLB.
    JEL: E30 E50 E60
    Date: 2012–05
  18. By: Moayedi, Vafa; Aminfard, Matin
    Abstract: This study examines the relationship between Japan’s financial structure and the country’s fiscal/monetary policy. Vector Error Correction models are utilized to investigate the effect of policy shocks on financial structure development during a sample period of 48 years. Our findings reveal signs of an existing long-run relationship between policy variables and financial structure. Policymakers in Japan may have effectively influenced Japan’s financial structure development via fiscal and monetary actions. This result strengthens the assumption of a volatile financial structure due to policy interference. This study is the first of its kind and is intended to stimulate further research and debate.
    Keywords: Financial Structure; Fiscal Policy; Japan; Monetary Policy; VEC
    JEL: E62 E63
    Date: 2011–12–09
  19. By: Philippe Aghion; Emmanuel Farhi; Enisse Kharroubi
    Abstract: In this paper, we use cross-industry, cross-country panel data to test whether industry growth is positively affected by the interaction between the reactivity of real short term interest rates to the business cycle and industry-level measures of financial constraints. Financial constraints are measured, either by the extent to which an industry is prone to being "credit constrained", or by the extent to which it is prone to being "liquidity constrained". Our main findings are that: (i) the interaction between credit or liquidity constraints and monetary policy countercyclicality, has a positive, significant, and robust impact on the average annual rate of labor productivity in the domestic industry; (ii) these interaction effects tend to be more significant in downturns than in upturns.
    JEL: E32 E43 E52
    Date: 2012–05
  20. By: Mario Jovanovi´c
    Abstract: During financial crises central banks usually decrease interest rates in order to reduce financial uncertainty. This behavior increases inflation risk. The trade-off between inflation and uncertainty stabilization can be modeled by the generalized Taylor rule, which describes inflation sensitivity as a function of financial uncertainty instead of a constant parameter. Based on the GMM-estimation of the generalized approach I confirm the suggested uncertainty-dependent inflation sensitivity of the Fed. Prolonged deviations from the Taylor principle are not evident. This implies that the Fed does not deemphasize inflation stabilization in favor of uncertainty stabilization – especially during the peak of the latest sub-prime crisis.
    Keywords: Financial instability; time-varying inflation sensitivity
    JEL: E44 E58
    Date: 2012–04
  21. By: Stephen Hall; P.A.V.B. Swamy; George S. Tavlas
    Abstract: The European Central Bank (ECB) assigns a greater weight to the role of money in its monetary-policy strategy than most, if not all, other major central banks. Nevertheless, reflecting the view that the demand for money became unstable in the early-2000s, some commentators in the press have reported that the ECB has “downgraded” the role of money-demand functions in its strategy. This paper explains the ECB’s monetary-policy strategy and shows the considerable influence of Milton Friedman’s contributions on the formulation of that strategy. The paper also provides new evidence on the stability of euro-area money-demand. Following a conjecture made by Friedman (1956), we assign a role to uncertainty in the money-demand function. We find that, although uncertainty is mean–reverting, it is none-the-less non-stationary, subject to wide swings, and has substantial effects on the demand for money.
    Keywords: ECB’s monetary-policy strategy; Milton Friedman; money demand
    JEL: C20 E41
    Date: 2012–04
  22. By: Athanasios Orphanides (Central Bank of Cyprus)
    Abstract: This paper reviews whether and how the ongoing financial crisis has influenced central banking policy practice. Taking a historical perspective, it argues that throughout the existence of central banks the main objective has remained the same¯stability. What has been evolving over time, and has been influenced by the crisis, is our understanding about how to achieve and maintain stability over time. The paper focuses on the role and relative importance of price stability, economic stability and financial stability arguing that while the crisis has not materially shifted views regarding the monetary policy framework, it has highlighted the need for greater emphasis on financial stability than was appreciated before the crisis. It further argues that central banks must not only have a strong role in macro-prudential supervision but have more direct involvement in micro-supervision of the banking sector. Lastly, the paper argues that the crisis has reaffirmed that strong economic governance is a prerequisite for stability in a monetary union and, in the context of the euro area sovereign crisis, discusses the tremendous costs stemming from of lack of sufficient progress regarding economic governance going forward.
    Keywords: Monetary policy, financial stability, economic governance, micro-prudential supervision, macro-prudential supervision
    JEL: E52 E58 E63
    Date: 2011–11
  23. By: Jorg Bibow
    Abstract: This paper investigates the causes behind the euro debt crisis, particularly Germany's role in it. It is argued that the crisis is not primarily a "sovereign debt crisis" but rather a (twin) banking and balance of payments crisis. Intra-area competitiveness and current account imbalances, and the corresponding debt flows that such imbalances give rise to, are at the heart of the matter, and they ultimately go back to competitive wage deflation on Germany's part since the late 1990s. Germany broke the golden rule of a monetary union: commitment to a common inflation rate. As a result, the country faces a trilemma of its own making and must make a critical choice, since it cannot have it all--perpetual export surpluses, a no transfer / no bailout monetary union, and a "clean," independent central bank. Misdiagnosis and the wrongly prescribed medication of austerity have made the situation worse by adding a growth crisis to the potpourri of internal stresses that threaten the euro's survival. The crisis in Euroland poses a global "too big to fail" threat, and presents a moral hazard of perhaps unprecedented scale to the global community.
