nep-mac New Economics Papers
on Macroeconomics
Issue of 2012‒07‒29
39 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Unconventional Monetary Policy and the Great Recession: Estimating the Macroeconomic Effects of a Spread Compression at the Zero Lower Bound By Christiane Baumeister; Luca Benati
  2. The Use of Reserve Requirements in an Optimal Monetary Policy Framework By Hernando Vargas Herrera; Pamela Cardozo
  3. Inflation and Growth: A New Keynesian Perspective By Robert Amano; Tom Carter; Kevin Moran
  4. Inflation and output in New Keynesian models with a transient interest rate peg By Carlstrom, Charles; Fuerst, Timothy; Paustian, Matthias
  5. Modifying Taylor Reaction Functions in Presence of the Zero-Lower-Bound: Evidence for the ECB and the Fed By Ansgar Belke; Jens Klose
  6. The effectiveness of monetary policy in steering money market rates during the financial crisis By Abbassi, Puriya; Linzert, Tobias
  7. Trend shocks and the countercyclical U.S. current account By Amdur, David; Ersal Kiziler, Eylem
  8. International Business Cycles and Financial Frictions By Wen Yao
  9. Who believes in fiscal and monetary stimulus? By Amdur, David
  10. Really Uncertain Business Cycles By Nicholas Bloom; Max Floetotto; Nir Jaimovich; Itay Saporta-Eksten; Stephen J. Terry
  11. Asset Prices and Monetary Policy – A sticky-dispersed information model By Marta Areosa; Waldyr Areosa
  12. What do sticky and flexible prices tell us? By Millard, Stephen; O'Grady, Tom
  13. Real exchange rate dynamics in sticky-price models with capital By Carlos Carvalho; Fernanda Nechio
  14. Incomes Policies, Expectations and the NAIRU By Wolfgang Pollan
  15. The Economics of Austerity By Konzelmann, S.
  16. Trade in Intermediate Inputs and Business Cycle Comovement By Robert C. Johnson
  17. What drives regional business cycles? The role of common and spatial components By Christian Dreger; Konstantin Kholodilin; Michael Artis
  18. Service Employment and Unemployment in the Great Recession: Trends in OECD Countries By William Beyers
  19. Pegs, Downward Wage Rigidity, and Unemployment: the Role of Financial Structure By Stephanie Schmitt-Grohé; Martín Uribe
  20. DELFI : DNB’s Macroeconomic Policy Model of the Netherlands By DNB
  21. Fiscal Multipliers and Public Debt Dynamics in Consolidations By Jocelyn Boussard; Francisco de Castro; Matteo Salto
  22. Is Fiscal Policy Procyclical in Resource-Rich Countries? By Ilkin Aliyev
  23. Heterogeneus Inflation Expectations Learning and Market Outcomes By Carlos Madeira; Basit Zafar
  24. Some Financial Stability Indicators for Brazil By Adriana Soares Sales; Waldyr D. Areosa; Marta B. M. Areosa
  26. Are Small Firms more cyclically Sensitive than Large Ones? National, Regional and Sectoral Evidence from Brazil. By T√∫lio Cravo
  27. What is New in the Finance-growth Nexus: OTC Derivatives, Bank Assets and Growth By Leonardo Becchetti; Nicola Ciampoli
  28. Volatile Capital Flows and a Route to Financial Crisis in South Africa By McKenzie, Rex; Pons-Vignon, Nicolas
  29. An Anatomy of Credit Booms and their Demise By Enrique Mendoza; Marco Terrones
  30. Foreign Aid, External Debt and Governance By Qayyum, Unbreen; Musleh ud, Din; Haider, Adnan
  31. The housing market in the Netherlands By Windy Vandevyvere; Andreas Zenthöfer
  32. Macroeconomic consequences of gender discrimination: a preliminary approach (refereed paper) By Melchor Fernandez; Yolanda Pena-Boquete
  33. Teorii privind crizele economice ale sistemului capitalist By Susanu, CG
  34. Aggregate Reallocation Shocks and the Dynamics of Occupational Mobility and Wage Inequality By Jacob Wong
  35. Optimal disclosure policy and undue diligence By David Andolfatto; Aleksander Berentsen; Christopher Waller
  36. Die Durchsetzung von Schnittstellen in der Standardsetzung: Fallbeispiel Ladesystem Elektromobilität By Slowak, André P.
  37. Adapting Macropudential Policies to Global Liquidity Conditions By Hyun Song Shin
  38. The Great Synchronization of International Trade Collapse By Nikolaos Antonakakis; ;
  39. El tamaño de las empresas y la transmisión de la política monetaria en Colombia: una aplicación con la encuesta mensual de expectativas económicas By Héctor M. Zárate Solano; Norberto Rodríguez Niño; Margarita Marín Jaramillo

  1. By: Christiane Baumeister; Luca Benati
    Abstract: We explore the macroeconomic effects of a compression in the long-term bond yield spread within the context of the Great Recession of 2007-2009 via a time-varying parameter structural VAR model. We identify a ‘pure’ spread shock defined as a shock that leaves the policy rate unchanged, which allows us to characterize the macroeconomic consequences of a decline in the yield spread induced by central banks’ asset purchases within an environment in which the policy rate is constrained by the effective zero lower bound. Two key findings stand out. First, compressions in the long-term yield spread exert a powerful effect on both output growth and inflation. Second, conditional on available estimates of the impact of the Federal Reserve’s and the Bank of England’s asset purchase programs on long-term yield spreads, our counterfactual simulations suggest that U.S. and U.K. unconventional monetary policy actions have averted significant risks both of deflation and of output collapses comparable to those that took place during the Great Depression.
