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on Macroeconomics |
|
Issue of 2013‒02‒16
38 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Wolfgang Luhan; Johann Scharler |
| Abstract: | We develop a simple experimental setting to evaluate the role of the Taylor principle, which holds that the nominal interest rate has to respond more than one-for-one to fluctuations in the inflation rate. In our setting, the average inflation rate fluctuates around the inflation target if the computerized central bank obeys the Taylor principle. If the Taylor principle is violated, then the average inflation rate persistently deviates from the target. We find that these deviations from the target are less pronounced, if inflation rates cannot be as readily observed as nominal interest rates. This result is consistent with the interpretation that subjects underestimate the influence of inflation on the real return to savings if the inflation rate is only observed ex post. |
| Keywords: | Taylor principle, Interest Rate Rule, Inflation Illusion, Laboratory Experiment |
| JEL: | E30 E52 C90 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2013-03&r=mac |
| By: | Michał Brzoza-Brzezina (National Bank of Poland, Warsaw School of Economics); Marcin Kolasa (National Bank of Poland, Warsaw School of Economics); Krzysztof Makarski (National Bank of Poland, Warsaw School of Economics) |
| Abstract: | Since its creation the euro area suffered from imbalances between its core and peripheral members. This paper checks whether macroprudential policy applied to the peripheral countries could contribute to providing more macroeconomic stability in this region. To this end we build a twoeconomy macrofinancial DSGE model and simulate the effects of macroprudential policies under the assumption of asymmetric shocks hitting the core and the periphery. We find that macroprudential policy is able to partly make up for the loss of independent monetary policy in the periphery. Moreover, LTV policy seems more efficient than regulating capital adequacy ratios. However, for the policies to be effective, they must be set individually for each region. Area-wide policy is almost ineffective in this respect. |
| Keywords: | euro-area imbalances, macroprudential policy, DSGE with banking sector |
| JEL: | E32 E44 E58 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:138&r=mac |
| By: | Riccetti, Luca; Russo, Alberto; Gallegati, Mauro |
| Abstract: | This paper is aimed at investigating the effects of government intervention through unemployment benefits on macroeconomic dynamics in an agent-based decentralized matching framework. The major result is that the presence of such a public intervention in the economy stabilizes the aggregate demand and the financial conditions of the system at the cost of a modest increase of both the inflation rate and the ratio between public deficit and nominal GDP. The successful action of the public sector is sustained by the central bank, which is committed to buy outstanding government securities. -- |
| Keywords: | Agent-based macroeconomics,business cycle,crisis,unemployment,leverage |
| JEL: | E32 C63 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:20139&r=mac |
| By: | Wojciech Charemza; Svetlana Makarova; Imran Shah |
| Abstract: | The paper analyses inflationary real effects in situation where there are frequent episodes of high inflation. It is conjectured with the increase in high inflation, and when differences between the expected and output-neutral inflation become large, output stimulation through inflationary shocks is more effective than otherwise. It is shown that this conjecture is valid for most countries with high inflation episodes, where inflation is greater than 4.8% for at least 25% of quarterly observations. This leads to a simple policy prescription that anti-inflationary monetary decisions should be undertaken in periods where the expected inflation exceeds output-neutral. |
| Keywords: | High Inflation Episodes; Real Effects Indicators; Developing Countries; Impulse Response Analysis |
| JEL: | E31 N15 O11 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:lec:leecon:13/01&r=mac |
| By: | Carolyn Chisadza (Department of Economics, University of Pretoria); Janneke Dlamini (Department of Economics, University of Pretoria); Rangan Gupta (Department of Economics, University of Pretoria); Mampho P. Modise (Department of Economics, University of Pretoria) |
| Abstract: | The recent increases in oil prices have raised the importance of studying the effects of oil supply and demand shocks on an economy. The purpose of this paper is to investigate the impact of the oil supply and demand shocks on the South African economy using a sign restriction-based structural Vector Aautoregressive (VAR) model. Our results show that an oil supply shock has a short-lived significant impact only on the inflation rate, while the impact on the other variables is statistically insignificant. Supply disruptions results in a short-term increase in the domestic inflation rate with no reaction from the monetary policy. An aggregate demand shock results in short- to medium-term improvements in domestic output and the real exchange rate. The effect is statistically insignificant for the inflation rate as well as the monetary policy instrument. The inflation rate and the real exchange rate react negatively to an oil-specific demand shock, while output is positively related to unanticipated changes in oil price due to speculations. |
| Keywords: | Oil price shocks, macroeconomic variables, vector autoregression, monetary policy |
| JEL: | E13 E63 E66 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:201311&r=mac |
| By: | Körner, Finn Marten; Ehnts, Dirk H. |