    Keywords: Euro; Monetary Union; Banking Crisis; Balance-of-Payments Crisis; Sovereign Debt Crisis; Competitiveness Imbalances; Fiscal Transfers; Bailouts; Austerity
    JEL: E42 E52 E58 E65 F36 G01
    Date: 2012–05
  24. By: Klaus Schmidt-Hebbel
    Abstract: Fiscal policy regimes based on a developed fiscal institutions and fiscal rules are increasingly adopted by governments that aim at stronger fiscal policy sustainability, more output stability, and more resilience of public finances to political pressure. This paper describes and evaluates fiscal policy institutions and particularly the fiscal rule in Chile. This commodity-exporting country is unique by having in place since 2001 a cyclically-adjusted government balance rule that takes account of both GDP shocks and mineral export price shocks. The paper starts by assessing the overall institutional set-up for fiscal policy in Chile in international comparison. Then it focuses on the fiscal rule, its changes over time, and its budgetary consequences and macroeconomic effects. By and large, the rule is found to have contributed to fiscal sustainability and credibility, and to macroeconomic stability. Yet the rule also presents shortcomings in its institutional set-up and application to the budget. Therefore the paper presents proposals for reform, following the recommendations made by the Advisory Council for the Design of Fiscal Policy in early 2011. The final section of the paper draws policy lessons from international experience and the Chilean case on institutional reform of fiscal policy and adoption of fiscal rules in commodity-exporting countries.
    Keywords: Fiscal regimes, fiscal stabilization, fiscal institutions
    JEL: E61 E62 E63
    Date: 2012
  25. By: Muhammad, Shahbaz; Kumar, A.T.K.; Mohammad, Iqbal Tahir
    Abstract: The present study significantly contributes to the economic literature by investigating the direction of causality between WPI and CPI by applying frequency domain causality approach developed by Lemmens et al. (2008) based on spectral approach. We use monthly frequency data covering the period of 1961-2010 in case of Pakistan. Our results provide evidence of cointegration between the variables. Furthermore, we find unidirectional causal relationship running from CPI to WPI that varies across frequencies i.e., CPI Granger-causes WPI at lower, medium as well as higher level of frequencies reflecting long-run, medium and short-run cycles. This implies that CPI should be a leading indicator for important policy decisions pertaining to monetary or fiscal policies in Pakistan.
    Keywords: WPI; CPI; Frequency Domain Approach
    JEL: E31
    Date: 2012–05–07
  26. By: Jacques K Ngoie; Arnold Zellner
    Abstract: Using several variants of a Marshallian Macroeconomic Model (MMM), see Zellner and Israilevich (2005) and Ngoie and Zellner (2012), this paper investigates how various tax rate reductions may help stimulate the U.S. economy while not adversely affecting aggregate U.S. debt. Variants of our MMM that are shown to fit past data and to perform well in forecasting experiments are employed to evaluate the effects of alternative tax policies. Using quarterly data, our one-sector MMM has been able to predict the 2008 downturn and the 2009Q3 upturn of the U.S. economy. Among other results, this study, using transfer and impulse response functions associated with our MMM, finds that permanent 5 percentage points cut in the personal income and corporate profits tax rates will cause the U.S. real GDP growth rate to rise by 3.0 percentage points with a standard error of 0.6 percentage points. Also, while this policy change leads to positive growth of the government sector, its share of total real GDP is slightly reduced. This is understandable since short run effects of tax cuts include the transfer of tax revenue from the government to the private sector. The private sector is allowed to manage a larger portion of its revenue while government is forced to cut public spending on social programs with little growth enhancing effects. This broadens private economic activities overall. Further, these tax rate policy changes stimulate the growth of the federal tax base considerably which helps to reduce annual budget deficits and the federal debt.
    Keywords: Marshallian Macroeconomic Model, Disaggregation, Transfer Functions, Impulse Response Functions, U.S. Fiscal Policy Analysis.
    JEL: E27
    Date: 2012
  27. By: Pavlina R. Tcherneva
    Abstract: The paper evaluates the fiscal policy initiatives during the Great Recession in the United States. It argues that, although the nonconventional fiscal policies targeted at the financial sector dwarfed the conventional countercyclical stabilization efforts directed toward the real sector, the relatively disappointing impact on employment was a result of misdirected funding priorities combined with an exclusive and ill-advised focus on the output gap rather than on the employment gap. The paper argues further that conventional pump-priming policies are incapable of closing this employment gap. In order to tackle the formidable labor market challenges observed in the United States over the last few decades, policy could benefit from a fundamental reorientation away from trickle-down Keynesianism and toward what is termed here a "bottom-up approach" to fiscal policy. This approach also reconsiders the nature of countercyclical government stabilizers.
