nep-mac New Economics Papers
on Macroeconomics
Issue of 2012‒10‒13
fifty-four papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Did The Taylor Rule Stabilize Inflation in Brazil? By Rodrigo De-Losso
  2. House prices, credit growth, and excess volatility: Implications for monetary and macroprudential policy By Paolo Gelain; Kevin J. Lansing; Caterina Mendicino
  3. Infrequent Changes of the Policy Target: Robust Optimal Monetary Policy under Ambiguity By Shin-ichi Fukuda
  4. Commodity Prices, Monetary Policy and Inflation By José de Gregorio
  5. Accounting Spanish business cycles: What can be learned from past recessions? By Jesús Rodríguez López; Mario Solís-García
  6. Qualitative Easing: How it Works and Why it Matters By Farmer, Roger E A
  7. Structural and Cyclical Forces in the Labor Market During the Great Recession: Cross-Country Evidence By Luca Sala; Ulf Söderström; Antonella Trigari
  8. Fiscal Consolidation in a Currency Union: Spending Cuts vs. Tax Hikes By Erceg, Christopher; Lindé, Jesper
  9. Economic Reforms and the Indirect Role of Monetary Policy By Andrea Beccarini
  10. Dormant Shocks and Fiscal Virtue By Leonardo Melosi; Francesco Bianchi
  11. Housing Dynamics over the Business Cycle By Finn E. Kydland; Peter Rupert; Roman Sustek
  12. Financial Conditions and the Money-Output Relationship in Canada By Maral Kichian
  13. Conflicting Claims in Eurozone? Austerity’s Myopic Logic and the Need of a European federal union in a post-Keynesian Eurozone Center-Periphery Model By Botta, Alberto
  14. Credit and Business Cycles in Greece: Is there any relationship? By Costas Karfakis
  15. International Transmission of Financial Shocks in an Estimated DSGE model By Uluc Aysun; Sami Alpanda
  16. Oil Efficiency, Demand, and Prices: a Tale of Ups and Downs By Luca Guerrieri; Martin Bodenstein
  17. Questioning The Taylor Rule By Rodrigo De-Losso
  18. Geographies of Monetary Economy and the European economic crisis By Jussi Ahokas
  19. Notes for a New Guide to Keynes (I): Wages, Aggregate Demand, and Employment By Jordi Galí
  20. The effects of Monetary Policy shocks across the Greek Regions By Ageliki Anagnostou; Stephanos Papadamou
  21. International policy spillovers at the zero lower bound By Haberis, Alex; Lipińska, Anna
  22. The effects of financial crisis on fiscal positions By Athanasios Tagkalakis
  23. Building a financial conditions index for the euro area and selected euro area countries: what does it tell us about the crisis? By Eleni Angelopoulou; Hiona Balfoussia; Heather D. Gibson
  24. How Policy Actions Affect Short-term Post-crisis Recovery? By branimir Jovanovic
  25. Can Taxes Stabilize the Economy in the Presence of Consumption Externalities? By Lloyd-Braga, Teresa; Modesto, Leonor
  26. Reputation, risk-taking and macroprudential policy By Aikman, David; Nelson, Benjamin; Tanaka, Misa
  27. Productivity and potential output before, during, and after the Great Recession By John Fernald
  28. Age effects in the Okun's law within the Eurozone By Hutengs, Oliver; Stadtmann, Georg
  29. A quarterly, utilization-adjusted series on total factor productivity By John Fernald
  30. What should be taught in Intermediate Macroeconomics? By Simpson, Nicole; de Araujo, Pedro; O’Sullivan, Roisin
  31. Modelling the U.S. sovereign credit rating By Polito, Vito; Wickens, Michael R.
  32. Two-sided Learning in New Keynesian Models: Dynamics, (Lack of) Convergence and the Value of Information By Christian Matthes; Francesca Rondina
  33. Financial Intermediation, Exchange Rates, and Unconventional Policy in an Open Economy By Luis Felipe Céspedes; Roberto Chang; Andrés Velasco
  34. Two-sided Learning in New Keynesian Models: Dynamics, (Lack of) Convergence and the Value of Information By Christian Matthes; Francesca Rondina
  35. Working Paper 152 - Dynamics of Inflation in Uganda By AfDB
  36. Working Paper 151 - The Dynamics of Inflation in Ethiopia and Kenya By AfDB
  37. Sharing High Growth Across Generations: Pensions and Demographic Transition in China By Song, Zheng Michael; Storesletten, Kjetil; Wang, Yikai; Zilibotti, Fabrizio
  38. Working Paper 144 - An Analysis of the Impact of Financial Integration on Economic Activity and Macroeconomic Volatility in Africa within the Financial Globalization Context By AfDB
  39. Early warning indicators of asset price boom/bust cycles in emerging markets By Ponomarenko, Alexey
  40. Business cycle synchronization in the EU regions By Ageliki Anagnostou; Ioannis Panteladis; Maria Tsiapa
  41. Consumption Inequality and Family Labor Supply By Richard Blundell; Luigi Pistaferri; Itay Saporta-Eksten
  42. Optimum Currency Areas within the US and Canada a Data Analysis Approach By Chrysanthidou, Efthimia; Gogas, Periklis; Papadimitriou, Theophilos
  43. Firm Heterogeneity and Regional Business Cycles Differentials By Roberto Basile; Sergio de Nardis; Carmine Pappalardo
  44. Inequality and International Trade: The Role of Skill-Biased Technology and Search Frictions By Moritz Ritter
  45. Sovereign Risk: A Macro-Financial Perspective By Das, Udaibir S.; Oliva, Maria A.; Tsuda, Takahiro
  46. Liquidity Contractions and Prepayment Risk on Collateralized Asset Markets By Miguel A. Iraola; Juan Pablo Torres-Martínez
  47. Analysis of the sources of economic growth and TFP level in V4 countries and in Finland By Martin Lábaj; Róbert Kúšik
  48. What Prompts Central Bank Intervention in the Barbadian Foreign Exchange Market? By Jackman, Mahalia
  49. Countercyclical Capital Regulation and Bank Ownership Structure By Tommaso Trani
  50. A New View of General Purpose Technologies By Uwe Cantner; Simone Vannuccini
  51. Spontaneous order and macroeconomic behaviour By Yong Tao
  53. Uncertainty, Electoral Incentives and Political Myopia By Alessandra Bonfiglioli; Gino Gancia
  54. Tax Rates as Strategic Substitutes By Ruud A. de Mooij; Hendrik Vrijburg

  1. By: Rodrigo De-Losso
    Abstract: This paper characterizes the monetary policy in Brazil through a forward-looking Taylor-rule-type reaction function before and after the Real plan, which stabilized inflation in July 1994. The results show that the interest rate response to inflation was greater than one-to-one before stabilization and smaller than that afterwards, hence inverting the Taylor’s principle. Several robustness checks, using mainly distinct proxies for output, output gap and data frequency strongly confirm the findings.