| Abstract: | Chinese monetary policy constitutes a marked example of a clash between theory and practice. In theory, a fixed exchange rate regime with capital mobility turns the money supply into an endogenous variable while expansionary pressure can be alleviated by the central bank by foreign currency transactions. For China, this standard view is contended by the 'compensation thesis' as proposed by Lavoie and Wang (2012) according to which the central bank maintains discretion over money supply by using alternative balance sheet instruments. In this paper we show that the People's Bank of China's (PBoC) activities can be better characterized by the 'compensation thesis' view of alternative money supply operations. In addition, we can thus characterize the PBoC's policy stance as being directed at targeting inflation and exchange rate stability via a five-phase policy mix using sterilization bonds and reserve requirements according to macroeconomic conditions. After downgrading the loans-to-deposits ratio of 75% to the status of an indicator and given the rise in lending despite a high reserve ratio, the quantity-driven approach to monetary policy of the PBoC faces an uncertain future. |
| Keywords: | Chineses monetary policy; Nominal exchange rate; Money supply; Mundell-Fleming; Compensation thesis; Modern Money Theory; Sterilization; Loans-to-deposit ratio; Reserve requirement ratio; Credit and money suppply growth |
| JEL: | E58 E31 E5 F31 G21 |
| Date: | 2013–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:44264&r=mac |
| By: | Bloom, David E.; Sousa-Poza, Alfonso |
| Abstract: | -- |
| JEL: | E24 E32 J31 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fziddp:632012&r=mac |
| By: | Vasco Cúrdia; Marco Del Negro; Daniel L. Greenwald |
| Abstract: | We estimate a DSGE model where rare large shocks can occur, by replacing the commonly used Gaussian assumption with a Student-t distribution. Results from the Smets and Wouters (2007) model estimated on the usual set of macroeconomic time series over the 1964-2011 period indicate that the Student-t specification is strongly favored by the data even when we allow for low-frequency variation in the volatility of the shocks, and that the estimated degrees of freedom are quite low for several shocks that drive U.S. business cycles, implying an important role for rare large shocks. This result holds even if we exclude the Great Recession period from the sample. We also show that inference about low-frequency changes in volatility and in particular, inference about the magnitude of the Great Moderation is different once we allow for fat tails. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2013-01&r=mac |
| By: | Garth Heutel; Carolyn Fischer |
| Abstract: | Environmental economics has traditionally fallen in the domain of microeconomics, but recently approaches from macroeconomics have been applied to studying environmental policy. We focus on two macroeconomic tools and their application to environmental economics. First, real business cycle models can incorporate pollution and pollution policy and be used to answer several questions. How can environmental policy adjust to business cycles? How do different types of policies fare in a context with business cycles? Second, endogenous technological growth is an important component of environmental policy. Several studies ask how policy can be designed to both tackle emissions directly and influence the adoption of clean technologies. We focus on these two aspects of environmental macroeconomics but emphasize that there are many other potential applications. |
| JEL: | E32 O44 Q50 Q55 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18794&r=mac |
| By: | Hernando Vargas Herrera; Andrés González; Diego Rodríguez |
| Abstract: | Banco de la República’s FX intervention policy is described, with a focus on its objectives and main features. Then, based on a survey of the effectiveness of sterilized intervention in Colombia, it is argued that this tool is not useful to cope with the challenges posed by medium term external factors such as quantitative easing in advanced economies, reduced risk premiums in emerging economies or high international commodity prices. The duration of the impact of sterilized intervention on the exchange rate (if any) is much shorter than the effects of those factors. Finally, it is argued that if sterilized FX intervention is effective due to the operation of the portfolio balance channel, it may also have an expansionary effect on credit supply and aggregate demand. In this case, the macroeconomic outcomes of intervention depend on the monetary policy response. This issue is studied with a small open economy DSGE. In general, FX intervention implies a volatility of credit and consumption that is higher than under a more efficient allocation and under alternative monetary regimes without intervention. Furthermore, the more inclined the central bank is to meet an inflation target, the stronger its response to the expansionary effects of the intervention and, consequently, the lower the impact of the intervention on the exchange rate. |
| Keywords: | Monetary Policy, Foreign Exchange Intervention. Classification JEL: F31; F32; F33; E37 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:757&r=mac |
| By: | Onur Ince; David H. Papell |
| Abstract: | This paper investigates the differences between real-time and ex-post output gap estimates using a newly-constructed international real-time data set over the period from 1973:Q1 to 2012:Q3. We extend the findings in Orphanides and van Norden (2002) for the United States that the use of ex-post information in calculating potential output, not the data revisions themselves, is the major cause of the difference between real-time and ex-post output gap estimates to nine additional OECD countries. The results are robust to the use of linear, quadratic, Hodrick-Prescott, Baxter-King, and Christiano-Fitzgerald detrending methods. By using quasi real-time methods, reliable real-time output gap estimates can be constructed with revised data. Key Words: Output gap, real-time data, data revision, business cycles |
| JEL: | E32 E52 E58 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:apl:wpaper:13-02&r=mac |
| By: | Yue Zhao (Graduate School of Economics, Kyoto University) |
| Abstract: | Following Jermann and Quadrini (2012), we apply the dynamic stochastic general equilib- rium modeling method (DSGE) to assess whether nancial shocks matter for the Japanese economy. We construct time series of nancial shocks and productivity shocks using Japan's quarterly data since 2001 and conduct simultaneous replication on major indi- cators of aggregate financial flows and real variables. Preliminary results tell us that in a closed economy, nancial shocks seem less important than they were in the U.S. economy. However, after extending the original model to a small open economy in which rms can borrow from overseas lenders but may have to pay a default risk premium on interest payments, simulated results show that nancial shocks have contributed heavily to the dynamics of aggregate debt and dividend flows. This is consistent with Jermann and Quadrini's (2012) nding on the U.S. economy. By contrast, however, productivity shocks seem to have been dominant in accounting for fluctuations of real variables, such as output, consumption ratio, and investment ratio in Japan. |
