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on Macroeconomics |
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Issue of 2012‒08‒23
127 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Lieven Baele (Finance Department, CentER, and Netspar, Tilburg University); Geert Bekaert (Graduate School of Business, Columbia University, and NBER); Seonghoon Cho (School of Economics, Yonsei University); Koen Inghelbrecht (Department Financial Economics, Ghent University, and Finance Department, University College Ghent); Antonio Moreno (Department of Economics, University of Navarra) |
| Abstract: | We estimate a New-Keynesian macro model accommodating regime-switching behavior in monetary policy and in macro shocks. Key to our estimation strategy is the use of survey-based expectations for inflation and output. Output and inflation shocks shift to the low volatility regime around 1985 and 1990, respectively. However, we also identify multiple shifts between accommodating and active monetary policy regimes, which play an as important role as shock volatility in driving the volatility of the macro variables. We provide new estimates of the onset and demise of the Great Moderation and quantify the relative role played by macro-shocks and monetary policy. The estimated rational expectations model exhibits indeterminacy in the mean square stability sense, mainly because monetary policy is excessively passive. |
| Keywords: | Monetary Policy, Regime-Switching, Survey Expectations, New-Keynesian Models, Great Moderation, Macr |
| JEL: | E31 E32 E52 E58 C42 C53 |
| Date: | 2012–07–31 |
| URL: | http://d.repec.org/n?u=RePEc:una:unccee:wp0312&r=mac |
| By: | Stephane Auray (CREST-Ensai, Universite du Littoral Cote d'Opale (EQUIPPE),GREDI and CIRPEE); Paul Gomme (Concordia University and CIREQ); Shen Guo (School of Public Finance and Public Policy, Central University of Finance and Economics, Beijing, China) |
| Keywords: | Pigou cycles, comovement problem, monetary policy |
| JEL: | E3 E5 E4 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:crd:wpaper:12007&r=mac |
| By: | Hernando Vargas; 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. |
| Keywords: | Reserve Requirements, Inflation Targeting, Monetary Policy. Classification JEL: E51, E52, E58. |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:716i&r=mac |
| By: | Miguel Casares (Departamento de Economía, Universidad Pública de Navarra); Antonio Moreno (Departamento de Economía, Universidad de Navarra); Jesús Vázquez (Departamento FAE II, Universidad del País Vasco) |
| Abstract: | Wage stickiness is incorporated to a New-Keynesian model with variable capital in a way that generates endogenous unemployment fluctuations as the log difference between aggregate labor supply and aggregate labor demand. After estimation with U.S. data, the implied second-moment statistics of the unemployment rate provide a reasonable match with those observed in the data. Our results also show that wage-push shocks, demand shifts and monetary policy shocks are the three major determinants of unemployment fluctuations. Compared to an estimated canonical DSGE model without unemployment: wage stickiness is higher, labor supply elasticity is lower, the slope of the New-Keynesian Phillips curve is flatter, and the importance of technology innovations on output growth variability increases. |
| Keywords: | sticky wages, unemployment, business cycles, New-Keynesian models. |
| JEL: | C32 E30 |
| Date: | 2012–07–30 |
| URL: | http://d.repec.org/n?u=RePEc:una:unccee:wp0112&r=mac |
| By: | Daniel L. Thornton |
| Abstract: | Since the late 1980s the Fed has implemented monetary policy by adjusting its target for the overnight federal funds rate. Money’s role in monetary policy has been tertiary, at best. Indeed, several influential economists have suggested that money is irrelevant for monetary policy. They suggest that central banks can control inflation by (i) controlling a very short-term nominal interest rate and (ii) influencing financial market participants’ expectation of the future policy rate in order to exert greater control over longer-term rates. I offer an alternative perspective: namely, that money is essential for the central bank’s control over the price level and that the monetary authority’s control over interest rates is exaggerated. |
| Keywords: | Monetary policy ; Money ; Federal funds rate |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2012-020&r=mac |
| By: | Andrés González; Sergio Ocampo; Julian Pérez Amaya; Diego Rodríguez |
| Abstract: | In this paper two new measures of the Colombian output gap and the real neutral interest rate are proposed. Instead of relying only on statistical filters, the proposed measures use semi-structural New-Keynesian models, adapted for a small open economy. The output gap measures presented are in line with previous works for Colombia and capture all the turning points of the Colombian business cycle, as measured by Alfonso et al. (2011). They are also strongly correlated with inflation and precede its movements along the sample. The neutral interest rate computed indicates that the monetary policy stance has been overall countercyclical, but has failed to anticipate the output gap’s movements, or at least react strongly enough to them. |
| Keywords: | Output Gap, New-keynesian model, Neutral interest rate. Classification JEL: E23, E32, E43. |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:726&r=mac |
| By: | Andrés González; Sergio Ocampo; Julián Pérez; Diego Rodríguez |
| Abstract: | In this paper two new measures of the Colombian output gap and the real neutral interest rate are proposed. Instead of relying only on statistical filters, the proposed measures use semi-structural New-Keynesian models, adapted for a small open economy. The output gap measures presented are in line with previous works for Colombia and capture all the turning points of the Colombian business cycle, as measured by Alfonso et al. (2011). They are also strongly correlated with inflation and precede its movements along the sample. The neutral interest rate computed indicates that the monetary policy stance has been overall countercyclical, but has failed to anticipate the output gap’s movements, or at least react strongly enough to them. |
| Date: | 2012–08–02 |
| URL: | http://d.repec.org/n?u=RePEc:col:000094:009870&r=mac |
| By: | Jean Pisani-Ferry; Silvia Merler |
| Abstract: | The euro area today consists of a competitive, moderately leveraged North and an uncompetitive, over-indebted South. Its main macroeconomic challenge is to carry out the adjustment required to restore the competitiveness of its southern part and eliminate its excessive public and private debt burden. This paper investigates the relationship between fiscal and competitiveness adjustment in a stylised model with two countries in a monetary union, North and South. To restore competitiveness, South implements a more restrictive fiscal policy than North. We consider two scenarios. In the first, monetary policy aims at keeping inflation constant in the North. The South therefore needs to deflate to regain competitiveness, which worsens the debt dynamics. In the second, monetary policy aims at keeping inflation constant in the monetary union as a whole. This results in more monetary stimulus, inflation in the North is higher, and this in turn helps the debt dynamics in the South. Our main findings are: The differential fiscal stance between North and South is what determines real exchange rate changes. South therefore needs to tighten more. There is no escape from relative austerity.If monetary policy aims at keeping inflation stable in the North and the initial debt is above a certain threshold, debt dynamics are perverse: fiscal retrenchment is self-defeating;If monetary policy targets average inflation instead, which implies higher inflation in the North, the initial debt threshold above which the debt dynamics become perverse is higher. Accepting more inflation at home is therefore a way for the North to contribute to restoring debt sustainability in the South.Structural reforms in the South improve the debt dynamics if the initial debt is not too high. Again, targeting average inflation rather than inflation in the North helps strengthen the favourable effects of structural reforms. |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:bre:wpaper:740&r=mac |
| 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. |
| Keywords: | Inflation: costs and benefits |
| JEL: | E31 E52 O31 O42 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:12-23&r=mac |
| By: | Petreski, Marjan; Jovanovic, Branimir |
| Abstract: | Any attempt to model monetary policy in China has to take into account two ‘specifics’ of the Chinese monetary policy: the reliance on several operational instruments, both quantitative (open market operations, discount rate, reserve requirement) and qualitative (selective credit allowances, window guidance etc.), as well as the combined strategy pursued by the People’s Bank of China, i.e. the two intermediate targets - the exchange rate and the money growth. In this paper we analyze monetary policy in China using a small, three-equation New Keynesian model, considering these issues as follows: first, the qualitative instruments are estimated by using the Kalman filter, as no data on them exist. Then, a monetary-policy index is created as a weighted average of the quantitative and the qualitative instruments, which is in turn included in the model instead of the interest rate. Finally, the two intermediate targets (monetary growth and exchange rate) are included in the monetary-policy rule. Our results suggest that monetary authorities in China consider stabilizing inflation and output gap when making their decisions. Intermediate targets, in particular the growth of the monetary aggregates, appear to be important determinants of the monetary-policy behaviour, implying that their omission might be a serious drawback of any analysis. We also find that omitting the qualitative instruments can lead to wrong conclusions about monetary-policy conduct. |
| Keywords: | New Keynesian model; China; monetary policy |
| JEL: | E43 E12 E52 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:40497&r=mac |
| By: | Ansgar Belke; Jens Klose |
| Abstract: | We propose an alternative way of estimating Taylor reaction functions if the zero-lower-bound 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 time-varying 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: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0343&r=mac |
| By: | Etienne B. Yehoue |
| Abstract: | The financial crisis in the advanced countries that began in 2007 has led central bankers to adopt unconventional policy measures as policy interest rates neared the zero bound. One suggestion (Blanchard, Dell’Ariccia, and Mauro, 2010) has been to raise inflation targets to provide more room for policy rate easing during crises. This paper addresses a different issue: the relationship between inflation and welfare. The literature is surveyed and a model is developed. A key conclusion is that an increase in inflation targets gives rise to additional welfare costs, even after the extra room to maneuver above the zero lower bound for nominal policy rates is taken into account. Based on parameter values that fit U.S. data, the additional welfare costs of raising inflation targets from 2 to 4 percent are estimated at about 0.3 percent of annual real income. A rise to 10 percent would yield additional welfare costs of about 1 percent of real income. Other parameter values yield welfare costs as high as 7 (respectively 30) percent of real income for raising inflation targets from 2 to 4 (respectively from 2 to 10) percent. The full costs of raising inflation targets are likely to be higher because the model used to generate these estimates does not account for higher inflation-induced volatility. |
| Keywords: | Financial crisis , Global Financial Crisis 2008-2009 , Inflation targeting , Interest rates , Interest rate policy , Price stabilization , Welfare , Monetary policy , |
| Date: | 2012–07–25 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/189&r=mac |
| By: | William T. Gavin; Benjamin D. Keen |
| Abstract: | This article uses a DSGE framework to evaluate the role of monetary policy in determining the likelihood of encountering the zero lower bound. We find that the probability of experiencing episodes of being at zero lower bound depends almost exclusively on the monetary policy rule. A policy rule, such as the one proposed by Taylor (1993) which is based on the dual mandate is highly likely to lead to episodes of zero short-term interest rates if the central bank is not committed to its inflation target. Our results on nominal interest rate and inflation dynamics do not depend on the particular mechanism that makes monetary policy have real effects. The key and necessary assumption is that expectations are forward looking. The bottom line in models in which monetary policy can influence the real economy is that a central bank must be committed to a long-run average-inflation objective if it wishes to achieve a dual mandate while avoiding the zero lower bound. |
| Keywords: | Interest rates ; Monetary policy |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2012-026&r=mac |
| By: | Romain Bouis; Boris Cournède; Ane Kathrine Christensen |
| Abstract: | This paper analyses the monetary and fiscal policy implications of output gap estimates in times of crisis. The widening of output gaps observed in major OECD economies in the wake of the recent crisis has been mainly due to total factor productivity gaps, except in the United States where it essentially resulted from a large increase in the unemployment gap. As indicated by “positive” Taylor rules, output gaps influence policy-controlled interest rates and are in principle important indicators to guide monetary policy decisions. However, these gaps are estimated with a large margin of uncertainty, especially when composed mainly of TFP gaps. Given the high uncertainty of output gap estimates at present, monetary policy should put more weight on alternative indicators of inflation pressure such as wage settlements, trends in unit labour costs and a wide range of indicators of inflation expectations. The recent fall in margins observed in some countries may, for instance, translate into a combination of wage moderation and upward price pressure as firms try to rebuild their margins. In the United States, the large unemployment gap could also keep wage inflation under pressure despite a flattening Phillips curve. These downward pressures should not, however, trigger a deflationary spiral as long as inflation expectations stay anchored. As regards fiscal policy, output gaps remain necessary inputs to assess the fiscal stance adjusted for the cycle, such measures of underlying fiscal balances being reasonably robust to output gap uncertainty.<P>Implications de l'incertitude des écarts de production en temps de crise<BR>Cet article étudie les implications pour les politiques monétaire et budgétaire des écarts de production en période de crise. L’élargissement des écarts de production observé dans les principales économies de l’OCDE dans le sillage de la crise récente a été principalement le résultat d’écarts de productivité totale des facteurs, excepté aux États-Unis où il a principalement résulté d’une augmentation significative de l’écart de chômage. Comme indiqué par des règles de Taylor estimées, les écart de production influencent les taux d’intérêt contrôlés par les banques centrales, et constituent en principe des indicateurs importants pour guider les décisions de politique monétaire. Toutefois, ces écarts sont estimés avec une grande marge d’incertitude, en particulier lorsque composés principalement d’écarts de PTF. Étant donné la forte incertitude entourant les estimations d’écarts de production à ce jour, la politique monétaire devrait accorder plus de poids à des indicateurs alternatifs des pressions inflationnistes comme la fixation des salaires, les tendances des coûts unitaires du travail et un large éventail d’indicateurs d’anticipations d’inflation. La chute récente des marges observée dans certains pays pourrait, par exemple, se traduire par une modération salariale et par des pressions à la hausse des prix lorsque les entreprises tentent de rétablir leurs marges. Aux États-Unis, l’important écart de chômage pourrait également garder l’inflation salariale sous pression en dépit de l’aplatissement de la courbe de Phillips, dans la mesure où l’ajustement des salaires a jusqu’à présent été limité. Ces pressions à la baisse ne devraient toutefois pas entraîner de spirale déflationniste tant que les anticipations d’inflation restent ancrées. Concernant la politique budgétaire, les écarts de production demeurent des éléments utiles pour évaluer la position budgétaire ajustée du cycle, les mesures des soldes structurels étant relativement robustes à l’incertitude des écarts de production. |
| Keywords: | fiscal policy, monetary policy, inflation, output gap, unemployment gap, politique budgétaire, politique monétaire, inflation, écart de production, écart de chômage |
| JEL: | E23 E24 E31 E52 E62 |
| Date: | 2012–07–06 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:977-en&r=mac |
| By: | Julia Bersch; Yasuhisa Ojima; Steven Barnett |
| Abstract: | Inflation in Mongolia resembles a roller coaster ride with sharp rises and steep drops. Understanding why is critical for formulating and assessing monetary policy. Food prices are found to be a key driver of inflation, and, not surprising given Mongolia’s geography, are determined primarily by local supply conditions, highly seasonal, and subject to large but short-lived shocks (usually weather related). Nonetheless, demand factors are also found to be significant in explaining price movements and empirical evidence suggests that a 10 percent increase in government wages, for example, would push up underlying inflation by 1 percentage point. So, while inflation will remain volatile due to agricultural shocks, there is space for macroeconomic stabilization policy to help reduce inflation volatility. |
| Keywords: | Agricultural prices , Consumer price indexes , Economic models , Fiscal policy , Government expenditures , Inflation , Inflation rates , Monetary policy , |
| Date: | 2012–07–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/192&r=mac |
| By: | Raghbendra Jha; Varsha S. Kulkarni |