    Keywords: Taylor Rule, inflation targeting, inflation stability
    JEL: C32 C51 E52 E58
    Date: 2012–09–16
  2. By: Paolo Gelain (Norges Bank (Central Bank of Norway)); Kevin J. Lansing (FRB San Francisco and Norges Bank (Central Bank of Norway)); Caterina Mendicino (Bank of Portugal)
    Abstract: Progress on the question of whether policymakers should respond directly to financial variables requires a realistic economic model that captures the links between asset prices, credit expansion, and real economic activity. Standard DSGE models with fully-rational expectations have difficulty producing large swings in house prices and household debt thatresemble the patterns observed in many developed countries over the past decade. We introduce excess volatility into an otherwise standard DSGE model by allowing a fraction of households to depart from fully-rational expectations. Specifically, we show that theintroduction of simple moving-average forecast rules for a subset of households can significantly magnify the volatility and persistence of house prices and household debt relative to otherwise similar model with fully-rational expectations. We evaluate various policy actions that might be used to dampen the resulting excess volatility, including a direct response to house price growth or credit growth in the central bank's interest rate rule, the imposition of more restrictive loan-to-value ratios, and the use of a modified collateral constraint that takes into account the borrower's loan-to-income ratio. Of these, we find that a loan-to-income constraint is the most effective tool for dampening overall excess volatility in the model economy. We find that while an interest-rate response to house price growth or credit growth can stabilize some economic variables, it can significantly magnify the volatility of others, particularly inflation.
    Keywords: Asset pricing, Excess volatility, Credit cycles, Housing bubbles, Monetary policy, Macroprudential policy
    JEL: E32 E44 G12 O40
    Date: 2012–08–20
  3. By: Shin-ichi Fukuda (Graduate School of Economics, The University of Tokyo, Tokyo)
    Abstract: In many countries, the monetary policy instrument sometimes remains unchanged for a long period and shows infrequent responses to exogenous shocks. The purpose of this paper is to provide a new explanation on why the central bank's policy instrument remains unchanged. In the analysis, we explore how uncertainty on the private agents' expectations affects robust optimal monetary policy. We apply the Choquet expected decision theory to a new Keynesian model. A main result is that the policymaker may frequently keep the interest rate unchanged even when exogenous shocks change output gaps and inflation rates. This happens because a change of the interest rate increases additional uncertainty for the policymaker. To the extent that the policymaker has uncertainty aversion, it can therefore be optimal for the policymaker to maintain an unchanged policy stance for some significant periods and to make discontinuous changes of the target rate. Our analysis departs from previous studies in that we determine an optimal monetary policy rule that allows time-variant feedback parameters in a Taylor rule. We show that if the policymaker has small uncertainty aversion, the calibrated optimal stop-go policy rule can predict actual target rates of FRB and ECB reasonably well.
    Date: 2012–09
  4. By: José de Gregorio
    Abstract: During the second half of the 2000s, the world experienced a rapid and substantial rise in commodity prices. This shock posed complex challenges for monetary policy, in particular due to the significant increase in food and energy prices, and the repercussions they had on aggregate inflation measures. This paper discusses the role of commodity price shocks in monetary policy in the light of recent episodes of such shocks. It begins by discussing whether monetary policy should target core or headline inflation, and what should be the role of commodity price shocks in setting interest rates. It is argued that there are good reasons to focus on headline inflation, as most central banks actually do. Although core inflation provides a good indicator of underlying inflationary pressures, the evolution of commodity prices should not be overlooked, because of pervasive second-round effects. This paper reviews the evidence on the rise of inflation across countries and reports that food inflation, more than energy inflation, has relevant propagation effects on core inflation. This finding is particularly important in emerging market economies, where the share of food in the consumer basket is significant. The evidence also shows that countries that had lower inflation during the run up of commodity prices before the global crisis had more inflation in the subsequent rise after the global crisis, suggesting that part of the pre-crisis inflationary success may have been due to repressed inflation. This paper also discusses other factors that may explain different inflationary performances across countries.
    Date: 2012–07
  5. By: Jesús Rodríguez López (Department of Economics, Universidad Pablo de Olavide); Mario Solís-García (Macalester College, St. Paul, USA)
    Abstract: We apply the business cycle methodology proposed by Chari, Kehoe, and McGrattan (2007) to identify the sources of Spanish business fluctuations during two outstanding cyclical episodes: the recession alongside the inception of democracy on 1977, and the recession of 2008. We find that the labor wedge is the key element behind these fluctuations, and that both taxes and labor market institutions are likely behind the wedge movements. Our conclusion suggests that any model that tries to understand the causes of the recessions occurred in the last three decades should focus on the labor wedge. This conclusion holds regardless the framework assumes a closed economy or an open economy.
    Keywords: Business cycle accounting, efficiency wedge, labor wedge, investment wedge
    JEL: E32 O11 O41 O47 O53
    Date: 2012–09
  6. By: Farmer, Roger E A
    Abstract: This paper is about the effectiveness of qualitative easing; a government policy that is designed to mitigate risk through central bank purchases of privately held risky assets and their replacement by government debt, with a return that is guaranteed by the taxpayer. Policies of this kind have recently been carried out by national central banks, backed by implicit guarantees from national treasuries. I construct a general equilibrium model where agents have rational expectations and there is a complete set of financial securities, but where agents are unable to participate in financial markets that open before they are born. I show that a change in the asset composition of the central bank’s balance sheet will change equilibrium asset prices. Further, I prove that a policy in which the central bank stabilizes fluctuations in the stock market is Pareto improving and is costless to implement.
    Keywords: fiscal policy; monetary policy; qualitative easing
    JEL: E0 E5 E52 E62
    Date: 2012–09
  7. By: Luca Sala; Ulf Söderström; Antonella Trigari
    Abstract: We use an estimated monetary business cycle model with search and matching frictions in the labor market and nominal price and wage rigidities to study four countries (the U.S., the U.K., Sweden, and Germany) during the financial crisis and the Great Recession. We estimate the model over the period prior to the financial crisis and use the model to interpret movements in GDP, unemployment, vacancies, and wages in the period from 2007 until 2011. We show that contractionary financial factors and reduced efficiency in labor market matching were largely responsible for the experience in the U.S. Financial factors were also important in the U.K., but less so in Sweden and Germany. Reduced matching efficiency was considerably less important in the U.K. and Sweden than in the U.S., but matching efficiency improved in Germany, helping to keep unemployment low. A counterfactual experiment suggests that unemployment in Germany would have been substantially higher if the German labor market had been more similar to that in the U.S.
