nep-mac New Economics Papers
on Macroeconomics
Issue of 2012‒11‒17
forty-four papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Liquidity Traps and the Price (In)Determinacy of Monetary Rules By Eagle, David M
  2. Monetary policy, informality and business cycle fluctuations in a developing economy vulnerable to external shocks By Haider, Adnan; Din, Musleh-ud; Ghani, Ejaz
  3. Signaling effects of monetary policy By Leonardo Melosi
  4. Fitting U.S. Trend Inflation: A Rolling-Window Approach. By Efrem Castelnuovo
  5. The macroeconomic effects of large-scale asset purchase programs By Han Chen; Vasco Cúrdia; Andrea Ferrero
  6. Uma Avaliação dos Recolhimentos Compulsórios. By Leonardo S. Alencar; Tony Takeda; Bruno S. Martins; Paulo Evandro Dawid
  7. Debt-Deflation versus the Liquidity Trap : the Dilemma of Nonconventional Monetary Policy By Gaël Giraud; Antonin Pottier
  8. Monetary targeting and financial system characteristics: An empirical analysis By Samarina, Anna
  9. Monetary Policy Neutrality: Sign Restrictions Go to Monte Carlo. By Efrem Castelnuovo
  10. The Federal Reserve’s response to the financial crisis: what it did and what it should have done By Daniel L. Thornton
  11. A model for interest rates near the zero lower bound: An overview and discussion By Leo Krippner
  12. The Sources of Macroeconomic Fluctuations in Subsaharan African Economies: An application to Côte d'Ivoire By Jidoud, Ahmat
  13. Conflicting Claims in the Eurozone? Austerity’s Myopic Logic and the Need for a European Federal Union in a post-Keynesian Eurozone Center-Periphery Model By Alberto Botta
  14. Business cycles and financial crises: the roles of credit supply and demand shocks By James M Nason; Ellis Tallman
  15. Wages and unemployment across business cycles: a high-frequency investigation By Lei Fang; Pedro Silos
  16. Estimates of Uncertainty around the RBA's Forecasts By Peter Tulip; Stephanie Wallace
  17. On real interest rate persistence: the role of breaks By Alfred Haug
  18. Are real entry wages rigid over the business cycle? : Empirical evidence for Germany from 1977 to 2009 By Stüber, Heiko
  19. The dynamics of hours worked and technology By Cristiano Cantore; Filippo Ferroni; Miguel A. León-Ledesma
  20. Fiscal Austerity Measures: Spending Cuts vs. Tax Increases By Gerhard Glomm; Juergen Jung; Chung Tran
  21. Job Guarantee: a Structuralist Perspective By Antoine Godin
  22. Does Wage Rigidity Make Firms Riskier? Evidence from Long-Horizon Return Predictability By Favilukis, Jack; Lin, Xiaoji
  23. Implications of insights from behavioral economics for macroeconomic models By Steinar Holden
  24. Financial versus Demand shocks in stock price returns of US non-financial firms in the crisis of 2007. By Varvara Isyuk
  25. Extending the Reserve Bank’s macroeconomic balance model of the exchange rate By James Graham; Daan Steenkamp
  26. Vacancy Matching and Labor Market Conditions By Stadin, Karolina
  27. Climate Change Skepticism in the Face of Catastrophe By Mark Kagan
  28. Petrol Price Cycles By David P. Byrne
  29. Top Incomes, Rising Inequality, and Welfare By Kevin J. Lansing; Agnieszka Markiewicz
  30. Top incomes, rising inequality, and welfare By Kevin Lansing; Agnieszka Markiewicz
  31. Human Development and Fiscal Policy: Comparing the Crises of 1982-85 and 2008-11 By Bruno Martorano,; Giovanni Andrea Cornia; Frances Stewart
  32. The Impact of the Business Cycle on Elasticities of Tax Revenue in Latin America By Roberto Machado; José Zuloeta
  33. Estimating the Federal Direct Tax Buoyancy for Pakistan in Post-1973 Era By Shaikh, Salman
  34. CPP funds allocation : restoring financial stability or minimising risks of non-repayment to taxpayers ?. By Varvara Isyuk
  35. Recalibrando la medición del balance estructural en Chile By Mario Marcel; Mabel Cabezas; Bernardita Piedrabuena
  36. "The Original Operation Twist: The War Finance Corporation's War Bond Purchase, 1918-1920" By James L. Butkiewicz; Mihaela Solcan
  37. Gender differences in bank loan access. By Giorgio Calcagnini; Germana Giombini; Elisa Lenti
  38. The Effects of Oil and Mineral Taxation on Non-commodity Fiscal Revenues By Guillermo Perry; Sebastián Bustos
  39. Interest Based Financial Intermediation: Analysis and Solutions By Shaikh, Salman
  40. Economic and Politico-Economic Equivalence By Gonzalez-Eiras, Martin; Niepelt, Dirk
  41. The Great Export Recovery in German Manufacturing Industries, 2009/2010 By Wagner, Joachim
  42. Selection and Real wage cyclicality: Germany Case By Kang, Lili; Peng, Fei
  43. Macroeconomic Adjustment and the History of Crises in Open Economies By Joshua Aizenman; Ilan Noy
  44. Health Insurance Reform: The Impact of a Medicare Buy-In By Gary D. Hansen; Minchung Hsu; Junsang Lee

  1. By: Eagle, David M
    Abstract: This paper proposes a new methodology for assessing price indeterminacy to supplant the discredited nonexplosive criterion. Using this methodology, we find that nominal GDP targeting and price-level targeting do determine prices when the central bank follows a sufficiently strong feedback rule for setting the nominal interest rate. However, inflation targeting leads to price indeterminacy, a result consistent with the principles of calculus. This price indeterminacy of inflation targeting could manifest itself in a liquidity trap or zero bound for nominal interest rates rendering central banks impotent. Nominal GDP targeting could overcome this liquidity-trap effect.