    Keywords: Fiscal Policy; American Recovery and Reinvestment Act of 2009; Trickle-Down Keynesianism; Countercyclical Employment Policy
    JEL: E24 E25 E61 E62 E65 H1 H5 J2 J6 J48
    Date: 2012–05
  28. By: Edward Nelson
    Abstract: Friedman and Schwartz (1982) and Goodhart (1982) report a zero correlation between money growth and output growth in U.K. historical data. This finding is puzzling, as there is wide agreement that changes in monetary policy are frequently nonneutral in the short run and that the U.K. experience, in particular, is replete with instances of real effects of monetary policy actions. This paper proposes a resolution to the puzzle. An analysis conducted on subperiods shows that a positive money growth/output growth correlation is indeed recoverable from U.K. historical data. Strike activity in the 1970s and shifts in the terms of trade during the interwar period are the two factors primarily responsible for obscuring the positive correlation between money and output in the United Kingdom.
    Date: 2012
  29. By: L, Agnello.; R, M. Sousa.
    Abstract: In this paper, we assess the impact of fiscal consolidation on income inequality. Using a panel of 18 industrialized countries from 1978 to 2009, we find that income inequality significantly rises during periods of fiscal consolidation. In addition, while fiscal policy that is driven by spending cuts seems to be detrimental for income distribution, tax hikes seem to have an equalizing effect. We also show that the size of the fiscal consolidation program (in percentage of GDP) has an impact on income inequality. In particular, when consolidation plans represent a small share of GDP, the income gap widens, suggesting that the burden associated with the effort affects disproportionately households at the bottom of the income distribution. Considering the linkages between banking crises and fiscal consolidation, we find that the effect on the income gap is amplified when fiscal adjustments take place after the resolution of such financial turmoils. Similarly, fiscal consolidation programs combined with inflation are likely to increase inequality and the effects of fiscal adjustments on inequality are amplified during periods of relatively low growth. Our results also provide support for a nonlinear relationship between inequality and income and corroborate the idea that trade can promote a more equal distribution of income.
    Keywords: Fiscal consolidation, income inequality, Kuznets curve.
    JEL: E62 E64 D63
    Date: 2012
  30. By: Layal Mansour (GATE Lyon Saint-Etienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure - Lyon)
    Abstract: The primary aim of this paper is to explore the effectiveness of Hoarding International Reserves and Sterilization in dollarized and indebted countries such as Turkey and Lebanon, by measuring the sterilization coefficient, and the offset coefficient. It also focuses on exploring the link between the sources of Reserves and the external debt. Using monthly data collected from the International Monetary Fund and from the Central Banks of Turkey and Lebanon between January 1994 and February 2011, we applied a 2SLS regression models and we identified explanatory variables that enabled us to estimate the aforementioned coefficients. Our results showed that despite their theoretical practice of sterilization policy, economic constrains of these countries contribute to weaken the efficacy expected from monetary policies.
    Keywords: Monetary policy; International Reserve; Sterilization; Foreign Liabilities; Dollarized countries; Turkey; Lebanon
    Date: 2012–05–09
  31. By: William F. Bassett; Mary Beth Chosak; John C. Driscoll; Egon Zakrajsek
    Abstract: Identifying the macroeconomic effects of credit supply disruptions is difficult because many of the same factors that influence the supply of bank loans can also affect the demand for credit. Using bank-level responses to the Federal Reserve's Senior Loan Officer Opinion Survey, we decompose the reported changes in lending standards--a commonly-used indicator of changes in credit supply conditions--into a component that captures the change in banks' lending posture in response to bank-specific and macroeconomic factors that also affect loan demand and a residual component, which provides a cleaner measure of fluctuations in the effective supply of bank-intermediated credit. When included in a standard VAR framework, shocks to our measure of loan supply are associated with substantial declines in output and in the capacity of businesses and households to borrow from the banking sector, as well as with a sharp widening of credit spreads and a significant easing of monetary policy. We corroborate the interpretation of our series as movements in the supply of bank loans using a detailed loan-level data set: A regression of individual loan amounts on the corresponding interest rate spreads--where the latter is instrumented with our bank-level loan-supply shifter--yields the semi-elasticity of loan demand between -1.0 and -1.5.
    Date: 2012
  32. By: Klaus Schmidt-Hebbel
    Abstract: Resource-rich economies in general, and Arab oil exporters in particular, are at a critical juncture, facing the challenge of revamping their fiscal policy institutions and conduct to strengthen macroeconomic and financial stability, raise growth, and improve intra/inter-generational equity. This paper starts by reviewing the international evidence on fiscal policies and outcomes in resource-rich economies at large and Arab oil-exporting countries in particular, which suggests that strong fiscal (and political) institutions can turn the resource curse into a blessing. Then the paper provides comparative reviews of Chile’s and Norway’s decade-long experience in setting up new fiscal institutions and rules to manage their resource rents, aiming at and, in fact, attaining more macroeconomic and financial stability, higher growth, and improved equity. Specific reform lessons to strengthen fiscal institutions and policies are drawn for resource-rich economies and Arab oil exporters.