    JEL: E24 E32
    Date: 2012–10
  8. By: Erceg, Christopher; Lindé, Jesper
    Abstract: This paper uses a two country DSGE model to examine the effects of tax-based versus expenditure-based fiscal consolidation in a currency union. We find three key results. First, given limited scope for monetary accommodation, tax-based consolidation tends to have smaller adverse effects on output than expenditure-based consolidation in the near-term, though is more costly in the longer-run. Second, a large expenditure-based consolidation may be counterproductive in the near-term if the zero lower bound is binding, reflecting that output losses rise at the margin. Third, a "mixed strategy" that combines a sharp but temporary rise in taxes with gradual spending cuts may be desirable in minimizing the output costs of fiscal consolidation.
    Keywords: DSGE Model; Fiscal Policy; Liquidity Trap; Monetary Policy; Open Economy Macroeconomics; Zero Bound Constraint
    JEL: E32 F41
    Date: 2012–09
  9. By: Andrea Beccarini
    Abstract: Due to pressure from some lobbies, the government is unwilling to perform structural reforms. The probability of its reelection depends, however, on a positive business cycle. The central bank may create surprise deflation even though it maximizes the public’s utility function and even if it faces a rational market. This may explain why the ECB, but not the US FED, is found to be unaffected by the inflation bias.
    Keywords: Political Business Cycles, Time Inconsistency of Monetary Policy
    JEL: E32 E58
    Date: 2012–10
  10. By: Leonardo Melosi (London Business School); Francesco Bianchi (Duke University)
    Abstract: We develop a model in which the current behavior of the fiscal and monetary authorities influence agents' beliefs about the way debt will be stabilized. The standard policy mix consists of a virtuous fiscal authority that moves taxes in response to debt and a Central Bank that has full control over inflation. When policy makers deviate from this virtuous policy mix, agents conduct Bayesian learning to infer the likely duration of the deviation. As agents observe more and more deviations, they become increasingly pessimistic about a prompt return to the virtuous regime and inflation starts moving to keep debt on a stable path. Shocks which were dormant under the virtuous policy mix start now manifesting themselves. These changes are initially imperceptible, but they unfold over decades and accelerate as agents get convinced that the fiscal authority will not raise taxes. Dormant fiscal shocks can account for the run-up of inflation in the `70s and the deflationary pressure of the early 2000s. We point out that the currently low long term interest rates and inflation expectations might hide the true risk of inflation faced by the US economy.
    Date: 2012
  11. By: Finn E. Kydland; Peter Rupert; Roman Sustek
    Abstract: Over the U.S. business cycle, fluctuations in residential investment are well known to systematically lead GDP. These dynamics are documented here to be specific to the U.S. and Canada. In other developed economies residential investment is broadly coincident with GDP. Nonresidential investment has the opposite dynamics, being coincident with or lagging GDP. These observations are in sharp contrast with the properties of nearly all business cycle models with disaggregated investment. Including mortgages and interest rate dynamics aligns the theory more closely with U.S. observations. Longer time to build in housing construction makes residential investment coincident with output.
    JEL: E22 E32 R21 R31
    Date: 2012–10
  12. By: Maral Kichian
    Abstract: We propose a drifting-coefficient model to empirically study the effect of money on output growth in Canada and to examine the role of prevailing financial conditions for that relationship. We show that such a time-varying approach can be a useful way of modelling the impact of money on growth, and can partly reconcile the lack of concensus in the literature on the question of whether money affects growth. In addition, we find that credit conditions also play a role in that relationship. In particular, there is an additional negative short-run impact of money on growth when credit is not readily available, supporting the precautionary motive for holding money. Finally, money is found to have no effect on output growth in the long-run.
    Keywords: Monetary aggregates; Credit and credit aggregates; Business fluctuations and cycles
    JEL: E44 E51
    Date: 2012
  13. By: Botta, Alberto
    Abstract: In this paper we analyze the role of the nowadays Eurozone institutional setup in fostering the ongoing peripheral Euro countries’ sovereign debt crisis. According to the Modern Money Theory, we stress that the lack of a federal European government running anti-cyclical fiscal policy, the loss of monetary sovereignty by Euro Member States and the lack of a lender-of-last-resort central bank has significantly contributed to generate, amplify and protract the present crisis. In particular, we present a post-Keynesian Eurozone center-periphery model through which we show how, due to the incomplete nature of Eurozone institutions with respect to a full-fledged federal union, diverging trends and conflicting claims have emerged between center and peripheral Euro countries in the aftermath of the 2007-2008 financial meltdown. We emphasize two points. (i) Diverging trends and conflicting claims among Euro countries may represent a decisive obstacle to reform Eurozone towards a complete federal entity. However, they may prove to be self-defeating in the long run should financial turbulences seriously deepen also in large peripheral countries. (ii) Austerity packages alone do not address the core point of the Eurozone crisis. They could have sense only if included in a much wider reform agenda, whose final purpose is the creation of a federal European government which can run expansionary fiscal stances and of a government banker. In this sense, the unlimited bond-buying program recently launched by the European Central Banks is interpreted as a positive although mild step in the right direction out of the extreme monetarism which has so far shaped Eurozone institutions.
    Keywords: Eurozone debt crisis; Modern money theory; post-Keynesian center-periphery model
    JEL: E02 E12 H63
    Date: 2012–09–30
  14. By: Costas Karfakis (Department of Economics, University of Macedonia)
    Abstract: This paper examines the relationship between real credit and future movements in real output at business-cycle frequencies in Greece. Importantly, the evidence suggests that real credit is found to significantly affect real output, given the trade deficit ratio. This finding implies that the U-turn of the Greek economy requires a positive credit shock which will stimulate aggregate demand and real output.
    Keywords: Real output, business cycles, real credit, trade deficit ratio
    JEL: E32 E51 E52 E58
    Date: 2012–08
  15. By: Uluc Aysun (University of Central Florida, Orlando, FL); Sami Alpanda (Bank of Canada, Ottawa, Ontario, Canada)
    Abstract: This paper investigates the transmission mechanism of financial shocks across large economies. To quantify these effects, we construct and estimate a two-region open economy DSGE model with nominal and real rigidities. We model the financial side of the economies using the financial accelerator mechanism of Bernanke et al. (1999). We find that the baseline model fails to generate the high degree of macroeconomic correlation between the U.S. and Euro Area economies. Allowing for an ad hoc, cross-regional correlation in financial shocks considerably improves the model’s ability to replicate the spill-over effects of U.S. financial shocks. We then extend the baseline model by including global banking and generate an endogenous, crossregional correlation of cost of capital. Simulations demonstrate a larger Euro Area response to U.S. shocks and highlight the importance of including frictions in international financial contracts, and not only in domestic financial contracts, for more accurately capturing the international transmission of domestic shocks.