    Keywords: Econometric and statistical methods; Interest rates; Monetary policy framework; Transmission of monetary policy
    JEL: C11 C32 E52 E58
    Date: 2012
  2. By: Hernando Vargas Herrera; Pamela Cardozo
    Abstract: We analyse three models to determine the conditions under which reserve requirements are used as a part of an optimal monetary policy framework in an inflation targeting regime. In all cases the Central Bank (CB) minimizes an objective function that depends on deviations of inflation from its target, the output gap and deviations of reserve requirements from its optimal long term level. In a closed economy model we find that optimal monetary policy implies setting reserve requirements at their long term level, while adjusting the policy interest rate to face macroeconomic shocks. Reserve requirements are included in an optimal monetary policy response in an open economy model with the same CB objective function and in a closed economy model in which the CB objective function includes financial stability. The relevance, magnitude and direction of the movements of reserve requirements depend on the parameters of the economy and the shocks that affect it.
    Date: 2012–07–15
  3. By: Robert Amano; Tom Carter; Kevin Moran
    Abstract: The long-run relation between growth and inflation has not yet been studied in the context of nominal price and wage rigidities, despite the fact that these rigidities now figure prominently in workhorse macroeconomic models. We therefore integrate staggered price- and wage-setting into an endogenous growth framework. In this setting, growth and inflation are linked via the incentive to innovate. For standard calibrations, the linkage is strong: as trend inflation shifts from -5 to 5 percent, the range over which the economy's steady-state growth rate varies spans 50 basis points, implying up to a 15 percent output differential after thirty years. Nominal wage rigidity plays a critical role in generating these results, and compounding of inflation's growth effects implies large welfare losses. Endogenous growth thus proves a key channel via which inflation impacts New Keynesian economies. <P>
    Keywords: non-superneutrality, endogenous growth, welfare costs of inflation,
    JEL: E31 E52 O31 O42
    Date: 2012–07–01
  4. By: Carlstrom, Charles (Federal Reserve Bank of Cleveland); Fuerst, Timothy (Federal Reserve Bank of Cleveland); Paustian, Matthias (Bank of England)
    Abstract: Recent monetary policy experience suggests a simple test for models of monetary non-neutrality. Suppose the central bank pegs the nominal interest rate below steady state for a reasonably short period of time. Familiar intuition suggests that this should be inflationary. We pursue this simple test in three variants of the familiar Dynamic New Keynesian (DNK) model. Some variants of the model produce counterintuitive inflation reversals where an interest rate peg leads to sharp deflations.
    Keywords: Fixed interest rates; New Keynesian model; zero lower bound
    JEL: E32
    Date: 2012–07–20
  5. By: Ansgar Belke; Jens Klose
    Abstract: We propose an alternative way of estimating Taylor reaction functions if the zero-lowerbound on nominal interest rates is binding. This approach relies on tackling the real rather than the nominal interest rate. So if the nominal rate is (close to) zero central banks can influence the inflation expectations via quantitative easing. The unobservable inflation expectations are estimated with a state-space model that additionally generates a timevarying series for the equilibrium real interest rate and the potential output - both needed for estimations of Taylor reaction functions. We test our approach for the ECB and the Fed within the recent crisis. We add other explanatory variables to this modified Taylor reaction function and show that there are substantial differences between the estimated reaction coefficients in the pre- and crisis era for both central banks. While the central banks on both sides of the Atlantic act less inertially, put a smaller weight on the inflation gap, money growth and the risk spread, the response to asset price inflation becomes more pronounced during the crisis. However, the central banks diverge in their response to the output gap and credit growth.
    Keywords: zero-lower-bound, Federal Reserve, European Central Bank, equilibrium real interest rate, Taylor rule
    JEL: E43 E52 E58
    Date: 2012
  6. By: Abbassi, Puriya; Linzert, Tobias
    Abstract: The financial crisis has deeply affected money markets and thus, potentially, the proper functioning of the interest rate channel of monetary policy transmission. Therefore, we analyze the effectiveness of monetary policy in steering euro area money market rates looking at, first, the predictability of money market rates on the basis of monetary policy expectations, and second the impact of extraordinary central bank measures on money market rates. We find that during the crisis money market rates up to 12 months still respond to revisions in the expected path of future rates, even though to a lesser extent than before August 2007. We attribute part of the loss in monetary policy effectiveness to money market rates being driven by higher liquidity premia and increased uncertainty about future interest rates. Our results also indicate that the ECB's non-standard monetary policy measures as of October 2008 were effective in addressing the disruptions in the euro area money market. In fact, our estimates suggest that non-standard monetary policy measures helped to lower Euribor rates by more than 80 basis points. These findings show that central banks have effective tools at hand to conduct monetary policy in times of crises. --
    Keywords: Monetary transmission mechanism,Non-standard monetary policy measures,European Central Bank,Interbank money market
    JEL: E43 E52 E58
    Date: 2012
  7. By: Amdur, David; Ersal Kiziler, Eylem
    Abstract: From 1960-2009, the U.S. current account balance has tended to decline during expansions and improve in recessions. We argue that trend shocks to productivity can help explain the countercyclical U.S. current account. Our framework is a two-country, two-good real business cycle (RBC) model in which cross-border asset trade is limited to an international bond. We identify trend and transitory shocks to U.S. productivity using generalized method of moments (GMM) estimation. The specification that best matches the data assigns a large role to trend shocks. The estimated model generates a countercyclical current account without excessive consumption volatility.
