nep-mac New Economics Papers
on Macroeconomics
Issue of 2012‒07‒08
forty-six papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Monetary and Fiscal Policy in a Monetary Union under the Zero Lower Bound constraint By Stefanie Flotho
  2. Asset market participation, monetary policy rules and the great inflation By Roland Straub; Florin O. Bilbiie
  3. Interest Rate Rules, Endogenous Cycles, and Chaotic Dynamics in Open Economies By Luis-Felipe Zanna; Marco Airaudo
  4. Alternative Monetary Policy Rules for India By Michael Debabrata Patra; Muneesh Kapur
  5. Financial intermediaries, credit Shocks and business cycles By Mimir, Yasin
  6. Monetary Policy Transmission in the GCC Countries By Raphael A. Espinoza; Ananthakrishnan Prasad
  7. Interbank Market and Macroprudential Tools in a DSGE Model By Carrera, Cesar; Vega, Hugo
  8. Fiscal policy and the great recession in the Euro area By Günter Coenen; Roland Straub; Mathias Trabandt
  9. Optimal Liquidity and Economic Stability By Linghui Han; Il Houng Lee
  10. Underground labor, search frictions and macroeconomic fluctuations By Giuseppe Ciccarone; Francesco Giuli; Enrico Marchetti
  11. The economic impact of demographic structure in OECD countries By Yunus Aksoy; Tobias Grasl; Ron P Smith
  12. Resuscitating the ad hoc loss function for monetary policy analysis By Juan Paez-Farrell
  13. Inflation monétaire ou inflation structurelle ? By Jacques Sapir
  14. Credit Growth and the Effectiveness of Reserve Requirements and Other Macroprudential Instruments in Latin America By Mercedes Garcia-Escribano; Camilo Ernesto Tovar Mora; Mercedes Vera Martin
  15. The Friedman rule in a model with nonlinear taxation and income misreporting By Gahvari, Firouz; Micheletto, Luca
  16. Do bank characteristics influence the effect of monetary policy on bank risk? By Yener Altunbas; Leonardo Gambacorta; David Marques-Ibanez
  17. Taylor rules, fear of floating and the role of the exchange rate in monetary policy: a case of observational equivalence By Juan Paez-Farrell
  18. Debt and nonlinear fiscal policy: evidence from the states By Gray, Jo Anna; Stone, Joe A,
  19. Real-time forecasting US GDP from small-scale factor models By Maximo Camacho; Jaime Martinez-Martin
  20. Consumption Heterogeneity over the Business Cycle By Giacomo de Giorgi; Luca Gambetti
  21. Cyclicality of real wages in the USA and Germany: New insights from wavelet analysis By Marczak, Martyna; Gómez, Víctor
  22. Consumption Heterogenity Over the Business Cycle By Giacomo De Giorgi; Luca Gambetti
  23. Order, displacements and recurring financial crises By Hoffmann, Andreas; Urbansky, Björn
  24. The Role of Banks in Monetary Policy Transmission in South Africa By Syden Mishi; Asrat Tsegaye
  25. Attacking the Treasury View, Again By Dean Baker
  26. Macroeconomic shocks in an oil market var By Marko Melolinna
  27. Europe's New Fiscal Rules By Sebastian Barnes; David Davidsson; Łukasz Rawdanowicz
  28. Price volatility in food markets: can stock building mitigate price fluctuations? By Serra, Serra; Gil, Jose M.
  29. Tracking Short-Term Dynamics of Economic Activity in Low-Income Countries in the Absence of High-Frequency GDP Data By Shiv Dixit; Maxwell Opoku-Afari
  30. A Stationary Markov Equilibrium in an OLG Model By Zhixiang Zhang; Heng-fu Zou
  31. Dealing with the Trilemma: Optimal Capital Controls with Fixed Exchange Rates By Emmanuel Farhi; Ivan Werning
  32. Testing external habits in an asset pricing model By M Boschi; S d'Addona; A Goenka
  33. Commodity Price Shocks and Fiscal Outcomes By Issouf Samaké; Nicola Spatafora
  34. International Capital Mobility: Which Structural Policies Reduce Financial Fragility? By Rudiger Ahrend; Antoine Goujard; Cyrille Schwellnus
  35. Ensuring Debt Sustainability Amid Strong Economic Uncertainty in Hungary By Pierre Beynet; Rafał Kierzenkowski
  36. Housing Price and Investment Dynamics in Finland By Christophe André; Clara García
  37. Financial Intermediation Costs in Low-Income Countries: The Role of Regulatory, Institutional, and Macroeconomic Factors By Tigran Poghosyan
  38. International Capital Mobility and Financial Fragility - Part 7. Enhancing Financial Stability: Country-Specific Evidence on Financial Account and Structural Policy Positions By Rudiger Ahrend; Carla Valdivia
  39. Optimal Capital Income Taxation with Means-tested Benefits By Cagri Seda Kumru; John Piggott
  40. International Capital Mobility and Financial Fragility - Part 6. Are all Forms of Financial Integration Equally Risky in Times of Financial Turmoil?: Asset Price Contagion During the Global Financial Crisis By Rudiger Ahrend; Antoine Goujard
  41. Pension savings and economic growth By DE KONING, Kees
  42. International Capital Mobility and Financial Fragility - Part 3. How Do Structural Policies Affect Financial Crisis Risk?: Evidence from Past Crises Across OECD and Emerging Economies By Rudiger Ahrend; Antoine Goujard
  43. Bounded Leviathan: or why North & Weingast are only right on the right half By Irigoin, A; Grafe, R
  44. House price forecasts in times of crisis: Do forecasters herd? By Pierdzioch, Christian; Rülke, Jan Christoph; Stadtmann, Georg
  45. Health insurance as a productive factor By Dizioli, Allan; Pinheiro, Roberto B.
  46. The Effects of Government Spending on the Distribution of Consumption By Giacomo De Giorgi; Luca Gambetti

  1. By: Stefanie Flotho (Institute for Economic Research Chair of Economic Theory, University of Freiburg)
    Abstract: This paper explicitly models strategic interaction between two independent national fiscal authorities and a single central bank in a simple New Keynesian model of a monetary union. Monetary policy is constrained by the zero lower bound on nominal interest rates. Coordination of fiscal policies does not always lead to the best welfare effects. It depends on the nature of the shocks whether governments prefer to coordinate or not coordinate. The size of the government multipliers depend on the combination of the intraunion competitiveness parameters. They get larger in case of implementation lags of fiscal policy.
    Keywords: Monetary Union, Fiscal Policy, Zero Lower Bound on nominal interest rates, zero interest rate policy, Non-coordination
    JEL: E31 E52 E58 E61 E62 E63 F33
    Date: 2012–06
  2. By: Roland Straub (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Florin O. Bilbiie (Centre d’Economie de la Sorbonne, 106/112 Boulevard de l’Hôpital, 75647 Paris Cedex 13, France; Paris School of Economics and CEPR.)
    Abstract: This paper argues that limited asset market participation is crucial in explaining U.S. macroeconomic performance and monetary policy before the 1980s, and their changes thereafter. In an otherwise conventional sticky-price model, standard aggregate de- mand logic is inverted at low enough asset market participation: interest rate increases become expansionary; passive monetary policy ensures equilibrium determinacy and maximizes welfare. This suggests that Federal Reserve policy in the pre-Volcker era was better than conventional wisdom implies. We provide empirical evidence consistent with this hypothesis, and study the relative merits of changes in structure and shocks for reproducing the conquest of the Great Ination and the Great Moderation. JEL Classification: E310; E320; E440; E520.