    Keywords: inflation targeting; price-level targeting; nominal GDP inflation targeting; price-level targeting; nominal income targeting; price determinacy; liquidity trap
    JEL: E31 E58 E52
    Date: 2012–11–02
  2. By: Haider, Adnan; Din, Musleh-ud; Ghani, Ejaz
    Abstract: This paper develops an open economy dynamic stochastic general equilibrium (DSGE) model based on New-Keynesian micro-foundations. Alongside standard features of emerging economies, such as a combination of producer and local currency pricing for exporters, foreign capital inflow in terms of foreign direct investment and oil imports, this model also incorporates informal labor and production sectors. This customization intensifies the exposure of a developing economy to internal and external shocks in a manner consistent with the stylized facts of Business Cycle Fluctuations. We then focus on optimal monetary policy analysis by evaluating alternative interest rate rules and calibrate the model using data from Pakistan economy. The learning and determinacy analysis suggest monetary authority in developing economies to follow Taylor principle in large and to put some weight on exchange rate fluctuations even if there is relatively less inertia in the setting of policy interest rate.
    Keywords: Monetary Policy; Informal Economy; Business Cycles; DSGE
    JEL: E32 E52 E26 E37
    Date: 2012–10–14
  3. By: Leonardo Melosi
    Abstract: We develop a DSGE model in which the policy rate signals the central bank's view about macroeconomic developments to incompletely informed price setters. The model is estimated with likelihood methods on a U.S. data set including the Survey of Professional Forecasters as a measure of price setters' expectations. The signaling effects of monetary policy are found to be empirically important and dampen the effects of monetary disturbances on inflation. While the signaling effects enhance the Federal Reserve's ability to stabilize the economy in the face of demand shocks, they play a small role in stabilizing the economy after technology shocks.
    Keywords: Monetary policy ; Federal Reserve System ; Technology - Economic aspects
    Date: 2012
  4. By: Efrem Castelnuovo (University of Padova)
    Abstract: The role of trend inflation shocks for the U.S. macroeconomic dynamics is investigated by estimating two DSGE models of the business cycle. Policymakers are assumed to be concerned with a time-varying inflation target, which is modeled as a persistent and stochastic process. The identification of trend inflation shocks (as opposed to a number of alternative innovations) is achieved by exploiting the measure of trend inflation recently proposed by Arouba and Schorfheide (2011, American Economic Journal: Macroeconomics). Our main findings point to a substantial contribution of trend inflation shocks for the volatility of inflation and the policy rate. Such contribution is found to be time-dependent and highest during the mid-1970s to mid-1980s.
    Keywords: trend inflation shocks, new-keynesian DSGE models, rolling-window approach great moderation.
    JEL: E31 E32 E52
    Date: 2012–10
  5. By: Han Chen; Vasco Cúrdia; Andrea Ferrero
    Abstract: We simulate the Federal Reserve second Large-Scale Asset Purchase program in a DSGE model with bond market segmentation estimated on U.S. data. GDP growth increases by less than a third of a percentage point and inflation barely changes relative to the absence of intervention. The key reasons behind our findings are small estimates for both the elasticity of the risk premium to the quantity of long-term debt and the degree of financial market segmentation. Absent the commitment to keep the nominal interest rate at its lower bound for an extended period, the effects of asset purchase programs would be even smaller.
    Keywords: Open market operations ; Monetary policy
    Date: 2012
  6. By: Leonardo S. Alencar; Tony Takeda; Bruno S. Martins; Paulo Evandro Dawid
    Abstract: Reserve requirements are used as an additional policy instrument in many countries. The present paper examines whether the use of this instrument helps to improve macroeconomic stability. The analysis is conducted by estimating and simulating a semi structural model for the Brazilian economy. The results indicate that the use of reserve requirements – as a complement to the monetary policy interest rate – can provide stability gains both from the output and inflation perspective, as well as from a macroprudential point of view. In particular, reserve requirements showed to play an important role to accommodate shocks that arise in the financial sector.
    Date: 2012–10
  7. By: Gaël Giraud (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Antonin Pottier (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CIRAD : UMR56 - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - AgroParisTech)
    Abstract: This paper examines quantity-targeting monetary policy in a two-period economy with fiat money, endogenously incomplete markets of financial securities, durable goods and production. Short positions in financial assets and long-term loans are backed by collateral, the value of which depends on monetary policy. The decision to default is endogenous and depends on the relative value of the collateral to the loan. We show that Collateral Monetary Equilibria exist and prove there is also a refinement of the Quantity Theory of Money that turns out to be compatible with the long-run non-neutrality of money. Moreover, only three scenarios are compatible with the equilibrium condition : 1) either the economy enters a liquidity trap in the first period ; 2) or a credible ex-pansionary monetary policy accompanies the orderly functioning of markets at the cost of running an inflationary risk ; 3) else the money injected by the Central Bank increases the leverage of indebted investors, fueling a financial bubble whose bursting leads to debt-deflation in the next period with a non-zero probability. This dilemma of monetary policy highlights the default channel affecting trades and production, and provides a rigorous foundation to Fisher's debt deflation theory as being distinct from Keynes' liquidity trap.
    Keywords: Central Bank; liquidity trap; collateral; default; deflation; quantitative easing; debt-deflation.