    Keywords: Current account; trend shocks; business cycles; open economy macroeconomics; DSGE models; GMM estimation
    JEL: E32 F32 F41 E21
    Date: 2012–01
  8. By: Wen Yao
    Abstract: This paper builds a two-country DSGE model to study the quantitative impact of financial frictions on business cycle co-movements when investors have foreign asset exposure. The investor in each country holds capital in both countries and faces a leverage constraint on her debt. I show quantitatively that financial frictions along with foreign asset exposure give rise to a multiplier effect that amplifies the transmission of shocks between countries. The key mechanism is that a negative shock in the home country reduces the wealth of investors in both countries, which tightens their leverage constraints, leading to a fall in investment, consumption, and hours worked in the foreign country. Compared to the existing literature, which tends to produce either negative or positive but small cross-country correlations, this model produces positive and sizable correlations that are consistent with the data. The model can account for most of the investment, employment and consumption correlations and predicts more than half of the output correlation. In addition, the model shows that, consistent with empirical findings, when investors have more foreign asset exposure to the other country, the output correlation between the two countries increases.
    Keywords: Business fluctuations and cycles; International financial markets; International topics
    JEL: E30 F42 F44
    Date: 2012
  9. By: Amdur, David
    Abstract: Does the public believe that fiscal and monetary stimulus reduce unemployment? I present survey evidence on this question from a random sample of Pennsylvania residents. Few respondents express a consistently Keynesian view of fiscal and monetary stimulus. In fact, the typical respondent believes that an increase in government spending makes unemployment worse. Views on monetary stimulus depend on how the question is framed. The typical respondent believes that Fed money creation worsens unemployment while a Fed interest rate cut improves it. I show how opinion varies by political party, educational attainment, income, and other demographic characteristics. Favorable opinions about government spending are strongly associated with support for President Obama's economic policies, even after controlling for political party and for respondents' opinions about the current state and trajectory of the economy.
    Keywords: Opinion survey; fiscal stimulus; monetary stimulus; unemployment; Keynesian economics
    JEL: E62 E12 A20 E52
    Date: 2012–07
  10. By: Nicholas Bloom; Max Floetotto; Nir Jaimovich; Itay Saporta-Eksten; Stephen J. Terry
    Abstract: We propose uncertainty shocks as a new shock that drives business cycles. First, we demonstrate that microeconomic uncertainty is robustly countercyclical, rising sharply during recessions, particularly during the Great Recession of 2007-2009. Second, we quantify the impact of time-varying uncertainty on the economy in a dynamic stochastic general equilibrium model with heterogeneous firms. We find that reasonably calibrated uncertainty shocks can explain drops and rebounds in GDP of around 3%. Moreover, we show that increased uncertainty alters the relative impact of government policies, making them initially less effective and then subsequently more effective.
    JEL: E3
    Date: 2012–07
  11. By: Marta Areosa; Waldyr Areosa
    Abstract: We present a DSGE model with heterogeneously informed agents and two investment opportunities – stocks and bonds – to study the interaction between monetary policy and asset prices. The information is both sticky, as in Mankiw e Reis (2002), and dispersed, as in Morris e Shin (2002). This framework allows us to (i) show that variations in stock market wealth affect consumption, (ii) demonstrate that a central bank can prevent the creation of boom-bust episodes in the economy, (iii) determine the moment of a bust occurrence and (iv) study the impulse responses to dividend and informational shocks.
    Date: 2012–07
  12. By: Millard, Stephen (Bank of England); O'Grady, Tom (Massachusetts Institute of Technology)
    Abstract: In this paper, we investigate the information content of prices in relatively sticky-price sectors versus relatively flexible-price sectors. We first present some empirical evidence that relatively flexible prices react more to deviations of output from trend than stickier prices and that sticky prices can tell us about firms’ inflation expectations. We then develop a simple DSGE model with a sticky-price sector and a flexible-price sector and use this model to show that these empirical results are exactly what you would actually expect to see, given standard economic theory. Taken together, the results of this paper suggest that calculations of ‘flexible-price’ inflation could, potentially, be used to provide monetary policy makers with a steer on the output gap, which is notoriously hard to measure, and that calculations of ‘sticky-price’ inflation could, potentially, be used to provide monetary policy makers with a steer on the medium-term inflation expectations of price-setters.
    Keywords: Flexible-price inflation; sticky-price inflation; heterogeneous price-setting
    JEL: B30 B40
    Date: 2012–07–20
  13. By: Carlos Carvalho; Fernanda Nechio
    Abstract: The standard argument for abstracting from capital accumulation in sticky-price macro models is based on their short-run focus: over this horizon, capital does not move much. This argument is more problematic in the context of real exchange rate (RER) dynamics, which are very persistent. In this paper we study RER dynamics in sticky-price models with capital accumulation. We analyze both a model with an economy-wide rental market for homogeneous capital, and an economy in which capital is sector specific. We find that, in response to monetary shocks, capital increases the persistence and reduces the volatility of RERs. Nevertheless, versions of the multi-sector sticky-price model of Carvalho and Nechio (2011) augmented with capital accumulation can match the persistence and volatility of RERs seen in the data, irrespective of the type of capital. When comparing the implications of capital specificity, we find that, perhaps surprisingly, switching from economy-wide capital markets to sector-specific capital tends to decrease the persistence of RERs in response to monetary shocks. Finally, we study how RER dynamics are affected by monetary policy and find that the source of interest rate persistence - policy inertia or persistent policy shocks - is key.