    Keywords: Great Ination; Great Moderation; Limited asset markets participa- tion; Passive monetary policy rules.
    Date: 2012–05
  3. By: Luis-Felipe Zanna; Marco Airaudo
    Abstract: We present an extensive analysis of the consequences for global equilibrium determinacy in flexible-price open economies of implementing active interest rate rules, i.e., monetary rules where the nominal interest rate responds more than proportionally to inflation. We show that conditions under which these rules generate aggregate instability by inducing liquidity traps, endogenous cycles, and chaotic dynamics depend on specific characteristics of open economies. In particular, rules that respond to expected future inflation are more prone to induce endogenous cyclical and chaotic dynamics the more open the economy to trade.
    Keywords: Business cycles , Economic models , Flexible pricing policy , Interest rates , International trade , Monetary policy , Real effective exchange rates ,
    Date: 2012–05–11
  4. By: Michael Debabrata Patra; Muneesh Kapur
    Abstract: This paper empirically evaluates the operational performance of the McCallum rule, the Taylor rule and hybrid rules in India over the period 1996-2011 using quarterly data, with a view to analytically informing the conduct of monetary policy. The results show that forward-looking formulations of both rules and their hybrid version - setting a nominal output growth objective for monetary policy with an interest rate instrument - outperform contemporaneous and backward-looking specifications, especially when targeting core components of GDP and inflation, and combine the best parts of efficiency and discretion.
    Keywords: Central banks , Monetary authorities , Monetary operations ,
    Date: 2012–05–09
  5. By: Mimir, Yasin
    Abstract: This paper conducts a quantitative analysis of the role of financial shocks and credit frictions affecting the banking sector in driving U.S. business cycles. I first document three key business cycle stylized facts of aggregate financial variables in the U.S. banking sector: (i) Bank credit, deposits and loan spread are less volatile than output, while net worth and leverage ratio are more volatile, (ii) bank credit and net worth are procyclical, while deposits, leverage ratio and loan spread are countercyclical, and (iii) financial variables lead the output fluctuations by one to three quarters. I then present an equilibrium business cycle model with a financial sector, featuring a moral hazard problem between banks and its depositors, which leads to endogenous capital constraints for banks in obtaining funds from households. The model incorporates empirically-disciplined shocks to bank net worth (i.e. "financial shocks") that alter the ability of banks to borrow and to extend credit to non-financial businesses. I show that the benchmark model is able to deliver most of the above stylized facts. Financial shocks and credit frictions in banking sector are important not only for explaining the dynamics of financial variables but also for the dynamics of standard macroeconomic variables. Financial shocks play a major role in driving real fluctuations due to their impact on the tightness of bank capital constraint and the credit spread.
    Keywords: Banks; Financial Fluctuations; Credit Frictions; Bank Equity; Real Fluctuations
    JEL: E32 E44 E10 E20
    Date: 2012–05
  6. By: Raphael A. Espinoza; Ananthakrishnan Prasad
    Abstract: The GCC countries maintain a policy of open capital accounts and a pegged (or nearly-pegged) exchange rate, thereby reducing their freedom to run an independent monetary policy. This paper shows, however, that the pass-through of policy rates to retail rates is on the low side, reflecting the shallowness of money markets and the manner in which GCC central banks operate. In addition to policy rates, the GCC monetary authorities use reserve requirements, loan-to-deposit ratios, and other macroprudential tools to affect liquidity and credit. Nonetheless, a panel vector auto regression model suggests that U.S. monetary policy has a strong and statistically significant impact on broad money, non-oil activity, and inflation in the GCC region. Unanticipated shocks to broad money also affect prices but do not stimulate growth. Continued efforts to develop the domestic financial markets will increase interest rate pass-through and strengthen monetary policy transmission.
    Keywords: Bahrain , Cooperation Council for the Arab States of the Gulf , Economic models , Interest rates , Kuwait , Monetary policy , Monetary transmission mechanism , Oman , Qatar , Saudi Arabia , United Arab Emirates , United States ,
    Date: 2012–05–18
  7. By: Carrera, Cesar (Banco Central de Reserva del Perú); Vega, Hugo (Banco Central de Reserva del Perú; London School of Economics)
    Abstract: The interbank market helps regulate liquidity in the banking sector. Banks with outstanding resources usually lend to banks that are in needs of liquidity. Regulating the interbank market may actually benefit the policy stance of monetary policy. Introducing an interbank market in a general equilibrium model may allow better identification of the final effects of non-conventional policy tools such as reserve requirements. We introduce an interbank market in which there are two types of private banks and a central bank that has the ability to issue money into a DSGE model. Then, we use the model to analyse the effects of changes to reserve requirements (a macroprudential tool), while the central bank follows a Taylor rule to set the policy interest rate. We find that changes to reserve requirements have similar effects to interest rate hikes and that both monetary policy tools can be used jointly in order to avoid big swings in the policy rate (that could have an undesired effect on private expectations) or a zero bound (i.e. liquidity trap scenarios).
    Keywords: reserve requirements, collateral, banks, interbank market, DSGE
    JEL: E31 O42
    Date: 2012–06
  8. By: Günter Coenen (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Roland Straub (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Mathias Trabandt (Board of Governors of the Federal Reserve System, Division of International Finance, 20th Street and Constitution Avenue N.W, Washington, DC 20551, USA.)
    Abstract: How much did fiscal policy contribute to euro area real GDP growth during the Great Recession? We estimate that discretionary fiscal measures have increased annualized quarterly real GDP growth during the crisis by up to 1.6 percentage points. We obtain our result by using an extended version of the European Central Bank’s New Area- Wide Model with a rich specification of the fiscal sector. A detailed modeling of the fiscal sector and the incorporation of as many as eight fiscal time series appear pivotal for our result. JEL Classification: C11, E32, E62.
    Keywords: Fiscal policy, DSGE modelling, Bayesian inference, euro area.
    Date: 2012–03
  9. By: Linghui Han; Il Houng Lee
    Abstract: Monetary aggregates are now much less used as policy instruments as identifying the right measure has become difficult and interest rate transmission has worked well in an increasingly complex financial system. In this process, little attention was paid to the potential spillover of excess liquidity. This paper suggests a notional level of "optimal" liquidity beyond which asset prices will start to rise faster than the GDP deflator, thereby creating a gap between the face value and the real purchasing value of financial assets and widen the wedge in income between those with capital stock and those living on salaries. Such divergence will eventually lead to an abrupt and disorderly adjustment of the asset value, with repercussions on the real sector.
    Keywords: Asset prices , Economic stabilization , Liquidity , Monetary aggregates , Monetary policy , Private sector ,
    Date: 2012–05–24
  10. By: Giuseppe Ciccarone; Francesco Giuli; Enrico Marchetti
    Abstract: We study the e¤ects of underground activities on labour market dynamics in a RBC model with search frictions in the labor market, bargained wage and quadratic hiring costs. Underground activities, which allow agents to (partially) evade taxes, are modelled through a moonlighting production scheme where both regular and underground labor use the same capital equipment inside the firm. Calibrating the model on the U.S. economy, we show that a higher relative size of underground production implies lower average employment and a lower job finding rate, together with higher volatility of employment and lower volatilities of hours worked and wages of regular labor services. The theoretical explanation we provide is that a higher level of the underground activity increases the ratio of the flow contribution of non-working to the flow contribution of a worker to a labour match.