    Keywords: Fiscal institutions, Fiscal rules, Resource-rich economies, Chile, Norway
    JEL: E61 E62 E63 H61
    Date: 2012
  33. By: William B. English; Skander J. Van den Heuvel; Egon Zakrajsek
    Abstract: Because they engage in maturity transformation, a steepening of the yield curve should, all else equal, boost bank profitability. We re-examine this conventional wisdom by estimating the reaction of bank intraday stock returns to exogenous fluctuations in interest rates induced by monetary policy announcements. We construct a new measure of the mismatch between the repricing time or maturity of bank assets and liabilities and analyze how the reaction of stock returns varies with the size of this mismatch and other bank characteristics, including the usage of interest rate derivatives. Our results indicate that bank stock prices decline substantially following an unanticipated increase in the level of interest rates or a steepening of the yield curve. A large maturity gap, however, significantly attenuates the negative reaction of returns to a slope surprise, a result consistent with the role of banks as maturity transformers. Share prices of banks that rely heavily on core deposits decline more in response to policy-induced interest rate surprises, a reaction that primarily reflects ensuing deposit disintermediation. Results using income and balance sheet data highlight the importance of adjustments in quantities--as well as interest margins--for understanding the reaction of bank equity values to interest rate surprises.
    Date: 2012
  34. By: Andrew K. Rose
    Abstract: Conventional wisdom holds that protectionism is counter-cyclic; tariffs, quotas and the like grow during recessions. While that may have been a valid description of the data before the Second World War, it is now inaccurate. In the post-war era, protectionism has not actually moved counter-cyclically. Tariffs and non-tariff barriers simply do not rise systematically during cyclic downturns. I document this new stylized fact with a panel of data covering over 60 countries and 30 years, using eighteen measures of protectionism and seven of business cycles. I also provide some hints as to why protectionism is no longer counter-cyclic.
    JEL: E32 F13
    Date: 2012–05
  35. By: Marcelle Chauvet; Zeynep Senyuz
    Abstract: In this paper, we propose an econometric model of the joint dynamic relationship between the yield curve and the economy to predict business cycles. We examine the predictive value of the yield curve to forecast future economic growth as well as the beginning and end of economic recessions at the monthly frequency. The proposed nonlinear multivariate dynamic factor model takes into account not only the popular term spread but also information extracted from the level and curvature of the yield curve and from macroeconomic variables. The nonlinear model is used to investigate the interrelationship between the phases of the bond market and of the business cycle. The results indicate a strong interrelation between these two sectors. The proposed factor model of the yield curve exhibits substantial incremental predictive value compared to several alternative specifications. This result holds in-sample and out-of-sample, using revised or real time unrevised data.
    Date: 2012
  36. By: Alain Monfort (CREST, University of Maastricht); Jean-Paul Renne (Banque de France)
    Keywords: default risk, liquidity risk, term structure of interest rates, regime switching, euro-area spreads
    JEL: E43 E44 E47 G12 G24
    Date: 2011–07
  37. By: Tomasz Koźluk Koźluk; Alain Jousten; Jens Høj
    Abstract: Economic growth is projected to be strengthening from mid-2011 onwards, but will be insufficient to restore the sustainability of public finances. The Belgian strategy to prefund ageing costs by generating fiscal surpluses to bring down public debt was derailed by the global crisis. Restoring the strategy is a priority, especially as spreads on Belgian debt have increased. This will require cuts in public spending, improving efficiency of policies, containing the growth of ageing-related costs and making the tax system more conducive to growth. While past experiences, such as in the 1990s, have shown that successful large consolidations are feasible, the task seems even more difficult this time as potential growth will be muted and interest rates are likely to increase. In this context, a credible fiscal consolidation plan requires the participation of all governments. Its effectiveness can be strengthened by improving the fiscal framework, in particular by introducing multi-year budgets, annual expenditure rules consistent with long-term targets and an enhanced role of an independent fiscal policy watchdog.<P>Mettre les finances publiques belges sur la voie de la viabilité<BR>On prévoit un renforcement de la croissance à partir du milieu de 2011, mais il ne suffira pas à rétablir la viabilité des finances publiques. La stratégie suivie par la Belgique, qui consistait à préfinancer le coût du vieillissement en dégageant des excédents budgétaires permettant de diminuer la dette publique, a été compromise par la crise mondiale. En revenir à cette stratégie est une priorité, d’autant plus que la prime de risque sur les taux d’intérêt de la dette belge a augmenté. Cela exigera de faire des économies, d’améliorer l’efficience des politiques publiques, de contenir la hausse des charges liées au vieillissement de la population et de rendre le système fiscal plus favorable à la croissance. Les expériences passées, par exemple celle des années 1990, ont démontré la possibilité d’effectuer un assainissement en profondeur, mais la tâche semble cette fois plus difficile ; en effet, la croissance potentielle sera très modérée et les taux d’intérêt vont probablement augmenter. Dans ces conditions, pour qu’un plan de redressement budgétaire soit crédible, tous les gouvernements doivent y participer. On peut lui donner plus d’efficacité en améliorant le cadre d’action, notamment par l’instauration de budgets pluriannuels et la fixation de règles de dépenses annuelles conformes aux objectifs à long terme ainsi qu’en faisant jouer un rôle accru à une entité indépendante chargée de surveiller la politique budgétaire.