| Abstract: | This paper extends the New Keynesian Phillips curve model to include inflation volatility and tests the determinants of such volatility for India. It provides results on the determinants of inflation volatility and expected inflation volatility for OLS and ARDL (1,1) models and for change in inflation volatility and change in expected inflation volatility using ECM models. Output gap affects change in expected inflation volatility (in the ECM model) and not in the other models. Major determinants of inflation volatility and expected inflation volatility are identified. |
| Keywords: | Inflation, Inflation volatility, ARDL model, ECM model, Output gap, India |
| JEL: | E31 E32 E42 E44 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:pas:asarcc:2012-11&r=mac |
| By: | Nicholas Apergis (University of Piraeus); Stephen M. Miller (University of Nevada, Las Vegas and University of Connecticut); Effrosyni Alevizopoulou (University of Piraeus) |
| Abstract: | The monetary authorities affect the macroeconomic activity through various channels of influence. This paper examines the bank lending channel, which considers how central bank actions affect deposits, loan supply, and real spending. The monetary authorities influence deposits and loan supplies through its main indicator of policy, the real short-term interest rate. This paper employs the endogenously determined target interest rate emanating from the central bank’s monetary policy rule to examine the operation of the bank lending channel. Furthermore, it examines whether different bank-specific characteristics affect how European banks react to monetary shocks. That is, do sounder banks react more to the monetary policy rule than less-sound banks. In addition, inflation and output expectations alter the central bank’s decision for its target interest rate, which, in turn, affect the banking system’s deposits and loan supply. Robustness tests, using additional control variables, (i.e., the growth rate of consumption, the ratio loans to total deposits, and the growth rate of total deposits) support the previous results. |
| Keywords: | Monetary policy rules, bank lending channel, European banks, GMM methodology |
| JEL: | G21 E52 C33 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2012-10&r=mac |
| By: | Stephane Auray (CREST-Ensai, Universite du Littoral Cote d'Opale (EQUIPPE),GREDI and CIRPEE); Paul Gomme (Concordia University and CIREQ); Shen Guo (School of Public Finance and Public Policy, Central University of Finance and Economics, Beijing, China) |
| Abstract: | Capturing the boom phase of Pigou cycles and resolving the comovement problem requires positive sectoral comovement. This paper addresses these observations using a two sector New Keynesian model. Price rigidities dampen movements in the relative price of durables following a monetary policy shock. Durables and nondurables are estimated to be complements in utility, allowing for a resolution of the comovement problem for modest degrees of price rigidity. Nominal rigidities also make firms forward-looking in their pricing behaviour which leads to relative price dynamics that generate positive sectoral comovement in the boom phase of a Pigou cycle. |
| Keywords: | Pigou cycles, comovement problem, monetary policy |
| JEL: | E3 E5 E4 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:crd:wpaper:12006&r=mac |
| By: | Michael Funke; Michael Paetz; Qianying Chen, |
| Abstract: | Monetary policy in mainland China differs from conventional central bank- ing in several respects. The central bank regulates retail lending and deposit rates, influences the credit supply via window guidance, and, in recent years has even used the required reserve ratio as a tool for fine-tuning monetary pol- icy. This paper develops a New Keynesian DSGE model to captures China’s unconventional monetary policy toolkit. We find that credit quotas are impor- tant as the interest-rate corridor distorts the efficient reactions of the economy. Moreover, for China’s central bankers the choice of a particular monetary pol- icy tool or a the appropriate combination of instruments depends on the source of the shock. |
| Keywords: | DSGE models, monetary policy, China, macroprudential policy |
| JEL: | E42 E52 E58 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:ham:qmwops:21207&r=mac |
| By: | Christopher Otrok (Department of Economics, University of Missouri-Columbia); Gianluca Benigno; Huigang Chen; Alessandro Rebucci; Eric R. Young |
| Abstract: | This paper studies monetary and macro-prudential policies in a simple model with both a nominal rigidity and a financial friction that give rise to price and financial stability objectives. We find that lowering the degree of nominal rigidity or increasing the strength of the interest rate response to inflation is always welfare increasing in the model, despite a tradeoff between price and financial stability that we document. Even though crises become more severe as the economy moves toward price flexibility, the cost of the nominal rigidity is always higher than the cost of the financial friction in welfare terms in the model. We also find that macro-prudential policy implemented by augmenting traditional monetary policy with a reaction to debt is always welfare increasing despite making crises more severe. In contrast, implementing macro-prudential policy with a separate tax on debt is always welfare decreasing despite making crises relatively less severe. The key difference lies in the behaviour of the nominal exchange rate, that is more depreciated in the economy with the tax on debt and increases the initial debt burden. |
| Keywords: | Financial Frictions, Financial Crises, Financial Stability, Macro-Prudential Policies, Nominal Rigidities, Monetary Policy. |
| JEL: | E52 F37 F41 |
| Date: | 2012–07–24 |
| URL: | http://d.repec.org/n?u=RePEc:umc:wpaper:1208&r=mac |
| By: | Paulo Brito (Universidade Técnica de Lisboa, and UECE); Giancarlo Marini (Faculty of Economics, University of Rome "Tor Vergata"); Alessandro Piergallini (Faculty of Economics, University of Rome "Tor Vergata") |
| Abstract: | This paper analyzes global dynamics in an overlapping generations general equilibrium model with housing-wealth effects. It shows that monetary policy cannot burst rational bubbles in the housing market. Under monetary policy rules of the Taylor-type, there exist global self-fulfilling paths of house prices along a heteroclinic orbit connecting multiple equilibria. From bifurcation analysis, the orbit features a boom (bust) in house prices when monetary policy is more (less) active. The paper also demonstrates that boom or busts cannot be ruled out by interest-rate feedback rules responding to both inflation and house prices |
| Keywords: | House Prices; Housing-Wealth Effects; Monetary Policy Rules; Global Determinacy; Heteroclinic Orbits. |
| JEL: | E62 H60 C20 |
| Date: | 2012–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:250&r=mac |
| By: | Peter McAdam (University of Surrey and European Central Bank); Alpo Willman (European Central Bank) |
| Abstract: | We argue that the New-Keynesian Phillips Curve literature has failed to deliver a convincing measure of real marginal costs. We start from a careful modeling of optimal price setting allowing for non-unitary factor substitution, non-neutral technical change and time-varying factor utilization rates. This ensures the resulting real marginal cost measures match volatility reductions and level changes witnessed in many US time series. The cost measure comprises conventional counter-cyclical cost elements plus pro-cyclical (and co-varying) utilization rates. Although pro-cyclical elements seem to dominate, the components of real marginal cost components are becoming less cyclical over time. Incorporating this richer driving variable produces more plausible price-stickiness estimates than otherwise and suggests a more balanced weight of backward and forward-looking inflation expectations than commonly found. Our results challenge existing views of inflation determinants and have important implications for modeling inflation in New-Keynesian models. |
| Keywords: | Inflation, Real Marginal Costs, Production Function, Labor Share, Cyclicality, Utilization, Intensive Labor, Overtime Premia |
| JEL: | E20 E30 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:sur:surrec:0912&r=mac |
| By: | Michal Franta; Jan Libich; Petr Stehlik |
| Abstract: | The fiscal position of many countries is worrying - and getting worse. Should formally independent central bankers be concerned about observed fiscal excesses spilling over to monetary policy and jeopardizing price stability? To provide some insights, this paper tracks the interactions between fiscal and monetary policies in the data across time and space. It makes three main contributions. The first one is methodological: we combine two recent econometric procedures - time-varying parameter vector autoregression with sign restrictions identification - and discuss the advantages of this approach. The second contribution is positive: we show how monetary-fiscal interactions and other macroeconomic variables have changed over time in six industrial countries (Australia, Canada, Japan, Switzerland, the UK, and the U.S.). The third contribution is normative: the paper highlights the role of the institutional design of each policy on the outcomes of both policies. Specifically, it first offers some evidence that an explicit long-term commitment of monetary policy (a legislated numerical target for average inflation) gives the central bank stronger grounds for not accommodating debt-financed fiscal shocks. Our second set of (albeit weaker) results then indicates that this threat of a policy tug-of-war may improve the government's incentives and fiscal outcomes - reducing the probability of both a fiscal crisis and unpleasant monetarist arithmetic. |
| Keywords: | Fiscal gap, monetary-fiscal interactions, sign restrictions, time-varying parameters VAR, unpleasant monetarist arithmetic. |
| JEL: | C10 E61 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2012/06&r=mac |
| By: | Shanaka J. Peiris; Ding Ding |
| Abstract: | Pacific Islands countries are vulnerable to commodity price shocks, and this poses challenges to monetary policy. The high degree of exchange rate pass-through to headline inflation and the weak monetary transmission mechanism in PICs suggest a greater efficacy of exchange rate changes in affecting inflation rather than monetary policy. To assess the tradeoff between the use of the exchange rate and monetary policy in macroeconomic stabilization, we employ a model-based approach to examine the optimal policy in response to the historical distribution of exogenous shocks in a Pacific Island (Tonga). The empirical evidence and model simulations tilt in the favor of exchange rate policy given the close relationship between exchange rate changes and headline inflation and the low interest rate sensitivity of aggregate demand. |
| Keywords: | Commodity prices , Economic models , Exchange rates , External shocks , Monetary policy , Monetary transmission mechanism , Pacific Island Countries , |
| Date: | 2012–07–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/176&r=mac |
| By: | Edouard Challe (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, Banque de France - -, CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique); Chryssi Giannitsarou (University of Cambridge - Faculty of Economics, CEPR - Center for Economic Policy Research - CEPR) |
| Abstract: | Recent empirical literature documents that unexpected changes in the nominal interest rates have a significant effect on real stock prices: a 25-basis point increase in the nominal interest rate is associated with an immediate decrease in broad real stock indices that may range from 0.6 to 2.2 percent, followed by a gradual decay as real stock prices revert towards their long-run expected value. In this paper, we assess the ability of a general equilibrium New Keynesian asset-pricing model to account for these facts. The model we consider is a production economy with elastic labor supply, staggered price and wage setting, as well as time-varying risk aversion through habit formation. We find that the model predicts a stock market response to policy shocks that matches empirical estimates, both qualitatively and quantitatively. Our findings are robust to a range of variations and parameterizations of the model. |
| Keywords: | Monetary policy; Asset prices; New Keynesian general equilibrium model |
| Date: | 2012–07–23 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00719956&r=mac |
| By: | Robert Kollmann |
| Abstract: | This paper estimates a two-country model with a global bank, using U.S. and Euro area (EA) data, and Bayesian methods. The estimated model matches key U.S. and EA business cycle statistics. Empirically, a model version with a bank capital requirement outperforms a structure without such a constraint. A loan loss originating in one country triggers a global output reduction. Banking shocks matter more for EA macro variables than for U.S. real activity. During the Great Recession (2007–09), banking shocks accounted for about 20 percent of the fall in U.S. and EA GDP, and for more than half of the fall in EA investment and employment. |
| Keywords: | International finance ; Financial markets |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:120&r=mac |
| By: | Markus Kirchner (Central Bank of Chile); Sweder van Wijnbergen (University of Amsterdam) |
| Abstract: | Recent macro developments in the euro area have highlighted the interactions between fiscal policy, sovereign debt, and financial fragility. We take a structural macroeconomic model with frictions in the financial intermediation process, in line with recent research, but introduce asset choice and sovereign debt holdings in the portfolio of banks. Using this model, we emphasize a new crowding-out mechanism that works through reduced private access to credit when banks accumulate sovereign debt under a leverage constraint. Our results show that, when banks invest a substantial fraction of their assets in sovereign debt, the effectiveness of fiscal stimulus policies may be impaired because deficit-financed fiscal expansions may tighten financial conditions to such an extent that private demand is crowded out. We also analyze the macroeconomic effectiveness of liquidity support to commercial banks through recapitalizations or loans by the government and the impact of different ways of financing those policies. |
| Keywords: | Financial intermediation; Fiscal policy; Sovereign debt |
| JEL: | E44 E62 H30 |
| Date: | 2012–04–26 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20120044&r=mac |
| By: | Chu, Angus C.; Ji, Lei |
| Abstract: | In this note, we develop a monetary Schumpeterian growth model to explore the effects of monetary policy on endogenous market structure, economic growth and social welfare. We find that an increase in the nominal interest rate reduces the equilibrium number of firms. Although long-run economic growth is independent of the nominal interest rate due to a scale-invariant property of the model, a higher nominal interest rate leads to lower growth rates of innovation, output and consumption during the transition path. Taking into account transition dynamics, we find that social welfare is decreasing in the nominal interest rate; therefore, Friedman rule is socially optimal in this economy. |
| Keywords: | monetary policy; economic growth; R&D; endogenous market structure |
| JEL: | O30 O40 E41 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:40467&r=mac |
| By: | S. Boragan Aruoba; Morris A. Davis; Randall Wright |
| Abstract: | We study models incorporating money, household production, and investment in housing. Inflation, as a tax on market activity, encourages substitution into household production, and thus investment in household capital. Hence, inflation increases the (appropriately deflated) value of the housing stock. This is documented in various data sources. A calibrated model accounts for a fifth to a half of the observed relationships. While this leaves much to be explained, it demonstrates the channel is economically relevant. We also show models with home production imply higher costs of inflation than models without it, especially when home and market goods are close substitutes. |
| JEL: | E41 E52 R21 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18276&r=mac |
| By: | Francesco Giuli; Massimiliano Tancioni |
| Abstract: | This paper adds to the large literature on the e¤ects of technology shocks empirically and theoretically. Using a SVEC model, we rst show that not only hours but also investment decline temporarily following a technology improvement. This result is robust with respect to important data and identi cation issues addressed in the literature. We then show that the negative response of inputs is consistent with an estimated monetary DSGE model in which the presence of strategic complementarity in price setting, in addition to nominal rigidities, lowers the sensitivity of prices to marginal costs, and monetary policy does not fully accommodate the shock. |
| Keywords: | Technology shocks, Inputs dynamics, Structural Vector Error Correction model, New-Keynesian DSGE model, Bayesian inference |
| JEL: | C11 C32 E22 E32 E52 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:rtr:wpaper:0161&r=mac |
| By: | Samuel G. Hanson; Jeremy C. Stein |
| Abstract: | Changes in monetary policy have surprisingly strong effects on forward real rates in the distant future. A 100 basis-point increase in the 2-year nominal yield on an FOMC announcement day is associated with a 42 basis-point increase in the 10-year forward real rate. This finding is at odds with standard macro models based on sticky nominal prices, which imply that monetary policy cannot move real rates over a horizon longer than that over which all prices in the economy can readjust. Rather, the responsiveness of long-term real rates to monetary shocks appears to reflect changes in term premia. One mechanism that may generate such variation in term premia is based on demand effects coming from "yield-oriented" investors. We find some evidence supportive of this channel. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2012-46&r=mac |
| By: | Pavel Trunin (Gaidar Institute for Economic Policy); Natalia Luksha (Gaidar Institute for Economic Policy) |
| Abstract: | This article deals with the Russia's 2011 monetary policy. The authors focus on the monetary market issues, inflationary development. They also point out to the main measures in the sphere of the monetary policy and the balance of paiments, and the RUR exchange rate. |
| Keywords: | monetary policy, money market, inflation, balance of payments, exchange rate |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:gai:ppaper:10&r=mac |
| By: | Ramon Marimon; Juan Pablo Nicolini; Pedro Teles |