    Keywords: underground activities, tax evasion, search and matching, real business cycle
    JEL: E32 E26 J64
    Date: 2012–06
  11. By: Yunus Aksoy (Department of Economics, Mathematics & Statistics, Birkbeck); Tobias Grasl (Department of Economics, Mathematics & Statistics, Birkbeck); Ron P Smith (Department of Economics, Mathematics & Statistics, Birkbeck)
    Abstract: We examine the impact of demographic structure, the proportion of the population in each age group, on growth, savings, investment, hours, interest rates and inflation using a panel VAR estimated from data for 20 OECD economies, mainly for the period 1970-2007. This flexible dynamic structure with interactions among the main macroeconomic variables allows us to estimate long-run effects of demographic structure on the individual countries. Our estimates confirm the importance of these effects.
    Keywords: demographic changes, macroeconomic variables, business cycle
    JEL: E32 J11
    Date: 2012–05
  12. By: Juan Paez-Farrell (School of Business and Economics, Loughborough University, UK)
    Abstract: Working with micro-founded loss functions to derive and analyse optimal policy ensures consistency with the model used and overcomes the misleading prescriptions that result from using exogenous ad hoc loss functions. However, when allowance is made for the fact that different theories of inflation persistence can result in the same, observationally equivalent, hybrid New Keynesian Phillips curve such conclusions may no longer hold. Each theory implies its own loss function and will therefore result in different policy prescriptions. In this paper I analyse the welfare consequences of using ad hoc loss functions versus the micro-founded, but potentially incorrect, targeting rules.
    Keywords: Optimal monetary policy, targeting rules, loss function, robustness.
    JEL: E52 E58
    Date: 2012–06
  13. By: Jacques Sapir (IRSES - Institutions et régulations des systèmes économiques ex-soviétiques - Fondation Maison des sciences de l'homme, CEMI - Centre d'étude des modes d'industrialisation - Ecole des Hautes Etudes en Sciences Sociales (EHESS))
    Abstract: La notion de ciblage d'inflation (inflation targeting) a provoqué de nombreuses discussions ces vingt dernières années. Il en ressort une remise en cause de la thèse classique sur la nature purement monétaire de l'inflation et, par la même occasion du principe que l'inflation la plus basse est toujours la meilleure. La notion même d'output gap montre que le niveau de l'inflation a bien une importance pour la croissance et que, dans certains cas, inflation et croissance sont en réalité corrélées positivement. Ceci est lié aux " dépendance stratégique " entre les secteurs de l'économie, mais aussi à l'idée que les comportements peuvent être dépendants du contexte. Après avoir discuté les hypothèses sur les rigidités structurelles et nominales, et comparé quelques résultats, nous esquissons un modèle bi-sectoriel, empruntant certaines des idées de Mankyw et Reis, mais en les développant dans un cadre bien plus hétérodoxe et post-Keynésien.
    Keywords: inflation; croissance; output-gap; modèle bi-sectoriel; investissement; zone Euro; politique monétaire
    Date: 2012–06–15
  14. By: Mercedes Garcia-Escribano; Camilo Ernesto Tovar Mora; Mercedes Vera Martin
    Abstract: Over the past decade policy makers in Latin America have adopted a number of macroprudential instruments to manage the procyclicality of bank credit dynamics to the private sector and contain systemic risk. Reserve requirements, in particular, have been actively employed. Despite their widespread use, little is known about their effectiveness and how they interact with monetary policy. In this paper, we examine the role of reserve requirements and other macroprudential instruments and report new cross-country evidence on how they influence real private bank credit growth. Our results show that these instruments have a moderate and transitory effect and play a complementary role to monetary policy.
    Keywords: Banking systems , Central bank policy , Credit expansion , Latin America , Macroprudential policy , Reserve requirements ,
    Date: 2012–06–04
  15. By: Gahvari, Firouz (Department of Economics); Micheletto, Luca (Uppsala Center for Fiscal Studies)
    Abstract: This paper develops an overlapping-generations model with money-in-the-utilityfunction and heterogeneous agents in terms of earning ability. It shows that in the presence of income misreporting the Friedman rule is in general violated. The result holds even though the government taxes reported incomes nonlinearly and agents have preferences that are separable between labor supply and other goods including real money balances.
    Keywords: Monetary policy; scal policy; redistribution; Friedman rule; income misreporting; overlapping generations; second best
    JEL: E52 H21
    Date: 2012–06–27
  16. By: Yener Altunbas (Centre for Banking and Financial Studies, University of Wales, Bangor, Gwynedd, LL57 2DG, United Kingdom.); Leonardo Gambacorta (Bank for International Settlements, Monetary and Economics Department, Centralbahnplatz 2, CH-4002 Basel, Switzerland.); David Marques-Ibanez (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: We analyze whether the impact of monetary policy on bank risk depends upon bank characteristics. We relate the materialization of bank risk during the financial crisis to differences in the monetary policy stance and bank characteristics in the pre-crisis period for a large sample of listed banks operating in the European Union and the United States. We find that the insulation effect produced by capital and liquidity buffers on bank risk was lower for banks operating in countries that, prior to the crisis, experienced a particularly prolonged period of low interest rates. JEL Classification: E44, E52, G21.
    Keywords: Risk-taking channel, monetary policy, credit crisis, bank characteristics.
    Date: 2012–03
  17. By: Juan Paez-Farrell (School of Business and Economics, Loughborough University, UK)
    Abstract: This paper considers the role of the exchange rate in monetary policy rules. It argues that much recent research aimed at determining the extent of concern for exchange rate stabilisation on the part of central banks is potentially flawed. If policy makers are subject to fear of floating – whereby they aim to stabilise exchange rates but without revealing this to the public – current estimated models cannot may provide insufficient information to determine policy objectives. In effect, several structural models may yield observationally equivalent interest rate rules. The paper uses two small open economy models to highlight this issue.
    Keywords: Small open economies, monetary policy, exchange rates, Taylor rule, fear of floating.
    JEL: E52 E58 F41
    Date: 2012–06
  18. By: Gray, Jo Anna; Stone, Joe A,
    Abstract: Evidence from a half century of experience by states identifies nonlinearities in the effects of debt and fiscal policy on growth. Effects are Keynesian for low to moderate levels of debt and stimulus but anti Keynesian for sufficiently high levels of debt or stimulus. Results are broadly consistent with models by Barro (1999), Judd (1987), and others.
    Keywords: debt; fiscal policy; nonlinear;growth; Keynes
    JEL: E62 B22 A10
    Date: 2012–06–06
  19. By: Maximo Camacho; Jaime Martinez-Martin
    Abstract: This paper proposes two refinements to the single-index dynamic factor model developed by Aruoba and Diebold (AD, 2010) to monitor US economic activity in real time. First, we adapt the model to include survey data and financial indicators. Second, we examine the predictive performance of the model when the goal is to forecast GDP growth. We find that our model is unequivocally the preferred alternative to compute backcasts. In nowcasting and forecasting, our model is able to forecast growth as well as AD and much better than several baseline alternatives. In addition, we find that our model could be used to predict more accurately the US business cycles.
    Keywords: real-time forecasting, US GDP, business cycles.