| Keywords: | DSGE model, financial friction, small open economy, simulation |
| JEL: | E44 E32 F41 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:849&r=mac |
| By: | Thomas M. Humphrey |
| Abstract: | Nineteenth-century British economists Henry Thornton and Walter Bagehot established the classical rules of behavior for a central bank, acting as lender of last resort, seeking to avert panics and crises: Lend freely (to temporarily illiquid but solvent borrowers only) against the security of sound collateral and at above-market, penalty interest rates. Deny aid to unsound, insolvent borrowers. Preannounce your commitment to lend freely in all future panics. Also lend for short periods only, and have a clear, simple, certain exit strategy. The purpose is to prevent bank runs and money-stock collapses--collapses that, by reducing spending and prices, will, in the face of downward inflexibility of nominal wages, produce falls in output and employment. In the financial crisis of 2008-09 the Federal Reserve adhered to some of the classical rules--albeit using a credit-easing rather than a money stock–protection rationale--while deviating from others. Consistent with the classicals, the Fed filled the market with liquidity while lending to a wide variety of borrowers on an extended array of assets. But it departed from the classical prescription in charging subsidy rather than penalty rates, in lending against tarnished collateral and/or purchasing assets of questionable value, in bailing out insolvent borrowers, in extending its lending deadlines beyond intervals approved by classicals, and in failing both to precommit to avert all future crises and to articulate an unambiguous exit strategy. Given that classicals demonstrated that satiating panic-induced demands for cash are sufficient to end crises, the Fed might think of abandoning its costly and arguably inessential deviations from the classical model and, instead, return to it. |
| Keywords: | Lender of Last Resort; Financial Crises; Bank Panics; Bank Runs; Bailouts; Penalty Rates; Collateral; High-powered Monetary Base; Broad Money Stock; Multiplier; Federal Reserve Policy; Liquidity; Insolvency; Emergency Lending; Credit Risk Spreads; Systemic Risks; Classical Economists |
| JEL: | E44 E51 E58 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_751&r=mac |
| By: | Stüber, Heiko |
| Abstract: | Several recent marcoeconomic models rely on rigid wages. Especially wage rigidity of newly hired workers seems to play a crucial role, since the decision of opening a vacancy or not is mainly influenced by their real wages. However, 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 a large economy, namely Germany, by analyzing the cyclical behavior or real wages of newly hired workers while controlling for cyclical up- and downgrading in employer/employee matches. For the analysis two endogenous variables are used: either the typical (e.g. modal) real wages paid to entrants into particular jobs of particular firms or entrants' individual real wages. The results show that entry-wages are not rigid, but considerably respond to business cycle conditions. This finding strengthens Pissarides' (2009) dismissal of theories based on cyclically rigid hiring wages. Furthermore, I show that the procyclicality of the employment / population ratio is (nearly) identical to the procyclicality of real entry-wages. -- |
| Keywords: | real wage cyclicality,entry-wages,search and matching model |
| JEL: | E24 E32 J31 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fziddp:622012&r=mac |
| By: | Periklis Gogas (Department of International Economic Relations and Development, Democritus University of Thrace, Greece); Ioannis Pragidis (Department of International Economic Relations and Development, Democritus University of Thrace, Greece) |
| Abstract: | We empirically test the effects of unanticipated fiscal policy shocks on the level and growth rate of real output and reveal different types of asymmetries in fiscal policy implementation. The data used are quarterly U.S. observations over the period 1967:1 to 2011:4. In doing so, we use six alternative vector autoregressive systems in order to construct the fiscal policy shocks. These systems differ in the method of identification, the use or not of exogenous variables and in the type of exogenous monetary variables used. From each one of these six systems we extracted four types of shocks: a negative and a positive government spending shock and a negative and a positive government revenue shock. These six sets of unanticipated fiscal shocks were used next to empirically examine their effects on the level and growth rate of real GDP in two sets of regressions: one that assumes only contemporaneous effects of the shocks on output and one that is augmented with four lags of each fiscal shock. |
| Keywords: | Fiscal Policy, Asymmetric Effects, VAR |
| JEL: | E62 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:07_13&r=mac |
| By: | Vasco Cúrdia; Daria Finocchiaro |
| Abstract: | This paper proposes a simple method to structurally estimate a model over a period of time containing a regime shift. It then evaluates to which degree it is relevant to explicitly acknowledge the break in the estimation procedure. We apply our method on Swedish data, and estimate a DSGE model explicitly taking into account the monetary regime change in 1993, from exchange rate targeting to inflation targeting. We show that ignoring the break in the estimation leads to spurious estimates of model parameters including parameters in both policy and non-policy economic relations. Accounting for the regime change suggests that monetary policy reacted strongly to exchange rate movements in the first regime, and mostly to inflation in the second. The sources of business cycle fluctuations and their transmission mechanism are significantly affected by the exchange rate regime. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2013-02&r=mac |