    Keywords: public debt, public finances, tax policy, Belgium, fiscal federalism, social security, fiscal sustainability, budgetary rules, fiscal councils, dette publique, finances publiques, fédéralisme fiscal, sécurité sociale, Belgique, viabilité budgétaire, règle budgétaire, conseil fiscal
    JEL: E60 E61 H60 H61 H63 H77
    Date: 2012–04–26
  38. By: Maarek, Paul
    Abstract: This paper aims to understand the pattern of the labor share of income during the development process. We highlight a U-shapped relationship between development and the labor share. Our theory emphasizes the interplay between firms'monopsony power and the size of the informal sector when the formal labor market has frictions. The size of the informal sector parameterizes workers'outside opportunities in wage setting. In the first stage of development, productivity gains are not compensated by wage increases, as most of workers'outside opportunities depend on the informal sector whose productivity remains unchanged. The labor share decreases as a result. In the second stage of development, outside opportunities rely more on productivity in formal firms as the formal sector expands. Consequently, the labor share increases. We then use a policy experiment, namely capital account liberalization episodes, in order to determine the causal impact of economic development on the labor share.
    Keywords: Development ; Informal sector ; Labor share ; Matching frictions
    JEL: E25 O17 J42
    Date: 2012–04
  39. By: Hoffmann, Mathias; Krause, Michael U.; Laubach, Thomas
    Abstract: We provide an analysis that might help distinguish rationally justified movements in house prices from potentially non-rational movements, using a two-sector business cycle model, in which investment in housing is subject to collateral constraints. A large portion of the evolution of U.S. house prices during the past 20 years can be reproduced when expectations of future income growth as published in surveys are used as an input into the model. Changes in growth expectations translate into corresponding changes in house prices, since the value of housing must be linked to expected aggregate income. Only since about 2005 do actual and model-implied house prices clearly diverge, calling for explanations not based on economic fundamentals. --
    Keywords: House prices,trend growth,Kalman filter,real-time data,borrowing constraints
    JEL: E13 E32 D83 O40
    Date: 2012
  40. By: Fabrizio Coricelli; Aikaterini Karadimitropoulou; Miguel A. León-Ledesma
    Abstract: The Great Recession has inspired renewed interest in analyzing the behaviour of the economy during recession episodes, and how these temporary events can shape the productive structure of the economy for long periods. Most of the existing literature focuses on recessions at the aggregate level. We provide evidence on the behavior of a large set of developed and emerging markets at the disaggregate level around recession dates. We analyze sectoral value added (VA), employment, productivity, concentration, and structural change, and whether patterns arise in a systematic way. We unveil a set of regularities in the behaviour of these variables for both sets of countries and depending on the productivity level and the level of external financial dependence of industries. We distinguish financial from normal recessions, and look at the patterns of the above variables according to the productivity level and the level of external financial dependence of industries. This study leads to a rich set of results grouped in 14 stylized facts. Most importantly, we found that recessions tend to be more industry specific events in emerging markets and economy-wide phenomena in developed economies. Moreover, the amplitude of the cycle for VA and productivity growth is larger for emerging markets. The opposite is generally true for employment growth. Also, industries with high dependence on external finance generally face higher contractions in VA growth the year of the recession, and those contractions are higher in the case of financial than in the case of normal recessions. Finally, concentration of both VA and employment is higher among emerging markets, and especially when looking at employment shares.
    Keywords: recessions; sectoral restructuring; permanent productivity effects
    JEL: E32 O14 O47
    Date: 2012–04
  41. By: Thomas Philippon
    Abstract: I provide a quantitative interpretation of financial intermediation in the U.S. over the past 130 years. Measuring separately the cost of intermediation and the production of financial services, I find that: (i) the quantity of intermediation varies a lot over time; (ii) intermediation is produced under constant returns to scale; (iii) the annual cost of intermediation is around 2% of outstanding assets; (iv) adjustments for borrowers' quality are quantitatively important; and (v) the unit cost of intermediation has increased over the past 30 years.
    JEL: E2 G2 N2
    Date: 2012–05
  42. By: Jan in 't Veld; Werner Roeger
    Abstract: This paper analysis the macroeconomic effects of government support measures to the financial sector using a microfounded structural model. We simulate a crisis scenario in which the economy is hit by a severe financial shock and is subject to financial market imperfections. We then look at three types of measures: purchases of toxic assets, bank recapitalisation measures and government loan guarantees. State support to banks are found to help propping up the value of banks and reduce the risk premium that had emerged, so supporting corporate investment which had been particularly badly affected in the crisis.