    Keywords: Capital ; Monetary policy
    Date: 2012
  14. By: Wolfgang Pollan (WIFO)
    Abstract: Since the 1960s, several countries have adopted incomes policies in various forms to control inflation that had been interpreted as the result of a distributional struggle between business and labour unions. Recent writings on the NAIRU, however, ignore past policy interventions in the wage and price setting system, in the formation and propagation of inflation expectations, in particular. Some of the problems inherent in such an approach are illustrated by applying the standard tools of NAIRU analysis to the Austrian economy, an economy that has been subject to a variety of policy measures.
    Keywords: NAIRU, incomes policies, expectations, Lucas critique
  15. By: Konzelmann, S.
    Abstract: The 2007/8 financial crisis has reignited the debate about austerity economics and revealed that it is a highly contested yet poorly understood idea. This article locates the debate in its historical context, tracing it from the early 18th and 19th century Classical debates, which focused mainly on the means by which fiscal deficits should be financed. As capitalism evolved, so did ideas and theories about the economics of austerity. Following World War One, concerns about high levels of government debt produced the 1920s 'Treasury view' - that government deficits are economically damaging and austerity is required to rein them in. During the 1930s Great Depression, when unemployment was the main concern, this perspective was challenged by the 'Keynesian view' - that government deficits could be economically beneficial during the slump, when the private sector was unable to generate sufficient effective demand to pull the economy out of depression. From this perspective, austerity was the policy prescription for the top of the business cycle, to prevent the economy from over-heating and igniting inflation. The 'stagflationary' crises of the 1970s challenged this view; and during the decades preceding the 2007/8 crisis, austerity was considered to be a policy for the bottom of the business cycle, when the excesses of a bubble-inflated boom had been revealed by its collapse. In the aftermath of the 2007/8 financial crisis, however, austerity no longer has the economic objective of macroeconomic stabilization. Instead, it has become the objective itself - demanded by actors in the international financial markets as evidence that governments are serious about managing their deficits and paying back their debts, thereby protecting the financial interests of investors in sovereign debt. However, if austerity undermines economic growth - as it is doing at present - markets are unlikely to remain loyal to those countries suffering the effect. It is therefore important that policy-makers and political leaders learn the lessons of the 2007/8 financial crisis with regard to the economics of austerity - before it is too late.
    Keywords: Austerity, Macroeconomic Policy, Financial Crises, Business Cycles
    JEL: B22 E32 E44 N10
    Date: 2012–06
  16. By: Robert C. Johnson
    Abstract: Do cross-border input linkages transmit shocks and synchronize business cycles across countries? I integrate input trade into a dynamic many country, multi-sector model and calibrate the model to match observed bilateral input-output linkages. With estimated productivity shocks, the model generates an aggregate trade-comovement correlation 30-40% as large as in data, and 50-75% as large for the goods producing sector. With independent shocks, the model accounts for one-quarter of the trade-comovement relationship for gross output of goods. However, shocks transmitted through input linkages do not synchronize value added. And contrary to conventional wisdom, input complementarity does not amplify value added comovement.
    JEL: F1 F4
    Date: 2012–07
  17. By: Christian Dreger; Konstantin Kholodilin; Michael Artis
    Abstract: The degree of comovement of economic activity across states or regions is an issue of utmost importance to policymakers. Asymmetric business cycles are often seen as an impediment to the formation of a common currency area. However, it has been argued that a common monetary policy in itself could reduce the cyclical asymmetry. We examine real business cycle convergence for 41 euro area regions and 48 US states. By looking at the regional dimension, a larger information set can be exploited and might offer new insights. Regions tend to be more open to trade than countries and the degree of specialisation is usually higher than at the national level. If diverging trends cancel out in the aggregate, policy conclusions based on national evidence could be misleading. Regional comovements may be caused not only by common business cycles, but also by other factors due to location. They can be linked to industrial structures and migration, but can also reflect non-economic factors like habits, heritage, and culture. Spatial spillovers have been largely neglected in previous studies, thereby creating omitted variable bias. A panel model allowing for spatial correlation is a convenient way to capture these effects. This analysis is also relevant from a monetary policy point of view. By comparing the synchronization of economic fluctuations in US states and comparable euro area regions, the perspectives of a common monetary policy in Europe can be assessed. The US provides a natural benchmark in this respect. Both the US and the euro area share similar socio-economic characteristics, regarding the size, the level of development, culture etc. The results obtained by a panel model with spatial effects indicate that the impact of national business cycles for the regional development has been rather stable over the past two decades. Hence, a tendency for convergence in business cycles often detected in country data is not confirmed at the regional level. The pattern of synchronization across the euro area is similar to that across US states. Although cyclical heterogeneity is detected, it does not indicate a serious impediment to a common monetary policy of the ECB.
    Date: 2011–09
  18. By: William Beyers
    Abstract: Unemployment in Europe has reached 10% as this Abstract was prepared, and it is over 10% in the United States at the same time. How has the service economy been related to the current global recession? That is the focus of this paper. Much has been written about the impact of the structural shift to service industries on cyclical fluctuations in advanced economies. In general it has been argued that because the demand for services is relatively steady, a more service-oriented economy should have less cyclicality in employment through business cycles. However, this argument has been made primarily for services sold to consumers, as opposed to services sold on intermediate account (producer services). One of the goals of the current paper is to extend conceptualization of cyclical services demand to producer services, and to evaluate differences in cyclicality and producer and consumer services. The Great Recession that may be benchmarked against December 2007 was strongly associated with troubles emanating from components of the service economy, especially with the finance sector and the financing of housing investment. This paper explores arguments regarding the presumed steadier trajectories for employment in service dominated economies with evidence regarding actual sectoral employment change through the Great Recession. The paper uses data for many OECD countries to evaluate these structural relationships.