| By: | María del Carmen Ramos-Herrera (Universidad Complutense de Madrid. Instituto Complutense de Estudios Internacionales (ICEI)); Simon Sosvilla-Rivero (Departamento de Economía Cuantitativa (Department of Quantitative Economics), Facultad de Ciencias Económicas y Empresariales (Faculty of Economics and Business), Universidad Complutense de Madrid (Complutense University of Madrid),) |
| Abstract: | We examine the predictive ability, the consistency properties and the possible driving forces of inflation expectations, using a survey conducted in Spain by PwC among a panel of experts and entrepreneurs. When analysing the headline inflation rate, our results suggest that the PwC panel has some forecasting ability for time horizons from 3 to 9, improving when it comes to predict the core inflation rate. Nevertheless, the results indicate that predictions made by survey participants are neither unbiased nor efficient predictors of future inflation rates, regardless of the measures of inflation used. As for the consistency properties of the inflation expectations formation process, we find that panel members form stabilising expectations in the case of the headline inflation rate, both in the short and in the long-run, although in the case of the core inflation rate, consistency remains indeterminate. Finally, we find that inflation expectations are very persistent and that they appear to incorporate the information content of some macroeconomic variables (current core inflation and growth rate, the USD/EUR exchange rate, the ECB inflation target and changes in the ECB official short-term interest rate). |
| Keywords: | Inflation, Forecasting, Expectations, Panel data, Econometric models. |
| JEL: | E31 D84 C33 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:ucm:doicae:1308&r=mac |
| By: | Olivier J. Blanchard; Daniel Leigh |
| Abstract: | This paper investigates the relation between growth forecast errors and planned fiscal consolidation during the crisis. We find that, in advanced economies, stronger planned fiscal consolidation has been associated with lower growth than expected, with the relation being particularly strong, both statistically and economically, early in the crisis. A natural interpretation is that fiscal multipliers were substantially higher than implicitly assumed by forecasters. The weaker relation in more recent years may reflect in part learning by forecasters and in part smaller multipliers than in the early years of the crisis. |
| JEL: | E32 E62 H20 H5 H68 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18779&r=mac |
| By: | Urban Jermann |
| Abstract: | This paper considers the term structure of interest rates implied by a production-based asset pricing model where the fundamental drivers are investment in equipment and structures, and inflation. The model matches the average yield curve up to five year maturity almost perfectly. Longer term yields are roughly as volatile as in the data. The model also generates time-varying bond risk premiums. In particular, when running Fama-Bliss regressions of excess returns on forward premiums, the model produces slope coefficients of roughly half the size of the empirical counterparts. Closed-form expressions highlight the importance of the capital depreciation rates for interest rate dynamics. |
| JEL: | E22 G12 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18774&r=mac |
| By: | Alexander J. Field |
| Abstract: | This paper examines the interwar housing cycle in comparison to what transpired in the United States between 2001 and 2011. The 1920s experienced a boom in construction and prolonged retardation in building in the 1930s, resulting in a swing in residential construction’s share of GDP, and its absolute volume, that was larger than what has taken place in the 2000s. In contrast, there was relatively little sustained movement in the real price of housing between 1919 and 1941, and the up and down price movements were remarkably modest, certainly in comparison with more recent experience. The paper documents the higher degree of housing leverage in 2001-2011. And it documents a rate of foreclosure on residential housing post 2006 that is likely higher than during the 1930s. It concludes that balance sheet problems resulting from a prior residential housing boom pose greater obstacles to recovery today than they did in the interwar period. |
| JEL: | E2 E22 E44 N22 N62 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18796&r=mac |
| By: | Alain de Serres; Fabrice Murtin |
| Abstract: | In this paper we examine whether past labour market reforms aiming at reducing the rate of unemployment have raised its long-run volatility. Using non-linear panel data models applied to 24 OECD countries between 1985 and 2007, as well as Monte-Carlo techniques, we do not find any evidence of such policy trade-off. In contrast, we find that reduced unemployment benefit duration, more competition-inducing product market regulation and looser employment protection legislation are associated with a weaker persistence of unemployment over time, which implies a lower volatility of unemployment in the long run. More specifically, the evidence suggests that even in the case of reforms that may have raised the shortterm sensitivity of unemployment to business cycles (such as with the easing of employment protection), the weaker persistence effect dominates the higher cyclical volatility, implying a net reduction in long-term volatility.<P>Est-ce que les politiques qui réduisent le chômage augmentent sa volatilité ? : Une analyse empirique couvrant les pays de l'OCDE<BR>Cette étude examine dans quelle mesure les réformes passées du marché du travail visant à réduire le taux de chômage peuvent avoir eu pour effet d’accroître sa volatilité. L’analyse empirique combinant l’estimation de modèles non-linéaires basés sur des données de panel couvrant 24 pays de l’OCDE sur la période 1985-2007 et l’application de techniques de Monte Carlo, n’a pas mis à jour d’éléments permettant d’étayer l’hypothèse d’un tel conflit (trade-off) dans l’impact des politiques publiques du marché du travail. A l’inverse, l’étude montre qu’une réduction de la durée des bénéfices d’assurance chômage, une réforme de la réglementation conduisant à une plus forte concurrence sur le marché des produits et services, ainsi qu’un assouplissement de la législation sur la protection de l’emploi entraînent une plus faible persistance du chômage, impliquant une plus faible volatilité à long terme. Même dans les cas où des réformes ont pu accroître la sensibilité du chômage aux fluctuations cycliques, l’effet de cette plus grande variance cyclique sur la volatilité à long terme est plus que compensée par la baisse de la persistance. |
