nep-mac New Economics Papers
on Macroeconomics
Issue of 2013‒03‒09
thirty papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Global House Price Fluctuations: Synchronization and Determinants By Hideaki Hirata; M. Ayhan Kose; Christopher Otrok; Marco E. Terrones
  2. Fiscal Policy in a Small Open Economy with Oil Sector and non-Ricardian Agents By Andrés González; Martha Rosalba López Piñeros; Norberto Rodríguez Niño; Santiago Téllez
  3. On measuring the nonlinear effect of interest rates on inflation and output By Hyeong Ho Moon; Tae-Hwan Kim; Seongho Nah
  4. The influence and policy signaling role of FOMC forecasts By Paul Hubert
  5. Rethinking potential output: Embedding information about the financial cycle By Claudio Borio; Frank Piti Disyatat; Mikael Juselius
  6. Environmental Macroeconomics: Environmental Policy, Business Cycles, and Directed Technical Change By Fischer, Carolyn; Heutel, Garth
  7. ECB projections as a tool for understanding policy decisions By Paul Hubert
  8. Informality and Macroeconomic Fluctuations: A Small Open Economy New Keynesian DSGE Model with Dual Labour Markets By Senbeta, Sisay R.
  9. Central Bank Forecasts of Policy Interest Rates: An Evaluation of the First Years By Beechey, Meredith; Österholm, Pär
  10. Really Uncertain Business Cycles By Nicholas Bloom; Max Floetotto; Nir Jaimovich; Itay Saporta-Eksten; Stephen Terry
  11. Benign neglect of the long-term interest rate By Philip Turner
  12. Policy Responses to the Global Financial Crisis: What Did Emerging Economies Do Differently? By Ceballos, Francisco; Didier, Tatiana; Hevia, Constantino; Schmukler, Sergio
  13. On the use of sterilisation bonds in emerging Asia By Mehrotra, Aaron
  14. Re-Coinage as a Monetary Tax: Conditions, Consequences and Comparisons with Debasement By Svensson, Roger
  15. Financial Crises: Explanations, Types and Implications By Stijn Claessens; M. Ayhan Kose
  16. Monthly US business cycle indicators: A new multivariate approach based on a band-pass filter By Marczak, Martyna; Gómez, Victor
  17. Understanding Global Liquidity By Sandra Eickmeier; Leonardo Gambacorta; Boris Hofmann
  18. Understanding Financial Crises: Causes, Consequences, and Policy Responses By Stijn Claessens; M. Ayhan Kose; Luc Laeven; Fabián Valencia
  19. Indeterminacy and Sunspot Fluctuations in Two-Sector RBC models: Theory and Calibration By Frédéric Dufourt; Kazuo Nishimura; Alain Venditti
  20. Man and Machine in Macroeconomics By Kevin Hoover
  21. Consumption Growth, the Interest Rate, and Financial Literacy By Tullio Jappelli; Mario Padula
  22. Political Leaders Socioeconomic Background and Public Budget Deficits: Evidence from OECD Countries By Bernd Hayo; Florian Neumeier
  23. Financial services regulation in the wake of the crisis: The Capital Requirements Directive IV and the Capital Requirements Regulation By Casselmann, Farina
  24. What Europe Needs to Be European By Paolo Pini
  25. Questioni aperte nel Nuovo Piano del Lavoro della CGIL By Massimiliano Mazzanti; Paolo Pini
  26. Unemployment Compensation and the Allocation of Labor in Developing Countries By Charlot, Olivier; Malherbet, Franck; Ulus, Mustafa
  27. Commodity price volatility and tax revenue: Evidence from developing countries. By Ehrhart, H.; Guerineau, S.
  28. Estimating labour supply elasticities based on cross-country micro data: A bridge between micro and macro estimates? By Jäntti, Markus; Pirttilä, Jukka; Selin, Håkan
  29. Voter Turnout and Political Rents By Gani Aldashev
  30. Rent Seeking Opportunities and Economic Growth in Transitional Economies By Nasir Iqbal; Vince Daly

  1. By: Hideaki Hirata; M. Ayhan Kose; Christopher Otrok; Marco E. Terrones
    Abstract: We examine the properties of house price fluctuations across 18 advanced economies over the past 40 years. We ask two specific questions: First, how synchronized are housing cycles across these countries? Second, what are the main shocks driving movements in global house prices? To address these questions, we first estimate the global components in house prices and various macroeconomic and financial variables. We then evaluate the roles played by a variety of global shocks, including shocks to interest rates, monetary policy, productivity, credit, and uncertainty, in explaining house price fluctuations using a wide range of FAVAR models. We find that house prices are synchronized across countries, and the degree of synchronization has increased over time. Global interest rate shocks tend to have a significant negative effect on global house prices whereas global monetary policy shocks per se do not appear to have a sizeable impact. Interestingly, uncertainty shocks seem to be important in explaining fluctuations in global house prices.