    Date: 2011–09
  19. By: Stephanie Schmitt-Grohé; Martín Uribe
    Abstract: This paper studies the relationship between financial structure and the welfare consequences of fixed exchange rate regimes in small open emerging economies with downward nominal wage rigidity. Two surprising results are obtained. First, that a pegging economy might be better off with a closed capital account than with an open one. Second, that the welfare gain from switching from a peg to the optimal (full-employment) monetary policy might be greater in financially open economies than in financially closed ones.
    Date: 2012–07
  20. By: DNB
    Abstract: This Occasional Study presents DELFI, a new macroeconomic model of the Dutch economy for forecasting and policy analysis. Macroeconomic modelling at de Nederlandsche Bank started some 25 years ago, when Martin Fase and his team built MORKMON, which was quite novel at the time due to the inclusion of a monetary sector. For many years, this model was used fruitfully as an instrument for forecasting, scenario analysis and policy simulation, and its acronym survived during all those years. But the times have changed and so has the economic environment. Already when MORKMON was introduced in 1984, the then president of de Nederlandsche Bank, Wim Duisenberg, noted how our understanding of the economy is never perfect. Indeed, changes in the economic environment and new insights led to various minor and major adjustments to the structure of MORKMON, up to a point where it was decided to build a completely new model. DELFI is the result of a collective effort by researchers and statisticians at the Economics & Research Division of de Nederlandsche Bank. In my view, the team has created a worthy successor of MORKMON. And while history learns that a model is never perfect or finished, I am confident ELFI is in a position to take over the prominent position that MORKMON had so many years within the set of analytical instruments of de Nederlandsche Bank.
    Date: 2011–02
  21. By: Jocelyn Boussard; Francisco de Castro; Matteo Salto
    Abstract: The success of a consolidation in reducing the debt ratio depends crucially on the value of the multiplier, which measures the impact of consolidation on growth, and on the reaction of sovereign yields to such a consolidation. We present a theoretical framework that formalizes the response of the public debt ratio to fiscal consolidations in relation to the value of fiscal multipliers, the starting debt level and the cyclical elasticity of the budget balance. We also assess the role of markets confidence to fiscal consolidations under alternative scenarios. We find that with high levels of public debt and sizeable fiscal multipliers, debt ratios are likely to increase in the short term in response to fiscal consolidations. Hence, the typical horizon for a consolidation during crises episodes to reduce the debt ratio is two-three years, although this horizon depends critically on the size and persistence of fiscal multipliers and the reaction of financial markets. Anyway, such undesired debt responses are mainly short-lived. This effect is very unlikely in non-crisis times, as it requires a number of conditions difficult to observe at the same time, especially high fiscal multipliers.
    JEL: E62 H63
    Date: 2012–07
  22. By: Ilkin Aliyev
    Abstract: We analyze fiscal policy procyclicality in resource-rich countries. We obtain a strong U-shaped relationship between the procyclicality of government capital expenditures and the resource richness measure comprised of the mineral exports share in total merchandise exports for developing countries. Such a relationship is robust to different methodologies and various checks. We consider two hypotheses: first, the political economy hypothesis, and second, the borrowing constraints hypothesis. Empirical observations appear to be consistent with the hypotheses. We build a model able to generate a U-shape effect combining political economy and borrowing constraint hypotheses. We argue that with a model of simple settings such a U-shape relationship can be obtained and interpreted.
    Keywords: borrowing constraints; developing countries; fiscal policy; political economy; procyclicality; resource-rich;
    JEL: E62 F34 F41 O23 Q32
    Date: 2012–07
  23. By: Carlos Madeira; Basit Zafar
    Abstract: Using the panel component of the Michigan Survey of Consumers we estimate a learning model of inflation expectations, allowing for heterogeneous use of both private information and lifetime inflation experience. We find that women, ethnic minorities, and less educated agents have a higher degree of heterogeneity in their private information, and are slower to update their expectations. During the 2000s, consumers believe inflation to be more persistent in the short term, but temporary fluctuations in inflation have less effect on expectations of personal income and long-term inflation. Finally, we find evidence that heterogeneous expectations by consumers generate higher mark-ups and inflation.
    Date: 2012–05
  24. By: Adriana Soares Sales; Waldyr D. Areosa; Marta B. M. Areosa
    Abstract: We present a methodology to construct a Broad Financial Stability Indicator (FSIB) based on unobserved common factors and a Specific Financial Stability Indicator (FSIS) for the Brazilian economy combining observed credit, debt and exchange rate markets indicators. Rather than advocate a particular numerical indicator of financial stability, our main goal is methodological. Our indicators, calculated in sample and ex-post, seem to capture three periods of considerably high financial instability in Brazil: (i) the 1998/1999 speculative attack on the Real, (ii) the government transition of 2002/2003 and (iii) the intensification of the 2008/2009 subprime financial crisis triggered by the collapse of the Lehman Brothers. We also propose an alternative methodology that decomposes business cycle fluctuations in two components -- a Financial Factor (FF) and a Real Factor (RF) -- which are identified from co-movements of financial and non-financial variables. The results are similar to the ones pointed out by our FSIB and FSIS measures.