| Keywords: | unemployment, business cycle, labour market institutions, unemployment persistence, chômage, institutions du marché du travail, persistance du chômage, fluctuations cycliques |
| JEL: | E24 E32 J21 |
| Date: | 2013–01–30 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1020-en&r=mac |
| By: | Yun Kim (Department of Economics, Trinity College); Soon Ryoo (Department of Accounting, Finance, and Economics, Adelphi University) |
| Abstract: | We extend Kaldor’s theory of income distribution to include workers’ debt accumulation and their motive to emulate rentiers’ consumption. Our results show that (i) the interaction between income distribution and emulation can produce instability, (ii) instability is more likely when the workers’ emulation motive is strong and bankers’ lending decisions are highly accommodating, and (iii) a plausible assumption on the nonlinearity of emulation behavior can generate a limit cycle by way of the Poincare- Bendixson theorem. Our analysis provides an alternative perspective on the secular increase in household indebtedness for the decades and the subsequent deleveraging process in the recent crisis. |
| Keywords: | income distribution, consumer debt, emulation, instability, limit cycle |
| JEL: | E12 E21 E25 E32 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:tri:wpaper:1302&r=mac |
| By: | Carl Andreas Claussen (Sveriges Riksbank (Central Bank of Sweden)); Øistein Røisland (Norges Bank (Central Bank of Norway)) |
| Abstract: | Modern central banks do not only announce the interest rate decision, they also communicate a "story" that explains why they reached the particular decision. When decisions are made by a committee, it could be difficult to find a story that is both consistent with the decision and representative for the committee. Two alternatives that give a unique and consistent story are: (i) vote on the interest rate and let the winner decide the story, (ii) vote on the elements of the story and let the interest rate follow from the story. The two procedures tend to give different interest rate decisions and different stories due to an aggregation inconsistency called the "discursive dilemma". We investigate the quality of the stories under the two approaches, and find that alternative (ii) gives stories that tend to be closer to the true (but unobservable) story. Thus, our results give an argument in favour of premise-based, as opposed to conclusion-based, decisionmaking. |
| Keywords: | Monetary policy committees, Communication, Judgment aggregation, Discursive dilemma |
| JEL: | E52 E58 D71 |
| Date: | 2013–02–08 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2013_07&r=mac |
| By: | Esteban Pérez Caldentey; Daniel Titelman; Pablo Carvallo |
| Abstract: | Using two standard cycle methodologies (classical and deviation cycle) and a comprehensive sample of 83 countries worldwide, including all developing regions, we show that the Latin American and Caribbean cycle exhibits two distinctive features. First, and most important, its expansion performance is shorter and, for the most part, less intense than that of the rest of the regions considered; in particular, that of East Asia and the Pacific. East Asia's and the Pacific's expansions last five years longer than those of Latin American and the Caribbean, and its output gain is 50 percent greater. Second, the Latin American and Caribbean region tends to exhibit contractions that are not significantly different from those other regions in terms of duration and amplitude. Both these features imply that the complete Latin American and Caribbean cycle has, overall, the shortest duration and smallest amplitude in relation to other regions. The specificities of the Latin American and Caribbean cycle are not confined to the short run. These are also reflected in variables such as productivity and investment, which are linked to long-run growth. East Asia's and the Pacific's cumulative gain in labor productivity during the expansionary phase is twice that of Latin American and the Caribbean. Moreover, the evidence also shows that the effects of the contraction in public investment surpass those of the expansion, leading to a declining trend over the entire cycle. In this sense, we suggest that policy analysis needs to increase its focus on the expansionary phase of the cycle. Improving our knowledge of the differences in the expansionary dynamics of countries and regions can further our understanding of the differences in their rates of growth and levels of development. We also suggest that, while the management of the cycle affects the short-run fluctuations of economic activity and therefore volatility, it is not trend neutral. Hence, the effects of aggregate demand management policies may be more persistent over time, and less transitory, than currently thought. |
| Keywords: | Latin American Business Cycle; Classical Cycle; Deviation Cycle; Expansions; Trend and Cycle; Productivity; Investment |
| JEL: | E32 F44 O11 O54 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_749&r=mac |
| By: | Michael T. Owyang; Valerie A. Ramey; Sarah Zubairy |
| Abstract: | A key question that has arisen during recent debates is whether government spending multipliers are larger during times when resources are idle. This paper seeks to shed light on this question by analyzing new quarterly historical data covering multiple large wars and depressions in the U.S. and Canada. Using an extension of Ramey’s (2011) military news series and Jordà’s (2005) method for estimating impulse responses, we find no evidence that multipliers are greater during periods of high unemployment in the U.S. In every case, the estimated multipliers are below unity. We do find some evidence of higher multipliers during periods of slack in Canada, with some multipliers above unity. |