    JEL: C54 E62 E32 E44 G21 H62
    Date: 2012–04
  43. By: Kronenberg, Tobias; Kuckshinrichs, Wilhelm; Hansen, Patrick
    Abstract: The German government maintains programs providing financial support for the rehabilitation of buildings with the aim of reducing energy consumption and greenhouse gas emissions in the building sector. Lately, these programs have received additional attention for three reasons: First, the government’s new Energy Concept from 2010 incorporates a substantial expansion of building rehabilitation activities. Second, the programs have been used as a tool for macroeconomic stabilization in the wake of the 2008/2009 financial crisis. Third, the government is concerned about the public deficit and all kinds of public expenditure are coming under increasing scrutiny. The aim of our paper is to contribute to a fact-based discussion of the costs and benefits of the building rehabilitation program. We develop an extended input-output model (STEIN) to estimate the macroeconomic effects of the rehabilitation measures that received funding and how they affect the public deficit, focusing on the revenue from income taxes and social security contributions (SSC) as well as taxes on products and production. Our findings indicate that the programs induce substantial public revenue mainly through income taxes and SSC which have to be weighed against the program cost. We also estimate the distribution of public cost and public revenue between different levels of government (national level, federal state level and municipality level). If the rehabilitation measures do not crowd out other investment projects, the net effect on the public deficit turns out to be positive.
    Keywords: Energy efficiency; CO2 emissions; building rehabilitation; economic stimulus
    JEL: E62 C67 Q4
    Date: 2012–05–15
  44. By: Jeremy J. Nalewaik; Eugenio P. Pinto
    Abstract: This paper studies the behavior of producers of capital goods, examining how they set shipments in response to fluctuations in new orders. The paper establishes a stylized fact: the response of shipments to orders is more pronounced when the level of new orders is low relative to the level of shipments, usually after orders plunge in recessions. This cyclical change in firm behavior is quantitatively important, accounting for a large portion of the steep decline in equipment investment in the 2001 and 2007--9 recessions. We examine economic interpretations of this stylized fact using a model where firms smooth production with a target delivery lag for new orders. Heightened persistence in orders growth may explain part of the greater responsiveness of shipments to orders, as may increases in firms' target buffer stocks of unfilled orders relative to shipments.
    Date: 2012
  45. By: Eleonora Granziera; Sharon Kozocki
    Abstract: We investigate whether expectations that are not fully rational have the potential to explain the evolution of house prices and the price-to-rent ratio in the United States. First,a Lucas type asset-pricing model solved under rational expectations is used to derive a fundamental value for house prices and the price-rent ratio. Although the model can explain the sample average of the price-rent ratio, it does not generate the volatility and persistence observed in the data. Then, we consider an intrinsic bubble model and two models of extrapolative expectations developed by Lansing (2006, 2010) in applications to stock prices: one that features a constant extrapolation parameter and one in which the extrapolation coefficient depends on the dividend growth process. We show that these last two models are equally good at matching sample moments of the data. However, a counterfactual experiment shows that only the extrapolative expectation model with timevarying extrapolation coefficient is consistent with the run up in house prices observed over the 2000-2006 period and the subsequent sharp downturn.
    Keywords: Asset pricing; Domestic demand and components; Economic models
    JEL: E3 E65 R21
    Date: 2012
  46. By: Antoine Godin
    Abstract: In most economies, the potential of saving energy via insulation and more efficient uses of electricity is important. In order to reach the Kyoto Protocol objectives, it is urgent to develop policies that reduce the production of carbon dioxide in all sectors of the economy. This paper proposes an analysis of a green-jobs employer-of-last-resort (ELR) program based on a stock-flow consistent (SFC) model with three productive sectors (consumption, capital goods, and energy) and two household sectors (wage earners and capitalists). By increasing the energy efficiency of dwellings and public buildings, the green-jobs ELR sector implies a shift in consumption patterns from energy consumption toward consumption of goods. This could spur the private sector and thus increase employment. Lastly, the jobs guarantee program removes all involuntary unemployment and decreases poverty while lowering carbon dioxide emissions. The environmental policy proposed in this paper is macroeconomic and offers a structural change of the economy instead of the usual micro solutions.
    Keywords: Full Employment; Green Jobs; Stock-flow Consistent
    JEL: E24 J08 Q48
    Date: 2012–05
  47. By: Ball, V. Eldon; San Juan, Carlos; Ulloa, Camilo
    Keywords: Agriculture, convergence, total factor productivity, Production Economics, Productivity Analysis, Research and Development/Tech Change/Emerging Technologies,
    Date: 2012
  48. By: Ignacio Lozano; Ligia Alba Melo B.; Jorge Enrique Ramos F.
    Abstract: En este documento se evalúa la respuesta de la política fiscal ante los choques de los flujos de capital registrados durante las dos últimas décadas en seis economías emergentes de América Latina: Argentina, Brasil, Chile, Colombia, México y Perú. Con base en la caracterización de los diferentes episodios de entradas y salidas súbitas de capital y en los resultados de un modelo de datos de panel con variables instrumentales, se concluye que no hubo respuestas directas de las autoridades fiscales frente a los choques de los flujos. Sin embargo, la evidencia también sugiere que para el conjunto de países, se presentó una reacción fiscal indirecta de naturaleza pro-cíclica, al impacto que los flujos de capital produjeron sobre la actividad económica. Este tipo de respuesta pudo cambiar a partir de la crisis financiera global de 2008, cuando varios gobiernos adoptaron posturas contra-cíclicas, por los mejores fundamentales macroeconómicos
    Keywords: Flujos de Capitales, IED, Política Fiscal, Ciclos Económicos Reales. Classification JEL: F20, F21, E32, E62.