    Keywords: DSGE, financial accelerator, international business cycles, global banks
    JEL: E32 E44 F33 F44
    Date: 2012–10
  16. By: Luca Guerrieri (Federal Reserve Board); Martin Bodenstein (Asian Development Bank and Federal Reserve Board)
    Abstract: The macroeconomic implications of oil price fluctuations vary according to their sources. Our estimated two-country DSGE model distinguishes between country-specific oil supply shocks, various domestic and foreign activity shocks, and oil efficiency shocks. Changes in foreign oil efficiency, modeled as factor-augmenting technology, were the key driver of fluctuations in oil prices between 1984 and 2008, but had modest effects on U.S. activity. A pickup in foreign activity played an important role in the 2003-2008 oil price runup. Beyond quantifying the responses of oil prices and economic activity, our model informs about the propagation mechanisms. We find evidence that nonoil trade linkages are an important transmission channel for shocks that affect oil prices. Conversely, nominal rigidities and monetary policy are not.
    Date: 2012
  17. By: Rodrigo De-Losso
    Abstract: This article estimates a forward-looking Taylor-rule-type reaction function exclusively during Greenspan’s tenure and shows a considerable loss in both magnitude and significance of the inflation coefficient compared with the extended sample that otherwise includes Volcker’s tenure. That fact indicates that the interest rate pushing up in the early 1980s drives the coefficient towards being greater than one, when in fact it varies. A key variable in determining its size is the output gap, which is unobservable. Therefore, the paper approaches the Kalman filter to estimate the Taylor rule reaction function jointly with output gap, in order to characterize the monetary policy in the U.S. from 1960 to 2005. The results show that the point estimation of inflation is overall smaller than one-toone when the sample is split into either before and after Volcker’s appointment as Federal Reserve chairman or before and after Greenspan’s tenure. When the model allows for a drifting inflation coefficient, then the estimate is barely greater than one and often negative. Such a dynamics matches up with Greenspan’s claim that monetary policy is discretionary and that the Federal Reserve does not follow any simple rule. Consequently, an inflation coefficient inferior to one may be associated with monetary stability, disrupting the Taylor’s principle.
    Keywords: Taylor rule, Kalman Filter, Hidden variables, GMM
    JEL: E52 C32 C51
    Date: 2012–09–17
  18. By: Jussi Ahokas
    Abstract: The paper deals with the geographies of the European economic crisis that had its origins in the global financial crisis of 2008-09. The crisis pushed many European economies into a deep recession and caused a mass unemployment in many countries. The crisis is analysed in a monetary economy framework that builds upon the post-Keynesian economic theories such as the monetary theory of production and the chartalist theory of money. These theories focus on the operational realities of banking, credit creation and finance as well as processes of production, income creation and government spending. Hence, the theoretical framework constructed in the paper provides a comprehensive analytical tool for examining relationships between money, finance and production, the key elements of the monetary economy. It is argued in the paper that the monetary economy perspective has a lot to offer for the geographical analysis of the economic crises and the contemporary economic system in general. In other words, it is argued that economists and economic geographers need to pay more attention to the central dynamics of monetary economy. The geographical investigation of the commanding processes of monetary economy conducted in the paper brings up the essential dynamics behind the European economic crisis. The analysis will be focused on the processes that turned the financial crisis into a recession of real economy. In addition, a brief look is taken at the anatomy of the European sovereign debt crisis. The empirical analysis shows that the geographical differences in demand structures, in the liquidity preferences of different economic actors and in the basic institutional structures of monetary economy were essential elements of the crisis. The first conclusion of the paper is that the European economic crisis was a characteristic crisis of monetary economy where money and monetary conditions affect motives and decisions of the economic actors. The second conclusion is that the geographical perspective is necessary in order to expose the central dynamics of the crisis and dynamics of monetary economy in general. Therefore, the theoretical framework constructed in the paper should be utilized more widely in the geographical analysis of contemporary economic system in the future. Keywords: Financial crisis, Economic crisis, Monetary economy, Regional development JEL: G01, R00, E59
    Date: 2012–10
  19. By: Jordi Galí
    Abstract: I revisit the General Theory's discussion of the role of wages in employment determination through the lens of the New Keynesian model. The analysis points to the key role played by the monetary policy rule in shaping the link between wages and employment, and in determining the welfare impact of enhanced wage flexibility. I show that the latter is not always welfare improving.
    Keywords: wage flexibility, monetary policy rules, employment stability
    JEL: E32
    Date: 2012–09
  20. By: Ageliki Anagnostou; Stephanos Papadamou
    Abstract: In this paper, we examine the impact of monetary policy shocks to the real economy by investigating the effects on different regions. Annual data for GDP, employment and investment from 12 regions in Greece are used for the period 1980 to 2009. By using an unrestricted VAR model and the impulse response analysis our results show that an interest rate shock affects the economic activity across regions differently. Furthermore in our investigation, we use a dynamic PANEL VAR model so as to investigate the dynamic variation of the impact of interest rates controlling also for time and cross regions fixed effects associated with specific time invariant regions’ characteristics as well as with time variant characteristics attributed to the integration process of these regions. Therefore, these findings are very important to policy makers.
    Date: 2012–10
  21. By: Haberis, Alex (Bank of England); Lipińska, Anna (Federal Reserve Board)
    Abstract: In this paper, we consider how monetary policy in a large, foreign economy affects optimal monetary policy in a small open economy (‘home’) in response to a large global demand shock that pushes both economies to the zero lower bound (ZLB) on nominal interest rates. We show that the inability of foreign monetary policy to stabilise the foreign economy at the ZLB creates a spillover that affects how well the home policymaker is able to stabilise its own economy. We show that more stimulatory foreign policy worsens the home policymaker’s trade-off between stabilising inflation and the output gap when home and foreign goods are close substitutes. This reflects the fact that looser foreign policy leads to a relatively more appreciated home real exchange rate, which induces large expenditure switching away from home goods when goods are highly substitutable – just at a time (at the ZLB) when home policy is trying to boost demand for home goods. When goods are not close substitutes the home policymaker’s ability to stabilise the economy benefits from more stimulatory foreign policy.
    Keywords: Small open economy; Policy trade-offs; Trade structure; zero lower bound
    JEL: E58 F41 F42
    Date: 2012–10–07
  22. By: Athanasios Tagkalakis (Bank of Greece)
    Abstract: The recent financial crisis was characterized by the sizeable fiscal cost of banking sector bail out operations and the significant automatic and discretionary fiscal policy response to shrinking output, which have put increased pressure on public finances in many industrialized countries. This paper tries to evaluate the impact of financial crisis episodes on debt developments. The findings indicate that severe financial crisis episodes increase the stock of debt by 2.7%-4.0% of GDP, on average in the 20 OECD countries examined. Ιn countries with big financial sectors it ranges from 4.2%-5.3% of GDP and in countries with smaller financial sectors it is about 1.4%-1.7% of GDP. The primary balance and the cyclically adjusted fiscal policy stance ease by about 2.6% of GDP and 1.6% of potential GDP, respectively, in the event of a severe financial market crash. Expansionary fiscal interventions are more pronounced in countries with sizable financial sectors. I find significant evidence that a financial market collapse paves the way for a subsequent deterioration in debt ratios.