    Date: 2012–10
  8. By: Samarina, Anna (Groningen University)
    Abstract: This paper investigates how reforms and characteristics of the financial system affect the likelihood of countries to abandon their strategy of monetary targeting. Apart from financial system characteristics, we include macroeconomic, fiscal, and institutional factors potentially associated with countries? choices to give up monetary targeting. Panel logit models are estimated on a sample of 35 monetary targeting countries over the period 1975-2009. The findings suggest that financial liberalization, deregulation, and development as well as dollarization significantly increase the likelihood to abandon monetary targeting. Additionally, more developed countries with lower inflation and larger fiscal deficits are more likely to quit this monetary strategy. However, the financial determinants of abandoning monetary targeting differ between advanced and emerging and developing countries.
    Date: 2012
  9. By: Efrem Castelnuovo (University of Padova)
    Abstract: A new-Keynesian DSGE model in which contractionary monetary policy shocks generate recessions is estimated with U.S. data. It is then used in a Monte Carlo exercise to generate artificial data with which VARs are estimated. VAR monetary policy shocks are identified via sign restrictions. Our VAR impulse responses replicate UhligÕs (2005, Journal of Monetary Economics) evidence on unexpected interest rate hikes having ambiguous effects on output. The mismatch between the true (DSGE-consistent) responses and those produced with sign-restriction VARs is shown to be due to the low relative strength of the signal of the monetary policy shock. We conclude that UhligÕs (2005) finding is not inconsistent with monetary policy non-neutrality.
    Keywords: Monetary policy shocks, VARs, sign restrictions, dynamic stochastic general equilibrium models, monetary neutrality.
    JEL: C3 E4 E5
    Date: 2012–10
  10. By: Daniel L. Thornton
    Abstract: This paper analyzes the Federal Reserve’s major policy actions in response to the financial crisis. The analysis is divided into the pre-Lehman and post-Lehman monetary policies. Specifically, I describe the pre- and post-Lehman monetary policy actions that I believe were appropriate and those that were not. I then describe the monetary policy actions the Fed should have taken and why those actions would have fostered better financial market and economic outcomes. Had these actions been taken, the Fed’s balance sheet would have returned to normal and the FOMC’s target for the federal funds rate would be a level consistent with a positive real rate and an inflation target of 2 percent.
    Keywords: Federal Reserve banks ; Monetary policy ; Financial crises
    Date: 2012
  11. By: Leo Krippner (Reserve Bank of New Zealand)
    Abstract: Operating monetary policy when interest rates are already at or near zero comes with many challenges, as many countries have discovered in recent years. One aspect is that, if effective easing beyond a zero policy rate is desired, the policy rate constrained at zero will no longer conveniently summarise the stance of monetary policy and its typical transmission into the yield curve (longer-maturity interest rates) and the economy. In this note, I show how a framework for representing yield curve data in a zero lower bound (ZLB) environment can still allow monetary policy to be conveniently summarised in terms of an effective policy rate.
    Date: 2012–09
  12. By: Jidoud, Ahmat
    Abstract: This paper quantifies the empirical importance of various types of relevant shocks in explaining macroeconomic uctuations in a typical Sub{saharan African economy (C^ote d'Ivoire) in the context of a Dynamic Stochastic General Equilibrium (DSGE) model and Bayesian techniques. Our analysis first documents that transitory but persistent productivity shocks are the dominant sources of macroeconomic volatility as they explain more than half of aggregate uctuations. Second, world interest rate shocks are found to be non{negligible especially in driving uctuations in consumption growth. Third, while fiscal policy is found to be procyclical, fiscal shocks play a minor role in this economy. In addition, negative productivity shocks coupled with positive world interest rate shocks are at the origins of the poor macroeconomic performances of the economy in the 80s. These findings are in line with the business cycle literature on African economies and also robust to various perturbations of the benchmark set-up.
    Keywords: Aggregate fluctuations,Subsaharan economies, DSGE model, Bayesian method, transitory and permanent shocks.
    JEL: C11 C51 E32
    Date: 2012–10
  13. By: Alberto Botta (Department of Political and Social Sciences, University of Pavia and Department of Law and Economics, Mediterranean University of Reggio Calabria)
    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: 2012–10
  14. By: James M Nason; Ellis Tallman
    Abstract: This paper explores the hypothesis that the sources of economic and financial crises differ from noncrisis business cycle fluctuations. We employ Markov-switching Bayesian vector autoregressions (MS-BVARs) to gather evidence about the hypothesis on a long annual U.S. sample running from 1890 to 2010. The sample covers several episodes useful for understanding U.S. economic and financial history, which generate variation in the data that aids in identifying credit supply and demand shocks. We identify these shocks within MS-BVARs by tying credit supply and demand movements to inside money and its intertemporal price. The model space is limited to stochastic volatility (SV) in the errors of the MS-BVARs. Of the 15 MS-BVARs estimated, the data favor a MS-BVAR in which economic and financial crises and noncrisis business cycle regimes recur throughout the long annual sample. The best-fitting MS-BVAR also isolates SV regimes in which shocks to inside money dominate aggregate fluctuations.
    Keywords: Business cycles ; Forecasting ; Financial markets ; Economic history
    Date: 2012
  15. By: Lei Fang; Pedro Silos
    Abstract: This paper investigates the change in wages associated with a spell of unemployment. The novelty lies in using monthly data from the Survey of Income and Program Participation (SIPP) to analyze the dynamics of those wage changes across different business cycles. The level of education or the sector of re-employment affects the change in wages following an unemployment spell differently across different downturns. The degree of wage rigidity varies across recessions; wage changes pre- and post-unemployment are sometimes procyclical and sometimes countercyclical. These results may be useful for understanding the different aggregate employment dynamics observed across downturns and recoveries.