| Abstract: | The interplay between competition and trust as efficiency-enhancing mechanisms in the private provision of money is studied. With commitment, trust is automatically achieved and competition ensures efficiency. Without commitment, competition plays no role. Trust does play a role but requires a bound on efficiency. Stationary inflation must be non-negative and, therefore, the Friedman rule cannot be achieved. The quality of money can be observed only after its purchasing capacity is realized. In this sense, money is an experience good. |
| Keywords: | Inflation (Finance) |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:467&r=mac |
| By: | Kerényi, Ádám |
| Abstract: | In October 2008 the main Hungarian public finance actors: the government, the National Bank of Hungary (MNB) and experts cited the high public debt and volume of unsecured foreign-currency loans as the main reasons for the economy’s vulnerability. On the other hand according to the formal president of the MNB the first and foremost it was the inadequate level of foreign exchange reserves that made Hungary among the first to request outside assistance, in the form of international credit just after the Lehman bankruptcy. That critical time the MNB was only partially able to fulfil its role as the ‘lender of last resort’, and the Treasury was not able at all to conduct an anti-cyclical keynesian fiscal policy due to the previous fiscal years when the government lost its international creditworthiness. Hungarian Treasury (NGM) in November 2011 – three years later than the previous package – requested again outside assistance, in the form of international credit or insurance from the Monetary Fund and European authorities. A rethinking of fiscal and monetary policy, and the comprehensive restructuring of the Hungarian economic-policy mix, are essential in the interests of avoiding the following stops and goes periods and of halting the social and economic disintegration of the country. Instead of good governance Hungary needs co-governance between the fiscal and monetary policy. The Fiscal Council might be a very useful institution to help and moderate this process with its new president. A Lucasian regime change is expected in the Hungarian economy. |
| Keywords: | macroeconomic policy; macroeconomic aspects of public finance; fiscal policy; monetary policy |
| JEL: | E62 E50 E61 E60 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:40352&r=mac |
| By: | Francis Vitek |
| Abstract: | This paper develops a structural macroeconometric model of the world economy, disaggregated into thirty five national economies. This panel unobserved components model features a monetary transmission mechanism, a fiscal transmission mechanism, and extensive macrofinancial linkages, both within and across economies. A variety of monetary policy analysis, fiscal policy analysis, spillover analysis, and forecasting applications of the estimated model are demonstrated, based on a Bayesian framework for conditioning on judgment. |
| Keywords: | Cross country analysis , Fiscal policy , Monetary policy , Monetary transmission mechanism , Spillovers , Forecasting models , |
| Date: | 2012–06–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/149&r=mac |
| By: | Bill Russell; Rosen Azad Chowdhury |
| Abstract: | ‘Modern’ Phillips curve theories predict inflation is an integrated, or near integrated, process. However, inflation appears bounded above and below in developed economies and so cannot be ‘truly’ integrated and more likely stationary around a shifting mean. If agents believe inflation is integrated as in the ‘modern’ theories then they are making systematic errors concerning the statistical process of inflation. An alternative theory of the Phillips curve is developed that is consistent with the ‘true’ statistical process of inflation. It is demonstrated that United States inflation data is consistent with the alternative theory but not with the existing ‘modern’ theories. |
| Keywords: | Phillips curve, inflation, structural breaks, GARCH, non-stationary data |
| JEL: | C22 C23 E31 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:dun:dpaper:265&r=mac |
| By: | Roger E.A. Farmer |
| Abstract: | This paper distinguishes between two kinds of Endogenous Business Cycle models, and discusses the evolution from first generation EBC1 models to second generation EBC2 models. I argue that EBC1 models, which display dynamic indeterminacy, are part of the evolution of modern macroeconomics that has classical roots dating back to the 1920s. EBC2 models, which display steady-state indeterminacy, are a more radical departure from the classical Real Business Cycle model; they represent a return to one of the most important ideas to emerge from Keynes' (1936) General Theory; that high involuntary unemployment can persist as part of the steady-state equilibrium of a market economy. |
| JEL: | B22 E0 E3 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18284&r=mac |
| By: | Guillermo A. Calvo |
| Abstract: | Fiat money contains the seeds of its own destruction. It has no intrinsic value and, yet, it can be exchanged for valuable consumption and production goods. As Hahn (1965) shows, this situation puts fiat money's market value or liquidity premium at the brink of collapse. In this paper I will argue that (1) sticky prices, especially when staggered, provide output backing to fiat money, helping to sustain fiat money's liquidity premium and, thus, lowering the risk of a liquidity meltdown. I call this view the Price Theory of Money; (2) fixed-income assets linked to fiat money, especially if they are perceived to have low counter-party risk (like US Treasury bills, AAA bonds or Asset-Backed Securities) can take advantage of point (1) to become quasi-moneys; (3) this gives incentives to the private sector to create those assets; (4) however, unless protected by a Lender of Last Resort, the new assets' liquidity premium can quickly and massively evaporate in what I call (with a wink to the Bard) a Prospero's Liquidity Trap; (5) the latter lowers the market value of loan collateral and clogs the credit channel, bringing about a credit event or Sudden Stop, with severe output and employment consequences. |
| JEL: | E31 E41 E44 E58 F31 F41 F42 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18285&r=mac |
| By: | Nir Klein |
| Abstract: | This paper applies a state-space approach to estimate the implicit inflation target of the South African Reserve Bank (SARB) since the adoption of the Inflation Targeting (IT) framework. The paper's findings are two. First, although the official inflation target range is 3.6 percent, in practice, the SARB seems to have aimed for the upper segment of the band (41.2 .6 percent) for most of the period, despite the substantial variation of the output gap. Second, the estimation results show that the implicit inflation target varied over time, and in recent years it has shifted toward the upper limit of the inflation target range. This perhaps suggests that since the outbreak of the financial crisis in 2008, the SARB's tolerance for higher inflation has somewhat increased to better support economic activity. |
| Keywords: | Central banks , Economic models , Inflation targeting , Monetary policy , |
| Date: | 2012–07–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/177&r=mac |
| By: | Monacelli, Tommaso |
| Abstract: | Openness per se requires optimal monetary policy to deviate from the canonical closed-economy principle of domestic price stability, even if domestic prices are the only ones to be sticky. I review this argument using a simple partial equilibrium analysis in an economy that trades in final consumption goods. I then extend the standard open economy New Keynesian model to include imported inputs of production. Production openness strengthens even further the incentive for the policymaker to deviate from strict domestic price stability. With both consumption and production openness variations in the world price of food and in the world price of imported oil act as exogenous cost-push factors. |
| Keywords: | consumption imports; exchange rate; imported inputs; monetary policy; openness; trade |
| JEL: | E52 F41 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9087&r=mac |
| By: | Ács, Attila |
| Abstract: | The recent financial and economic crisis highlighted the importance to better understand the relationship between liquidity developments and asset price movements. Central banks with focus on inflation targeting allowed asset price inflation, following burst, with its devastating consequences for the financial system and real economy. Equilibrium price should emanate from fundamentals. However liquidity conditions are part of fundamental variables and should be taken into consideration as explanatory variables in the process of asset pricing. Furthermore in many cases assets serve as collateral in refinancing which means that refinancing conditions influence values of pledged assets. |
| Keywords: | liquidity; asset pricing; broker dealer; repo; error correction |
| JEL: | G12 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:40331&r=mac |
| By: | Olivier Coibion; Yuriy Gorodnichenko; Gee Hee Hong |
| Abstract: | We study the cyclical properties of sales, regular price changes and average prices paid by consumers (“effective” prices) in a dataset containing prices and quantities sold for numerous retailers across a variety of U.S. metropolitan areas. Both the frequency and size of sales fall when local unemployment rates rise and yet the inflation rate for effective prices paid by consumers declines significantly with higher unemployment. This discrepancy can be reconciled by consumers reallocating their expenditures across retailers, a feature of the data which we document and quantify. We propose a simple model with household shopping effort and store-switching consistent with these stylized facts and document its implications for business cycles and policymakers. |
| JEL: | E3 E4 E5 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18273&r=mac |
| By: | Nicoletta Batini; Giovanni Callegari; Giovanni Melina |
| Abstract: | The output effects of 2009 fiscal expansions have been hotly debated. But the discussion of fiscal multipliers is even more relevant now that several European countries have had to quickly retract their stimulus measures in an effort to regain market confidence. Using regime-switching VARs we estimate the impact of fiscal adjustment on the United States, Europe and Japan allowing for fiscal multipliers to vary across recessions and booms. We also estimate ex ante probabilities of recessions derived in association with different-sized and different types of consolidation shocks (expenditure- versus tax-based). We use these estimates to understand how consolidations should be designed to be most effective in terms of permanently and rapidly reducing a country’s debt-to-GDP ratio. The main finding is that smooth and gradual consolidations are to be preferred to frontloaded or aggressive consolidations, especially for economies in recession facing high risk premia on public debt, because sheltering growth is key to the success of fiscal consolidation in these cases. |
| Keywords: | Fiscal consolidation , Fiscal policy , Adjustment process , External shocks , Business cycles , Government expenditures , Public debt , Risk management , |
| Date: | 2012–07–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/190&r=mac |
| By: | Farmer, Roger E A |
| Abstract: | This paper distinguishes between two kinds of Endogenous Business Cycle models, and discusses the evolution from first generation EBC1 models to second generation EBC2 models. I argue that EBC1 models, which display dynamic indeterminacy, are part of the evolution of modern macroeconomics that has classical roots dating back to the 1920s. EBC2 models, which display steady-state indeterminacy, are a more radical departure from the classical Real Business Cycle model; they represent a return to one of the most important ideas to emerge from Keynes' (1936) General Theory; that high involuntary unemployment can persist as part of the steady-state equilibrium of a market economy. |
| Keywords: | indeterminacy; self-fulfilling propcheices; sunspots; unemployment |
| JEL: | B22 E20 E32 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9080&r=mac |
| By: | Daniel R. Sanches |
| Abstract: | We show the existence of an inherent instability associated with a purely private monetary system due to the role of endogenous debt limits in the creation of private money. Because the bankers’ ability to issue liabilities that circulate as a medium of exchange depends on beliefs about future credit conditions, there can be multiple equilibria. Some of these equilibria have undesirable properties: Self-fulfilling collapses of the banking system and persistent fluctuations in the aggregate supply of bank liabilities are possible. In response to this inherent instability of private money, we formulate a government intervention that guarantees that the economy remains arbitrarily close to the constrained efficient allocation. In particular, we define an operational procedure for a central bank capable of ensuring the stability of the monetary system. |
| Keywords: | Banks and banking, Central |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:12-19&r=mac |
| By: | Roman Horváth (Charles University, Prague and IOS, Regensburg); Kateřina Šmídková; Jan Zápal |
| Abstract: | We assess whether the voting records of central bank boards are informative about future monetary policy using data on five inflation targeting countries (the Czech Republic, Hungary, Poland, Sweden and the United Kingdom). We find that in all countries the voting records, namely the difference between the average voted-for and actually implemented policy rate, signal future monetary policy, making a case for publishing the records. This result holds even if we control for the financial market expectations; include the voting records from the period covering the current global financial crisis and examine the differences in timing and style of the voting record announcements. |
| Keywords: | monetary policy, voting record, transparency, collective decision-making |
| JEL: | D78 E52 E58 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:ost:wpaper:316&r=mac |
| By: | Serhan Cevik; Katerina Teksoz |
| Abstract: | This paper empirically investigates the effectiveness of monetary policy transmission in the Gulf Cooperation Council (GCC) countries using a structural vector autoregressive model. The results indicate that the interest rate and bank lending channels are relatively effective in influencing non-hydrocarbon output and consumer prices, while the exchange rate channel does not appear to play an important role as a monetary transmission mechanism because of the pegged exchange rate regimes. The empirical analysis suggests that policy measures and structural reforms - strengthening financial intermediation and facilitating the development of liquid domestic capital markets - would advance the effectiveness of monetary transmission mechanisms in the GCC countries. |
| Keywords: | Monetary policy , Inflation , Interest rates on loans , Currency pegs , Bank credit , Economic growth , Economic conditions , Cooperation Council for the Arab States of the Gulf , |
| Date: | 2012–07–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/191&r=mac |
| By: | Paul Levine (University of Surrey); Joseph Pearlman (Loughborough University); Bo Yang (University of Surrey) |
| Abstract: | This paper examines the implications of imperfect information (II) for optimal monetary policy with a consistent set of informational assumptions for the modeller and the private sector an assumption we term the informational consistency. We use an estimated simple NK model from Levine et al. (2012), where the assumption of symmetric II information significantly improves the fit of the model to US data to assess the welfare costs of II under commitment, discretion and simple Taylor-type rules. Our main results are: first, common to all information sets we find significant welfare gains from commitment only with a zero-lower bound constraint on the interest rate. Second, optimized rules take the form of a price level rule, or something very close across all information cases. Third, the combination of limited information and a lack of commitment can be particulary serious for welfare. At the same time we find that II with lags introduces a 'tying ones hands' effect on the policymaker that may improve welfare under discretion. Finally, the impulse response functions under our most extreme imperfect information assumption (output and inflation observed with a two-quarter delay) exhibit hump-shaped behaviour and the fiscal multiplier is significantly enhanced in this case. |
| JEL: | C11 C52 E12 E32 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:sur:surrec:1012&r=mac |
| By: | Alexander Mehnert; Andreas Nastansky |
| Abstract: | In the following study the relation between the public debt and the inflation will be analysed. The transmission from the public debt to the inflation through the money supply and long term interest rate will be shown. Based on these theoretical thoughts the variables public debt, consumer price index, money supply m3 and the long term interest rate will be analysed within a vector error correction model. In the empirical part of this paper we will evaluate the timeperiod from the first quarter in 1991 until the fourth quarter in 2010 for Germany. In a vector error correction model every variable can be taken as endogenous. The variables in the model will be tested for cointegrated relationships and estimated with the Johansen-Approach. |
| Keywords: | Public Debt, Central Bank Policy, Inflation, Cointegration, Vector Error Correction Model, Johansen Approach |
| JEL: | C32 C51 E31 E58 H63 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:pot:psstwi:02&r=mac |
| By: | Bartha, Zoltán; Sáfrányné Gubik, Andrea |
| Abstract: | The textbook response to deteriorating economic performance is monetary easing, the lowering of official interest rates. When the financial and economic crises hit Europe in 2008, however, monetary policy had very little room in most European countries, as the central bank interest rates were already pretty low. Fiscal policy instruments had to be used therefore, a branch of economic policy that was believed to be dated by many mainstream economists. In contrast to their interest rate conditions, the European countries formed a quite heterogeneous group in regard to their fiscal space: some had more because of balanced budgets and relatively low national debt ratios; others had a lot less. The paper analyses the responses given by 30 European countries to the crisis, and combines the effects with the pre-2008 fiscal characteristics. It identifies some clusters based on their performance and on their major fiscal indicators before and after the crisis. |