    Date: 2012–07
  25. By: Hasan Engin Duran
    Abstract: Since early 90s, the issue of income convergence across regions has been widely discussed in a number of papers, both looking at long-term tendencies and trying to establish the role played by several socio-economic determinants. Much less attention has instead been devoted to the analysis of short-run convergence dynamics and the relationship with national business cycle. In the few papers that tackle this issue it is generally found that income disparities follow a pro-cyclical pattern, increasing during times of national expansions and decreasing in recessions. However, two important aspects have not yet been adequately studied in this specific area of research. First, is the relationship between national business cycle and regional income disparities linear or, rather, nonlinear. Second, what are the mechanisms and economic reasons behind the cyclical evolution of regional income disparities? And, more specifically, is the cyclical evolution a consequence of difference in the timing with which the business cycle is felt in regional economies or, alternatively, is it mainly motivated by the presence of size differences across local cyclical swings. In the present paper, we investigate the above issues using a combination of established and newly developed nonparametric tools applied to data on the states of US between 1969 and 2008. Keywords: Cyclical Regional Disparities, Regional Business Cycles, Income Convergence
    Date: 2011–09
  26. By: T√∫lio Cravo
    Abstract: An important issue facing policymakers is the degree to which fluctuations in economic activity affect employment in large and small businesses across sectors and regions. These issues are particularly relevant for developing countries, as they matter for the understanding of the labour market dynamics, and for devising regional, sectoral, and national labour policies. The unique data used in this paper was constructed using the CAGED database, which is a comprehensive administrative census dataset collected monthly by the Ministry of Labour in Brazil covering the formal sectors of the economy. Thus, monthly employment data for small and large establishments across regions and industries were constructed from 2000:1 to 2009:6 for each state and industry across the two-digit sectoral classification. This paper draws on the work of Moscarini and Postel-Vinay (2009) who analyse the correlations between measures of relative growth rate of employment by size class and business cycle conditions. As in their work, this paper uses detrended difference in employment growth rates between large and small firms as a measure of the relative performance of firms in different size bins. The evidence suggests that in Brazil small firms are more sensitive cycles, a result that contradicts Moscarini and Postel-Vinay (2009). The differential growth of employment between large and small establishments is negatively correlated with measures of business cycles, indicating that SMEs shed proportionally more jobs in recessions and gain more in booms. This pattern is also observed in most of the Brazilian States; however, there is a substantial variation in the manner the difference in employment growth rates correlates with business cycles at regional level. Besides, the sectoral analysis supports the evidence that formal small businesses are more sensitive than large ones in all sectors but in the commerce. This finding is important and might be related with the fact that the commerce sector relies heavily on informal workers that are the first ones to be hired or made redundant over the business cycles. Therefore, the evidence from this paper suggests that in a developing country context small establishments are more sensitive than large ones to business cycle conditions.
    Date: 2011–09
  27. By: Leonardo Becchetti (Faculty of Economics, University of Rome "Tor Vergata"); Nicola Ciampoli (Faculty of Economics, University of Rome "Tor Vergata")
    Abstract: We investigate the finance-growth nexus before and around the global financial crisis using for the first time OTC derivative data in growth estimates. Beyond the most recent Wacthel and Rousseau (2010) evidence which documents the interruption of the positive finance-growth relationship after 1989, we show that bank assets contribute indeed negatively, while OTC derivative positively or insignificantly with a much smaller effect in magnitude. At the same time the impact of the crisis is captured by a very strong negative effect of year dummies around the event. Our findings and their discussion aim to provide insights for policy measures aimed at tackling the crisis, disentangling positive from negative effects of derivatives and bank activity on the real economy and restoring the traditional positive link between finance and growth.
    Keywords: Finance and growth, OTC derivatives, Banking, Global financial crisis
    JEL: E44 G10 O40
    Date: 2012–07–20
  28. By: McKenzie, Rex; Pons-Vignon, Nicolas
    Abstract: Abstract This is a review article; its purpose is to support a debate on the use of the best available economic theory and evidence in monetary policy in contemporary South Africa. In order to do so, I contrast South Africa's laissez-faire management of capital flows with the experience of other countries where the authorities have opted to use capital control techniques of one type or another. The empirical evidence is fairly substantial, capital control techniques can play a useful part in staving off fragility and financial crisis in the event of sharp surges in capital flows. The key idea is that capital control techniques would offer the authorities more freedom and flexibility in the management of capital flows and the pursuit of monetary policy. The article follows on from Mohammed (2010) who concludes that South African policy makers have not yet learned the relevant lessons stemming from their neoliberal embrace. This article takes up that theme and uses macroeconomic data to show that without capital controls South Africa courts a financial crisis that can be transmitted via any one of at least three channels.
    Keywords: monetary policy; capital flows; capital controls
    JEL: E52 E44
    Date: 2012–02
  29. By: Enrique Mendoza; Marco Terrones
    Abstract: What are the stylized facts that characterize the dynamics of credit booms and the associated fluctuations in macro-economic aggregates? This paper answers this question by applying a method proposed in our earlier work for measuring and identifying credit booms to data for 61 emerging and industrialized countries over the 1960-2010 period. We identify 70 credit boom events, half of them in each group of countries. Event analysis shows a systematic relationship between credit booms and a boom-bust cycle in production and absorption, asset prices, real exchange rates, capital inflows, and external deficits. Credit booms are synchronized internationally and show three striking similarities between industrialized and emerging economies: (1) credit booms are similar in duration and magnitude, normalized by the cyclical variability of credit; (2) banking crises, currency crises or sudden stops often follow credit booms, and they do so at similar frequencies in industrialized and emerging economies; and (3) credit booms often follow surges in capital inflows, TFP gains, and financial reforms, and are far more common with managed than flexible exchange rates.