    Keywords: Monetary policy, interest rates, business cycles, financial cycles
    JEL: E32 E43 E52 G15 R31
    Date: 2013–02
  2. By: Andrés González; Martha Rosalba López Piñeros; Norberto Rodríguez Niño; Santiago Téllez
    Abstract: In this paper we develop a dynamic stochastic general equilibrium fiscal model for the Colombian economy. The model has three main components: the existence of non-Ricardian households, price and wage rigidities, and a fiscal authority that finances government spending partly with public debt. The model is calibrated to capture the empirical evidence on the macroeconomic effects of government spending and it is used to study the effect of an oil price shock under different fiscal policy rules. Our results show that fiscal multipliers in Colombia are positive in a way consistent with the evidence. Our analysis also shows that a structural fiscal rule delivers a better outcome in terms of macroeconomic volatility relative to a balanced budget rule or a countercyclical fiscal rule.
    Keywords: Fiscal multipliers, fiscal policy rules, non-Ricardian households, DSGE model. Classification JEL: D91, E21, E62
    Date: 2013–02
  3. By: Hyeong Ho Moon (Department of Economics, University of California at San Diego, USA); Tae-Hwan Kim (School of Economics, Yonsei University, South Korea); Seongho Nah (Bank of Korea, South Korea)
    Abstract: While economists are interested in the reaction of the interest rate to changes in the inflation rate, central bankers are usually more interested in the reverse causal relationship, i.e., the response of inflation (and output) to a change in the official interest rate as administrated by the central bank. Whether the reverse causal relationship is linear or nonlinear is an empirical issue. We investigated the reverse causal relationship by employing the LSTVAR model proposed by Weise (1999). We found strong evidence in favor of nonlinearity. As a consequence of the nonlinearity, we discovered various types of asymmetric effects of the interest rate on inflation and output. An asymmetric effect of monetary shocks of different sizes was uncovered, which implies that when the unexpected change in the official rate is doubled (i.e. from 0.25% to 0.5%), its effect on inflation and output is likely to be more than doubled. However, this finding is upheld only when the economy is in recession. The opposite result, in which the effect is smaller, is supported when the economy is expanding. Regarding the other asymmetric effect of monetary shocks with different signs, we found that central banks can expect that increasing the official rate by some certain amount (e.g. 0.25%) is likely to have much larger effect on inflation and output than decreasing the rate by the same amount (e.g. -0.25%) regardless of the state of the economy.
    Keywords: Nonlinear VAR, impulse response function, asymmetric monetary effect
    JEL: E43 E58
    Date: 2012–02–13
  4. By: Paul Hubert (Ofce sciences-po)
    Abstract: Policymakers at the Federal Open Market Committee (FOMC) publish forecasts since 1979. We examine the effects of publishing FOMC inflation forecasts in two steps using a structural VAR model. We assess whether they influence private inflation expectations and the underlying mechanism at work: do they convey policy signals for forward guidance or help interpreting current policy decisions? We provide original evidence that FOMC inflation forecasts are able to influence private ones. We also find that FOMC forecasts give information about future Fed rate movements and affect private expectations in a different way than Fed rate shocks. This body of evidence supports the use of central bank forecasts to affect inflation expectations especially while conventional policy instruments are at the zero lower bound
    Keywords: Monetary policy, Forecasts, FOMC, influence, Policy signals, structural Var
    JEL: E52 E58
    Date: 2013–02
  5. By: Claudio Borio; Frank Piti Disyatat; Mikael Juselius
    Abstract: This paper argues that incorporating information about the financial cycle is important to improve measures of potential output and output gaps. Conceptually, identifying potential output with non-inflationary output is too restrictive. Potential output is seen as sustainable; yet experience indicates that output may be on an unsustainable path even if inflation is low and stable whenever financial imbalances are building up. More generally, as long as potential output is identified with the non-cyclical component of output fluctuations and financial factors play a key role in explaining the cyclical part, ignoring these factors leaves out valuable information. Within a simple and transparent framework, we show that including information about the financial cycle can yield measures of potential output and output gaps that are not only estimated more precisely, but also much more robust in real time. In the context of policy applications, such "finance-neutral" output gaps are shown to yield more reliable estimates of cyclically adjusted budget balances and to serve as complementary guides for monetary policy.
    Keywords: Potential output, output gap, financial cycle, monetary policy, fiscal policy
    Date: 2013–02
  6. By: Fischer, Carolyn (Resources for the Future); Heutel, Garth (University of North Carolina at Greensboro, Department of Economics)
    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.