| Keywords: | Fiscal policy ; Business cycles ; Multiplier (Economics) |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2013-004&r=mac |
| By: | Brant Abbott; Giovanni Gallipoli; Costas Meghir; Giovanni L. Violante |
| Abstract: | This paper compares partial and general equilibrium effects of alternative financial aid policies intended to promote college participation. We build an overlapping generations life-cycle, heterogeneous-agent, incomplete-markets model with education, labor supply, and consumption/saving decisions. Altruistic parents make inter vivos transfers to their children. Labor supply during college, government grants and loans, as well as private loans, complement parental transfers as sources of funding for college education. We find that the current financial aid system in the U.S. improves welfare, and removing it would reduce GDP by two percentage points in the long-run. Any further relaxation of government-sponsored loan limits would have no salient effects. The short-run partial equilibrium effects of expanding tuition grants (especially their need-based component) are sizeable. However, long-run general equilibrium effects are 3-4 times smaller. Every additional dollar of government grants crowds out 20-30 cents of parental transfers. |
| JEL: | E24 I22 J23 J24 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18782&r=mac |
| By: | Caroline Klein; Robert Price; Andreas Wörgötter |
| Abstract: | The challenge for fiscal policy in Slovakia is to achieve fiscal consolidation in a way which supports the fragile recovery and protects spending on areas which are important for re-embarking on a trajectory of high trend growth and underpinning a catch-up in living standards. While the recently established fiscal rules have significantly improved the fiscal framework, a further strengthening in medium-term fiscal discipline will be necessary to avoid pro-cyclical fiscal policy. Raising the effectiveness of tax collection, reforming the tax structure towards less distortive taxes and making more out of available EU funds would also play a helpful role in a growth-friendly fiscal consolidation. Finally, more needs to be done to ensure an adequate prioritisation of spending and an efficient use of public revenues. In particular, stepping up the analytical monitoring, evaluation and assessment capacity in spending ministries should help to rein in wasteful spending. This Working Paper relates to the 2012 OECD Economic Survey of the Slovak Republic (www.oecd.org/eco/surveys/slovakia2012).<P>Améliorer le cadre budgétaire pour favoriser la croissance en période d'assainissement budgétaire en Slovaquie<BR>Le défi pour la politique budgétaire en Slovaquie est d'assainir les finances publiques d'une manière qui soutienne la reprise fragile et protège les dépenses dans des domaines permettant de reprendre une trajectoire de forte croissance tendancielle et de poursuivre le rattrapage en termes de niveau de vie. Bien que les règles fiscales récemment établies aient considérablement amélioré le cadre budgétaire, un renforcement de la discipline budgétaire de moyen terme sera nécessaire pour éviter une politique budgétaire pro-cyclique. Accroître l'efficacité du recouvrement des impôts, reformer la fiscalité en faveur d’impôts moins distorsifs et mieux utiliser les fonds de l'UE disponibles pourrait également aider à une consolidation budgétaire favorable à la croissance. Enfin, il reste encore beaucoup à faire pour assurer une hiérarchisation adéquate des dépenses et une utilisation efficace des revenus publics. En particulier, le développement des capacités analytiques de suivi et d'évaluation dans les ministères devraient contribuer à freiner les dépenses inutiles. Ce Document de travail se rapporte à l'Étude économique de l'OCDE de la République slovaque 2012 (www.oecd.org/eco/etudes/slovaquie2012 ). |
| Keywords: | fiscal policy, Slovakia, tax administration, public debt sustainability, budgetary framework, politique budgétaire, Slovaquie, administration fiscale, cadre budgétaire, viabilité de la dette publique |
| JEL: | E62 H20 H21 H50 H54 H57 H61 H63 H83 |
| Date: | 2013–01–29 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1018-en&r=mac |
| By: | Åsa Johansson; Yvan Guillemette; Fabrice Murtin; David Turner; Giuseppe Nicoletti; Christine de la Maisonneuve; Philip Bagnoli; Guillaume Bousquet; Francesca Spinelli |
| Abstract: | This paper presents the results from a new model for projecting growth of OECD and major non-OECD economies over the next 50 years as well as imbalances that arise. A baseline scenario assuming gradual structural reform and fiscal consolidation to stabilise government-debt-to GDP ratios is compared with variant scenarios assuming deeper policy reforms. One main finding is that growth of the non-OECD G20 countries will continue to outpace OECD countries, but the difference will narrow substantially over coming decades. In parallel, the next 50 years will see major changes in the composition of the world economy. In the absence of ambitious policy changes, global imbalances will emerge which could undermine growth. However, ambitious fiscal consolidation efforts and deep structural reforms can both raise long-run living standards and reduce the risks of major disruptions to growth by mitigating global imbalances.<P>Scénarios de croissance à long terme<BR>Cette étude présente les résultats d?un nouveau modèle de projection de la croissance économique des pays de l?OCDE et des pays majeurs hors-OCDE sur un horizon de 50 ans ainsi que des déséquilibres qui apparaissent. Un scénario de référence, qui comprend des réformes structurelles graduelles et un assainissement budgétaire suffisant pour stabiliser les ratios de dette/PIB, est comparé à des scénarios alternatifs qui incluent des réformes plus profondes des politiques publiques. Une des conclusions principales est que la croissance des pays du G20 non membres de l?OCDE continuera de dépasser celle des pays membres, mais la différence s?amenuisera au cours des prochaines décennies. Parallèlement, les 50 prochaines années verront des changements majeurs dans la composition de l?économie mondiale. En absence de refonte ambitieuse des politiques publiques, des déséquilibres mondiaux dangereux pour la croissance émergeront. Cependant, une rationalisation plus prononcée des finances publiques combinée à des réformes structurelles profondes pourrait à la fois faire augmenter les niveaux de vie et réduire les risques de déraillement majeur de la croissance en réduisant les déséquilibres mondiaux. |