    Keywords: fiscal policy; public debt; financial market; crisis; credit
    JEL: E61 E62 H61 H62 H63 E32
    Date: 2012–06
  23. By: Eleni Angelopoulou (Bank of Greece); Hiona Balfoussia (Bank of Greece); Heather D. Gibson (Bank of Greece)
    Abstract: In this paper we construct Financial Conditions Indices (FCIs) for the euro area, for the period 2003 to 2011, using a wide range of prices, quantities, spreads and survey data, grounded in the theoretical literature. One FCI includes monetary policy variables, while two versions of the FCI without monetary policy are also constructed. This enables us to study the impact of monetary policy on financial conditions – indeed, overall, we find evidence of monetary policy ‘leaning against the wind’. The FCIs constructed fit in well with a narrative of financial conditions since the creation of the monetary union. FCIs for individual euro area countries are also provided, with a view to comparing financial conditions in core and periphery countries. There is evidence of significant divergence both before and during the crisis, which becomes less pronounced when monetary policy variables are included in the FCI. However, the impact of monetary policy on financial conditions appears not to be entirely symmetric across the euro area.
    Keywords: fiscal policy; public debt; financial market; crisis; credit
    JEL: E61 E62 H61 H62 H63 E32
    Date: 2012–07
  24. By: branimir Jovanovic (Faculty of Economics, University of Rome "Tor Vergata")
    Abstract: This paper investigates which factors determine how countries recover after crises, on a sample of 47 financial, currency and sovereign debt crises in 22 countries from the last thirty years, including the recent Great Recession. Several findings emerge. First, the most important factors which are associated with higher post-crisis growth are expansionary monetary and fiscal policy, exchange rate depreciation and prudent banking regulation. Second, the Great Recession does not seem to differ from the other crises in terms of how the policy actions effect the recovery, and the recovery after it is slower because of the global nature of this crisis. Third, the fiscal multiplier does not seem to be smaller during episodes of high public debt, and public debt does not seem to affect the speed of recovery through channels other than the government spending, which can be considered as an argument in favour of pursuing expansionary fiscal policy during crises even in highly leveraged countries.
    Keywords: crises, recovery, monetary policy, ?scal policy, banking regulation
    JEL: E52 E62 E63 G01
    Date: 2012–10–05
  25. By: Lloyd-Braga, Teresa (Católica Lisbon); Modesto, Leonor (Universidade Catolica Portuguesa, Lisbon)
    Abstract: Considering a finance constrained economy, we discuss the stabilization role of variable labour and capital income taxes under a balanced-budget rule in the presence of consumption externalities of the "keeping up with the Joneses" type. We find that sufficiently procyclical labor and/or capital income taxes are able to ensure saddle path stability eliminating belief-driven cyclical fluctuations. Moreover, for higher values of consumption externalities, saddle path stability can only be reached with more procyclical labor or capital income taxation. We therefore conclude that finance constrained models with "keeping up with the Joneses" preferences call for traditional Keynesian demand-management policies in order to stabilize business cycle fluctuations.
    Keywords: indeterminacy, consumption externalities, capital and labor income taxation
    JEL: E32 E62
    Date: 2012–09
  26. By: Aikman, David (Bank of England); Nelson, Benjamin (Bank of England); Tanaka, Misa (Bank of England)
    Abstract: This paper examines the role of macroprudential capital requirements in preventing inefficient credit booms in a model with reputational externalities. Unprofitable banks have strong incentives to invest in risky assets and generate inefficient credit booms when macroeconomic fundamentals are good in order to signal high ability. We show that across-the-system countercyclical capital requirements that deter credit booms are constrained optimal when fundamentals are within an intermediate range. We also show that when fundamentals are deteriorating, a public announcement of that fact can itself play a powerful role in preventing inefficient credit booms, providing an additional channel through which macroprudential policies can improve outcomes.
    Keywords: Macroprudential policy; credit booms; bank capital regulation
    JEL: E60 G10 G38
    Date: 2012–10–07
  27. By: John Fernald
    Abstract: This paper makes four points about the recent dynamics of productivity and potential output. First, after accelerating in the mid-1990s, labor and total-factor productivity growth slowed after the early to mid 2000s. This slowdown preceded the Great Recession. Second, in contrast to some informal commentary, productivity performance during the Great Recession and early in the subsequent recovery was roughly in line with previous experience during deep recessions. In particular, the evidence suggests substantial labor and capital hoarding. During the recovery, measures of factor utilization fairly quickly rebounded, and TFP and labor productivity returned to their anemic mid-2000s trends. Third, a plausible benchmark for the slower pace of underlying technology along with demographic assumptions from the Congressional Budget Office imply steady-state GDP growth of just over 2 percent per year—lower than most estimates. Finally, during the recession and recovery, potential output grew even more slowly— reflecting especially the effect of weak investment on growth in capital input. Half or more of the shortfall of actual output relative to pre-recession estimates of the potential trend reflects a reduction in potential.
    Keywords: Productivity ; Business cycles ; Economic growth
    Date: 2012
  28. By: Hutengs, Oliver; Stadtmann, Georg
    Abstract: We estimate Okun coefficients for five different age cohorts for several Eurozone countries. We find a stable pattern for all countries: The relationship between business-cycle fluctuations and the unemployment rate is the strongest for the youngest cohort and gets smaller for the elderly cohorts. --
    Keywords: Okun's law,labor market,youth unemployment
    JEL: E24 F50 C23
    Date: 2012
  29. By: John Fernald
    Abstract: This paper describes a real-time, quarterly growth-accounting database for the U.S. business sector. The data on inputs, including capital, are used to produce a quarterly series on total factor productivity (TFP). In addition, the dataset implements an adjustment for variations in factor utilization—labor effort and the workweek of capital. The utilization adjustment follows Basu, Fernald, and Kimball (BFK, 2006). Using relative prices and input/output information, the series are also decomposed into separate TFP and utilization-adjusted TFP series for equipment investment (including consumer durables) and “consumption” (defined as business output less equipment and consumer durables).