| Keywords: | fiscal space; European economies |
| JEL: | E62 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:40346&r=mac |
| By: | Francis Breedon; Jagjit S. Chadha; Alex Waters |
| Abstract: | After outlining some of the monetary developments associated with Quantitative Easing (QE), we measure the impact of the UK's initial 2009-10 QE Programme on bonds and other assets. First, we use a macro-finance yield curve both to create a counterfactual path for bond yields and to estimate the impact of QE directly. Second, we analyse the impact of individual QE operations on a range of asset prices. We find that QE significantly lowered government bond yields through the portfolio balance channel by around 50 or so basis points. We also uncover significant effects of individual operations but limited pass through to other assets. |
| Keywords: | Term Structure of Interest Rates; Monetary Policy; Quantitative Easing |
| JEL: | E43 E44 E47 E58 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1211&r=mac |
| By: | Kai Daniel Schmid; Michael Schmidt |
| Abstract: | What is the role of fiscal variables for the assessment of sovereign credit risk? Has this role changed over time? In the face of the financial crisis many OECD countries have experienced large increases of government debt relative to GDP. This has triggered a distinct response of financial markets reflected by a sharp rise of longterm interest on government bonds. We show that, in particular, within some member countries of the European Monetary Union the explanation of investors’ recent reactions to these fiscal imbalances is twofold: first, it is the worsening of fiscal positions due to the financial crisis that has been taken into account. Second, and more striking, it is financial markets’ reconsideration of the role of these fiscal fundamentals for the pricing of sovereign credit risk. We argue that, from a historical perspective, this recent re-evaluation of fiscal positions seems little surprising. It is rather the re-establishment of the temporarily interrupted pricing of fiscal imbalances as a central factor of sovereign credit risk than the aggravation of fiscal imbalances. In our study we provide cross-country evidence for the impact of fiscal imbalances upon long-term interest rates. We use macroeconomic data from 1980 to 2012 and contrast a panel of 22 OECD countries with 11 EMU member countries and the so called GIIPS countries. This comparably long time span allows us to evaluate the changes in sovereign risk pricing that set in with the start of the EMU. In particular, we find that the relationship between the perceived default risk reflected by long-term interest rates and the public debt to GDP ratio as an indicator of fiscal sustainability is time regime as well as regional cluster specific. Our findings suggest that there is a strong connection of institutional aspects of EMU and the relationship between fiscal imbalances and changes in the pricing of sovereign credit risk. |
| Keywords: | default risk, EMU, GIIPS, long-term interest rate, sovereign debt crisis |
| JEL: | E43 E44 E62 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:iaw:iawdip:87&r=mac |
| By: | Hippolyte d'Albis (Centre d'Economie de la Sorbonne - Paris School of Economics); Emmanuelle Augeraud-Véron (MIA - Université de la Rochelle); Hermen Jan Hupkes (Department of Mathematics - University of Missouri - Columbia) |
| Abstract: | This paper proposes conditions for the existence and uniqueness of solutions to systems of differential equations with delays or advances in which some variables are non-predetermined. An application to the issue of optimal interest rate policy is then develop in a flexible-price model where money enters the utility function. Central banks have the choice between a rule that depends on past inflation rates or one that depends on predicted interest rates. When inflation rates are selected over a bounded time interval, the problem is characterized by a system of delay or advanced differential equations. We then prove that if the central bank's forecast horizon is not too long, an active and forward-looking monetary policy is not too destabilizing : the equilibrium trajectory is unique and monotonic. |
| Keywords: | Interest rate rules, indeterminacy, functionnal differential equations. |
| JEL: | E52 E21 E63 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:12051&r=mac |
| By: | Hippolyte D'Albis (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne); Emmanuelle Augeraud-Véron (MIA - Mathématiques, Image et Applications - Université de La Rochelle : EA3165); Hermen Jan Hupkes (University of Missouri - Columbia - Mathematics Department) |
| Abstract: | This paper proposes conditions for the existence and uniqueness of solutions to systems of differential equations with delays or advances in which some variables are non-predetermined. An application to the issue of optimal interest rate policy is then develop in a flexible-price model where money enters the utility function. Central banks have the choice between a rule that depends on past inflation rates or one that depends on predicted interest rates. When inflation rates are selected over a bounded time interval, the problem is characterized by a system of delay or advanced differential equations. We then prove that if the central bank's forecast horizon is not too long, an active and forward-looking monetary policy is not too destabilizing : the equilibrium trajectory is unique and monotonic. |
| Keywords: | Interest rate rules; indeterminacy; functionnal differential equations |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00721289&r=mac |
| By: | Alessandro Piergallini (Faculty of Economics, University of Rome "Tor Vergata"); Michele Postigliola (Faculty of Economics, University of Rome "Tor Vergata") |
| Abstract: | We examine the historical dynamics of government debt in post-unification Italy, from 1861 to 2009. Unit root tests for the debt-GDP ratio are unable to reject either the non-stationarity or the stationarity null hypothesis. Controlling debt dynamics for fiscal feedback policies of the Barro-Bohn style, however, the debt-GDP ratio is found to be mean-reverting. Mean-reversion in the debt-GDP ratio is due not only to a nominal growth dividend, but also to a positive response of primary surpluses to variations in outstanding debt. There is indeed significant evidence that, over the history of Italy, fiscal policy makers have reacted to the accumulation of debt, taking corrective measures to rule out potential long-term sustainability problems. |
| Keywords: | Fiscal Policy; Public Debt; Fiscal Sustainability |
| JEL: | E62 H60 C20 |
| Date: | 2012–07–27 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:248&r=mac |
| By: | Luca Guerrieri; Matteo Iacoviello; Raoul Minetti |
| Abstract: | This paper studies the international propagation of sovereign debt default. We posit a two-country economy where capital constrained banks grant loans to firms and invest in bonds issued by the domestic and the foreign government. The model economy is calibrated to data from Europe, with the two countries representing the Periphery (Greece, Italy, Portugal and Spain) and the Core, respectively. Large contractionary shocks in the Periphery trigger sovereign default. We find sizable spillover effects of default from Periphery to the Core through a drop in the volume of credit extended by the banking sector. |
| JEL: | F4 G21 H63 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18303&r=mac |
| By: | Noriaki Kinoshita; Cameron McLoughlin |
| Abstract: | The degree of an economy’s monetization, which has an important implication on economic growth, can be affected by the conduct of monetary policy, financial sector reform, and episodes of financial crises. The paper finds that monetization--measured by the ratio of broad money to nominal GDP-- in low- to middle-income countries is significantly correlated with per-capita GDP, real interest rates, and financial sector reform. It suggests that maintaining an upward momentum in monetization can be an important policy objective, particularly for low-income countries, and that monetary and financial sector policies need to be conducive to enhancing monetization. |
| Keywords: | Bank reforms , Economic growth , Economic models , Financial sector , Low-income developing countries , Monetary policy , |
| Date: | 2012–06–19 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/160&r=mac |
| By: | Gersbach, Hans; Rochet, Jean-Charles |
| Abstract: | We provide a rationale for imposing counter-cyclical capital ratios on banks. In our simple model, bankers cannot pledge the entire future revenues to investors, which limits borrowing in good and bad times. Complete markets do not sufficiently stabilize credit fluctuations, as banks allocate too much borrowing capacity to good states and too little to bad states. As a consequence, bank credit, output, capital prices or wages are excessively volatile. Imposing a (stricter) capital ratio in good states corrects the misallocation of the borrowing capacity, increases expected output and can be beneficial to all agents in the economy. Although in our economy, all agents are risk-neutral, counter-cyclical capital ratios are an effective stabilization tool. To ensure this effectiveness, capital ratios have to be based on ex ante equity capital, as classical capital ratios can be bypassed. |
| Keywords: | Complete Markets; Credit Fluctuations; Macroprudential Regulation; Misallocation of Borrowing Capacity |
| JEL: | D86 G21 G28 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9077&r=mac |
| By: | Sandra Gomes; Caterina Mendicino |
| Abstract: | This paper quanti?es the importance of news shocks for housing market ?uctuations. To this purpose, we extend Iacoviello and Neri (2010)?s model of the housing market to include news shocks and estimate it using Bayesian methods and U.S. data. We ?nd that news shocks: (1) account for a sizable fraction of the variability in house prices and other macroeconomic variables over the business cycle and (2) signi?cantly contributed to booms and busts episodes in house prices over the last three decades. By linking news shocks to agents?expectations, we ?nd that house price growth was positively related to in?ation expectations during the boom of the late 1970?s while it was negatively related to interest rate expectations during the housing boom that peaked in the mid-2000?s. JEL Classication: C50, E32, E44. |
| Keywords: | bayesian estimation, news shocks, local identi?cation, housing market, ?nancial frictions, in?ation and interest rate expectations. |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:ise:isegwp:wp232012&r=mac |
| By: | Schlicht, Ekkehart |
| Abstract: | Economists are widely familiar with the Ricardian equivalence thesis. It maintains that, given the time-path of government spending, a change in taxation does not alter the set of feasible life-time consumption plans of the households and affects neither the demand for commodities and services nor the rate of interest, provided the households act rationally. In this note a surprising finding is established. Assuming that the agents in a standard infinite horizon growth model hold the very expectations the thesis proposes (“Ricardian expectationsâ€), it is shown that these expectations are disappointed. This divergence from the Ricardian equivalence thesis is traced to the omission of interest payments on public debt as part of the households' disposable income. The non-equivalence is valid in a wide class of models. Further it is shown that a permanent deficit policy does not imply a violation of the government's budget constraint at any point of time in the future. |
| Keywords: | Barro-Ricardo equivalence; Ricardian equivalence; fiscal policy; debt; taxation; rational expectations; Ricardian expectations; Barro expectations |
| JEL: | E2 E12 E6 H6 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:13794&r=mac |
| By: | Barnett, William A.; Eryilmaz, Unal |
| Abstract: | We explore bifurcation phenomena in the open-economy New Keynesian model developed by Gali and Monacelli (2005). We find that the open economy framework brings about more complex dynamics, along with a wider variety of qualitative behaviors and policy responses. Introducing parameters related to the open economy structure affects the values of bifurcation parameters and changes the location of bifurcation boundaries. As a result, the stratification of the confidence region, as previously seen in closed-economy New Keynesian models, remains an important research and policy risk to be considered in the context of the open-economy New Keynesian functional structures. In fact, econometrics and optimal policy design become more complex within an open economy. Dynamical inferences need to be qualified by the risk of bifurcation boundaries crossing the confidence regions. Policy design needs to take into consideration that a change in monetary policy can produce an unanticipated bifurcation, without adequate prior econometrics research. |
| Keywords: | stability; bifurcation; open economy; New Keynesian; determinacy; macroeconomics; dynamic systems |
| JEL: | C51 E32 C61 F41 E61 E37 C62 |
| Date: | 2012–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:40426&r=mac |
| By: | John H. MUNRO |
| Abstract: | This paper is a critique of Michael Postan's famous Malthusian-Ricardo model demonstrating that late-medieval prices and wages were essentially determined by demographic factors, especially after the Black Death, while contending that monetary factors played no role in determining prices or wages. His central argument is simple: that rapid and drastic depopulation (falling perhaps from ca. 1320) - by about 50% in England ca. 1450 - drastically altered the land:labour ratio so that real wages increased, both from a rise in the marginal productivity of labour and also from a corresponding fall in the costs of foodstuffs. As Ricardo had argued, a population decline necessarily led to lower grain prices, reduced rents, as well as to increased real wages. A related part of Postan's model is the contention that grain prices alone fell after the Black Death, while prices of most livestock products and especially industrial products rose, thus producing a widening divergence in commodity prices in late-medieval Europe. This paper seeks to show that monetary factors also played a role in determining or influencing both prices and real wages in medieval Europe, both before and after the Black Death. The evidence produced here reveals cycles of inflation and deflation from the late 12th to early 16th century: with a sharp deflation before the Black Death, an equally severe inflation for the quarter century following the Black Death, which was then followed by steep deflation into the early 15th century, after which the deflationary trend was broken only by the final phase of the Hundred Years' War and by civil wars in Flanders. Deflation resumed in the very late 15th century, enduring until the eve of the inflationary European Price Revolution, from ca. 1515-20 to ca. 1650. The tables in this paper demonstrate that during both periods of inflation and of deflation, agricultural and industrial prices rose and fell together, if not necessarily in full tandem. These cycles of inflation and deflation were essentially due to monetary and not demographic factors; but differences in relative prices can be explained as well by real factors. Thus the core theme of the paper: 'money matters', though monetary factors certainly do not explain all economic phenomena. The final section of the paper deals with post-Plague real wages, demonstrating first a sharp fall in real wages following the Black Death and then a sharp rise in real wages from the later 14th century. That was essentially a result and function of downward nominal wage-stickiness during the deflations that took place in this era, especially during the two bullion famines of ca. 1370 - ca. 1415 and ca. 1440 - 1475. An examination of the root causes of wage-stickiness, essentially a post-Plague phenomenon, has been more thoroughly explored in many other of my online working papers and numerous publications (since 2003). The statistical evidence on prices and wages is taken from both England and Flanders (up to ca. 1500): i.e., from both a basically rural agrarian economy (England) and a much more commercialized, industrialized, urbanized economy (Flanders). If such radically different economies experienced the same trends in commodity prices and wages (nominal and real)- as they did, the agrarian-based Ricardo model cannot provide the full explanation - so that again a role for monetary factors must be allowed, all the more so in light of the detailed monetary evidence supplied in this paper. |
| Keywords: | Ricardo; Malthus; Postan; marginal productivity; population; nominal wages; real wages; agricultural labourers; building craftsmen; masters and journeymen; money; bullion; credit; inflation; deflation; relative prices; England; Flanders; Middle Ages |
| JEL: | E E41 E42 E51 E52 E62 F33 H11 H27 N13 N23 N43 |
| Date: | 2012–08–08 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-463&r=mac |
| By: | William Barnett (Department of Economics, The University of Kansas); Unal Eryilmaz (OECD) |
| Abstract: | We explore bifurcation phenomena in the open-economy New Keynesian model developed by Gali and Monacelli (2005). We find that the open economy framework brings about more complex dynamics, along with a wider variety of qualitative behaviors and policy responses. Introducing parameters related to the open economy structure affects the values of bifurcation parameters and changes the location of bifurcation boundaries. As a result, the stratification of the confidence region, as previously seen in closed-economy New Keynesian models, remains an important research and policy risk to be considered in the context of the open-economy New Keynesian functional structures. In fact, econometrics and optimal policy design become more complex within an open economy. Dynamical inferences need to be qualified by the risk of bifurcation boundaries crossing the confidence regions. Policy design needs to take into consideration that a change in monetary policy can produce an unanticipated bifurcation, without adequate prior econometrics research. |
| Keywords: | stability; bifurcation; open economy; New Keynesian; determinacy; macroeconomics; dynamic systems |
| JEL: | C14 C22 C52 C61 C62 E32 E37 E61 L16 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:kan:wpaper:201210&r=mac |