    Date: 2012–04
  49. By: Luis Fernando Melo; Rubén Albeiro Loaiza Maya
    Abstract: Typically, when forecasting inflation rates, there are a variety of individual models and a combination of several of these models. We implement a Bayesian shrinkage combination methodology to include information that is not captured by the individual models using expert forecasts as prior information. To take into account two common characteristics in emerging countries’ economies, possible parameter instabilities and non-stationary dynamics, we use a rolling estimation windows technique for series integrated of order one. The empirical results of Colombian inflation show that the Bayesian forecast combination model outperforms the individual models and the random walk predictions for every evaluated forecast horizon. Moreover, these results outperform shrinkage forecasts that consider other priors as equal or zero weights.
    Keywords: Forecast combination, Shrinkage, Expert forecasts, Rolling window estimation, Inflation forecasts. Classification JEL: C22, C53, C11, E31.
    Date: 2012–04
  50. By: Aleksandra Iwulska; Naotaka Sugawara; Juan Zalduendo
    Abstract: This paper draws on the experience of emerging Europe and argues that foreign capital is an enviable development opportunity with tail risks. Financial integration and foreign savings supported growth in the EU12 and EU candidate countries. We argue that this was possible because of EU membership (actual or potential) and its role as an anchor for expectations. In contrast, the eastern partnership states did not benefit from the foreign savings-growth link. But financial integration also led to a buildup of vulnerabilities and now exposes emerging Europe to prolonged uncertainty and financial deleveraging due to eurozone developments. Nonetheless, we believe that external imbalances should not be eradicated—nor should emerging Europe pursue a policy of self-insurance. Instead, what we refer to as an acyclical fiscal policy stance could serve to counterbalance private sector behavior. Going forward, a more proactive macroprudential policy will also be needed to limit financial system vulnerabilities when external imbalances are large.
    Keywords: Financial integration, Emerging Europe, Capital inflows, Growth, Macroprudential policies
    JEL: E58 F36 F41 G28
    Date: 2012
  51. By: Sinha, Pankaj; Arya, Deepshikha; Singh, Shuchi
    Abstract: India has emerged as one of the fastest growing economies even in the difficult financial downturn era. In coming years, India will be demanding a large number of infrastructure services to match the demand and keep an upward sloping growth curve. Indian infrastructure including both soft (port services, air and telecom) and hard (road, railways and airways) infrastructure is growing at a fast pace at present. The country also has largest road network (3.34 million km) and second largest rail network of the world. Requirement for investment in infrastructure projects was expected to increase by 145.6% from Five Year Plan 2002-07 to FYP 2007-11. Part of the investment is expected to come from the various resources as public private partnerships and public investments. Indian government is also trying to experiment with different tools of PPP (public private partnerships) financing such as VGF (viability gap financing), SPV (special purpose vehicle) to decrease the deficits on the accounts of infrastructure. This paper studies the evolution of financing needs and consequential innovative methodologies in Indian infrastructure. Government has made various efforts to match the growth in infrastructure with country’s economy growth. However, Indian infrastructure is still lagging behind globally. This study analyzes existing frameworks available for financing and risk involved in them. India has lot of opportunity to grow using public private partnership model, but still the numbers of project financed are very less. We also have studied project financing model and capital financing model which are used by various competitive countries to India. A regression analysis has been conducted on a macroeconomic model of investment in infrastructure which takes into account the exogenous variables interest rate, inflation rate, foreign exchange rate (USD/INR) and nominal gross domestic product based on Indian data from 1987-2010. Here we study how changes in any one of the aforementioned factors impact the infrastructure investment. The paper also tries to find out the correlation between and trends followed by CNX Infra and S&P 500 based on daily time series for both. A comparative analysis of two South Asian countries namely South Korea and Malaysia has been carried out with respect to India. The objective of this study is to find out what are the similarities and complementarities between the infrastructure investments of these countries and India. This helps in suggesting which ways India can move forward in order to optimize and align its infrastructure development with its continuously burgeoning needs. Finally, we have made our recommendation to facilitate infrastructure financing optimally by removing the externalities from the existing system. We also suggest a few innovative ways to finance infrastructure in India which might prove successful.