    JEL: E32 C22 E27
    Date: 2012–06
  20. By: Giacomo de Giorgi; Luca Gambetti
    Abstract: We study consumption heterogeneity over the business cycle. Using household panel data from 1984 to 2010 in the US we find that the welfare cost of the business cycle is non-negligible, once agents heterogeneity is taken into account, and sums to about 1% of yearly consumption. This is due to the structure of comovements between the different parts of the consumption distribution, in particular the tails are highly volatile and negatively related to each other. We also find that business cycle fluctuations originating from exogenous financial shocks only hit the top end of the consumption distribution and therefore reduce consumption inequality.
    Keywords: Consumption, Heterogeneity, Aggregate Shocks, Structural Factor Model, FAVAR
    JEL: E21 E63 D12 C3
    Date: 2012–06
  21. By: Marczak, Martyna; Gómez, Víctor
    Abstract: This article provides new insights into the cyclical behavior of consumer and producer real wages in the USA and Germany. We apply two methods for the estimation of the cyclical components from the data: the approach based on the structural time series models and the ARIMA-model-based approach combined with the canonical decomposition and a band-pass filter. We examine the extracted cycles drawing on two wavelet concepts: wavelet coherence and wavelet phase angle. In contrast to the analysis in the time or frequency domains, wavelet analysis allows for the identification of possible changes in cyclical patterns over time. From the findings of our study, we can infer that the USA and Germany differ with respect to the lead-lag relationship of real wages and the business cycle. In the USA, both real wages are leading the business cycle in the entire time interval. The German consumer real wage is, on the other hand, lagging the business cycle. For the German producer real wage, the lead-lag pattern changes over time. We also find that real wages in the USA as well in Germany are procyclical or acyclical until 1980 and countercyclical thereafter. --
    Keywords: real wages,business cycle,wavelet analysis,wavelet phase angle,trend-cycle decomposition,structural time series model,ARIMA-model-based approach,band-pass filter
    JEL: E32 C22 C32 J30
    Date: 2012
  22. By: Giacomo De Giorgi; Luca Gambetti
    Abstract: We study consumption heterogeneity over the business cycle. Using household panel data from 1984 to 2010 in the US we find that the welfare cost of the business cycle is non-negligible, once agents heterogeneity is taken into account, and sums to about 1% of yearly consumption. This is due to the structure of comovements between the different parts of the consumption distribution, in particular the tails are highly volatile and nega- tively related to each other. We also find that business cycle fluctuations originating from exogenous financial shocks only hit the top end of the consumption distribution and therefore reduce consumption inequality.
    Keywords: Consumption, Heterogeneity, Aggregate Shocks, Structural Factor Model, FAVAR.
    JEL: E21 E63 D12 C3
    Date: 2012–06–22
  23. By: Hoffmann, Andreas; Urbansky, Björn
    Abstract: The paper describes boom-and-bust cycles within Hayek's framework of order and aims to provide an understanding of recurring crises in recent financial history. We argue that a boom-and-bust cycle is initiated by a displacement that lowers the degree of (ex-post) plan coherence (or order) in an economy. Such displacements can be endogenous (e.g. innovations) or exogenous (e.g. policy alteration). A cycle can be triggered if the displacement signals high short-run profit opportunities but agents lack an understanding of the long-run impact of the displacement and cannot form coherent expectations. The application of the framework aims at making sense of recurring financial crises since the break-down of the Bretton Woods System. First, we argue that the newly emerging international financial architecture has made the financial system more elastic. Second, we show how large exogenous displacements such as capital account liberalization inititated boom-and-bust cycles in developing countries. And third, we argue that the competitive market system themselves brought about many innovations that endogenously amplified the latest US boom-and-bust cycle and increased the crisis potential. --
    Keywords: Hayek,order,displacement,financial crises
    JEL: E32 B5
    Date: 2012
  24. By: Syden Mishi; Asrat Tsegaye
    Abstract: The role of banks in transmission of monetary policy in an economy has been a subject of theoretical and empirical investigations. This study attempts to empirically investigate the role played by private commercial banks in South Africa in transmitting the impulses of monetary policy shocks to the rest of the economy. Focus is placed on the bank lending channel of monetary transmission due to the importance of banks in the financial system. Specifically, we examine whether the central bank's monetary policy stance affects banks' lending behaviour. We specify and test the bank lending channel of monetary policy transmission in South Africa by using a panel structural approach that distinguishes banks according to size. The results indicate the prevalence of the bank lending channel in which banks play a pivotal role in the monetary policy transmission in South Africa. Also bank size had proved to appropriately discriminate banks in South Africa according to their external finance cost.
    Date: 2012
  25. By: Dean Baker
    Abstract: This paper considers the case for and against 'the treasury view' - the idea that in a downturn, government spending has no effect on economic activity or unemployment. The report covers three areas: the evidence for expansionary fiscal contraction – the idea that somehow cutting budget deficits will lead to an increase in growth, even in the middle of a downturn; the logic of expansionary contraction; and finally, a more sustainable path for the economy that is not designed to generate inequality in the same way that the pre-crisis economy was.
    Keywords: austerity, fiscal stimulus, deficit spending,
    JEL: E E2 E3 E32 E6 E62 E65 H H6 H62
    Date: 2012–06
  26. By: Marko Melolinna (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: This paper studies oil market and other macroeconomic shocks in a structural vector au- toregression with sign restrictions. It introduces a new indicator for oil demand, and uniquely, performs a sign restriction set-up with a penalty function approach in an oil market vector au- toregression. The model also allows for macroeconomic shocks in the US. The results underline the importance of the source of an oil shock for its macroeconomic consequences. Oil supply shocks have been less relevant in driving real oil prices, and had less of an e¤ect on US ination than demand shocks. Overall, the e¤ects of oil shocks on US real activity have been relatively limited, as also highlighted by a counterfactual experiment of recent oil market developments. JEL Classification: C01, C32, E32
    Keywords: oil demand shocks, oil supply shocks, business cycle, Bayesian econometrics
    Date: 2012–05
  27. By: Sebastian Barnes; David Davidsson; Łukasz Rawdanowicz
    Abstract: Europe is putting in place a new system of fiscal rules following the euro area sovereign debt crisis and decades of rising government to debt-to-GDP ratios. These include the so-called “six pack” to upgrade the Stability and Growth Pact to a new Treaty incorporating the “fiscal compact”. Much of the discussion about the new rules has been procedural or theoretical. This paper shows what the rules will mean in practice under a realistic mediumterm scenario developed by the OECD. In the short term, fiscal consolidation will largely be driven by the current wave of Excessive Deficit Procedures. Only once these commitments are fulfilled will the new system of rules come into action. Although the rules are complex, the central pillar of the new fiscal rules will be the requirement to balance budgets in structural terms. These imply a tight fiscal stance over the coming years for many European countries by comparison with the performance achieved in past decades: almost all countries will have to be as disciplined as the few countries that managed to make meaningful progress in tackling high debt levels in the past. A further tightening of budgetary Medium-Term Objectives is likely in 2012, which will in many cases make the required fiscal stance even tighter. Over the very long term, the rules imply very low levels of debt. The requirements can thus not be considered to be a permanent approach. The methodology to calculate the structural balance has a number of weaknesses and discretion will be needed in implementing the rules.<P>Les nouvelles règles budgétaires européennes<BR>En réaction à la crise de la dette souveraine de la zone euro et après des décennies de progression du taux d’endettement public par rapport au PIB, l’UE met en place un nouvel ensemble de règles budgétaires. Parmi ces nouvelles règles figure le train de six mesures (« six pack ») destinées à faire évoluer le Pacte de Stabilité et de Croissance vers un nouveau Traité intégrant le « Pacte budgétaire ». Le débat sur ces nouvelles règles a essentiellement porté sur des questions procédurales ou théoriques. Ce document montre ce qu’impliquent concrètement ces nouvelles règles, dans le cadre d’un scénario de moyen terme réaliste élaboré par l’OCDE. Dans un premier temps, l’assainissement budgétaire sera essentiellement motivé par la vague actuelle de procédures pour déficits excessifs. Ce n’est qu’à l’issue de ces procédures que les nouvelles règles entreront en vigueur. Le point d’ancrage de ces règles complexes réside dans l’exigence d’un équilibre budgétaire structurel. Bon nombre de pays européens devront donc, au cours des prochaines années, adopter une politique budgétaire plus rigoureuse que lors des décennies précédentes : la quasi-totalité des pays devront se montrer aussi disciplinés que ceux, peu nombreux, ayant réussi par le passé à réduire significativement leur dette publique. Un nouveau durcissement des objectifs budgétaires à moyen terme est probable en 2012, ce qui dans de nombreux cas donnera lieu à des politiques budgétaires encore plus rigoureuses. À très long terme, les règles impliquent un très faible niveau d’endettement. Les conditions imposées ne pourront donc pas être considérées comme permanentes. La méthodologie mise en oeuvre pour calculer le solde structurel présente certaines faiblesses et il faudra faire preuve de discernement dans la mise en oeuvre des règles budgétaires.