    Date: 2012–07
  30. By: Qayyum, Unbreen; Musleh ud, Din; Haider, Adnan
    Abstract: This paper presents a theoretical model for governance. Specifically, the Ramsey-Cass-Koopman's growth model has been extended by incorporating governance in an open economy framework. Steady-state and short run analysis show that external debt and foreign aid do not affect the growth rate of consumption but have level impact on consumption. Foreign aid and governance encourage the economic growth but external debt creates a burden on the economy. Both Investment and saving are independent of external debt and thus the current account surplus. Foreign aid does not affect investment directly but it has a direct positive impact on the savings in the economy. Therefore, it is argued that improvements in the quality of governance will stimulate the output and consumption rapidly and it acts like a catalyst.
    Keywords: External Debt; Foreign Aid; Governance; Ramsey-Cass-Koopman Model
    JEL: E02 F35 F34 F43 E20
    Date: 2012–07–25
  31. By: Windy Vandevyvere; Andreas Zenthöfer
    Abstract: The Dutch housing market has been shaped by highly interventionist public policies spanning over several decades. Direct and indirect government intervention in the housing market through spatial planning and land policy, regulation and supervision of housing associations, rent policy and financial guarantees, generous mortgage interest deductibility and other explicit or implicit subsidies have led progressively to entrenched structural problems, which have negative consequences for the economy as a whole. Given the relatively rigid supply, price developments have been determined in particular by fiscal incentives and demand factors, under which innovations in mortgage financing have played a particularly important role, so that, compared to other euro area members, the Netherlands has relatively high levels of leveraged housing wealth. We conclude with possible reforms that would increase the efficiency of the Dutch housing market by addressing distortions in a gradual fashion while still achieving social policy objectives.
    JEL: E6 G21 H2 H31 H6 R3
    Date: 2012–06
  32. By: Melchor Fernandez; Yolanda Pena-Boquete
    Abstract: Although the degree of gender wage discrimination has been estimated many times, its effects on the economy have not been too much studied, neither theoretically nor empirically. Consequently, in this paper we attempt to cover the existent void in this topic. First, we establish a theoretically framework of the macroeconomic consequences of gender discrimination and second, we attempt to check these results empirically. The existence of a degree of discrimination means that there is a wage differential in which employer prefer to hire less productive workers instead of discriminated workers. Thus, on one hand, the employment level of discriminated workers would be lower than the neoclassic equilibrium. On the other hand, the cost of producing a unit of product would be higher than the cost of producing without discrimination. As a result, both the product by worker (productivity) and the female employment rate (discriminated group) would be lower. If we aggregate these microeconomic effects we should obtain macroeconomic effects in both productivity and employment. In order to check these effects of discrimination we analyse the correlation in the growth of discrimination and the variables possibly affected: productivity and employment. Using data of gender discrimination for Spanish regions we found a negative and significant relationship between discrimination and productivity. Effects on employment are more difficult to see since the growth of the degree of gender wage discrimination causes a change in the allocation of resources. Thus, we find the effect in the female employment rate relative to men and we do not find it in the female employment rate.
    Date: 2011–09
  33. By: Susanu, CG
    Abstract: Last decades have been the most turbulent in international monetary history in terms of the number, extent and severity of the economic and financial crises. There were more speculative bubbles in the period 1980-2000 than in any previous period, and Japan and Latin American countries experienced the worse of them in the late 1980s. Sometimes crises were triggered by the concerns regarding borrowers’ excessive indebtedness and sometimes they occurred sequentially in a very short time period. Some of the crises involved the bankruptcy of several banks; others were related to the lack of confidence in a country’s ability to maintain its currency parity, and others were the result of the burst of a speculative bubble, such as real estate or financial bubbles. Therefore, in the present global economic context the analysis of theories on economic and financial crises is justified by the attempt to deepen the understanding of the triggering causes and evolution of the crises in a capitalist economic system.
    Keywords: capitalist system; economic crisis; economic cycle
    JEL: E30 P16
    Date: 2012–07–03
  34. By: Jacob Wong (School of Economics, University of Adelaide)
    Abstract: This paper presents a dynamic model of structural unemployment and occupational choice in which an economy is subjected to aggregate reallocation shocks. Reallocation shocks, which change the relative labour productivity across occupations, drive variation in the distribution of workers across occupations. The wage paid to workers in a given occupation depends on its labour productivity and the number of workers employed in that occupation. Workers who wish to switch occupations in order to obtain higher wages face a fixed cost to retrain and, in addition, it is more costly to switch to occupations requiring vastly different skills relative to those of the worker's current occupation. Thus workers may prefer to remain unemployed in occupations suering through relatively low productivity states. Between the late-1970s and the mid-2000s the U.S. economy featured an episode during which occupational mobility rose along with an increase in wage inequality both in the top and bottom halves of the wage distribution. This was followed by an episode during which occupational mobility fell, while a rise in inequality in the top half of the wage distribution was accompanied by a fall in inequality in the bottom half. The model can produce episodes with properties similar to that of the U.S. experience and thus offers a theory of why these episodes occur.