    Date: 2012
  16. By: Peter Tulip (Reserve Bank of Australia); Stephanie Wallace (Reserve Bank of Australia)
    Abstract: We use past forecast errors to construct confidence intervals and other estimates of uncertainty around the Reserve Bank of Australia's forecasts of key macroeconomic variables. Our estimates suggest that uncertainty about forecasts is high. We find that the RBA's forecasts have substantial explanatory power for the inflation rate but not for GDP growth.
    Keywords: forecast errors; confidence intervals
    JEL: E17 E27 E37
    Date: 2012–11
  17. By: Alfred Haug (Department of Economics, University of Otago, New Zealand)
    Abstract: The role of structural breaks in long spans of ex-post real interest rates for ten industrialized countries is studied. First, the persistence of the real interest is assessed with newly proposed low-frequency tests of M¨uller and Watson (2008). Second, the test of Leybourne et al. (2007) for a change in persistence of a time-series is applied to the real interest rate. The results show that real interest rates over the full sample period do not fit a covariance-stationary or unit-root model, nor a fractionally-integrated, near-unit-root or local-level model. The persistence of real rates changes and there are periods when the real rate is covariance stationary and other periods when it follows a unit root process instead. Also, the breaks reflect structural changes in the inflation rate, which are likely due to changes in monetary policy regimes.
    Keywords: Real interest rates, persistence of a time series, breaks in persistence
    JEL: E43 C22
    Date: 2012–11–06
  18. By: Stüber, Heiko (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "So far little empirical evidence exists on how real wages of newly hired workers react to business cycle conditions. This paper aims at filling this gap for Germany by analyzing the cyclical behavior of real wages of newly hired workers while controlling for 'cyclical upgrading' and 'cyclical downgrading' in employee/employer matches over the cycle. The analysis is undertaken for the 1977 to 2009 period using administrative longitudinal matched employer-employee wage data. I find that an increase in the unemployment rate of one percentage point decreases the real wages of job entries within given firm-jobs by about 1.27 percent. In light of the magnitude of the entry-wage cyclicality it seems that introducing wage rigidity in the Mortensen- Pissarides model in order to amplify realistic volatility of unemployment is not supported by the data. Further I show that the procyclicality of the employment/ population ratio is identical to the procyclicality of real entry wages. This counters the view of many macroeconomists that wages are much less cyclical than employment and unemployment." (Author's abstract, IAB-Doku) ((en))
    Keywords: Reallohn, Lohntheorie, Lohnelastizität, Konjunkturzyklus, Arbeitslosigkeit, Lohnstarrheit
    JEL: E24 J31 E32
    Date: 2012–03–15
  19. By: Cristiano Cantore (University of Surrey); Filippo Ferroni (Banque de France, University of Surrey); Miguel A. León-Ledesma (University of Kent)
    Abstract: We study the relationship between hours worked and technology during the postwar period in the US. We show that the responses of hours to technological improvements have increased over time, and that the patterns captured by the SVAR are consistent with those obtained from an RBC model with a less than unitary elasticity of substitution between capital and labor. Data supports the hypothesis that the observed changes in the response of hours to a technology shock are attributable to changes in the magnitude of the degree of capital-labor substitution. We argue that the observed time-variation in can arise from changes in the structural composition of sectors (or factors) in a heterogeneous inputs production function or from biases in technological change
    Keywords: Real Business Cycles models, Constant Elasticity of Substitution production function, Hours worked, technology shocks
    JEL: E32 E37 C53
    Date: 2012–11
  20. By: Gerhard Glomm; Juergen Jung; Chung Tran
    Abstract: We study the macroeconomic and welfare effects of decumulating government debt in an overlapping generations model with skill heterogeneity and productive and non-productive government programs. Our results are: First, in the small open economy model calibrated to Greece, the spending-based austerity reform dominates the tax-based reform with respect to income effects but not with respect to the welfare effect. A mixed reform combining the tax-based and spending-based measures results in the largest welfare effects of up to 1.8 percent of pre-reform consumption. Second, the welfare effects vary significantly along the transition to the post reform steady state, depending not only on fiscal austerity measures, but also on skill types, working sectors and generations. When consumption taxes adjust the aggregate welfare effects are positive but the current old and middle age generations experience welfare losses while current young workers and future generations are beneficiaries. Third, interactions between fiscal distortions and the risk premium as well as accessibility to international capital markets strongly influence the effects of fiscal austerity. Larger growth and welfare effects are observed when the risk premium is larger than zero and when access to international capital markets is restricted.
    JEL: E21 E63 H55 J26 J45
    Date: 2012–11
  21. By: Antoine Godin (Department of Economics and Management, University of Pavia)
    Abstract: The structuralist and Stock Flow Consistent (SFC) approaches share some common grounds. Computable General Equilibriums (CGE) models, often used by structuralists, are based on Social Accounting Matrices, which are close SFC’s Transaction Flow Matrices. However, the analysis of structuralists model is more on the meso-level while SFC models are rather at macro-level. Our paper is a step, following Missaglia (2011), towards the creation of a structuralist/SFC model. We introduce several new features in an SFC model: (i) a more disaggregated households sector than usual, (ii) three production sectors and the possibility of constrained output, and (iii) a more elaborated labor market with endogenous labor supply. We use the model to compare two Keynesian policies: the Job Guarantee (JG) and a traditional Keynesian Demand Spur (KDS).
    Keywords: Job Guarantee, Structuralist, Stock-Flow Consistent
    JEL: E12 E24 L16
    Date: 2012–11
  22. By: Favilukis, Jack (London School of Economics and Political Science); Lin, Xiaoji (OH State University)
    Abstract: We explore the relationship between sticky wages and risk. Like operating leverage, sticky wages are a source of risk for the firm. Firms, industries, or times with especially high or rigid wages are especially risky. If wages are sticky then wage growth should negatively forecast future stock returns because falling wages are associated with even bigger falls in output, and increases in operating leverage. Indeed, we find this to be the case in aggregate data, and in industry data. Furthermore, we find that industries with higher wage rigidity have a more negative relationship between wages and returns.