    JEL: E61 E62 H6 H8
    Date: 2012–06–21
  28. By: Serra, Serra; Gil, Jose M.
    Abstract: This article studies US corn price fluctuations in the past two decades. Price volatility is explained by volatility clustering, the influence of energy prices, corn stocks and global economic conditions. A multivariate GARCH specification that allows for exogenous variables in the conditional covariance model is estimated both parametrically and semiparametrically. Findings provide evidence of price volatility transmission between ethanol and corn markets. They also suggest that macroeconomic instability can increase corn price volatility. Finally, stock building is found to significantly reduce corn price fluctuations.
    Keywords: corn price, ethanol, stocks, garch, Agricultural and Food Policy, Demand and Price Analysis, c32, q11,
    Date: 2012
  29. By: Shiv Dixit; Maxwell Opoku-Afari
    Abstract: This paper uses a set of routinely collected high-frequency data in low-income countries (LICs) to construct an aggregate and a comprehensive index of economic activity which could serve (i) as a measure of the direction of economic activity; and (ii) as a useful input in analyzing contemporaneous real sector performance in LICs in the absence of high-frequency, and often outdated, GDP data. It could also serve as a useful tool for policymakers to gauge short-term dynamics of economic activity and shape appropriate and timely policy responses.
    Keywords: Botswana , Business cycles , Economic indicators , Economic models , Gross domestic product , Kenya , Low-income developing countries , Rwanda , Tanzania ,
    Date: 2012–05–10
  30. By: Zhixiang Zhang (CEMA, Central University of Finance and Economics); Heng-fu Zou (CEMA, Central University of Finance and Economics)
    Abstract: This paper provides suffcient conditions on the technology and preferences, under which the optimal savings-consumption policy is unique, and a stationary Markov equilibrium exists for an overlapping generation economy. Comparing with Wang (1993), our conditions on the uniqueness of optimal policy function are more general, and our conditions on the existence of equilibria depend on the exogenous parameters in the model instead of on endogenous variables.
    Date: 2012–02–08
  31. By: Emmanuel Farhi; Ivan Werning
    Abstract: We lay down a standard macroeconomic model of a small open economy with a fixed exchange rate and study optimal capital controls (defined as maximizing the utility of a representative household). We provide sharp analytical and numerical characterizations for a variety of shocks. We find that capital controls are employed to respond to some shocks but not others. They are particularly effective to address risk-premium shocks that affect the interest rate differential foreign investors require in a particular country. We also discuss how the solution depends on the degree of nominal rigidity and the openness of the economy. We show that capital controls may be optimal even if the exchange rate is not fixed in response to risk premium shocks or if wages, in addition to prices, are sticky. Finally, we compare the single country’s optimum to a coordinated world solution. Our results show a limited need for coordination. However, the uncoordinated solution features the same capital controls as the coordinated solution.
    JEL: E5 F3 F32 F33 F41 F42
    Date: 2012–06
  32. By: M Boschi; S d'Addona; A Goenka
    Abstract: The asset pricing model with external habit formation predicts that the equity premium depends on consumption changes relative to the habit level, implying a response that varies over the business cycle. We test this implication using a VAR model of the U.S. postwar economy whose time-varying parameters are estimated conditioning on Markov-switching regimes that shift according to the business cycle phases. This enables us to test whether the non-linear response predicted in the model is significant. The results show that the response of the equity premium to consumption shocks is insignificantly different over the business cycle. We interpret this as evidence against the external habit formation hypothesis.
    JEL: E21 E32 E44 G11 G12
    Date: 2012–05
  33. By: Issouf Samaké; Nicola Spatafora
    Abstract: The experience of developing countries over 1990-2010 indicates that commodity prices have a significant impact on fiscal outcomes. Both revenue and expenditure rise in response to commodity (import or export) price increases; the response of the fiscal deficit is ambiguous. A floating exchange rate regime only partially offsets the impact; foreign-exchange reserves do not dampen the effects. Hence, there is a strong case for fiscal hedging against commodity price shocks. Hedging instruments based on a limited set of benchmark world prices for a narrow set of commodities may suffice to realize most of the potential benefits.