    Keywords: Occupational Mobility, Wage Inequality
    JEL: E24 E32 J24 J31 J62
    Date: 2012–07
  35. By: David Andolfatto; Aleksander Berentsen; Christopher Waller
    Abstract: While both public and private financial agencies supply asset markets with large quantities of information, they do not necessarily disclose all asset-related information to the general public. This observation leads us to ask what principles might govern the optimal disclosure policy for an asset manager or financial regulator. To investigate this question, we study the properties of a dynamic economy endowed with a risky asset, and with individuals that lack commitment. Information relating to future asset returns is available to society at zero cost. Legislation dictates whether this information is to be made public or not. Given the nature of our environment, nondisclosure is generally desirable. This result is overturned, however, when individuals are able to access hidden information - what we call undue diligence - at sufficiently low cost. Information disclosure is desirable, in other words, only in the event that individuals can easily discover it for themselves.
    Keywords: Monetary policy, liquidity, financial markets
    JEL: E52 E58 E59
    Date: 2011–11
  36. By: Slowak, André P.
    Abstract: Ein Standard stellt ein technisches Dokument dar, welches die Beschaffenheit, Leistung und Eigenschaften eines Produktes beschreibt. Er spezifiziert bspw. auch die Schnittstellen verschiedener Software in einem System, so dass eine Kompatibilität hergestellt wird (vgl. u.a. Cargill und Bolin, 2007, S. 311; David, 2005, S. 211). Ein technischer Standard vereinheitlicht die Schnittstellen und/oder die Eigenschaften einer Produktgattung. Jakobs (2000, S. 11 ff.) und De Vries (2006, S. 3) definieren Standards als Spezifikation von Abläufen, Regeln und Anforderungen. Eine Spezifikation schafft ein gemeinsames Verständnis, welche Leistung ein System, Produkt oder eine Dienstleistung erbringen muss (ebd.) Diese Studie verdeutlicht neue, da systemische Methoden der Standardsetzung. Wir zeigen Charakteristika der Durchsetzung eines großen Systems und seiner Schnittstellen am Beispiel des Ladesystems für Elektromobile auf. Die Durchsetzung des Elektroautomobils erfordert ein integriertes Produktsystem. Die OEMs müssen eine Reihe heterogener Akteure in ihre vorwettbewerblichen Aktivitäten mit einbeziehen. Sie müssen zudem geeignete Organisationsstrukturen der Standardsetzung aufbauen. Die Durchsetzung des Connectors (Ladestecker zum Elektroautomobil) Mennekes, Yazaki oder CHAdeMO meint die Durchsetzung eines Systems. Entscheidend in der Vorgehensweise ist die gezielte Ausweitung des Systems von der Kernkomponente oder Schnittstellen hin zu einem wirtschaftlichen Ökosystem. In Kap. 2 gehen wir zunächst auf verschiedene Standardsetzungsmethoden ein. Wir grenzen die systemische Standardsetzungsmethode von der modularen und integralen Problemlösung ab. In Kap. 3 zeigen wir die Akteure und den Verlauf des Systemkrieges um Ladestecker der Ladeart III (Langsamaufladung) und IV (Schnellaufladung) auf. Das Konzept systemischer Standardsetzungsmethoden wenden wir in Kap. 4 auf die empirische Fallstudie (Kap. 3) an. Kap. 5 schließt das Diskussionspapier mit einem Fazit und Ausblick bzw. Handlungsempfehlungen ab. --
    JEL: E32 C22 C32 J30
    Date: 2012
  37. By: Hyun Song Shin
    Abstract: This paper outlines an approach to macroprudential policy for open emerging economies that emphasizes banking sector balance sheet management as the key driver of risk premiums, capital flows and vulnerabilities to sudden reversals in global liquidity conditions. This paper argues for the usefulness of monitoring the "non-core liabilities" of the banking sector as a signal of lending standards and potential vulnerability of the financial system to shocks. The paper presents a taxonomy of macroprudential tools, ranging from orthodox tools for bank capital regulation to more novel "liabilities-side" tools, such as the levy on non-core liabilities recently introduced by South Korea.
    Date: 2012–07
  38. By: Nikolaos Antonakakis (Department of Economics, Vienna University of Economics and Business); ;
    Abstract: In this study we provide novel results on the extent of international trade synchronization during periods of trade collapses and US recessions.Based on monthly data for the G7 economies over the period 1961-2011, our results suggest rather idiosyncratic patterns of international trade synchronization during trade collapses and US recessions. During the great recession of 2007-2009, however, international trade experienced the most sudden, severe and globally synchronized collapse.
    Keywords: International Trade Collapse, Synchronization, Recession, Dynamic Conditional Correlation
    JEL: E32 F15 F41 F43
    Date: 2012–06
  39. By: Héctor M. Zárate Solano; Norberto Rodríguez Niño; Margarita Marín Jaramillo
    Abstract: En este documento se utiliza la información proveniente de las encuestas de expectativas económicas a los empresarios para comprobar si el efecto de la política monetaria difiere entre empresas grandes y pequeñas. La metodología econométrica se basa en los modelos de vectores autorregresivos bayesianos con cambio de régimen, MS-BVAR. Según las funciones de impulso respuesta obtenidas, ante un choque en la tasa de interés, el clima de los negocios tanto de las empresas grandes como de las pequeñas responde positivamente en el régimen de expansión del ciclo, mientras que en el régimen de contracción, las respuestas del indicador del clima de los negocios son negativas y más pronunciadas. Adicionalmente, la evidencia empírica sugiere que las empresas grandes son más sensibles a los choques de tasas de interés. Lo anterior, probablemente sea consecuencia del bajo grado de profundización financiera.
    Keywords: Política Monetaria, Modelos Markov-Switching, Modelos VAR, Muestreo de Gibbs, Clima de Negocios. Classification JEL:C32, E31, E32, E41, E52.
    Date: 2012–07

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