| Keywords: | growth, human capital, productivity, current accounts, saving, long run, global imbalances, conditional convergence, fiscal and structural policy, productivité, croissance, capital humain, projections à long terme, compte courant, épargne, déséquilibres mondiaux, convergence conditionnelle, politiques fiscales et structurelles |
| JEL: | E27 F43 H68 I25 J11 O11 O43 O47 |
| Date: | 2013–01–28 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1000-en&r=mac |
| By: | Alfred A. 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 Muller 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 ï¬t a covariance-stationary or unit-root model, nor a fractionally-integrated, near-unit-root or local-level model. Instead, the persistence of real rates changes over time and there are periods when the real rate is covariance stationary and other periods when it follows a unit root process. |
| Keywords: | Real interest rates, persistence of a time series, breaks in persistence |
| JEL: | E43 C22 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:otg:wpaper:1303&r=mac |
| By: | Héctor Manuel Záarte Solano; Angélica Rengifo Gómez |
| Abstract: | This paper investigates whether transforming the Consumer Price Index with a class of power transformations lead to an improvement of inflation forecasting accuracy. We use one of the prototypical models to forecast short run inflation which is known as the univariate time series ARIMA . This model is based on past inflation which is traditionally approximated by the difference of logarithms of the underlying consumer price index. The common practice of applying the logarithm could damage the forecast precision if this transformation does not stabilize the variance adequately. In this paper we investigate the benefits of incorporating these transformations using a sample of 28 countries that has adopted the inflation targeting framework. An appropriate transformation reduces problems with estimation, prediction and inference. The choice of the parameter is done by bayesian grounds. |
| Date: | 2013–02–05 |
| URL: | http://d.repec.org/n?u=RePEc:col:000094:010462&r=mac |
| By: | Yun, Tack; Kim, Jinsook; Ko, Eunmi |
| Abstract: | Our goal in this paper is two-fold. First, we develop a class of term structure models that allow for the role of bounded rationality by incorporating either information-processing constraint or fear for mis-specification into affine term structure models. We indentify a set of sufficient conditions to generate the observational equivalence between affine term-structure models with rational inattention and a fear for model misspecification. The presence of bounded rationality creates a new additional factor that is not spanned by conventional factors such as level, slope, and curvature factors. Second, our empirical results indicate that substantial amounts of information capacity constraint and robustness preference for model misspecification are needed to explain the observed behavior of yields. |
| Keywords: | Rational Inattention; Robustness; Affine Term Structure Models; No-Arbitrage |
| JEL: | E43 G11 G12 E44 |
| Date: | 2012–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:44212&r=mac |
| By: | Andersen, Torben M; Bhattacharya, Joydeep |
| Abstract: | In this paper, we assume away standard distributional and static-efficiency arguments for public health, and instead, seek a dynamic efficiency rationale. We study a lifecycle model wherein young agents make health investments to reduce mortality risk. We identify a welfare rationale for public health under dynamic efficiency and exogenous mortalityeven when private and public investments are perfect substitutes. If health investment reduces mortality risk but individuals do not internalize its effect on the life-annuity interest rate, the “Philipson-Becker effect†emerges; when the young are net borrowers, it works together with dynamic efficiency to support a role for public health. |
| Keywords: | public health; dynamic efficiency; overlapping generations |
| JEL: | E2 I18 |
| Date: | 2013–02–05 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:35872&r=mac |
| By: | Jarko Fidrmuc; Caroline Klein; Robert Price; Andreas Wörgötter |
| Abstract: | The Slovak economy experienced a strong but short recession in 2009. The recovery afterwards was driven by exports and investment. While GDP growth was one of the strongest in OECD, employment did not reach the pre-crisis level and unemployment remains stubbornly high. This paper argues that Slovakia joined the euro area after a period of unprecedented real appreciation, which generated a threat for competitiveness of its export-oriented manufacturing industry. The response combined internal devaluation with productivity increasing measures, including capital deepening and laying off low productivity workers. While this strategy was successfully restoring an external equilibrium, its consequences for domestic demand and employment are less positive. This development is compared with Estonia and Slovenia, two other small and very open economies, recently entering the euro area.<P>Slovaquie : Un membre de la zone euro en rattrapage pendant et après la crise<BR>En 2009, l'économie slovaque a connu une récession forte mais de courte durée. Par la suite, la reprise a été tirée par les exportations et l'investissement. Alors que la croissance du PIB a été l'une des plus fortes de l'OCDE, l'emploi n'a pas atteint le niveau d'avant la crise et le chômage reste durablement élevé. Cet article soutient que la Slovaquie a rejoint la zone euro après une période d'appréciation réelle sans précédent qui a généré une menace pour la compétitivité de son industrie exportatrice. La réponse a consisté en une dévaluation interne combinée à des mesures augmentant la productivité, comprenant entre autres l'accroissement de l’intensité capitalistique et le licenciement des travailleurs à faible productivité. Bien que cette stratégie ait permis la restauration d'un équilibre extérieur, ses conséquences sur la demande intérieure et l'emploi sont moins positives. Ce processus est comparé avec ceux observés en Estonie et Slovénie, deux autres petites économies très ouvertes, récemment entrées dans la zone euro. |