    Keywords: Productivity ; Business cycles ; Economic growth
    Date: 2012
  30. By: Simpson, Nicole (Department of Economics, Colgate University); de Araujo, Pedro; O’Sullivan, Roisin
    Abstract: A lack of consensus remains on what should form the theoretical core of the undergraduate intermediate macroeconomic course. In determining how to deal with the Keynesian/classical divide, instructors must decide whether to follow the modern approach of building macroeconomic relationships from microfoundations, or to use the traditional approach based on aggregate models of the macroeconomy. In this article, the authors discuss the advantages and shortcomings of each approach in the context of course objectives. Because there is significant heterogeneity in textbook coverage, the authors summarize some of the approaches taken in current intermediate-level textbooks, which should serve as a useful starting point for new instructors. The authors also discuss how each approach can be extended to analyze the recent recession in the United States.
    Keywords: AD/AS, intermediate macroeconomics, IS/LM, microfoundations, neoclassical, new Keynesian
    JEL: A22
    Date: 2012–01
  31. By: Polito, Vito; Wickens, Michael R.
    Abstract: A methodology for generating sovereign credit ratings based on macroeconomic theory is proposed. This is applied to quarterly U.S. data from 1970 to 2011. Over this period the official credit rating of U.S. Treasury securities has been of the highest quality. In contrast, the model-based measure finds that there are two clear instances in which the U.S. sovereign credit rating, if evaluated on the basis of economic fundamentals, should have been have been downgraded: the first oil crisis of the 1970s and in the aftermath of the Lehman collapse in 2008. This result is robust to several alternative views on the maximum borrowing capacity of the U.S. economy.
    Keywords: Credit risk; default probability; fiscal limits; Sovereign risk
    JEL: E62 H30 H60
    Date: 2012–09
  32. By: Christian Matthes; Francesca Rondina
    Abstract: This paper investigates the role of learning by private agents and the central bank (two-sided learning) in a New Keynesian framework in which both sides of the economy have asymmetric and imperfect knowledge about the true data generating process. We assume that all agents employ the data that they observe (which may be distinct for different sets of agents) to form beliefs about unknown aspects of the true model of the economy, use their beliefs to decide on actions, and revise these beliefs through a statistical learning algorithm as new information becomes available. We study the short-run dynamics of our model and derive its policy recommendations, particularly with respect to central bank communications. We demonstrate that two-sided learning can generate substantial increases in volatility and persistence, and alter the behavior of the variables in the model in a signifficant way. Our simulations do not converge to a symmetric rational expectations equilibrium and we highlight one source that invalidates the convergence results of Marcet and Sargent (1989). Finally, we identify a novel aspect of central bank communication in models of learning: communication can be harmful if the central bank's model is substantially mis-specified
    Keywords: : asymmetric information, learning, monetary policy
    JEL: E52
    Date: 2012–10–01
  33. By: Luis Felipe Céspedes; Roberto Chang; Andrés Velasco
    Abstract: This paper develops an open economy model in which financial intermediation is subject to occasionally binding collateral constraints, and uses the model to study unconventional policies such as credit facilities and foreign exchange intervention. The model highlights the interaction between the real exchange rate, interest rates, and financial frictions. The exchange rate can affect the financial intermediaries' international credit limit via a net worth effect and a leverage ratio effect; the latter is novel and depends on the equilibrium link between exchange rates and interest spreads. Unconventional policies are nonneutral if and only if financial constraints are binding in equilibrium. Credit programs are more effective if targeted towards financial intermediaries rather than the corporate sector. Sterilized foreign exchange interventions matter because the increased availability of tradables, resulting from the sterilizing credit, can relax financial frictions; this perspective is new in the literature. Finally, self fulfilling expectations can lead to the coexistence of financially constrained and unconstrained equilibria, justifying a policy of defending the exchange rate and the accumulation of international reserves.
    JEL: E58 F34 F41
    Date: 2012–10
  34. By: Christian Matthes; Francesca Rondina
    Abstract: This paper investigates the role of learning by private agents and the central bank (two-sided learning) in a New Keynesian framework in which both sides of the economy have asymmetric and imperfect knowledge about the true data generating process. We assume that all agents employ the data that they observe (which may be distinct for different sets of agents) to form beliefs about unknown aspects of the true model of the economy, use their beliefs to decide on actions, and revise these beliefs through a statistical learning algorithm as new information becomes available. We study the short-run dynamics of our model and derive its policy recommendations, particularly with respect to central bank communications. We demonstrate that two-sided learning can generate substantial increases in volatility and persistence, and alter the behavior of the variables in the model in a significant way. Our simulations do not converge to a symmetric rational expectations equilibrium and we highlight one source that invalidates the convergence results of Marcet and Sargent (1989). Finally, we identify a novel aspect of central bank communication in models of learning: communication can be harmful if the central bank’s model is substantially mis-specified.
    Keywords: asymmetric information, learning, monetary policy
    JEL: E52
    Date: 2012–09
  35. By: AfDB
    Date: 2012–09–10
  36. By: AfDB
    Date: 2012–09–10
  37. By: Song, Zheng Michael; Storesletten, Kjetil; Wang, Yikai; Zilibotti, Fabrizio
    Abstract: Intergenerational inequality and old-age poverty are salient issues in contemporary China. China's aging population threatens the fiscal sustainability of its pension system, a key vehicle for intergenerational redistribution. We analyze the positive and normative effects of alternative pension reforms, using a dynamic general equilibrium model that incorporates population dynamics and productivity growth. Although a reform is necessary, delaying its implementation implies large welfare gains for the (poorer) current generations, imposing only small costs on (richer) future generations. In contrast, a fully funded reform harms current generations, with small gains to future generations. High wage growth is key for these results.
    Keywords: China; Credit market imperfections; Demographic transition; Economic growth; Fully funded system; Inequality; Intergenerational redistribution; Labor supply; Migration; Pensions; Poverty
    JEL: E21 E24 G23 H55 J11 O43 R23
    Date: 2012–09
  38. By: AfDB
    Date: 2012–02–16
  39. By: Ponomarenko, Alexey (BOFIT)
    Abstract: We apply recently developed early warning indicators systems to a cross-section of emerging markets. We find that, with little or no modification, models designed to predict asset price booms/busts in advanced countries may be useful for emerging markets. The concept of monitoring a set of asset prices, real activity (especially investment) and financial (especially credit) indicators is generally found to be efficacious.
    Keywords: early warning indicators; asset prices; emerging markets
    JEL: E37 E44 E51
    Date: 2012–10–02
  40. By: Ageliki Anagnostou; Ioannis Panteladis; Maria Tsiapa
    Abstract: The present paper discourses on how European integration and gradual enlargement has affected the synchronicity in business cycles in EU regions. The analysis, which is conducted on annual data at the NUTSII level, is based on the following grounds: First, it examines the degree of synchronicity in business cycles in EU regions associated with specific spatial and economic characteristics that explain, to a large extent, synchronisation dynamics. Secondly, the study investigates the existence of a time-varying national ‘border effect’, with eventually differentiated dynamism among the old and the new EU member states. For this purpose a dynamic Panel VAR model is employed in order to investigate the impact of spatial variables and productions structures on business cycles taking into consideration the variation in time and cross regions specific characteristics attributed to the integration process of these regions.