    JEL: E21 E23 E32 E44 G12
    Date: 2012–10
  23. By: Steinar Holden (Department of Economics, University of Oslo and Norges Bank (Central Bank of Norway))
    Abstract: The last 20 years, the importance of a number of behavioral features has been widely accepted within economics, and they are now regularly included in standard macro models. Where has this development led us? I argue that the insights from behavioral economics have led to important progress in our understanding of macroeconomic phenomena. One of the most important is the effect of fairness considerations on wages and employment relationships. Another important insight is that most or all individuals are affected by various behavioral features, which should be taken into account in the design of saving plans and pension schemes. A third insight is that plausible macro models provide large scope for important effects of sentiments and psychological factors. Future research should follow different routes, like incorporating behavioral features in standard models, improving estimated empirical models, and learning from case studies and historical episodes.
    Keywords: Behavioral macroeconomics
    JEL: E2 E3 D8
    Date: 2012–11–06
  24. By: Varvara Isyuk (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: In the aftermath of the recent bank-centered financial crisis it is still unclear how much of the decline in non-financial firms' stock prices was due to liquidity shortage, and how much of this decline was due to lower expected consumer demand. The stock returns are examined over nine periods between July 31, 2007 and March 31, 2010. The near-collapse of Bear Stearns and the failure of Lehman Brothers can be both characterised as liquidity shocks that had a greater impact on financially fragile non-financial firms. It was mostly improvement in demand expectations that positively affected the performance of US non-financial firms in the first months of recovery. In the later periods, however, neither amelioration in demand expectations nor improvement of financial conditions can explain the performance of US non-financial firms.
    Keywords: Stock price returns, financial constraints, liquidity shortage, shock on demand expectations.
    JEL: E44 G01 G12
    Date: 2012–05
  25. By: James Graham; Daan Steenkamp (Reserve Bank of New Zealand)
    Abstract: The exchange rate matters a lot in New Zealand and the Reserve Bank uses several different models, each imprecise, to analyse it. This note focuses on just one of those approaches: the macro-balance model of the exchange rate. We use that model to estimate the exchange rate which, if sustained, would stabilise at around current levels the negative net international investment position (as a percentage of GDP). The sensitivity of the model estimates to some of the key assumptions is illustrated.
    Date: 2012–10
  26. By: Stadin, Karolina (Department of Economics)
    Abstract: This paper studies the probability of filling a vacancy, how it varies with the number of unemployed and number of vacancies in the local labor market, and what impact it has on employment. A greater availability of unemployed workers should make it easier for a firm to fill a vacancy but more vacancies at other firms should make it more difficult, due to the congestion effect. I use monthly panel data for all local labor markets in Sweden from 1992-2011. The results suggest that unemployment has a weak positive effect on the probability of filling a vacancy, while the number of vacancies in the local labor market has a significant and robust negative effect. Simulations of a theoretical model, with parameters based on the estimation, show economically significant effects of shocks to the number of vacancies on employment dynamics, while shocks to the number of unemployed are not very important. Matching frictions are more important for employment during booms than during recessions.
    Keywords: Vacancies; Unemployment; Matching; Labor demand; Employment dynamics; Business cycle
    JEL: E24 E39 J23 J63 J64
    Date: 2012–10–29
  27. By: Mark Kagan (VU University Amsterdam)
    Abstract: This paper develops a general-equilibrium model of skill-biased technological change that approximates the observed shifts in the shares of wage and non-wage income going to the top decile of U.S. households since 1980. Under realistic assumptions, we find that all agents can benefi…t from the technology change, provided that the observed rise in redistributive transfers over this period is taken into account. We show that the increase in capital’s share of total income and the presence of capital-entrepreneurial skill complementarity are two key features that help support the wages of ordinary workers as the new technology diffuses.
    Keywords: Income Inequality; Skill-biased Technological Change; Capital-skill Complementarity; Redistribution; Welfare
    JEL: E32 E44 H23 O33
    Date: 2012–10–25
  28. By: David P. Byrne
    Abstract: I never owned a car as a student. If I had to go somewhere, I walked or took public transport. I paid little attention to petrol prices because they did not affect my weekly budget. However, if you talk to someone who owns a car or drives to work, you will likely find they pay attention to prices at the pump.They may tell you which are the cheap petrol stations in their market, what the cheap day of the week for buying petrol is, or express concern that petrol prices rise around weekends and holidays.Consumers’ interest in petrol prices is likely driven by three facts: (1) petrol prices are displayed on large signs, making them highly visible; (2) in the short-run, consumers are unable to substitute from petrol to other fuels or modes of transportation when petrol prices rise; and (3) consumers spend a large share of their income on petrol. In 2009, the average Australian spent $51.02 per week on petrol, or 4.1% of their total weekly expenditures (ACCC 2011). Moreover, petrol is a relatively homogeneous good, which leaves consumers questioning why its price varies so much over time and across stations. Given the impact petrol costs have on consumers’ budgets, the Australian Competition and Consumer Commission (ACCC) monitors competition in Australian petrol markets. In fact, the ACCC has an entire branch solely dedicated to petrol markets! A striking finding the ACCC has documented for at least the past five years is that petrol price cycles exist in Australian cities. Figure 1, taken from an ACCC (2010) monitoring report, illustrates petrol price cycles for Adelaide, Brisbane, Melbourne, Perth, and Sydney. In these cities, the average daily petrol price drastically increases once a week (“price restorations”), followed by a sequence of daily price decreases (the “undercutting phase”), until the next price restoration occurs.1 To the extent that drivers purchase petrol from different stations at different parts of the cycle, petrol price cycles may explain why consumers form opinions about cheaper stations, cheap days for buying petrol, and petrol price hikes around weekends and holidays. This article provides an overview of the burgeoning academic literature on petrol price dynamics and cycles. I first discuss the empirical literature on price cycles in petrol markets. In light of the empirics, I then present theories of competition and consumer demand in petrol markets that help us understand the many facets of petrol price cycles. Developing such an understanding is important for antitrust policy. Policymakers require benchmark economic models that predict how prices should behave if stations set prices competitively, given market and supply conditions. With such a model in hand, authorities can effectively monitor the conduct of petrol stations, identify collusive behaviour, and design policies that help to ensure consumers pay fair prices. It is my hope that this article sheds light on the economics behind petrol price cycles, informs the development of such benchmark models, and piques readers’ interest in petrol industry research.