| By: | Ralf Brüggemann (University of Konstanz, Department Economics, Germany); Jing Zeng (University of Konstanz, Department Economics, Germany) |
| Abstract: | We suggest to use a factor model based backdating procedure to construct historical Euro-area macroeconomic time series data for the pre-Euro period. We argue that this is a useful alternative to standard contemporaneous aggregation methods. The paper investigates for a number of Euro-area variables whether forecasts based on the factor-backdated data are more precise than those obtained with standard area-wide data. A recursive pseudo-out-of-sample forecasting experiment using quarterly data is conducted. Our results suggest that some key variables (e.g. real GDP, inflation and long-term interest rate) can indeed be forecasted more precisely with the factor-backdated data. |
| Keywords: | forecasting, factor model, backdating, European monetary union, constructing EMU data |
| JEL: | C22 C53 C43 C82 |
| Date: | 2012–08–02 |
| URL: | http://d.repec.org/n?u=RePEc:knz:dpteco:1215&r=mac |
| By: | Kunieda, Takuma; Shibata, Akihisa |
| Abstract: | A dynamic general equilibrium model with infinitely lived entrepreneurs and financiers is developed to investigate a possible mechanism that explains business cycles and a financial crisis. The highest growth rate is achievable only if financiers coexist with entrepreneurs, given a certain extent of financial market imperfections. However, if financiers coexist with entrepreneurs, the economy is highly likely to go into a financial crisis for some parameter values. These two-sided implications of the coexistence of entrepreneurs and financiers explain why both instability and high growth are frequently observed in modern economies. |
| Keywords: | Endogenous business cycles; Financial crisis; Economic boom; Financial market imperfections |
| JEL: | E32 O16 O40 |
| Date: | 2012–07–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:40310&r=mac |
| By: | Taylor, Alan M. |
| Abstract: | What can history can tell us about the relationship between the banking system, financial crises, the global economy, and economic performance? Evidence shows that in the advanced economies we live in a world that is more financialized than ever before as measured by importance of credit in the economy. I term this long-run evolution “The Great Leveraging” and present a ten--point examination of its main contours and implications. |
| Keywords: | banking; booms; credit; crises; financial development; fiscal policy; global imbalances; Great Recession; recessions |
| JEL: | E3 E5 E6 N1 N2 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9082&r=mac |
| By: | Barnett, William A.; Eryilmaz, Unal |
| Abstract: | We explore bifurcation phenomena in the open-economy New Keynesian model developed by Clarida, Gali and Gertler (2002). We find that the open economy framework can bring about more complex dynamics, along with a wider variety of qualitative behaviors and policy responses. Introducing parameters related to the open economy structure affects the values of bifurcation parameters and changes the location of bifurcation boundaries. As a result, the stratification of the confidence region, as previously seen in closed-economy New Keynesian models, remains an important research and policy risk to be considered in the context of the open-economy New Keynesian functional structures. In fact, econometrics and optimal policy design become more complex within an open economy. Dynamical inferences need to be qualified by the risk of bifurcation boundaries crossing the confidence regions. Without adequate prior econometric research, policy design needs to take into consideration that a change in monetary policy can produce an unanticipated bifurcation. |
| Keywords: | stability; bifurcation; open economy; New Keynesian; macroeconomics; dynamic systems |
| JEL: | E32 C52 C61 F41 E61 E37 C62 |
| Date: | 2012–08–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:40668&r=mac |
| By: | Bilbiie, Florin Ovidiu; Monacelli, Tommaso; Perotti, Roberto |
| Abstract: | In an economy with financial imperfections, Ricardian equivalence holds when prices are flexible and the steady-state distribution of consumption is uniform, or labor is inelastic. With different steady-state consumption levels, Ricardian equivalence fails, but tax cuts, somewhat paradoxically, are contractionary; the present-value multiplier on consumption is, however, zero. With sticky prices, Ricardian equivalence always fails. A Robin-Hood, revenue-neutral redistribution to borrowers is expansionary on aggregate activity. A uniform cut in taxes financed with public debt has a positive present-value multiplier on consumption, stemming from intertemporal substitution by the savers, who hold the public debt. |
| Keywords: | borrowing constraint; public debt; redistribution; tax cuts |
| JEL: | E44 E62 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9088&r=mac |
| By: | Luc Laeven; Fabian Valencia |
| Abstract: | We update the widely used banking crises database by Laeven and Valencia (2008, 2010) with new information on recent and ongoing crises, including updated information on policy responses and outcomes (i.e. fiscal costs, output losses, and increases in public debt). We also update our dating of sovereign debt and currency crises. The database includes all systemic banking, currency, and sovereign debt crises during the period 1970-2011. The data show some striking differences in policy responses between advanced and emerging economies as well as many similarities between past and ongoing crises. |
| Keywords: | Banking crisis , Databases , Deposit insurance , Developed countries , Emerging markets , Financial crisis , Fiscal policy , Monetary policy , Sovereign debt , |
| Date: | 2012–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/163&r=mac |
| By: | Dungan, Peter (University of Toronto); Fang, Tony (York University, Canada); Gunderson, Morley (University of Toronto) |
| Abstract: | We use a macro-econometric forecasting model to simulate the impact on the Canadian economy of a hypothetical increase in immigration. Our simulations generally yield positive impacts on such factors as real GDP and GDP per capita, aggregate demand, investment, productivity, and government expenditures, taxes and especially net government balances, with essentially no impact on unemployment. This is generally buttressed by conclusions reached in the existing literature. Our analysis suggests that concern should be with respect to immigrants themselves as they are having an increasingly difficult time assimilating into the Canadian labour market, and new immigrants are increasingly falling into poverty. |
| Keywords: | macroeconomic impact, immigration, FOCUS Model, Canada |
| JEL: | J15 E17 J18 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6743&r=mac |
| By: | Csávás, Csaba; Erhart, Szilárd; Naszódi, Anna; Pintér, Klára |
| Abstract: | There is ample empirical evidence in the literature for the positive effect of central bank transparency on the economy. The main channel is that transparency reduces the uncertainty regarding future monetary policy and thereby it helps agents to make better investment, and saving decisions. In this paper, we document how the degree of transparency of central banks in Central and Eastern Europe has changed during periods of financial stress, and we argue that during the recent financial crisis central banks became less transparent. We investigate also how these changes affected the uncertainty in these economies, measured by the degree of disagreement across professional forecasters over the future short-term and long-term interest rates and also by their forecast accuracy. |
| Keywords: | central banking; transparency; financial crises; survey expectations; forecasting |
| JEL: | E58 E44 E47 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:40335&r=mac |
| By: | Francesco Busato; Bruno Chiarini |
| Abstract: | This paper studies equilibrium effects of fiscal policy within a dynamic general equilibrium model where tax evasion and underground activities are explicitly incorporated. In particular, we show that a dynamic general equilibrium with tax evasion may give a rational justification for a variant of the Laffer curve for a plausible parameterization. In this respect, the paper also identifies the different parameterization of the model formulation with tax evasion under which a Laffer curve exist. From a revenue maximizing perspective, the key policy messages are that bringing tax payers to compliance would be better than announcing to punish them if convicted, and that an economy without problems of compliance is much more sensitive to myopic behavior. |
| Keywords: | Two-sector Dynamic General Equilibrium Models, Fiscal Policy, Tax Evasion and Underground Activities |
| JEL: | E32 E13 H20 E26 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:itt:wpaper:2012-8&r=mac |
| By: | Sweder van Wijnbergen (University of Amsterdam); Alexander France (University of Amsterdam) |
| Abstract: | When debt levels approach critical levels, tax payers may revolt against the associated debtservice burden. Funding problems may arise in capital markets when lenders anticipate such revolts and refuse to participate in debt auctions. We provide a stochastic framework to assess whether such problems may arise and argue that the key to fiscal sustainability in a stochastic environment is a feedback rule from debt level shocks back to corresponding adjustments in the primary surplus. We show that such feedback rules narrow future distributions of debt-output ratios and so reduce crisis probabilities. We apply the methodology to Dutch debt and deficit data spanning two centuries. Our results strongly argue for the incorporation of rules stipulating tightening fiscal policy whenever debt stocks exceed previously agreed upon targets (like in the original Eurozone Stability pact). |
| Keywords: | E62; H62; H63; H68 |
| Date: | 2012–02–12 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20120011&r=mac |
| By: | Fabrizio Mattesini (Università di Roma "Tor Vergata"); Giuseppina Gianfreda (Università della Tuscia) |
| Abstract: | We study the Italian monetary regime from 1861 to the creation of the Bank of Italy in 1893. The regime was characterized by a multi- plicity of note issuers although one of them, the BNS, rapidly became the dominant bank of the country following a process of territorial expansion. We carefully describe the evolution of the system and we analyze its functioning by studying the acceptaibility of banknotes. Since by law banknotes had to be redeemed at par, acceptability is measured by the number of days notes were in circulation. We es- timate the acceptability of the BNS notes in the provinces were the bank had branches and we ?nd that the entry of a smaller issuer lim- ited the capacity of the dominant bank to keep its notes in circulation at local level. We take this as evidence that competition in notes issue worked as an e¤ective discipline device and we argue the fall of the sys- tem should not be readily attributed to the failure of the competittive mechanism. |
| Keywords: | money acceptability,notes redemption, multiple issuers. |
| JEL: | E42 N13 C33 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:lui:lleewp:12100&r=mac |
| By: | Takeo Hoshi; Takatoshi Ito |
| Abstract: | Recent academic papers have shown that the Japanese sovereign debt situation is not sustainable. The puzzle is that the bond rate has remained low and stable. Some suggest that the low yield can be explained by domestic residents’ willingness to hold Japanese government bonds (JGBs) despite its low return, and that as long as domestic residents remain home-biased, the JGBs are sustainable. About 95% of JGBs are currently owned by domestic residents. This paper argues that even with such dominance of domestic investors, if the amount of government debt breaches the ceiling imposed by the domestic private sector financial assets, the JGB rates can rapidly rise and the Japanese government can face difficulty rolling over the existing debt. A simulation is conducted on future paths of household saving and fiscal situations to show that the ceiling would be breached in the next 10 years or so without a drastic fiscal consolidation. This paper also shows that the government debt can be kept under the ceiling with sufficiently large tax increases. The JGB yields can rise even before the ceiling is hit, if the expectation of such drastic fiscal consolidation disappears. This paper points out several possible triggers for such a change in expectation. However, downgrading of JGBs by credit rating agencies is not likely to be a trigger, since past downgrades have not produced any change in the JGB yield. If and when the JGB rates rapidly rise, the Japanese financial institutions that hold a large amount of JGBs will sustain losses and the economy will suffer from fiscal austerity, financial instability, and inflation. |
| JEL: | E62 H63 H68 J11 O47 O53 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18287&r=mac |
| By: | Jiri Jonas |
| Abstract: | The paper discusses the fiscal impact of the Great Recession of 2007-08 on state and local governments in the United States. It documents the sharp decline in tax revenue and discusses how states responded to close the budget gaps in order to obey the balanced budget provisions. It highligts the procyclical nature of this policy response, provides a brief comparison with subnational policy stances in other advanced economies, and discusses some options for making subnational fiscal policy less procyclical within the framework of current rules. |
| Keywords: | Economic recession , Fiscal policy , Government expenditures , Stabilization measures , Tax collection , Tax revenues , United States , |
| Date: | 2012–07–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/184&r=mac |
| By: | Ivan Werning; Emmanuel Farhi |
| Abstract: | We study cross-country insurance in a currency union with nominal price and wage rigidities. We provide two results that build the case for the creation of a fiscal union within a currency union. First, we show that, if financial markets are incomplete, the value of gaining access to any given level of insurance is greater for countries that are members of a currency union. Second, we show that, even if financial markets are complete, private insurance is inefficiently low. A role emerges for government intervention in macro insurance to both guarantee its existence and to influence its operation. The efficient insurance arrangement can be implemented by contingent transfers within a fiscal union. The benefits of such a fiscal union are larger, the bigger the asymmetric shocks affecting the members of the currency union, the more persistent these shocks, and the less open the member economies. |
| JEL: | E62 E63 F02 F15 F3 F40 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18280&r=mac |
| By: | Agustín S. Bénétrix (IIIS, Trinity College Dublin); Philip R. Lane (IIIS, Trinity College Dublin and CEPR) |
| Abstract: | For the set of EMU member countries, we examine cyclical patterns in fiscal outcomes. We find that there is significant time variation in fiscal cyclicality, with an improvement in the wake of the Maastricht Treaty but a deterioration after the creation of EMU. Furthermore, we show that the fiscal cycle is affected by the financial cycle in addition to the output cycle. The lessons for the current reforms of European economic and fiscal governance are manifest. |
| Keywords: | Cyclicality, EMU |
| JEL: | E62 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp403&r=mac |
| By: | Derek Yu; Adél Bosch |
| Abstract: | This paper analyses trends in hours worked from South African household survey data for the period 1997 — 2011. The purpose of the paper is fourfold. First, the paper provides an overview on the trends in hours worked of formal sector employees, by various demographic and work characteristics. Second, the paper aims to establish how mean hours worked corresponded to the business cycle and third, the reliability of the Statistics South Africa hours worked data is assessed by comparing it with the data on hours working in the manufacturing sector by the Bureau of Economic Research (BER). Last, the newly derived hours worked variables are evaluated in terms of their usefulness as leading indicators, and how they can be used in productivity studies in the South African macroeconomic environment. |
| Keywords: | work hours, business cycles, formal sector employees, manufacturing industry, South Africa |
| JEL: | E32 J00 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:302&r=mac |
| By: | Derek Yu (Department of Economics, University of the Western Cape); Adél Bosch (Research Department, South African Reserve Bank) |
| Abstract: | This paper analyses trends in hours worked from South African household survey data for the period 1997 – 2011. The purpose of the paper is fourfold. First, the paper provides an overview on the trends in hours worked of formal sector employees, by various demographic and work characteristics. Second, the paper aims to establish how mean hours worked corresponded to the business cycle and third, the reliability of the Statistics South Africa hours worked data is assessed by comparing it with the data on hours working in the manufacturing sector by the Bureau of Economic Research (BER). Last, the newly derived hours worked variables are evaluated in terms of their usefulness as leading indicators, and how they can be used in productivity studies in the South African macroeconomic environment. |
| Keywords: | Work hours, Business cycles, Formal sector employees, Manufacturing industry, South Africa |
| JEL: | E32 J00 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:sza:wpaper:wpapers167&r=mac |
| By: | Christopher Otrok (Department of Economics, University of Missouri-Columbia); Gianluca Benigno; Huigang Chen; Alessandro Rebucci; Eric R. Young |
| Abstract: | In the aftermath of the global Â…nancial crisis, a new policy paradigm has emerged in which old-fashioned policies such as capital controls and other government distortions have become part of the standard policy toolkit (the so-called macro-prudential policies). On the wave of this seemingly unanimous policy consensus, a new strand of theoretical literature contends that capital controls are welfare enhancing and can be justified rigorously because of second-best considerations. Within the same theoretical framework adopted in this fast-growing literature, we show that a credible commitment to support the exchange rate in crisis times always welfare-dominates prudential capital controls as it can achieve the first best unconstrained allocation. In this benchmark economy, prudential capital controls are optimal only when the set of policy tools is restricted so that they are the only policy instrument available. |