    Date: 2012–10
  41. By: Richard Blundell; Luigi Pistaferri; Itay Saporta-Eksten
    Abstract: In this paper we examine the link between wage inequality and consumption inequality using a life cycle model that incorporates household consumption and family labor supply decisions. We derive analytical expressions based on approximations for the dynamics of consumption, hours, and earnings of two earners in the presence of correlated wage shocks, non-separability and asset accumulation decisions. We show how the model can be estimated and identified using panel data for hours, earnings, assets and consumption. We focus on the importance of family labour supply as an insurance mechanism to wage shocks and find strong evidence of smoothing of males and females permanent shocks to wages. Once family labor supply, assets and taxes are properly accounted for their is little evidence of additional insurance.
    JEL: E21 J22
    Date: 2012–10
  42. By: Chrysanthidou, Efthimia (Democritus University of Thrace, Department of International Economic Relations and Development); Gogas, Periklis (Democritus University of Thrace, Department of International Economic Relations and Development); Papadimitriou, Theophilos (Democritus University of Thrace, Department of International Economic Relations and Development)
    Abstract: Over the last few decades Robert Mundell’s theory (1963) of Optimum Currency Areas (OCA) has attracted significant attention between researchers and policy makers especially after the formation of the European Monetary Union and the debate over whether the eurozone countries actually consist an OCA. In this paper, we take this debate to the area that was originally the subject of Mundell’s motivation: the US and Canada. We employ the methodology of Correspondence Analysis and Hierarchical Cluster Analysis, in a sample of macroeconomic data from the fifty US states and ten Canadian provinces for 2009 in an effort to investigate whether the current currency split between north (Canada) and south (the US) is an OCA or possibly another split may be more appropriate. Our results show that three OCAs are identified within US states and Canadian provinces: one that includes regions of eastern US and Canada, one that includes regions of central-eastern and eastern US and Canada and finally one with regions of western US and Canada.
    Keywords: Optimum Currency Areas; Data Analysis
    JEL: E44
    Date: 2012–09–27
  43. By: Roberto Basile; Sergio de Nardis; Carmine Pappalardo
    Abstract: This study represents a first attempt to empirically analyze the role of firm heterogeneity in regional business cycle behaviour. Working with monthly Italy’s firms data and estimating a random effects ordered probit model, we first document sizable asymmetries in Northern and Southern firms business cycles positively related to the intensity of the national cycle: firms located in the South are more likely to reduce production levels than firms located in the North in periods of business cycle expansion and viceversa. Then, we explore the role of sectoral mix and several firm-specific factors (firm size, export propensity, liquidity constraints, demand conditions, capacity utilization and expectations) in explaining regional disparities in business cycle fluctuations. Results suggest that North-South differences in sectoral composition do not help explain the diverging behaviour of Southern firms, while by controlling for firm heterogeneity we are able to capture large part of regional business cycles differences. JEL codes: D21, E32, R10 Keywords: Regional business cycle, firm heterogeneity, random effects ordered probit
    Date: 2012–10
  44. By: Moritz Ritter (Department of Economics, Temple University)
    Abstract: A competitive search model of the labor market is embedded into a small open economy with firm and worker heterogeneity. Search frictions generate equilibrium unemployment and income inequality between identical workers, in addition to income differences between skill groups. Numerical simulations of the model reveal that an increase in trade is likely to increase within-group inequality and decrease unemployment, while the effect on the skill premium is ambiguous. Overall the effect of trade on the labor market is minor if only a small fraction of the labor force is employed in exporting and import-competing industries.
    Keywords: Directed Search, Inequality, International Trade
    JEL: E25 F16 J64
    Date: 2012–09
  45. By: Das, Udaibir S. (Asian Development Bank Institute); Oliva, Maria A. (Asian Development Bank Institute); Tsuda, Takahiro (Asian Development Bank Institute)
    Abstract: We examine some of the macro-financial dimensions of sovereign risk and propose a conceptual framework that captures risks other than just the default risk. Morphed under a multi-dimensional notion of sovereign risk, we argue that the existing empirical methodologies to measure sovereign risk cover only partial aspects of sovereign risk and fail to capture its macro-financial dimensions. We highlight a menu of tools that could be used to tackle the broader notion of sovereign risk, and suggest that authorities should actively use them to manage the macro financial dimensions of sovereign risk and before those risks feed into the real economy.
    Keywords: sovereign risk; default risk; macro-financial dimensions
    JEL: E43 F30 F34
    Date: 2012–10–02
  46. By: Miguel A. Iraola; Juan Pablo Torres-Martínez
    Abstract: This paper presents a dynamic general equilibrium model with default and collateral requirements. In contrast with previous literature, our model allows for liquidity contractions and general prepayment specifications. We show that liquidity substantially affects credit and prepayment risks, and that different borrowers may follow differentiated payment strategies: whereas some pay, others prepay or default. The lack of liquidity increases debtors' willingness to continue paying, even thought prepayment cost could be higher than the collateral value. This mechanism rationalizes underwater mortgages. We prove existence of equilibrium, and provide a numerical example illustrating the main determinants of optimal payment strategies.
    Date: 2012–09
  47. By: Martin Lábaj (University of Economics in Bratislava, Faculty of National Economy, Department of Economic Policy); Róbert Kúšik
    Abstract: We identify the sources of long-term economic growth in V4 countries and in Finland in this paper. We show the differences in productivity levels and their development over time, with following decomposition of productivity gap to technological backwardness and inefficiency. We deal with an analysis of particular V4 economies with comparison to Finland. We have revealed relatively high differences in the sources of economic growth as well as in productivity levels. We have showed that the importance of lagging behind in efficiency is high, comparing to traditional focus on technological backwardness.
    Keywords: Economic growth, Total factor productivity, Sources of economic growth, Technological backwardness, Efficiency
    JEL: E20 O11
    Date: 2012–08–12
  48. By: Jackman, Mahalia
    Abstract: The Central Bank of Barbados often intervenes – buys or sells from the foreign exchange (FX) reserves – to ensure the daily clearing of the FX market. This paper estimates an FX intervention function for Barbados using a dynamic complementary log-log model. Three general findings emerged: (i) dynamics play an important role in the Central Bank’s intervention function, meaning that the probability that an intervention takes place today is conditional upon an intervention taking place at least one day prior. This most likely reflects the fact that deficits/surpluses on the FX market tend to be persistent, resulting in intervention over a consecutive number of days; (ii) there appears to be some differences in the response of Central Bank interventions to the other key variables. Particularly, seasonal fluctuations in tourism and interest rate spreads are likely to impact the probability of a sale intervention, but don’t seem to affect the likelihood of a purchase intervention. Moreover, an influx of real estate flows is likely to increase the probability that a purchase intervention takes place, but might have limited impact on the marginal propensity of a sale intervention. Finally, (iii) ‘oil price shocks’ is the only exogenous variable which appears to impact both sale and purchase interventions.