    Keywords: Commodity prices , Exchange rate regimes , External shocks , Fiscal policy , Floating exchange rates , Low-income developing countries ,
    Date: 2012–05–07
  34. By: Rudiger Ahrend; Antoine Goujard; Cyrille Schwellnus
    Abstract: The structure of a country’s external liabilities, as well as the extent and nature of its international financial integration are key determinants of its vulnerability to financial crises. This is confirmed by new empirical analysis covering OECD and emerging economies over the past four decades. For example, a bias in gross external liabilities towards debt has raised crisis risk. The same holds for "currency mismatch" which refers to a situation where a country's foreign-currency denominated liabilities are large compared to its foreign-currency denominated assets. In addition, international banking integration has been a major vector of contagion, and even more so when cross-border bank lending was primarily short-term. Vulnerability to contagion has been lower when global liquidity has been abundant, underlining the importance of major central banks ensuring ample international liquidity at times of financial turmoil. Structural policies can increase financial stability, typically through their effects on the composition of the external financial account or on the vulnerability to contagion-induced financial shocks. Lower barriers on foreign direct investment and lower product market regulations have increased financial stability by shifting external liabilities from debt towards FDI. In contrast, tax systems that favour debt finance over equity finance have undermined stability by increasing the share of debt, including external debt, in corporate financing. Targeted capital controls on inflows from credit operations have reduced the impact of financial contagion, not least by shifting the structure of external liabilities. Stricter information disclosure rules or capital requirements, and strong supervisory authorities have also reduced countries' financial crisis risk.<P>Flux de capitaux internationaux : quelles politiques structurelles réduisent la fragilité financière ?<BR>La structure des engagements externes des pays, ainsi que l’ampleur et les différentes formes de leur intégration financière internationale, sont d’importants facteurs de vulnérabilité aux crises financières. Ceci est confirmé par une nouvelle analyse empirique couvrant les pays membres de l’OCDE et les pays émergents pendant les quatre dernières décennies. Par exemple, un biais des engagements externes vers la dette a augmenté les risques de crises. De même, un excès d’engagements libellés en monnaie étrangère par rapport aux créances libellées en monnaie étrangère a accru les risques de crises. En outre, l’intégration bancaire internationale a été un important vecteur de contagion, d’autant plus que la part de la dette bancaire de court-terme était importante. La vulnérabilité des pays à la contagion a aussi été moindre lorsque la liquidité globale était abondante, ce qui souligne l’importance d’une réaction des banques centrales assurant un niveau de liquidité internationale élevée lors des périodes d’instabilité financière. Les politiques structurelles peuvent contribuer à accroître la stabilité financière, tant par leurs effets sur la structure des engagements externes que par leurs effets sur la vulnérabilité aux chocs financiers liés aux épisodes de contagion. De faibles barrières aux investissements directs étrangers ainsi qu’une réglementation des marchés de produits favorable à la compétition ont contribué à la stabilité financière en modifiant les engagements externes des pays vers les IDEs au contraire de la dette. En revanche, les systèmes de taxation qui favorisent le financement par la dette au détriment des investissements de capitaux ont contribué à réduire la stabilité financière en augmentant le financement des entreprises par la dette, y compris la dette externe. Des mesures ciblées de contrôle des flux de crédits ont contribué à réduire les effets de contagion financière, notamment en modifiant la composition des engagements internationaux. Des règles plus strictes quant à la divulgation des résultats financiers et quant aux fonds propres requis, ainsi qu'une plus forte supervision des autorités ont aussi réduit les risques de crises financières.
    Keywords: structural policy, structural adjustment, debt, financial stability, capital controls, bank regulation, contagion, financial account, banking crises, bank balance sheet, asset mismatch, financial integration, politique structurelle, crise bancaire, stabilité financière, réglementation bancaire, compte financier, excès de demande d’actifs sûrs, dette externe, contrôle des flux de capitaux, intégration financière
    JEL: E44 F34 F36 G01 G18 G32
    Date: 2012–06–11
  35. By: Pierre Beynet; Rafał Kierzenkowski
    Abstract: Despite a deep recession in 2009 and weak growth in subsequent years, Hungary’s fiscal position compares favourably with many other OECD countries. Nonetheless, the underlying fiscal balance started deteriorating in 2010 and 2011. Recognising this, Hungary’s government launched an ambitious set of fiscal consolidation measures in spring 2011, the Széll Kálmán plan, which is rightly focused on curbing public expenditure. This plan, together with subsequent significant revenue-increasing measures, should help restore fiscal adjustment in 2012 and 2013. However, ensuring the sustainability of Hungarian public debt remains challenging in the context of the persistence of the sovereign debt crisis in many European economies since shifts in market sentiment could lead to unsustainable debt servicing costs. In this context, increasing the credibility of fiscal consolidation requires using several policy levers. First, the cost/risk assessment of the debt management strategy should be reassessed by taking into account lessons from the current crisis: the share of government borrowing in foreign currency will likely need to be drastically reduced. Second, additional consolidation efforts should focus more strongly on the spending side and avoid raising distortive taxes. Third, the fiscal framework should be improved by making fiscal rules less pro-cyclical and by raising the profile and political acceptance of the fiscal council through better analytical support and an enlarged mandate, while removing its power to veto the budget. This Working Paper relates to the 2012 OECD Economic Survey of Hungary (<P>Assurer la viabilité de la dette publique dans un contexte de forte incertitude économique en Hongrie<BR>En dépit d’une grave récession en 2009 et d’une faible croissance au cours des années suivantes, la situation budgétaire hongroise est meilleure que celle de beaucoup de pays de l’OCDE. Néanmoins, le solde sous-jacent a commencé de se dégrader en 2010 et 2011. Conscient du problème, le gouvernement a lancé au printemps 2011 un dispositif ambitieux de redressement budgétaire, le plan « Széll Kálmán », qui est centré à bon escient sur la réduction des dépenses publiques. La conjonction de ce plan et de mesures subséquentes d’augmentation substantielle des recettes devrait permettre de revenir vers l’ajustement budgétaire en 2012 et 2013. Cependant, il reste difficile d’assurer la viabilité de la dette publique hongroise face à la persistance de la crise de la dette souveraine dans de nombreuses économies européennes, car les changements de perception des marchés pourraient porter le coût du service de la dette à un niveau insoutenable. Dans ces conditions, il est nécessaire d’employer plusieurs leviers pour renforcer la crédibilité du redressement budgétaire. Il convient d’abord de réévaluer la stratégie de gestion de la dette en tirant les leçons de la crise actuelle : la part des emprunts de l’État libellée en devises étrangères devra probablement être fortement réduite. Ensuite, il faut faire porter davantage l’effort d’assainissement sur les dépenses et s’abstenir d’augmenter les impôts qui introduisent des distorsions. Enfin, le cadre budgétaire doit être amélioré en rendant les règles budgétaires moins procycliques, mais aussi en donnant plus de poids et de soutien politique au conseil budgétaire grâce à un renforcement de ses moyens d’analyse et à l’élargissement de sa mission tout en supprimant son pouvoir de veto sur le budget. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de la Hongrie, 2012 (
    Keywords: taxation, public debt management, Hungary, public spending, fiscal consolidation, fiscal institutions and rules, fiscalité, gestion de la dette publique, Hongrie, dépenses publiques, assainissement budgétaire, règles et institutions budgétaires
    JEL: E02 E62 H21 H50 H55 H63
    Date: 2012–05–22
  36. By: Christophe André; Clara García
    Abstract: The Finnish housing market is volatile. After declining significantly as the global financial crisis unfolded, housing prices and investment recovered to reach new peaks. This paper uses a small econometric model to assess the role of fundamentals in housing price and investment developments. Current housing valuations and residential investment are broadly in line with the model estimates. Housing market volatility is exacerbated by fluctuations in the wider economy, which given its size and openness is vulnerable to external shocks. Structural features of the housing market also make it prone to volatility. The paper describes institutional characteristics of the Finnish housing market that bear on house price volatility and supply responsiveness. These relate to the structure of tenures, housing taxation and subsidies, social housing, financing, land-use planning, and competition in the construction industry.<P>Prix du logement et la dynamique d'investissement en Finlande<BR>Le marché du logement finlandais est volatile. Après avoir diminué de manière significative durant la crise financière mondiale, les prix des logements et l'investissement résidentiel se sont redressés et ont atteint de nouveaux sommets. Ce document de travail utilise un petit modèle économétrique pour évaluer le rôle des fondamentaux dans les évolutions des prix des logements et de l’investissement résidentiel. Les valorisations actuelles des logements et l'investissement résidentiel sont globalement conformes estimations du modèle. La volatilité du marché du logement est exacerbée par les fluctuations de l'économie, qui compte tenu de sa taille et de son ouverture est vulnérable aux chocs extérieurs. Les caractéristiques structurelles du marché du logement le rendent également sujet à la volatilité. Le document décrit les caractéristiques institutionnelles du marché du logement finlandais qui influent sur la volatilité des prix et la réactivité de l'offre de logement. Celles-ci concernent la répartition entre propriétaires et locataires, la fiscalité du logement et les subventions, le logement social, le financement, l'aménagement du territoire, et la concurrence dans l'industrie de la construction.