| Keywords: | Capital Controls, Exchange Rate Policy, Financial Frictions, Financial Crises, Financial Stability, Optimal Taxation, Prudential Policies, Planning Problem. |
| JEL: | E52 F37 F41 |
| Date: | 2012–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:umc:wpaper:1209&r=mac |
| By: | Pablo Pincheira; Roberto Álvarez |
| Abstract: | The Central Bank of Chile builds inflation forecasts for several time horizons and using various methodologies. In this paper, we analyze one of these series of short-term inflation forecasts, which we call Auxiliary Inflation Forecasts (AIF), comparing them to forecasts made by private analysts and to forecasts built from simple time-series models. We also evaluate the AIF using encompassing tests and bias and weak efficiency tests. Our aim is to answer two linked questions: first, which is the best forecast series under a specific loss function? and second, are the differences of accuracy between any two series of forecasts totally explained by the differences in the information sets from which they have been built? Our results indicate that the AIF behave extremely well at one- and two-month horizons, but they are less adequate at longer horizons. |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:674&r=mac |
| By: | Brent Moulton; Dennis Fixler (Bureau of Economic Analysis) |
| Abstract: | Paper presented at IARIW 32nd General Conference |
| JEL: | E60 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:bea:papers:0101&r=mac |
| By: | Jung, Philip; Kuhn, Moritz |
| Abstract: | An extensive empirical literature has documented that workers with high tenure suffer large and persistent earnings losses when they get displaced. We study the reasons behind these losses in a tractable search model with a life-cycle dimension, endogenous job mobility, worker- and match-heterogeneity. The model reconciles key characteristics of the U.S. labor market: large average transition rates, a large share of stable jobs, and the earnings losses from displacement. We decompose the earnings losses and find that only 50% result from skill losses. Endogenous reactions and selection account for the remainder. Our findings have important implications for the welfare costs of displacement and labor market policy. |
| Keywords: | Earnings Losses; Life-Cycle; Labor-Market Transitions; Turbulence |
| JEL: | E24 J63 J64 |
| Date: | 2012–07–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:40287&r=mac |
| By: | Oguz Atuk; M. Utku Ozmen; Orhun Sevinc |
| Abstract: | [TR] Fiyat endeksleri kapsaminda yilin sadece belirli donemlerinde temin edilebilen urunler guclu mevsimsellik gosteren urunler olarak adlandirilmaktadir. Bu notta, cesitli urun gruplarinin yillik TUFE enflasyonuna yaptigi katkilar incelenerek guclu mevsimselligin ongorulemez fiyat oynakligi olusturmasinin sektorel yapiyla yakindan iliskili oldugu saptanmistir. Ayrica taze meyve ve sebze fiyatlarindaki guclu mevsimsellikten kaynaklanan TUFE oynakliginin, diger urun gruplarindan farkli olarak, aylik bazda da cok yuksek bir belirsizlik icerdigi gosterilmistir. Bu farkliligin enflasyon olcumunde yontemsel olarak dikkate alinmayisinin yasam maliyetinin olcumune ve enflasyon hedeflemesi cercevesinde para politikasina etkileri tartisilmistir. [EN] Strong seasonality is a special case of seasonality which is characterized by the unavailability of products in every period of the year in the market. In this note, contributions to annual CPI inflation of selected product groups are analyzed. Results suggest that strong seasonality driven unpredictable volatility is closely linked to the structure of the sectors. Moreover, strong seasonality induced CPI volatility from fresh fruits and vegetables are shown to exhibit great uncertainty in monthly terms as well, compared to other product groups. Effects of ignoring this condition in CPI calculation on the cost of living measurement and the monetary policy under inflation targeting framework are discussed. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:econot:1216&r=mac |
| By: | Gianluca Benigno; Huigang Chen; Christopher Otrok; Alessandro Rebucci; Eric R. Young |
| Abstract: | In the aftermath of the global financial crisis, a new policy paradigm has emerged in which old-fashioned policies such as capital controls and other government distortions have become part of the standard policy toolkit (the so-called macro-prudential policies). On the wave of this seemingly unanimous policy consensus, a new strand of theoretical literature contends that capital controls are welfare enhancing and can be justified rigorously because of second-best considerations. Within the same theoretical framework adopted in this fast-growing literature, we show that a credible commitment to support the exchange rate in crisis times always welfare-dominates prudential capital controls as it can achieve the first best unconstrained allocation. In this benchmark economy, prudential capital controls are optimal only when the set of policy tools is restricted so that they are the only policy instrument available. |
| Keywords: | Capital controls, exchange rate policy, financial frictions, financial crises, financial stability, optimal taxation, prudential policies, planning problem |
| JEL: | E52 F37 F41 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1160&r=mac |
| By: | Luis Ignacio Jácome; Patrick A. Imam; Erlend Nier |
| Abstract: | An increasing number of countries - including in Latin America - are reforming their financial stability frameworks in the aftermath of the financial crisis, in order to establish a stronger macroprudential policy function. This paper analyzes existing arrangements for financial stability in Latin America and examines key issues to consider when designing the institutional foundations for effective macroprudential policies. The paper focuses primarily on eight Latin American countries, where the institutional arrangements for monetary and financial policies can be classified in two distinct groups: the "Pacific" model that includes Chile, Colombia, Peru, Costa Rica, and Mexico, and the "Atlantic" model, comprising Argentina, Brazil, and Uruguay. |
| Keywords: | Banking crisis , Cross country analysis , Financial stability , Latin America , Macroprudential policy , Monetary policy , |
| Date: | 2012–07–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/183&r=mac |
| By: | Jacky Mallett; Charles Keen |
| Abstract: | Gross Domestic Product(GDP) is a widely used measurement of economic growth representing the market value of all final goods and services produced by a country within a given time. In this paper we question the assumption that GDP measures production, and suggest that in reality it merely captures changes in the rate of expansion of the money supply used to measure the price data it is derived from. We first review the Quantity Theory of Money $MV=PT$, and show that the Velocity of Circulation of Money(V) does not affect the price level as claimed, as it is also a factor of the quantity of transactions(T). It then follows directly that attempts to measure total production from any form of price data as the GDP measurement does, will necessarily be confounded by the inverse relationship between prices and the quantity of production, which requires that as the total quantity of production increases, prices will drop. Finally, in support of this claim we present an empirical analysis of the GDP of nine countries and one currency union, showing that when normalized for money supply growth GDP measures have been uniformly shrinking over the last 20 years, and discuss the possible reasons for this behaviour. |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1208.0642&r=mac |
| By: | Alan M. Taylor |
| Abstract: | What can history can tell us about the relationship between the banking system, financial crises, the global economy, and economic performance? Evidence shows that in the advanced economies we live in a world that is more financialized than ever before as measured by importance of credit in the economy. I term this long-run evolution “The Great Leveraging” and present a ten‐point examination of its main contours and implications. |
| JEL: | E3 E5 E6 N1 N2 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18290&r=mac |
| By: | Alexander Guarín; Andrés González; Daphné Skandalis; Daniela Sánchez |
| Abstract: | In this paper, we propose an alternative methodology to determine the existence of credit booms, which is a complex and crucial issue for policymakers. In particular, we exploit the Mendoza and Terrones (2008)’s idea that macroeconomic aggregates other than the credit growth rate contain valuable information to predict credit boom episodes. Our econometric method is used to estimate and predict the probability of being in a credit boom. We run empirical exercises on quarterly data for six Latin American countries between 1996 and 2011. In order to capture simultaneously model and parameter uncertainty, we implement the Bayesian model averaging method. As we employ panel data, the estimates may be used to predict booms of countries which are not considered in the estimation. Overall, our findings show that macroeconomic variables contain valuable information to predict credit booms. In fact, with our method the probability of detecting a credit boom is 80%, while the probability of not having false alarms is greater than 92%. |
| Keywords: | Early Warning Indicator, Credit Booms, Business Cycles, Emerging Markets. Classification JEL:E32, E37, E44, E51, C53. |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:723&r=mac |
| By: | Emine Boz; Javier Bianchi; Enrique G. Mendoza |
| Abstract: | The interaction between credit frictions, financial innovation, and a switch from optimistic to pessimistic beliefs played a central role in the 2008 financial crisis. This paper develops a quantitative general equilibrium framework in which this interaction drives the financial amplification mechanism to study the effects of macro-prudential policy. Financial innovation enhances the ability of agents to collateralize assets into debt, but the riskiness of this new regime can only be learned over time. Beliefs about transition probabilities across states with high and low ability to borrow change as agents learn from observed realizations of financial conditions. At the same time, the collateral constraint introduces a pecuniary externality, because agents fail to internalize the effect of their borrowing decisions on asset prices. Quantitative analysis shows that the effectiveness of macro-prudential policy in this environment depends on the government's information set, the tightness of credit constraints and the pace at which optimism surges in the early stages of financial innovation. The policy is least effective when the government is as uninformed as private agents, credit constraints are tight, and optimism builds quickly. |
| Keywords: | Economic models , Financial crisis , Macroprudential policy , |
| Date: | 2012–07–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/181&r=mac |
| By: | Manmohan Singh |
| Abstract: | Deleveraging has two components--shrinking of balance sheets due to increased haircuts/shedding of assets, and the reduction in the interconnectedness of the financial system. We focus on the second aspect and show that post-Lehman there has been a significant decline in the interconnectedness in the pledged collateral market between banks and nonbanks. We find that both the collateral and its associated velocity are not rebounding as of end-2011 and still about $4-5 trillion lower than the peak of $10 trillion as of end-2007. This paper updates Singh (2011) and we use this data to compare with the monetary aggregates (largely due to QE efforts in US, Euro area and UK), and discuss the overall financial lubrication that likely impacts the conduct of global monetary policy. |
| Keywords: | Banks , Debt reduction , International financial system , Liquidity , Monetary aggregates , Nonbank financial sector , |
| Date: | 2012–07–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/179&r=mac |
| By: | Centre for Policy Dialogue (CPD) |
| Abstract: | This paper takes stock of the performance of the national economy in certain key areas covering the first six months of FY2011-12 (July-December 2011). The review sets the stage by analysing the most recent trends in the global and regional economies and tries to interpret their implications for Bangladesh. The focus areas of the review include the state of public finance, monetary sector, capital market and balance of payments situation. The paper rounds off with an analysis of the short-term outlook of the economy including its growth prospect. |
| Keywords: | Bangladesh economy, FY2011-12, Padma Bridge |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:pdb:opaper:98&r=mac |
| By: | D'Agostino, Antonello; Ehrmann, Michael |
| Abstract: | Against the background of the current debate about fiscal sustainability in several advanced economies, this paper estimates the determinants of sovereign bond spreads of the G7 countries, using high-frequency proxies for market expectations about macroeconomic fundamentals. It allows for time-varying parameters and stochastic volatility as well as for asymmetry in the effects of countries’ fundamentals on yield spreads. The paper finds that there is substantial asymmetry in the importance of country fundamentals, which shrinks, the closer the two constituent bonds are to being substitutes. There are also considerable time variations in the role of the various determinants. In particular, there has been a reduced pricing of several risk factors in the years preceding the financial crisis, and either an over-pricing of risk or the pricing of catastrophic events like a break-up of the euro area and a re-denomination risk of euro area bonds during the European sovereign debt crisis. |
| Keywords: | sovereign spreads; fiscal policy; time-varying coefficients |
| JEL: | E43 F34 G15 E44 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:40604&r=mac |
| By: | Banai, Ádám; Király, Júlia; Nagy, Márton |
| Abstract: | In Hungary in the pre-crisis period the bank sector initiated private credit boom significantly contributed to the accumulation of economic imbalances. Nevertheless, before the 2008 crisis no special regulatory measure was taken to mitigate the FX lending to unhedged borrowers, which was one of the main moving force of the credit boom. Depreciation of the HUF and the increased risk premium significantly deteriorated the customers’ positions and resulted rocketing NPL-s. Recession, deteriorating portfolios, lack of efficient workout and the introduced strict regulation did freeze banking activity and the danger of recovery without lending did emerge. The paper compares the pre- and post-crisis lending activity and analyse both the lack of regulation in the pre-crisis and the inefficient regulation in the post-crisis period. |
| Keywords: | FX lending; macro prudential measures; credit growth; financial stability |
| JEL: | E58 G28 G21 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:40333&r=mac |
| By: | Ayşegül Şahin; Joseph Song; Giorgio Topa; Giovanni L. Violante |
| Abstract: | We develop a framework where mismatch between vacancies and job seekers across sectors translates into higher unemployment by lowering the aggregate job-finding rate. We use this framework to measure the contribution of mismatch to the recent rise in U.S. unemployment by exploiting two sources of cross-sectional data on vacancies, JOLTS and HWOL, a new database covering the universe of online U.S. job advertisements. Mismatch across industries and occupations explains at most 1/3 of the total observed increase in the unemployment rate, whereas geographical mismatch plays no apparent role. The share of the rise in unemployment explained by occupational mismatch is increasing in the education level. |
| JEL: | E24 J24 J61 J62 J63 J64 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18265&r=mac |
| By: | Blot, Christophe (OFCE); Ducoudre, Bruno (OFCE); Heyer, Eric (OFCE); Cochard, Marion (OFCE) |
| Abstract: | La crise économique débutée en 2008 s'est traduite par un choc d'activité conduisant au ralentissement de l'inflation et à la montée du chômage dans la plupart des pays développés. Ce choc inédit depuis 1945, parfois accompagné de baisses des prix ou des salaires dans certains pays, a fait ressurgir le spectre de la déflation puisqu'une hausse importante du chômage pourrait enclencher la déflation via la boucle salaires-prix. Les pays développés ont alors été confrontés au risque de tomber dans une spirale de déflation par la dette, spirale qui avait nourri la grande crise de 1929. Face à ce risque, les gouvernements et les banques centrales ont mis en oeuvre un ensemble de politiques monétaires et budgétaires de soutien de l'activité. Ces politiques ont permis d'écarter jusqu'à présent la réalisation du risque déflationniste. Les entreprises ont aussi ajusté leur taux de marge, ce qui a limité la hausse du chômage et le risque d'apparition de la déflation. Par ailleurs, l'évolution du prix des matières premières, en hausse depuis 2009, a alimenté l'inflation. Cette étude évalue le rôle de l'ajustement du marché du travail et la contribution de la dynamique du prix du pétrole à la dynamique de l'inflation pendant la crise. Nous estimons économétriquement la boucle prix-salaire pour l'Allemagne, la France, l'Italie, l'Espagne, les Etats- Unis, le Royaume-Uni et le Japon. Puis nous montrons, à partir de ces estimations, que si le prix du pétrole avait poursuivi sa tendance haussière après le pic de l'été 2008 et si l'ajustement sur le marché du travail avait été identique à celui des États-Unis dans tous les pays, alors le glissement annuel de l'inflation au deuxième trimestre 2011 serait plus faible : de 0,7 point en France jusqu'à 3,4 points au Royaume-Uni. |
| Keywords: | Déflation;; Crise économique; |
| JEL: | E31 |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:ner:sciepo:info:hdl:2441/53r60a8s3kup1vc9k0scm68b7&r=mac |
| By: | Efraim Benmelech |
| Abstract: | The U.S. Federal Reserve used the Term Auction Facility (TAF) to provide term funding to eligible depository institutions from December 2007 to March 2010. According to the Fed, the purpose of TAF was to inject term funds through a broader range of counterparties and against a broader range of collateral than open market operations. The overall goal of the TAF was to ensure that liquidity provisions could be disseminated efficiently even when the unsecured interbank markets were under stress. In this paper I use the TAF micro-level loan data and find that about 60 percent of TAF loans went to foreign banks that pledged asset-backed securities as collateral for these loans. The data and analysis illustrate the major role that foreign – in particular, European – banks currently play in the U.S. financial system and the resultant currency mismatch in their balance sheets. The data suggest that foreign banks had to borrow from the Federal Reserve Bank to meet their dollar-denominated liabilities. |