    Keywords: Infrastructure financing; PPP (public private partnerships); Risk mitigation; capital financing
    JEL: E62 C20 G38
    Date: 2012–04–13
  52. By: Rodolfo Manuelli (Washington University in St. Louis and Federal Reserve Bank of St. Louis); Ananth Seshadri (University of Wisconsin--Madison); Yongseok Shin (Washington University in St. Louis and Federal Reserve Bank of St. Louis)
    Abstract: We develop a model of retirement and human capital investment to study the effects of tax and retirement policies. Workers choose the supply of raw labor (career length) and also the human capital embodied in their labor. Our model explains a significant fraction of the US-Europe difference in schooling and retirement. The model predicts that reforms of the European retirement policies modeled after the US can deliver 15-35 percent gains in per-worker output in the long run. Increased human capital investment in and out of school accounts for most of the gains, with relatively small changes in career length. JEL classification: E24; J24
    Keywords: Lifetime labor supply human capital
    JEL: E24 J24
  53. By: Lipishree Das, Dr.
    Abstract: While the MFI model of microfinance is unsustainable, the SHG-Bank Linkage approach can make a positive impact on security and empowerment of the disadvantaged. Much more than microfinance is needed to overcome the problems that have persisted over the last 100 years. The findings from this study suggest that there is rise in the history and perspectives of rural credit in India in form of microfinance. And there is need for improved governance to manage challenges for future so that inclusive growth is possible.
    Keywords: Microfinance; SHG; Bank
    JEL: E59 G21 J23
    Date: 2012–02–26
  54. By: Alessio Ciarlone (Bank of Italy)
    Abstract: In this paper, I investigate the characteristics of house price dynamics for a sample of 16 emerging economies from Asia and Central and Eastern Europe, over the period 1995-2011. Linking housing valuations to a set of conventional fundamental determinants &#x2013; relative to both the supply and the demand side of the market, institutional factors and other asset prices &#x2013; and modeling short-term price dynamics &#x2013; which reflect gradual adjustment to underlying fundamentals &#x2013; I draw conclusions about the existence, and the basic nature, of house price overvaluation (undervaluation). Overall, I find that actual house prices in the sample of emerging economies are not overly disconnected from fundamentals. Rather, they tend to reflect a somewhat slow adjustment to shocks to the latter. Moreover, the evidence that housing valuations may be driven by overly optimistic (or pessimistic) expectations is in general weak, even if this feature may have played a more prominent role up to the end of 2007, before the onset of the recent global real and financial crisis.
    Keywords: house prices, housing market, emerging markets, panel co-integration, asset prices
    JEL: E20 E21 E32 E44 C23 D12 P25 R21 R31
    Date: 2012–04
  55. By: Modibo Sidibe (CREST)
    Keywords: heterogenous agents, inequalities, wealth distribution, housing
    JEL: E24 I30 R23
    Date: 2012–03
  56. By: Ben Fung; Kim Huynh; Leonard Sabetti
    Abstract: Many predict that innovations in retail payment may render cash obsolete. We investigate this possibility in the context of recent payment innovations such as contactless-credit and stored-value cards. We apply causal inference methods on the 2009 Bank of Canada Method of Payment survey, a representative sample of adult Canadians’ shopping behaviour for retail consumption over a three-day period. We find that using contactless credit cards and stored-value cards lead to a reduction in average cash usage for transactions both in terms of value and volume. Sensitivity analysis is undertaken and our estimates are robust to hidden bias.
    Keywords: Econometric and statistical methods; Financial services; Payment; clearing; and settlement systems
    JEL: E41 C35 C83
    Date: 2012
  57. By: Filges, Trine (SFI - Danish National Centre for Social Research); Larsen, Mona (SFI - Danish National Centre for Social Research); Pedersen, Peder J. (University of Aarhus)
    Abstract: The paper studies the impact from variations in unemployment on retirement among older workers. We integrate unemployment variations with early retirement programs and other pathways out of the labor force. The paper describes retirement programs, policy changes, labor force participation among older workers and presents a new estimate of the trend in the average age of retirement. Individual panel data for the last 25 years are used in estimations of the impact from individual unemployment on the retirement decision. Unemployment is found highly significant and quantitatively important for the retirement decision. We conclude that there is a clear risk of a cyclical downturn resulting in a more long run reduction in productive capacity with negative consequences for the budget of the public sector.
    Keywords: unemployment, labor force participation, retirement
    JEL: E32 J21 J26 J64
    Date: 2012–05
  58. By: Olajide, Victor C.
    Abstract: Electronic money has ushered in the cashless banking framework across different countries of the world and this is made possible by the advances in information technology and invention that began in Japan and later the West. However this new introduction into the various economies of the world is not without reaction both favorable and unfavorable. This paper seeks to point out the implications, in a developing economy like Nigeria, of a cashless banking which still permits some cash in the economy that is home to both the formal and informal sector. Theoretical findings supports the view of some economists concerning the need for regulatory agencies to be very wary the possibly retarding effect of the introduction of such a sophisticated payment system, particularly in developing economies like Nigeria, with the coexistence of the formal and informal sectors, that may not be able to muster the wherewithal to bear the burden of electronic payments and hence the cashless banking paradigm.
    Keywords: Electronic money; Cashless Banking; demand and time deposits
    JEL: E42 E40
    Date: 2012–04–13

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