    Keywords: Finland, construction, mortgage markets, housing market, housing policies, housing prices, land-use planning, household wealth, property taxation, prix des logements, Finlande, construction, marchés hypothécaires, marché immobilier, politiques du logement, aménagement du territoire, patrimoine des ménages, fiscalité immobilière
    JEL: E21 G21 H24 L74 R21 R31 R38 R52
    Date: 2012–05–23
  37. By: Tigran Poghosyan
    Abstract: We analyze factors driving persistently higher financial intermediation costs in low-income countries (LICs) relative to emerging market (EMs) country comparators. Using the net interest margin as a proxy for financial intermediation costs at the bank level, we find that within LICs a substantial part of the variation in interest margins can be explained by bank-specific factors: margins tend to increase with higher riskiness of credit portfolio, lower bank capitalization, and smaller bank size. Overall, we find that concentrated market structures and lack of competition in LICs banking systems and institutional weaknesses constitute the key impediments preventing financial intermediation costs from declining. Our results provide strong evidence that policies aimed at fostering banking competition and strengthening institutional frameworks can reduce intermediation costs in LICs.
    Date: 2012–05–30
  38. By: Rudiger Ahrend; Carla Valdivia
    Abstract: This paper brings together the results from new empirical analysis on how – under international capital mobility – financial account structure and structural policies can contribute to financial stability. More specifically, the analysis has identified features of financial accounts and structural policy settings that are associated with financial fragility, and this paper presents information on these features and policy settings across a wide set of countries. A first set of charts present stability-relevant dimensions of the financial account for OECD economies and the BRIICS. A second set of charts shows how countries' financial account structure evolved in the decade prior to the global financial crisis, highlighting substantial increases in financial vulnerability in countries that were subsequently strongly affected by the crisis. Finally, a third set of charts presents countries' stances on selected structural policies that are conducive to financial stability.<P>Flux de capitaux internationaux et fragilité financière - Partie 7. Améliorer la stabilité financière : Analyse empirique du compte financier et des politiques structurelles par pays<BR>Cet article rassemble les résultats d’une nouvelle analyse empirique des effets de la composition du compte financier et des politiques structurelles sur la stabilité financière. L’analyse empirique a identifié des caractéristiques des comptes financiers et un ensemble de politiques structurelles qui ont contribué à des fragilités financières. Ces caractéristiques et politiques structurelles sont présentées pour un grand nombre de pays. Un premier ensemble de graphiques présente les caractéristiques des comptes financiers des pays qui sont pertinentes quant à la stabilité financière des pays de l’OCDE et du BRIICS. Un second ensemble de graphiques examine comment la structure des comptes financiers des pays a évolué lors de la décennie ayant précédé la crise financière globale de 2008-09. Cette analyse souligne que les facteurs de vulnérabilité financière avaient augmenté significativement dans les pays qui ont été les plus affectés par la crise. Enfin, les derniers graphiques présentent la situation des pays pour une sélection de politiques structurelles qui sont apparues contribuer à la stabilité financière.
    Keywords: FDI restrictions, structural policy, financial stability, capital controls, financial account, external debt, banking regulations, bank debt, stabilité financière, COMESA, réglementation bancaire, compte financier, dette externe, contrôle des flux de capitaux, dette bancaire, réglementation des Investissements Directs Étrangers
    JEL: E44 F34 F36 G01 G18
    Date: 2012–06–20
  39. By: Cagri Seda Kumru; John Piggott
    Abstract: This paper studies the interaction between capital income taxation and a means tested age pension in the context of an overlapping generations model, calibrated to the UK economy. Recent literature has suggested a rehabilitation of capital income taxation (Conesa et al. (2009)), predicated on the idea that capital is a complement with retirement leisure. This leads naturally to the conjecture that a publicly funded age pension contingent upon holdings of capital or capital income may have a similar effect. We formalize this using a stochastic OLG model with multiple individuals differentiated by labour productivity and pension entitlement. Our preliminary findings suggest that a means tested pension has effects similar to capital income taxation in a life-cycle context.
    JEL: E21 E62 H55
    Date: 2012–06
  40. By: Rudiger Ahrend; Antoine Goujard
    Abstract: Using the 2008-09 global financial crisis, this paper examines the role of different forms of international financial integration for asset price contagion in crisis times. Defining contagion as the transmission of financial market movements beyond the co-movements that would occur in “tranquil” times, the paper looks into the presence of contagion in the period of turmoil prior to the fall of Lehman Brothers, in the main crisis period following the Lehman collapse, and in the ensuing late stages of the crisis. The analysis uses bilateral financial and trade linkages and daily data on equity and bond prices for a sample of 46 countries between 2002 and 2011. Bilateral debt integration and common bank lenders are found to have transmitted financial turmoil through equity and bond markets at the height of the crisis. During this period, real trade linkages also increased equity price co-movements. By contrast, no robust evidence is found that equity or FDI integration increased asset price co-movements during the crisis.<P>Flux de capitaux internationaux et fragilité financière - Partie 6. Toutes les formes d'intégration financière sont-elles risquées en cas de chocs financiers? : La contagion des prix des actifs lors de la crise financière<BR>Utilisant la crise financière de 2008-09, le papier identifie le rôle de différentes formes d’intégration financière sur la contagion entre les prix d’actifs de différents pays lors des chocs financiers. La contagion est définie comme un changement du rôle des liens financiers ou commerciaux bilatéraux entre la période de crise et la période la précédant. L’analyse distingue la présence éventuelle de contagion durant la période de trouble précédant la faillite de Lehman Brothers, la principale période de crise ayant suivie la faillite de Lehman Brothers et la période ayant succédé à cet épisode. L’application empirique porte sur un échantillon de 46 pays entre 2002 et 2011. L’intégration bilatérale par la dette et la présence de banques créditrices communes apparaissent comme des vecteurs de transmission des chocs pendant la principale période de crise. Au contraire, ni les Investissements Directs Étrangers ni la détention bilatérale de capitaux n’apparaissent significativement liés à une augmentation des co-mouvements des prix d’actifs pendant la crise.
    Keywords: financial spillovers, external debt, asset price co-movements, trade spillovers, foreign direct investments, investissement direct étranger, dette externe, intégration financière, co-mouvements des prix d’actifs, intégration commerciale
    JEL: E44 F36 F44 G15
    Date: 2012–06–20
  41. By: DE KONING, Kees
    Abstract: Savers, including pension savers, convert savings into assets: homes,government bonds and shares.The conversion of savings is for the very long term. Once monies are turned into assets, the reverse process of turning assets into cash cannot be achieved by all savers together. Unavoidably some must stay with the cash flow and value risks of these assets. Savers can swap with other savers, but collectively cannot get out of the risks.The short term attempts to do so lead to financial,economic and fiscal crises. Governments need to take measures to mitigate these risks. The pricing of risks is based on cash flows and future values. The latter is based on "perceived risks". It is always imprecise as it cannot predict what will happen, but it is based on what might happen. This leads to problems trying to asses the values of pension funds in meeting future commitments. To bridge the gap between short term savers preferences for cash and long term commitments to asset classes a number of possible solutions are provided, like pension dividend, economic easing,foreign home buying scheme, and Eurozone government bond yield management scheme.