| JEL: | E44 E52 E58 G01 G21 G28 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18304&r=mac |
| By: | Hiroaki Miyamoto (International University of Japan) |
| Abstract: | The share of non-regular employment has been increasing in many developed countries during the past two decades. The objective of this paper is to study a cause of the upward trend in non-regular employment by focusing on productivity growth. Data from Japan shows that productivity growth reduces both unemployment and the proportion of nonregular workers to total employed workers. In order to study the impact of long-run productivity growth on unemployment and non-regular employment, I develop a search and matchingmodel with disembodied technological progress and two types of jobs, regular and non-regular jobs. The numerical analysis demonstrates that faster growth reduces the share of non-regular employment, but the effect of faster growth on unemployment is ambiguous. |
| Keywords: | Growth, Unemployment,Non-regular employment, Search, matching model |
| JEL: | E24 J64 O40 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:iuj:wpaper:ems_2012_04&r=mac |
| By: | Alessandro Federici (Italian National Agency for New Technologies, Energy and Sustainable Economic Development); Pierluigi Montalbano (University of Sussex and Sapienza University.) |
| Abstract: | This work presents a robust empirical approach to dealing with the issue of the long run relationship between macroeconomic volatility, consumption behaviour and welfare for a large sample of countries. Differing from previous works, our empirical strategy is grounded on consumption and takes account of the role of persistence in consumption/income volatility. Our main conclusion is twofold: on one hand, we determine that aggregate volatility exerts, on average and ceteris paribus, a significant impact in deviating consumption from its smoothing path, producing aggregate extra saving, and in hampering future consumption prospects. This relationship holds across countries, including the poorest ones, and is becoming more significant in recent years. On the other hand, by deliberately proposing conservative estimates, we confirm Lucas' (1987) intuition about the low value of stabilisation policies, both across-countries and in the long-run. Our empirical evidence provides new insights into the long standing debate about the costs of fluctuations. First, it shows that the poorest countries hold a significant amount of "extra saving" too, because of economic fluctuations. Second, it underlies that, on average, uncertainty affects not only the volatility of consumption around its mean but the mean itself (Elbers and Gunning, 2003). |
| Keywords: | consumption, volatility, precautionary saving, welfare, developing countries |
| JEL: | E21 F40 C82 O10 O57 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:sus:susewp:3612&r=mac |
| By: | Ozdemir, Zeynel / A.; Balcilar, Mehmet; Tansel, Aysit |
| Abstract: | This paper shows that the structural breaks are an important characteristic of the monthly labor force participation rate (LFPR) series of Australia, Canada and the USA. Therefore we allow for endogenously determined multiple structural breaks in the empirical specifications of fractionally integrated ARMA model. The findings indicate that contrary to the previous research the LFPRs of Australia, Canada and the USA are stationary implying that the informational value of the unemployment rates about the behavior of labor markets and the causes of joblessness are useful. |
| Keywords: | Labor Force Participation Rates; Structural Change; Stationarity |
| JEL: | E24 J21 C22 |
| Date: | 2012–08–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:40572&r=mac |
| By: | Assa, Maganga; Abdi, Edriss K. |
| Abstract: | This study provides an empirical test of the macroeconomic variables that can potentially affect private investment decisions in Malawi in a short and long run perspective using time series data. Both the theory and the empirical literature are reviewed in order to identify a private investment function for the last three decades (1979-2009). The results reveal that investment decisions seem to be determined by public investment, bank credit to the private sector and the real interest rate in the short run. Besides, there is evidence of a crowding-out effect of public investment. In the long run, the capital accumulation path seems to be closely dependent on both GDP growth and real exchange rates. |
| Keywords: | Co-integration; Crowding-out; Error Correction Model; Malawi; Private investment |
| JEL: | E62 |
| Date: | 2012–03–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:40698&r=mac |
| By: | Murat Ungor |
| Abstract: | [TR] Bu calisma, basit bir uretim fonksiyonunu temel alarak Turkiye icin bir cikti acigi gostergesi hesaplamaktadir. 2005-2008 doneminde cikti aciginda pozitif duzey olusmus ve 2007 : Q4 donemi tepe noktasi olarak gozlenmistir. 2009 yilinda ise son kuresel krizin etkisiyle uretim duzeyi, potansiyel duzeyinin altinda yer almis ve cikti acigi 2009 : Q1 doneminde dip noktasina ulasmistir. Bu calismada ortaya konulan cikti acigi hesaplamalari, yeni Keynesyen bir model ve Bayesci yontem kullanilarak Turkiye’de cikti aciginin hesaplandigi, Alp, Ogunc ve Sarikaya (2012) calismasinin bulgulari ile karsilastirilmistir. Niceliksel olarak bazi farkliliklar gozlenmekle beraber; iki calismada da niteliksel olarak benzer cikti acigi bulgulari ortaya konmaktadir. [EN] This note estimates an output gap measure for Turkey using a production function approach relying on a simplistic representation of the production technology. There is a large positive swing in the output gap during 2005–2008 and output gap reached its peak in 2007 : Q4. Output level fell below its potential dramatically as a result of the global economic crisis in 2009 hitting a trough in 2009 : Q1 and negative output gap as a percentage difference from the potential output was around 12 percent. Output gap estimates in this note and the ones obtained in Alp, Ogunc, and Sarikaya (2012), using Bayesian estimation of a New Keynesian model, exhibit a similar pattern qualitatively, whereas there are some differences in quantitative terms. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:tcb:econot:1219&r=mac |
| By: | John Kennan |
| Abstract: | There is a large body of evidence indicating that cross-country differences in income levels are associated with differences in productivity. If workers are much more productive in one country than in another, restrictions on immigration lead to large efficiency losses. The paper quantifies these losses, using a model in which efficiency differences are labor-augmenting, and free trade in product markets leads to factor price equalization, so that wages are equal across countries when measured in efficiency units of labor. The estimated gains from removing immigration restrictions are huge. Using a simple static model of migration costs, the estimated net gains from open borders are about the same as the gains from a growth miracle that more than doubles the income level in less-developed countries. |
| JEL: | E25 F11 F22 J61 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18307&r=mac |
| By: | Julieta Fuentes; Pilar Poncela; Julio Rodríguez |
| Abstract: | Factor models have been applied extensively for forecasting when high dimensional datasets are available. In this case, the number of variables can be very large. For instance, usual dynamic factor models in central banks handle over 100 variables. However, there is a growing body of the literature that indicates that more variables do not necessarily lead to estimated factors with lower uncertainty or better forecasting results. This paper investigates the usefulness of partial least squares techniques, that take into account the variable to be forecasted when reducing the dimension of the problem from a large number of variables to a smaller number of factors. We propose different approaches of dynamic sparse partial least squares as a means of improving forecast efficiency by simultaneously taking into account the variable forecasted while forming an informative subset of predictors, instead of using all the available ones to extract the factors. We use the well-known Stock and Watson database to check the forecasting performance of our approach. The proposed dynamic sparse models show a good performance in improving the efficiency compared to widely used factor methods in macroeconomic forecasting. |
| Keywords: | Factor Models, Forecasting, Large Datasets, Partial Least Squares, Sparsity, Variable Selection |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:cte:wsrepe:ws122216&r=mac |
| By: | Ryan Chahrour (Boston College) |
| Abstract: | This paper models the tradeoff, perceived by central banks and other public actors, between providing the public with useful information and the risk of overwhelming it with excessive communication. An information authority chooses how many signals to provide regarding an aggregate state and agents respond by choosing how many signals to observe. When agents desire coordination, the number of signals they acquire may decrease in the number released. The optimal quantity of communication is positive, but does not maximize agents' acquisition of information. In contrast to a model without information choice, the authority always prefers to provide more precise signals. |
| Keywords: | Transparency, Central Bank Communication, Monetary Policy, Global Games, Information Acquisition |
| JEL: | E50 E58 E60 D83 |
| Date: | 2012–07–24 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:803&r=mac |
| By: | De Koning, Kees |
| Abstract: | Economic Growth is only a result indicator: the result of how a society combines savings with the available manpower. The real indicator of economic health is whether such economic growth is combined with an increase in households' net worth. |
| Keywords: | economic growth; households' net worth;pension dividend. savers renumeration; quantitative easing; financial markets borrowings |
| JEL: | E21 E20 |
| Date: | 2012–07–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:40446&r=mac |
| By: | Uluc Aysun (University of Central Florida, Orlando, FL); Raman Khaddaria (University of Central Florida, Orlando, FL) |
| Abstract: | In this paper we uncover a relationship between regional economic fluctuations and bankruptcy resolution capacity and predict that its direction depends on the cyclicality of bankruptcy. If bankruptcy is countercyclical (procyclical), we predict that economic fluctuations should be more(less) severe in regions with lower judicial capacity. This is because in these regions, bank lending is more sensitive to judicial capacity and shocks that have a countercyclical (procyclical) effect on bankruptcy are amplified (mitigated) by more. We find evidence showing that bankruptcy is countercyclical and that in US states with lower judicial capacity, economic fluctuations are more severe. |
| Keywords: | judicial capacity, regional economic fluctuations, bankruptcy |
| JEL: | E02 E32 K35 R11 |
| Date: | 2012–06 |
| URL: | http://d.repec.org/n?u=RePEc:cfl:wpaper:2012-01&r=mac |
| By: | Taeyoung Doh; Michael Connolly |
| Abstract: | To capture the evolving relationship between multiple economic variables, time variation in either coefficients or volatility is often incorporated into vector autoregressions (VARs). However, allowing time variation in coefficients or volatility without restrictions on their dynamic behavior can increase the number of parameters too much, making the estimation of such a model practically infeasible. For this reason, researchers typically assume that time-varying coefficients or volatility are not directly observed but follow random processes which can be characterized by a few parameters. The state space representation that links the transition of possibly unobserved state variables with observed variables is a useful tool to estimate VARs with time-varying coefficients or stochastic volatility. ; In this paper, we discuss how to estimate VARs with time-varying coefficients or stochastic volatility using the state space representation. We focus on Bayesian estimation methods which have become popular in the literature. As an illustration of the estimation methodology, we estimate a time-varying parameter VAR with stochastic volatility with the three U.S. macroeconomic variables including inflation, unemployment, and the long-term interest rate. Our empirical analysis suggests that the recession of 2007-2009 was driven by a particularly bad shock to the unemployment rate which increased its trend and volatility substantially. In contrast, the impacts of the recession on the trend and volatility of nominal variables such as the core PCE inflation rate and the ten-year Treasury bond yield are less noticeable. |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp12-04&r=mac |
| By: | Manuk Ghazanchyan; Nils O Maehle; Olumuyiwa Adedeji; Janet Gale Stotsky |
| Abstract: | This study examines the relationship between the foreign exchange regime and macroeconomic performance in Eastern Africa. The study focuses on seven countries, five of which decisively liberalized their foreign exchange regimes. The study assesses the relationship between (i) growth and various determinants, including the exchange regime, the real exchange rate, and current account liberalization; and (ii) inflation and various determinants, including lagged inflation, the nominal exchange rate, the exchange regime, and liberalization. We find that in our sample, for the determinants of growth, investment and the real exchange rate are significant determinants but not the exchange regime or liberalization; and for inflation, the lagged inflation rate, nominal exchange rate, and the de facto regime are significant. Exchange rate pass-through is limited. |
| Keywords: | Economic growth , East Africa , Exchange rate regimes , Foreign exchange , |
| Date: | 2012–06–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/148&r=mac |
| By: | Robert J. Barro |
| Abstract: | In an 80-country panel since the 1960s, the convergence rate for per capita GDP is around 1.7% per year. This “beta convergence” is conditional on an array of explanatory variables that hold constant countries’ long-run characteristics. The introduction of country fixed effects generates a much higher—and, I argue, misleading—convergence rate. In a much longer time frame—28 countries since 1870—estimation with country fixed effects is more appropriate, and the estimated convergence rate is around 2.4% per year. Combining the point estimates from the post-1960s and post-1870 panels suggests that the conditional convergence rate is between 1.7% and 2.4% per year, an interval that contains the “iron-law” rate of 2%. In the post-1960s panel, estimation without country fixed effects supports the modernization hypothesis, in the form of positive effects of per capita GDP and schooling on democracy and maintenance of law and order. The long-term panel with country fixed effects also supports modernization, in the sense of a positive effect of per capita GDP on the Polity indicator for democracy. A measure of dispersion—the standard deviation of the log of per capita GDP across 25 countries—is reasonably stable since 1870. This lack of “sigma convergence” is consistent with the presence of beta convergence. For 34 countries—including China and India—observed since 1896, the dispersion of per capita GDP declines since the late 1970s, especially when the country data are weighted by population. This sigma convergence reflects particularly the incorporation of China and India into the world market economy. For 29 countries since 1919, the levels and trends in cross-country dispersion are similar for consumption and GDP. |
| JEL: | E02 O4 O43 O47 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18295&r=mac |
| By: | James P Walsh; Jiangyan Yu |
| Abstract: | There is an extensive literature noting that high inflation can add to income inequality, and a parallel literature assessing the effect of rising food prices on the poor. This paper attempts to combine these strands by dividing inflation into food and nonfood inflation and assessing whether food inflation affects income inequality differently from nonfood inflation. In an international sample and a sample of Chinese provinces, nonfood inflation exacerbates income inequality while the role of food inflation is more mixed. In a sample of Indian states broken down into urban and rural areas, we find that nonfood inflation adds to income inequality in both areas, while food inflation has a neutral to positive effect on income inequality in rural areas, providing support for the theory that rural wages may respond elastically to food prices. |
| Keywords: | Agricultural commodities , Income distribution , China , India , Inflation , Producer prices , |
| Date: | 2012–06–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:12/147&r=mac |
| By: | Bruno Albuquerque; Cristina Manteu |
| Abstract: | Global current account imbalances are generally seen as a threat to world growth. Given that they are projected to remain high, in an environment of prevailing downside risks, what could be done to reduce these imbalances? Using NiGEM, a large-scale multi-country model, we build up a global rebalancing scenario by assuming policy coordination at world level. This scenario considers that advanced economies adopt more ambitious fiscal consolidation (Layer 1) and structural reforms to boost potential output (Layer 2), whereas large emerging market surplus economies increase exchange rate flexibility and carry out structural reforms aimed at supporting domestic demand (Layer 3). Our main findings are the following. The global rebalancing scenario would reduce global imbalances by one quarter and world GDP would rise in a five-year period, lending support to the view that multilateral coordinated policy action would imply stronger, more sustainable and balanced growth of the world economy. Nevertheless, and contrary to recent analysis by the IMF, this scenario would carry some costs, specifically for some of the major advanced deficit economies which would experience a fall in GDP relative to the baseline. |