    Keywords: Foreign exchange; intervention;fixed exchange rate
    JEL: E58 F31 N26
    Date: 2012–03
  49. By: Tommaso Trani (Graduate Institute of International Studies)
    Abstract: This paper develops a macroeconomic framework where the representative bank is owned by inside and outside owners and copes with capital requirements that vary countercyclically. The issuance of outside equity is characterized getting insights from the literature on corporate governance, especially that on corporate governance and investor protection. The insider receives utility benefits from the diversion of dividends, but the costs of diversion increase with the size of bank equity owned by outsiders. The goal is to see to what extent the willingness of insiders to share the bank with outsiders is affected by capital regulation. I find a negative link, which holds only if capital restrictions vary countercyclically. Thinking of a positive shock, the justification for such a negative link is that the shock leads not only to tighter regulation, but also to higher expected dividends and, relatedly, to higher agency costs affecting the distribution of earnings.
    Keywords: macroprudential policy, bank regulation, insider-outsider, bank shareholding
    JEL: E60 G28 G32
    Date: 2012–09–21
  50. By: Uwe Cantner (School of Economics and Business Administration, Friedrich-Schiller-University Jena); Simone Vannuccini (Graduate College "The Economics of Innovative Change", University of Jena)
    Abstract: The economic literature started to recognize the heterogeneity characterizing the nature of different technologies, introducing the concept of General Purpose Technologies. In this paper, we offer a "new view of General Purpose Technologies", building on the historical as well as on the recent literature, enquiring more in deep the definitional problems related to the GPTs and the conditions for their emergence, together with the characteristic for their prevalence and pervasiveness. A Schumpeterian and evolutionary view pointing at the micro and meso level of analysis - that of the dynamics of firms and industries -, is in our view the privileged perspective economists need to adopt in order to revitalize the theoretical and empirical study of GPTs. The similarities with the emergence of dominant designs and the relations with dynamics of increasing returns and path dependency in the choice between alternative technologies offer us a set of tools well suited to study the establishment of GPTs as a process unfolding in time, more than as a single homogeneous shock.
    Keywords: General Purpose Technologies, Long Waves, Business Cycles, Dominant design, Pervasiveness of technologies, Neo-Schumpeterian economics.
    JEL: E32 L16 O30 O33 O40
    Date: 2012–10–02
  51. By: Yong Tao
    Abstract: This paper presents a model of spontaneous economic order within the framework of general equilibrium theory. Our study shows that if a competitive economy is enough free and fair, then a spontaneous economic order shall emerge in long-period competitive equilibrium so that social members together occupy an optimally economic allocation. Despite this, the spontaneous order may degenerate in the form of economic crisis whenever an equilibrium economy approaches the extreme competition. Remarkably, such a theoretical framework of spontaneous order presents a bridge connecting Austrian economics and Neoclassical economics, where we indeed comprehend a truth: "Freedom drives economic development".
    Date: 2012–10
  52. By: Dreyer, Heiko
    Abstract: In diesem Beitrag wird der deutsche Außenhandel mit Produkten der Agrar- und Ernährungswirtschaft in einem Gravitationsmodell analysiert. Ziel ist es, die relevanten Bestimmungsgründe für den Außenhandel mit diesen Produkten zu identifizieren und zu quantifizieren. Ein Schwerpunkt liegt in der Bedeutung der europäischen Marktintegration für den deutschen Außenhandel. Dazu erfolgt die Modellspezifikation unter Berücksichtigung des Wechselkursrisikos. Das für einen Länderquerschnitt geschätzte Gravitationsmodell kann die Variation im Außenhandel erfolgreich erklären. Verschiedene Ergebnisse lassen einen deutlichen, positiven Effekt der Marktintegration erkennen. Die Mitgliedschaft eines deutschen Handelspartners in der Europäischen Union ist für den Handel bedeutender als die Einführung des Euros in diesem Land. Mit EU-Staaten, die den Euro nicht eingeführt haben, werden im Vergleich zu allen anderen Staaten 2,3-mal so viele Waren ausgetauscht. Hat ein EU-Staat den Euro eingeführt, so erhöht sich der Außenhandel mit Deutschland um weitere 70 Prozent. Es gibt jedoch keine Anzeichen dafür, dass das Wechselkursrisiko einen signifikanten negativen Einfluss auf den Außenhandel hat. Wird ein signifikanter Einfluss gefunden, ist dieser klein und positiv.
    Keywords: Agraraußenhandel, Deutschland, europäische Marktintegration, Eurozone, Wechselkursrisiko, Makroökonomische Effekte, Gravitationsmodell, agricultural trade, Germany, European market integration, Euro area, exchange rate risk, macroeconomic effects, gravity equation, Agricultural and Food Policy, International Relations/Trade,
    Date: 2012
  53. By: Alessandra Bonfiglioli; Gino Gancia
    Abstract: In this paper, we study the determinants of political myopia in a rational model of electoral accountability where the key elements are informational frictions and uncertainty. We build a framework where political ability is ex-ante unknown and policy choices are not perfectly observable. On the one hand, elections improve accountability and allow to keep well-performing incumbents. On the other, politicians invest too little in costly policies with future returns in an attempt to signal high ability and increase their reelection probability. Contrary to the conventional wisdom, uncertainty reduces political myopia and may, under some conditions, increase social welfare. We use the model to study how political rewards can be set so as to maximise social welfare and the desirability of imposing a one-term limit to governments. The predictions of our theory are consistent with a number of stylised facts and with a new empirical observation documented in this paper: aggregate uncertainty, measured by economic volatility, is associated to better ...scal discipline in a panel of 20 OECD countries.
    JEL: E6 H3
    Date: 2012–10–05
  54. By: Ruud A. de Mooij (IMF); Hendrik Vrijburg (Erasmus University Rotterdam)
    Abstract: This paper analytically derives the conditions under which the slope of the tax reaction function is negative in a classical tax competition model. If countries maximize welfare, we show that a negative slope (reflecting strategic substitutability) occurs under relatively mild conditions. Simulations suggest that strategic substitutability occurs under plausible parameter configurations. The strategic tax response is crucial for understanding tax competition games, as well as for assessing the welfare effects of partial tax unions (whereby a subset of countries coordinate their tax rates). Indeed, contrary to earlier findings that have assumed strategic complementarity in tax rates, we show that partial tax unions might reduce welfare under strategic substitutability.
    Keywords: Strategic Substitutes; Asymmetry; Strategic Tax Response; Tax Coordination
    JEL: E62 F21 H25 H77
    Date: 2012–10–02

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