    Date: 2012
  29. By: Kevin J. Lansing (Federal Reserve Bank of San Francisco, and Norges Bank); Agnieszka Markiewicz (Erasmus University Rotterdam)
    Abstract: This paper develops a general-equilibrium model of skill-biased technological change that approximates the observed shifts in the shares of wage and non-wage income going to the top decile of U.S. households since 1980. Under realistic assumptions, we find that all agents can benefit from the technology change, provided that the observed rise in redistributive transfers over this period is taken into account. We show that the increase in capital’s share of total income and the presence of capital-entrepreneurial skill complementarity are two key features that help support the wages of ordinary workers as the new technology diffuses.
    Keywords: Income Inequality; Skill-biased Technological Change; Capital-skill
    JEL: E32 E44 H23 O33
    Date: 2012–10–26
  30. By: Kevin Lansing; Agnieszka Markiewicz
    Abstract: This paper develops a general-equilibrium model of skill-biased technological change that approximates the observed shifts in the shares of wage and non-wage income going to the top decile of U.S. households since 1980. Under realistic assumptions, we find that all agents can benefit from the technology change, provided that the observed rise in redistributive transfers over this period is taken into account. We show that the increase in capital’s share of total income and the presence of capital-entrepreneurial skill complementarity are two key features that help support the wages of ordinary workers as the new technology diffuses.
    Date: 2012
  31. By: Bruno Martorano, (Unicef-IRC); Giovanni Andrea Cornia (Dipartimento Scienze Economiche, Università degli studi di Firenze); Frances Stewart (Queen Elizabeth House, University of Oxford)
    Abstract: The paper juxtaposes the fiscal policies – and in particular the changes in social expenditures – adopted during the debt crisis of 1982-1985 and the financial crisis of 2008-2011. The paper shows that – contrary to the early 1980s - the governments’ responses in 2008-2009 were characterized by the adoption of Keynesian fiscal stimulus packages in which an increase in social spending represented one of the main components. Nonetheless, in 2010-11 fear of debt default and continuous pressures coming from the financial markets pushed many policy makers to introduce austerity packages and cut public social expenditure, offsetting in this way part the prior policy decisions, as already observed in the early 1980s. Econometric evidence included in the paper shows that the factors explaining the difference in policy approaches between the early 1980s and 2008-2009 include greater country autonomy compared with the past, the spread of democracy and the greater attention paid to human development by policy-makers designing fiscal adjustments.
    Keywords: financial crises, fiscal adjustment, public social expenditure, human development.
    JEL: E62 G01 H5
    Date: 2012
  32. By: Roberto Machado; José Zuloeta
    Abstract: This paper estimates short-run and long-run elasticities of tax revenue with respect to GDP in eight Latin American countries using quarterly data. Taxes considered are corporate income tax (CIT), personal income tax (PIT), value-added tax (VAT), and overall taxes. Results indicate that long-run elasticities are statistically and economically larger than 1, whereas short-run elasticities appear not to be statistically different from zero in the majority of cases. Tax systems seem very elastic in Argentina, Colombia, Ecuador, Peru, and Venezuela. The CIT exhibits the largest estimated long-run elasticity in most countries. Focusing on short-run elasticities that show statistical significance, only the CIT in Colombia and the PIT in Brazil and Colombia show larger fluctuations over the business cycle than growth potential in the long run. Overall, our results indicate that tax systems in Latin America are significantly more elastic than previous estimations.
    Keywords: Economics :: Economic Development & Growth, Economics :: Production & Business Cycles, Tax revenue, Elasticities, Business cycles,
    JEL: E32 H24 H25 H29
    Date: 2012–09
  33. By: Shaikh, Salman
    Abstract: This study used the simple co-integration technique to estimate the direct tax buoyancy for Pakistan economy for the 36 year period starting from FY-1974 to FY-2009. The buoyancy estimated was more than unity which represents slight improvement over previous estimates in past studies. The study attributes the improvement to factors such as expansion of tax base, diversification and deepening of manufacturing sector and structural change in the economy with the size of agriculture sector output shrinking as proportion of GDP and the proportion of direct tax increasing in proportion to total taxes gradually. The study recommends certain policy recommendations which include increase in tax base, reduction in tax rates, reducing tax evasion opportunities by taxing all sources of income and by increasing documentation through compulsory show of tax identity in making most material transactions.