    Keywords: pension fund; savings; economic growth; cash to asset conversion process; savers preferences; financial crisis; economic crisis; fiscal crisis; economic easing; Eurozone government bond yield management scheme; pension dividend
    JEL: E32 D70 E58 E44 E21
    Date: 2012–06–25
  42. By: Rudiger Ahrend; Antoine Goujard
    Abstract: This paper examines how structural policies can influence a country's risk of suffering financial turmoil. Using a panel of 184 developed and emerging economies from 1970 to 2009, the empirical analysis examines which structural policies can affect financial stability by either shaping the financial account structure, by reducing the risk of international financial contagion, or by directly reducing the risk of financial crises. Differentiated capital controls are found to affect financial stability via the structure of the financial account. Moreover, a number of structural policies including regulatory burdens on foreign direct investment, strict product market regulation, or tax systems which favour debt over equity finance are found to bias external financing towards debt, thereby increasing financial crisis risk. By contrast, more stringent domestic capital adequacy requirements for banks, greater reliance of a domestic banking system on deposits, controls on credit market inflows, and openness to foreign bank entry are found to reduce the vulnerability to financial contagion. Finally, vulnerability to international bank balance-sheet shocks is found to be lower in situations of abundant global liquidity, underlining the importance of adequate central bank reactions in situations of financial turmoil.<P>Flux de capitaux internationaux et fragilité financière : Partie 3. Comment les politiques structurelles affectent-elles la probabilité de crise financière? Analyse empirique des crises financières passées des pays OCDE et émergents<BR>Cet article examine comment les politiques structurelles peuvent influencer le risque de crise financière. L’analyse empirique porte sur un échantillon de 184 pays développés et émergents de 1970 à 2009 et teste quelles politiques structurelles peuvent favoriser la stabilité financière, soit en influant sur la structure du compte financier, soit en réduisant les risques de contagion financière internationale, soit en réduisant directement le risque de crise financière. Des mesures ciblées de contrôle des flux de capitaux ont influé sur la stabilité financière en modifiant la structure des engagements internationaux. De plus, de nombreuses politiques structurelles, comme les restrictions trop importantes aux investissements directs étrangers, une réglementation des marchés de produits défavorable à la compétition, ou des systèmes de taxation favorisant le financement par la dette au détriment des investissements de capitaux, ont contribué à réduire la stabilité financière en augmentant la part de la dette dans les engagements externes des pays au détriment des IDEs ou des investissements de capitaux. En revanche, une meilleure réglementation des fonds propres bancaires, un ratio crédits sur dépôts bancaires plus faible et une plus grande ouverture à l’entrée des banques étrangères ont réduit les risques de crises financières lors des épisodes de contagion bancaire. Enfin, la vulnérabilité des pays à la contagion par le système bancaire international a été moindre lorsque la liquidité globale était abondante, ce qui souligne l’importance d’une réaction appropriée des banques centrales lors des périodes d’instabilité financière.
    Keywords: foreign direct investment, FDI restrictions, financial stability, capital controls, balance sheet, financial account, external debt, banking regulations, investissement direct étranger, stabilité financière, réglementation bancaire, compte financier, dette externe, contrôle des flux de capitaux, bilan des banques
    JEL: E44 F34 F36 G01 G18
    Date: 2012–06–12
  43. By: Irigoin, A; Grafe, R
    Abstract: ‘Constitutions and Commitments” has inspired the economic literature on the importance of “Legal origins” (LaPorta et al., 1998, 2008), which vindicates the notion that post-Glorious Revolution English institutions were particularly conducive to economic growth. More recently economists have acknowledged that growth in fact depends on “state capacity”. This encompasses not only investor protection (legal capacity) but also the ability of the state to finance itself, “fiscal capacity”.(Besley and Persson, 2009, 2010) show that the protection of private property rights and that of public property rights to taxation are linked and most likely co-evolutionary. However, the precise relation between the two is anything but clear. This paper argues that North and Weingast’s model’s one-sided focus on state coercion that threatened subjects’ property rights has obscured the relation between coercion used in revenue collection and total revenue role of fiscal capacity. We suggest a very simple model to show that this relationship between state fiscal capacity and legal capacity is not linear, especially in the phase of nation state building. The case of Spain provides empirical evidence for the existence of states were an increase in coercion would have improved fiscal capacity, but high levels of legal capacity paradoxically prevented the ruler from adopting this path. We use financial market developments to show the serious welfare implications that resulted from such a lack of coordination and integration.
    Keywords: 'Constitution & Commitment'; 'legal origins'; 'state capacity'; 'fiscal capacity'
    JEL: E02 K0 N0 E44 E6 P48
    Date: 2012–06–24
  44. By: Pierdzioch, Christian; Rülke, Jan Christoph; Stadtmann, Georg
    Abstract: We used Wall Street Journal survey data for the period 2006 - 2010 to analyze whether forecasts of house prices and housing starts provide evidence of (anti-)herding of forecasters. Forecasts are consistent with herding (anti-herding) of forecasters if forecasts are biased towards (away from) the consensus forecast. We found that anti-herding is prevalent among forecasters of house prices, where anti-herding is less strong in the case of medium-term forecasts, especially in the case of housing starts. --
    Keywords: Forecasts of house prices and housing starts,Herding
    JEL: E37 D84 C33
    Date: 2012
  45. By: Dizioli, Allan; Pinheiro, Roberto B.
    Abstract: In this paper, we present a less-explored channel through which health insurance impacts productivity: by offering health insurance, employers reduce the expected time workers spend out of work in sick days. Using data from the Medical Expenditure Panel Survey (MEPS), we show that a worker with health coverage misses on average 52% fewer workdays than uninsured workers, after controlling for endogeneity. We develop a model that embodies this impact of health coverage in productivity. In our model, health insurance reduces the probability that a healthy worker gets sick, missing workdays, and it increases the probability that a sick worker recovers and returns to work. In our model, firms that offer health insurance are larger and pay higher wages in equilibrium, a pattern observed in the data. We calibrated the model using US data for 2004 and show the impact of increases in health costs, as well as of changes in tax benefits of health insurance expenses, on labor force health coverage and productivity. Finally, we show that a government mandate that forces firms to offer health insurance increases average wages and aggregate productivity while reducing aggregate profits, ultimately having a positive impact on welfare.
    Keywords: Health; Health Insurance; Labor Productivity; Labor Markets
    JEL: E62 E25 J32 J78 J63 E24 E20 I10
    Date: 2012–06–29
  46. By: Giacomo De Giorgi; Luca Gambetti
    Abstract: We study the effects of government spending on the distribution of consumption. We find a substantial degree of heterogeneity: consumption increases at the bottom and falls at the top of the distribution, implying a significant temporary reduction of con- sumption inequality. The effects of the shock display correlations of around -0.7/-0.9 with the percentage of stockholders within the decile. We interpret the results as in line and yielding support to models of limited participation where, while the Ricardian equivalence holds for rich households, for poor household, with no access to capital markets, the Keynesian multiplier is at work.
    Keywords: Consumption, Heterogeneity, Government Spending, VAR.
    JEL: E21 E63 D12 C3
    Date: 2012–06–22

This nep-mac issue is ©2012 by Soumitra K Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.