| Keywords: | Slovakia, Slovenia, Estonia, crisis, job-less recovery, domestic demand, Slovaquie, Slovénie, Estonie, crise, reprise sans l'emploi, demande intérieure |
| JEL: | E20 F41 G01 |
| Date: | 2013–02–05 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1019-en&r=mac |
| By: | Ronald Wolthoff |
| Abstract: | Empirical evidence suggests that transitions between employment states are highly clustered around the ï¬rst day of each workweek or each month. Motivated by this observation, I present an equilibrium search model in which the period length is a parameter that determines the degree of clustering. If the period length goes to zero, convergence to a continuous-time model without clustering is obtained. Longer time periods, however, introduce the possibility of recall (or simultaneity) of job offers. In this environment, I show that the period length has a profound effect on the equilibrium outcomes, including the unemployment rate, average unemployment duration, the labor share, the amount of wage dispersion, as well as the shape of the wage density. |
| Keywords: | labor market flows, search frictions, simultaneous search, on-the-job search, wage dispersion, wage mobility, unemployment |
| JEL: | E24 J31 J64 |
| Date: | 2013–02–04 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-476&r=mac |
| By: | Bachmann, Rüdiger (RWTH Aachen University); Bayer, Christian (University of Bonn); Seth, Stefan (Institute for Employment Research (IAB), Nuremberg); Wellschmied, Felix (University of Bonn) |
| Abstract: | We study the relationship between cyclical job and worker flows at the plant level using a new data set spanning from 1976-2006. We find that procyclical labor demand explains relatively little of procyclical worker flows. Instead, all plants in the employment growth distribution increase their worker turnover during booms. We also find that cyclical changes in the employment growth distribution are mostly driven by plants moving from inactivity to a growing labor force during booms. Consequently, increased labor turnover at growing plants is the main quantitative driver behind increased labor turnover during booms. We argue that on the job search models are able to capture non-parallel shifts in the employment growth distribution and procyclical conditional worker flows for a range of the growth distribution. Yet, they fail to rationalize procyclical accession rates for all shrinking and procylical separation rates for all growing plants. |
| Keywords: | job flows, worker flows, aggregate fluctuations |
| JEL: | E32 J23 J63 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7192&r=mac |
| By: | Staszkiewicz, Piotr W. |
| Abstract: | The correlation analysis was conducted on dynamic of GDP and company failure rate for Poland, Europe and USA for the period 2003-2011; it was found a negative correlation. An analysis was undertaken for the relation between the rate of corporate failure in Poland and the rate of change of overall company’s net turnover profitability - no statistically significant correlation was observed. An alternative significant variable was pointed out for a linear regression model. Results of others authors were partly confirmed. A proposal for further research was outlined. |
| Keywords: | insolvency; GDP; PKB; correlation; Poland; USA; Europe; |
| JEL: | E32 D22 G32 G33 F36 |
| Date: | 2013–01–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:44208&r=mac |
| By: | Olivier CARDI (Université Panthéon-Assas ERMES, Paris); Romain RESTOUT (Université de Lorraine BETA, Nancy, UCL IRES) |
| Abstract: | This paper investigates the relative price and relative wage effects of a higher productivity in the traded sector compared with the non traded sector in a two-sector open economy model with imperfect substitutability in hours worked across sectors. The Balassa-Samuelson [1964] model predicts that a rise in the sectoral productivity ratio by 1% raises the relative price of non tradables by 1% while leaving unchanged the non traded wage-traded wage ratio. Applying cointegration methods to a panel of fourteen OECD countries over the period 1970-2007, our estimates show that the relative price rises by only 0.78% while the relative wage falls by 0.27%. Hence, our first set of empirical findings cast doubt on the quantitative predictions of the Balassa-Samuelson model. A second set of empirical findings highlights the role of imperfect labor mobility: interacting the ratio of sectoral labor share-adjusted total factor productivities with an index of labor mobility across sectors, we find that the relative price responds more to a productivity differential between tradables and non tradables while the reaction of the relative wage is more muted as the degree of labor mobility increases. We show that the ability of the two-sector model to account for our evidence quantitatively relies upon two ingredients: i) imperfect mobility of labor across sectors, and ii) physical capital accumulation. Finally, our numerical results are robust to the introduction of i) non-separability in preferences between consumption and labor, and ii) traded investment. |
| Keywords: | Relative price of non tradables; Sectoral wages; Productivity growth; Sectoral labor reallocation; Investment |
| JEL: | E22 F11 F41 F43 |
| Date: | 2013–01–23 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvir:2013002&r=mac |
| By: | Yosuke Furukawa (Kyoto University) |
| Abstract: | In this paper, we develop a three-period model that incorporates parents' heterogeneous skills and a welfare constraint for newborn children. Our numerical analysis shows how the optimal tax system is affected by the weight attached to the newborn child by a social planner. The main finding is that an increase in the guaranteed welfare level for newborn children makes the optimal capital income tax rate more regressive. This result is closely related to the trade-off between incentives for parents and insurance for the newborn child. |
| Keywords: | Optimal taxation, intergenerational inequality, private information |
| JEL: | E22 E62 H21 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:846&r=mac |