    Keywords: Taxes; Fiscal Policy; Public Finance; Tax Buoyancy; Tax Elasticity; Tax to GDP Ratio
    JEL: E62 H2 H3
    Date: 2012–04–31
  34. By: Varvara Isyuk (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: The U.S. Federal Reserve responded to liquidity shortage through compulsory loan guarantee scheme and bank recapitalisations mainly under Capital Purchase Program (CPP) for commercial banks. The bailout packages provided under CPP seem to be efficient in responding to the liquidity crisis subject to large banks that contributed the most to systemic risk. However, smaller banks that were actually exposed to the mortgage market and non-performing loans were denied the financial aid or received CPP funds of a relatively smaller size. Such CPP funds allocation was efficient from the point of view of taxpayer as the probability of bailout non-repayments was minimised. However, it did not support real estate loan recapitalisations that could become a reason of large welfare loses for the homeowners.
    Keywords: Bailouts, bank recapitalisation, CPP funds, systemic risk.
    JEL: E52 E58 G21
    Date: 2012–09
  35. By: Mario Marcel; Mabel Cabezas; Bernardita Piedrabuena
    Abstract: El presente resumen de políticas realiza una revisión sistemática de la metodología de estimación del Balance Estructural (BE) en Chile. Esta revisión no sólo recapitula y evalúa la justificación de la metodología de cálculo del BE actual o las pasadas, sino que explora diversas alternativas de mejoramiento, en la perspectiva de elevar la calidad, transparencia y estabilidad del BE como base de la política fiscal en Chile. A casi 10 años del comienzo de la conducción de la política fiscal en Chile base a una regla de BE, es posible afirmar que se lograron los objetivos perseguidos al establecer la regla, cuales eran dar credibilidad a la política fiscal, ahorrar para financiar obligaciones futuras, y estabilizar el gasto fiscal. La regla fiscal ha contado con cierta flexibilidad, ya que durante este período ésta ha experimentado importantes ajustes metodológicos. Aunque los cambios metodológicos que se han ido introduciendo han buscado elevar la precisión o la capacidad contracíclica del indicador, ello se ha producido a costa de una pérdida de simplicidad y transparencia. Los cambios metodológicos en el indicador de BE deberían ser producto de una rigurosa evaluación de sus costos y beneficios, informarse y justificarse públicamente y aplicarse retroactivamente para mantener la consistencia del indicador. Un proceso de construcción y reforzamiento de las bases institucionales de la política fiscal en Chile debe incluir, en principio, tres elementos: (a) ajustes en las políticas de gastos y financiamiento que fortalezcan su capacidad contracíclica de manera cuantificable y predecible; (b) reducción de la discrecionalidad en el manejo de las dimensiones contables y metodológicas de las finanzas públicas, haciendo más transparente la gestión fiscal, y (c) un esfuerzo de explicación y difusión de la regla fiscal, que facilite su comprensión por los formadores de opinión y la población en general.
    Keywords: Economía :: Política fiscal, Sector público :: Transparencia y lucha contra la corrupción, Balance estructural, Balance fiscal, PIB tendencial
    JEL: E61 E62 H61 H62
    Date: 2012–07
  36. By: James L. Butkiewicz (Department of Economics, University of Delaware); Mihaela Solcan (Department of Economics, University of Delaware)
    Abstract: In 1918 the United States Treasury delegated to the War Finance Corporation, a newly-created off-budget federal agency, the task of buying Liberty and later victory bonds in an effort to stabilize prices. Bayesian vector autoregression analysis of the bond purchase indicate that the WFC purchase provided significant price support, and lowered bond yields while the program operated. Once WFC purchase ended, war bond yields increased substantially. However, since the war bond purchases were financed by the sale of short-term debt certificates, the bond purchases increased short rates while reducing long rates. The WFC’s bond purchases twisted the yield curve.
    Keywords: E43, N12, M22, N42, G12
    JEL: E43 N12 N42 G12
    Date: 2012
  37. By: Giorgio Calcagnini (Department of Economics, Society & Politics, Università di Urbino "Carlo Bo"); Germana Giombini (Department of Economics, Society & Politics, Università di Urbino "Carlo Bo"); Elisa Lenti (Department of Economics, Society & Politics, Università di Urbino "Carlo Bo")
    Abstract: Traditionally female entrepreneurs report difficulties or higher costs in accessing bank credit. These difficulties can be either the result of supply side discrimination, or the lower profitability of female-owned firms than male-owned ones. This paper aims at analyzing gender differences in bank loan access by means of a large dataset on firms’ lines of credit provided by four Italian banks over the period 2005-2008. Estimates show that, after controlling for loan, firm and bank characteristics, female-owned firms: (a) experience a higher probability of having to pledge guarantees than male-owned firms; (b) have a lower probability of access to credit.
    Keywords: Gender discrimination, Bank loan, Guarantees.
    JEL: E43 G21 D82
    Date: 2012
  38. By: Guillermo Perry; Sebastián Bustos
    Abstract: This paper shows, first, that non-commodity revenues are more volatile in oil- and mineral-rich countries and that quality of institutions is associated with lower volatility. We investigate the channels through which oil and mineral revenue volatility lead to non-commodity revenues volatility, and find that when oil and fiscal revenues increase (decrease), non-commodity revenues are reduced (increased) discretionally, and that this substitution effect is larger and faster than an indirect positive income effect through increased public expenditures and GDP. Latin American oil- and mineral-rich countries appear, though, to behave differently. In particular, most of them show increased non-commodity revenues pari passu with increased oil and mineral revenues during the last decade. These findings have consequences for the overall volatility of public expenditures and the effectiveness of automatic tax stabilizers in oil- and mineral-rich countries.