| JEL: | E17 F32 F42 F47 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ptu:wpaper:w201214&r=mac |
| By: | Körner, Finn Marten; Zemanek, Holger |
| Abstract: | In this paper we study the intra-euro area imbalances based on a dynamic general equilibrium model. We show that European financial integration and the introduction of the euro might have contributed to the development of imbalances. Interest rate convergence following EMU accession led to net foreign debt positions, which prove difficult to reverse. Simulation results for the euro area suggest that current account imbalances and foreign debt positions of today's crisis countries have significantly diverged from a sustainable path. Increasing investment in the EMU core and productivity in crisis countries may permit a return to sustainable foreign debt levels and correct macroeconomic imbalances in the euro area. -- |
| Keywords: | current account imbalances,euro area,foreign debt,sustainability,general equilibrium model |
| JEL: | E44 F32 F34 G15 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:leiwps:109&r=mac |
| By: | Cecilia Frale; Valentina Raponi |
| Abstract: | This paper deals with the topic of revision of data with the aim of investigating whether consecutive releases of macroeconomic series published by statistical agencies contain useful information for economic analysis and forecasting. The rationality of the re-visions process is tested considering the complete history of data and an empirical application to show the usefulness of revisions for improving the precision of forecasting model is proposed. The results for Italian GDP growth show that embedding the revision process in a dynamic factor model helps to reduce the forecast error. |
| Keywords: | Data revisions, real-time dataset, mixed frequency, Dynamic factor Model. |
| JEL: | E32 E37 C53 |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:itt:wpaper:wp2012-3&r=mac |
| By: | Chaix, Laetitia; Torre, Dominique |
| Abstract: | This paper explores the economic models associated to different mobile-payment systems. We first present the existing experiences and review the few economic literature on the subject. We then concentrate on the four economic models currently experimented around the world: the operator-centric model, the bank-centric model, the collaborative model, and the independent service provider model. We select relevant cases of recent development of these models and we try to present them in an appropriated theoretical settings. We find that their fundamental components make them viable systems, able to improve without ambiguity the transaction technology in different economic environments. These models have however different advantages and limits. If we limit the analysis to quite large distant payments, the operator-centric model is adapted to emerging countries without a banking system sufficiently dense, with users making a relative few number of relatively large distant payments. The bank-centric could have been more adapted to professional users in countries with a fully developed financial environment. These characteristics are also observed for the two others models. The independent service provider (ISP) model seems now the main competitor of the bank-centric model. The structure of the costs and the technology of this model, out of the control of operators (and partly from banks) seem more adapted for users making many payments in a secure and developed economic area. Despite difficulties to define precisely its structure of governance, the collaborative model can also compete with the operator centric one in a non fully bancarized environment. We finally discuss the results and compare the potentiality of the four models. -- |
| Keywords: | Electronic Payment,Mobile Payment,Business Models,Network Externalities. |
| JEL: | E42 O33 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:itse12:60380&r=mac |
| By: | Sule Alan (Koc University and University of Cambridge); Kadir Atalay (University of Sydney); Thomas F. Crossley (Koc University, University of Cambridge and Institute for Fiscal Studies, London) |
| Abstract: | First order conditions from the dynamic optimization problems of consumers and firms are important tools in empirical macroeconomics. When estimated on micro-data these equations are typically linearized so standard IV or GMM methods can be employed to deal with the measurement error that is endemic to survey data. However, it has recently been argued that the approximation bias induced by linearization may be worse than the problems that linearization is intended to solve. This paper explores this issue in the context of consumption Euler equations. These equations form the basis of estimates of key macroeconomic parameters: the elasticity of inter-temporal substitution (EIS) and relative prudence. We numerically solve and simulate 6 different life-cycle models, and then use the simulated data as the basis for a series of Monte Carlo experiments in which we consider the validity and relevance of conventional instruments, the consequences of different data sampling schemes, and the effectiveness of alternative estimation strategies. The first-order Euler equation leads to biased estimates of the EIS, but that bias is perhaps not too large when there is a sufficient time dimension to the data, and sufficient variation in interest rates. A sufficient time dimension can only realistically be achieved with a synthetic cohort. Estimates are unlikely to be very precise. Bias will be worse the more impatient agents are. The second order Euler equation suffers from a weak instrument problem and offers no advantage over the first-order approximation. |
| Keywords: | Euler Equations, Measurement Error, Instrumental Variables, GMM. |
| JEL: | E21 C20 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1221&r=mac |
| By: | Ravi Bansal; Dana Kiku; Amir Yaron |
| Abstract: | The long-run risks (LRR) asset pricing model emphasizes the role of low-frequency movements in expected growth and economic uncertainty, along with investor preferences for early resolution of uncertainty, as an important economic-channel that determines asset prices. In this paper, we estimate the LRR model. To accomplish this we develop a method that allows us to estimate models with recursive preferences, latent state variables, and time-aggregated data. Time-aggregation makes the decision interval of the agent an important parameter to estimate. We find that time-aggregation can significantly affect parameter estimates and statistical inference. Imposing the pricing restrictions and explicitly accounting for time-aggregation, we show that the estimated LRR model can account for the joint dynamics of aggregate consumption, asset cash flows and prices, including the equity premia, risk-free rate and volatility puzzles. |
| JEL: | E2 G1 G12 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18305&r=mac |
| By: | Brad, Anca Maria |
| Abstract: | The paper seeks to find the impact of tax policy on income and wealth redistribution, as well as its effects on welfare. Redistribution through transfers has a major contribution to reducing inequality and polarization of income. The fiscal reforms in present-day circumstances imply as outcome the so called “tax uniformity”, embedding income redistribution through budgetary mechanisms, an arrangement that greatly depends on the alternative chosen by the authorities for the distribution of tax burden among various categories of contributors. In Eastern European economies, under the absence of a sustainable economic growth and structural reforms, flat taxes can lead to polarization of income. The authors argue that if progressive rates are feasible in eastern countries, taxation reconsideration generates economic effects triggered by the change in tax burden and social effects triggered by a decrease in the unemployment, living conditions, education and labour. |
| Keywords: | tax policy; redistribution; flat tax; progressive rates; welfare state |
| JEL: | E62 D31 H20 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:40347&r=mac |
| By: | Guner, Nezih; Kaygusuz, Remzi; Ventura, Gustavo |
| Abstract: | We use micro data from the U.S. Internal Revenue Service to document how Federal Income tax liabilities vary with income, marital status and the number of dependents. We report facts on the distributions of average taxes, properties of the joint distributions of taxes paid and income, and discuss how taxes are affected by marital status and the number of children. We also provide multiple parametric estimates of tax functions for use in applied work in macroeconomics and public finance. |
| Keywords: | Households; Tax Progressivity; Taxation |
| JEL: | E62 H24 H31 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9078&r=mac |
| By: | Uluc Aysun (University of Central Florida, Orlando, FL); Florence Bouvet (Sonoma State University, Rohnert Park, CA); Richard Hofler (University of Central Florida, Orlando, FL) |
| Abstract: | In this paper we derive an alternative measure for structural unemployment using a stochastic frontier analysis. This measure, by empirical design, is always less than total unemployment and it is, thus, more consistent with the theoretical description of structural unemployment than its usual interpretation as a smoothed long-run average of total unemployment. We find that our measure does not always track the long-run trends in total unemployment in the U.S. and when compared to the existing measures can produce different insights about the evolution of structural unemployment. Demographic and regional evidence provides some validation for our approach and allows us to determine how demographic and regional factors are related to the variation in structural unemployment across time and regions. |
| Keywords: | frictional, cyclical, structural unemployment, stochastic frontier |
| JEL: | E24 J21 J64 C13 |
| Date: | 2012–07 |
| URL: | http://d.repec.org/n?u=RePEc:cfl:wpaper:2012-04&r=mac |
| By: | Rolando Ossowski; Alberto Gonzáles-Castillo |
| Abstract: | This paper examines the impact of the availability of fiscal revenues from nonrenewable resources on other revenues of Latin American and Caribbean resource-exporting countries. It compares the performance of nonresource revenues in these countries to that in other countries in the region. The effect of resource revenue on nonresource revenue is found to be negative and statistically significant, with structural breaks both over time and across countries. Nonresource revenues have risen considerably, but they are still lower on average than in comparator countries, and the wedge between both groups of countries has widened over time. They also tend to be more volatile. The paper also analyzes the composition of nonresource revenues. It finds that the performance of VAT and nonresource income taxes of resource exporters has been similar to that of other countries, but revenues from other taxes (including excises) have been lower. The paper's findings have important policy implications. Especially for resource exporters with fiscal vulnerabilities to shocks and sustainability issues, strengthening nonresource revenues would be important to create adequate fiscal space to meet expenditure needs. Oil exporters should also consider phasing out their costly, inefficient, and poorly targeted petroleum subsidies, with compensating measures to protect vulnerable groups. |
| Keywords: | Economics :: Fiscal Policy, Economics :: Economic Development & Growth, Environment & Natural Resources, Nonrenewable resources, Oil revenues, Mineral revenues, Domestic revenue effort, Nonresource revenues, Value-added tax, Income tax, Petroleum subsidies |
| JEL: | E62 H20 H21 H55 O13 O23 Q30 Q33 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:75558&r=mac |
| By: | Janvier D. Nkurunziza; Léonce Ndikumana; Prime Nyamoya |
| Abstract: | This study investigates the performance of the financial system in Burundi in mobilizing and allocating resources. Although the study does not presume that finance is the most binding constraint to growth and socio-economic development in Burundi, it takes the view that unlocking the financing constraint could alleviate other impediments to growth and poverty reduction. We use a blend of methodological approaches drawing from: (1) industrial organization in examining the structure of the banking sector, and the behavior and profitability of financial intermediaries; (2) macroeconomic analysis with a focus on the effect of economic performance and policy framework on the performance of the financial sector; and (3) political economy analysis highlighting the role of political governance and political instability, as well as ownership of financial institutions on allocative and distributional inefficiencies. The paper finds that the core of the financial sector that has survived the worst of the economic and political crises of the last decades is highly profitable. Bank profitability, however, hides several weaknesses of the financial sector: a high level of fragmentation; a narrow credit market that favors “insiders” who are mostly affiliated with the political elites, at the expense of “outsiders”; a severe shortage of long-term stable resources; inefficient allocation of resources relative to social returns and risk; and weak supervision and regulation which largely explain the failure of several financial institutions in the past and the fragility of the banking sector today. Access to finance remains an important challenge, especially for the “stranded middle” (middle income households and medium size firms) due to the “missing middle credit market” which is not filled by either banks or microfinance institutions. Recent developments in the financial sector, particularly the increasing penetration of foreign banks, may potentially boost competition, financial innovation, and access to finance with positive effects on growth and poverty reduction. |
| JEL: | E44 G21 O16 O55 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18289&r=mac |
| By: | Povoledo, Laura |
| Abstract: | This paper presents an open economy model with tradeable and nontradeable sectors in which individuals cannot supply labour in both sectors at the same time. In this economy, the Frisch elasticity of labour supply is infinite. I analyse how the infinite labour supply elasticity interacts with the Producer Currency Pricing (PCP) and Local Currency Pricing (LCP) assumptions, and I find that it does not significantly alter the empirical performance of the model with respect to a broad range of statistics. |
| Keywords: | New open economy models; Tradeable and nontradeable sectors; International business cycles; Labour supply elasticity |
| JEL: | E32 E24 F41 |
| Date: | 2012–06–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:40344&r=mac |
| By: | Chiara Pancotti (CSIL Centre for Industrial Studies) |
| Abstract: | Lo studio presenta un'analisi ex-post delle determinanti del comportamento fiscale di 21 paesi dell'OECD e una valutazione dell'impatto delle regole fiscali europee. È stato testato se il Trattato di Maastricht, il Patto di Stabilità e Crescita e la riforma del Patto del 2005 abbiano raggiunto gli obiettivi per cui erano stati adottati e abbiano quindi favorito il miglioramento del saldo strutturale della bilancia primaria dei paesi appartenenti all'Eurozona.L'analisi è stata effettuata attraverso il Metodo Generalizzato dei Momenti su un panel di paesi formato dagli EU-15 (ad esclusione di Grecia e Lussemburgo) e da 8 paesi non-EU in un arco temporale che va dal 1986 al 2010. I risultati dell'analisi econometrica dimostrano che nel complesso le regole europee non hanno influenzato positivamente il comportamento fiscale dei paesi dell'Eurozona in termini di riduzione del deficit. Solo i vincoli imposti dal Trattato di Maastricht fino alla seconda metà degli anni Novanta sembrano aver avuto una certa influenza positiva sul saldo primario della bilancia strutturale dei paesi dell’Unione Europea. Anche la riforma del Patto del 2005 sembra non essere stata efficace nel raggiungere gli obiettivi per cui era stata introdotta, cioè riportare lo spirito del Patto più in linea con quello del Trattato in modo da incentivare gli stati membri a rispettare le regole fiscali in esso contenute. Se le regole fiscali europee sono non significative nello spiegare l'andamento del saldo primario della bilancia strutturale, lo stesso, non si può dire delle elezioni legislative. Infatti i risultati mostrano che gli anni in cui si sono svolte le elezioni legislative sono associati ad un peggioramento del saldo primario di tutti i paesi del Panel. |
| Keywords: | Patto di Stabilità e Crescita, Trattato di Maastricht, Eurozona, politica fiscale |
| JEL: | E60 E62 H61 H62 |
| Date: | 2012–07–25 |
| URL: | http://d.repec.org/n?u=RePEc:mst:wpaper:201201&r=mac |
| By: | Francesc Ortega; Giovanni Peri |
| Abstract: | This paper makes two contributions to the literature on the determinants of international migration flows. First, we compile a new dataset on annual bilateral migration flows covering 15 OECD destination countries and 120 sending countries for the period 1980-2006. We also collect data on time-varying immigration policies that regulate the entry of immigrants in our destination countries over this period. Second, we extend the empirical model of migration choice across multiple destinations developed by Grogger and Hanson (2011) by allowing for unobserved individual heterogeneity between migrants and non-migrants. Our estimates show that international migration flows are highly responsive to income per capita at destination. This elasticity is twice as high for within-EU migration, reflecting the higher degree of labor mobility within the European Union. We also find that tightening of laws regulating immigrant entry reduce rapidly and significantly their flow. |
| JEL: | E25 F22 J61 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18322&r=mac |
| By: | Juan José Echavarría; Andrés González; Enrique López; Norberto Rodíguez |
| Abstract: | En este documento se utiliza la metodología FAVAR (factor augmented VAR) para evaluar el impacto de variaciones no esperadas en cuatro variables internacionales: las tasas de interés de corto plazo, el riesgo, el precio real del petróleo, el café y el carbón, y la actividad económica mundial. Se utilizan funciones de impulso respuesta y descomposición histórica de choques para evaluar la importancia de los factores externos en la actividad económica colombiana, con énfasis en la crisis de fin de siglo. |
| Keywords: | Modelos FAVAR, transmisión internacional, economía abierta, identificación de choques, fluctuaciones y ciclos Classification JEL: E32, E37, E50, F41 |
| Date: | 2012–08 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:728&r=mac |