    Keywords: Economics :: Monetary Policy, Science & Technology :: Research & Development, Energy & Mining :: Renewable Energy, Economics :: Economic Development & Growth, Natural resources, Windfall public revenues, Natural resource curse, Optimal fiscal policy
    JEL: E61 F43 H21 H25 H50 H63 O11 Q30 Q33
    Date: 2012–09
  39. By: Shaikh, Salman
    Abstract: Interest is prohibited in all monotheist religions. Apart from religion, interest is also regarded as unjust price of money capital by pioneer secular philosophers as well as some renowned economists. However, it is argued by some economists that modern day, market driven interest rate in a competitive financial market is different from usury and that the interest based financial intermediation has served a useful purpose in allocation of resources as well as in allocation of risk, given the interpersonal differences in risk preferences that exist in any society. Hence, there is a need to delineate clearly whether Islamic economics distinguishes between usury and interest. Secondly, there is also a need to reassess the economic merits and demerits of modern day competitive financial markets fueled by interest based financial intermediation. This paper tries to serve this need and presents a brief review of literature on the issue and examines the economic rationale usually presented for legitimizing interest as the price of capital. The paper analyzes the impact of interest based financial intermediation on macroeconomic variables as well as on development goals by highlighting few glaring facts and statistics and empirical evidence documented in past studies. The paper concludes with delineating the role of capital in an Islamic economy and how it can be valued in an Islamic economy without compensating it with fixed payoffs and the paper also assesses how economic and financial decisions will be altered in this new interest-free framework.
    Keywords: Interest; Usury; Islamic Finance; Islamic Banking; Financial Intermediation; Economic Justice
    JEL: E42 E52
    Date: 2012–10–31
  40. By: Gonzalez-Eiras, Martin; Niepelt, Dirk
    Abstract: We extend "economic equivalence" results, like the Ricardian equivalence proposition, to the political sphere where policy is chosen sequentially. We derive conditions under which a policy regime (summarizing admissible policy choices in every period) and a state are "politico-economically equivalent" to another such pair, in the sense that both pairs give rise to the same equilibrium allocation. The equivalence conditions help to identify factors that render institutional change non-neutral. We exemplify their use in the context of several applications, relating to social security reform, tax-smoothing policies and measures to correct externalities.
    Keywords: equivalence; government debt; politico-economic equilibrium; social security reform; tax policy
    JEL: E62 H55 H63
    Date: 2012–11
  41. By: Wagner, Joachim (Leuphana University Lueneburg and CESIS, Stockholm)
    Abstract: This paper uses comprehensive high-quality panel data from official statistics for exporting enterprises to investigate the micro-structure of the recent export recovery in 2010 in manufacturing industries in Germany after the great recession of 2008/2009. Almost all of the increase in exports was due to positive changes of exports in firms that continue to export (i.e. at the so-called intensive margin) while the increase of exports due to export starters (at the so-called extensive margin) was tiny. It is shown that Idiosyncratic shocks to very large firms played a decisive role in shaping the export recovery. These findings are remarkably symmetric to the results from an analysis of the great export collapse of 2008/09.
    Keywords: Exports; great export recovery; granular economy; Germany
    JEL: E32 F14
    Date: 2012–11–06
  42. By: Kang, Lili; Peng, Fei
    Abstract: This paper examines the selection biases in the cyclical behaviour of real wages using the German Socio-Economic Panel Data (GSOEP) for the 1984-2009 period. We find rigid wages of job stayers in Germany.
    Keywords: Selection; Wage cyclicality; Panel data
    JEL: E32 C52 J31 C33
    Date: 2012–10–03
  43. By: Joshua Aizenman; Ilan Noy
    Abstract: This paper investigates the impact of the history of crises on macroeconomic performance. We first study the impact of past banking crises on the probability of a future banking crisis. Applying data for 1980-2010 for all countries for which the required information is available, controlling for conventional macro variables and the history of banking crises occurring after 1970, we do not detect a learning process from past banking crises. Countries that have already experienced one banking crisis generally have a higher likelihood of experiencing another crisis; and the depth of the present crisis does not appear to be affected by the previous historical experience with crisis events. Evidence also suggests that, in middle-income countries, higher de jure capital account openness is associated with lower likelihood of a banking crisis, a lower ratio of non-performing loans during the crisis, and higher levels of forgone output in the crisis’ aftermath. In contrast, we find that past crisis experience has a significant impact on savings. When facing considerable political risk, the past does seem to matter – countries with more people who were exposed, over their lifetime, to larger disasters will tend to save more. This association, however, does not hold for countries with more stable political systems. We interpret these results as consistent with a differential sectoral adjustment to a crisis hypothesis. The private sector, by virtue of its harder budget constraints, adjusts faster, whereas the government adjusts at a slower pace following a crisis. The financial sector may find itself in between the two. The “too big to fail” doctrine associated with large banks provides them with a softer budget constraint, delaying the day of adjustment; for some, delaying bankruptcy. Occasionally, the separation between banks and the public sector is murky, further delaying necessary adjustments of the financial sector.
    JEL: E2 E4 F3 F36 F41
    Date: 2012–11
  44. By: Gary D. Hansen; Minchung Hsu; Junsang Lee
    Abstract: The steady state general equilibrium and welfare consequences of health insurance reform are evaluated in a calibrated life-cycle economy with incomplete markets and endogenous labor supply. Individuals face uncertainty each period about their future health status, medical expenditures, labor productivity, access to employer provided group health insurance, and the length of their life. In this environment, incomplete markets and adverse selection, which restricts the type of insurance contracts available in equilibrium, creates a potential role for health insurance reform. In particular, we consider a policy reform that would allow older workers (aged 55-64) to purchase insurance similar to Medicare coverage. We find that adverse selection eliminates any market for a Medicare buy-in if it is offered as an unsubsidized option to individual private health insurance. Hence, we compare the equilibrium properties of the current insurance system with those that obtain with an optional buy-in subsidized by the government, as well as with several types of health insurance mandates.
    JEL: E6 H51
    Date: 2012–11

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