    Keywords: Real business cycles; Endogenous technological change; Pollution
    JEL: E32 O44 Q50 Q55
    Date: 2013–02–25
  7. By: Paul Hubert (Ofce sciences-po)
    Abstract: The European Central Bank publishes inflation projections quarterly. This paper aims at establishing whether they influence private forecasts and whether they may be considered as an enhanced means of implementing policy decisions by facilitating private agents’ information processing. We provide original evidence that ECB inflation projections do influence private inflation expectations. We also find that ECB projections give information about future ECB rate movements, and that the ECB rate has different effects if complemented or not with the publication of ECB projections. We conclude that ECB projections enable private agents to correctly interpret and predict policy decisions
    Keywords: Monetary policy, ECB, Private forecasts,Influence, structural Var
    JEL: E52 E58
    Date: 2013–02
  8. By: Senbeta, Sisay R.
    Abstract: How do key macroeconomic variables of a small open economy with segmented labour markets behave in response to domestic and external shocks? In this paper we attempt to address this question by modeling the coexistence of a formal labour market with higher wage rates and search frictions, and an informal labour market with the opposite attributes in the standard multi-sector small open economy New Keynesian DSGE model. The model is calibrated for a typical Sub-Saharan African economy and the behaviour of key macroeconomic variables in response to domestic and external shocks is analysed. The results show that almost all the impulse response functions of our model are consistent with what theory predicts and what other empirical works show about the responses of low income countries to the shocks we consider. However, our results do not seem to corroborate the widely held wisdom that the existence of an informal sector plays a stabilizing role in the event of shocks.
    Date: 2013–02
  9. By: Beechey, Meredith (Sveriges Riksbank); Österholm, Pär (National Institute of Economic Research)
    Abstract: In recent years the central banks of Norway and Sweden have published their endogenous policy interest-rate forecasts. In this paper, we evaluate those forecasts alongside policy-rate expectations inferred from market pricing. We find that for both economies there are only small differences in relative forecasting precision between the central bank and market-implied measures. However, both types of forecast fail tests for unbiasedness and efficiency at longer horizons.
    Keywords: Monetary policy; Market expectations; Norges Bank; Sveriges Riksbank
    JEL: E52
    Date: 2013–01–22
  10. By: Nicholas Bloom; Max Floetotto; Nir Jaimovich; Itay Saporta-Eksten; Stephen Terry
    Abstract: We propose uncertainty shocks as a new shock that drives business cycles. First, we demonstrate that microeconomic uncertainty is robustly countercyclical, rising sharply during recessions, particularly during the Great Recession of 2007-2009. Second, we quantify the impact of time-varying uncertainty on the economy in a dynamic stochastic general equilibrium model with heterogeneous firms. We find that reasonably calibrated uncertainty shocks can explain drops and rebounds in GDP of around 3%. Moreover, we show that increased uncertainty alters the relative impact of government policies, making them initially less effective and then subsequently more effective.
    Keywords: uncertainty
    JEL: E3
    Date: 2013–03
  11. By: Philip Turner
    Abstract: Large-scale central bank purchases of government bonds have made the long-term interest rate key in the monetary policy debate. How central banks react to bond market movements has varied greatly from one episode to another. Driving the term premium in long-term rates negative may stimulate aggregate demand. And a negative term premium encourages borrowers to lengthen the maturity of their debts. Such a reduction in maturity risks makes the financial system more resilient to shocks, and in particular can help emerging economies finance their heavy infrastructure and housing investment needs more safely. But an extended period of very low long rates and high public debt creates financial stability risks. Interest rate risk in the banking system has grown, and some institutional investors face significant exposures. Central banks in the advanced economies now hold a high proportion of bonds issued by their governments, most of which have so far failed to arrest the rise in the ratio of government debt to GDP. Implementing an effective exit strategy will be difficult. Current policy frameworks should be reconsidered, with a view to clarifying the importance of the long-term interest rate for monetary policy, for financial stability and for government debt management.
    Keywords: Central banks, bond market crisis, exit strategy, sovereign debt management
    Date: 2013–02
  12. By: Ceballos, Francisco (World Bank); Didier, Tatiana (World Bank); Hevia, Constantino (World Bank); Schmukler, Sergio (World Bank)
    Abstract: In contrast to the past, many emerging countries faced the global financial crisis of 2008-2009 with more solid financial positions and the required credibility and capacity to conduct countercyclical policies. This allowed them to better cope with the global downturn and thus behave more similarly to developed countries. This paper documents the policy responses and discusses other factors that allowed emerging countries to partially absorb the negative external shock. In particular, it characterizes (i) monetary and exchange rate policies, (ii) fiscal policy, and (iii) external and domestic financial positions.
    Keywords: financial crisis, policy cyclicality, fiscal policy, monetary policy
    JEL: E50 F30 G01 G15
    Date: 2013–01
  13. By: Mehrotra, Aaron (BOFIT)
    Abstract: We document recent developments in the use of sterilisation bonds by six central banks in emerging Asia, and discuss the implications for monetary policy and the financial sector. An important development in the sterilisation of foreign exchange interventions in past years has been the frequent use of central banks’ own paper. There has been an attempt to lengthen the maturity structure of sterilisation bills, and maturities have risen, especially in 2010–11. The choice of sterilisation instrument is likely to depend partly on their relative costs. In particular, as the yield on central bank securities has fallen relative to the rate of remuneration of required reserves, some central banks in Asia have increasingly used central bank securities for sterilisation.
    Keywords: sterilisation bond; central bank bonds and bills; foreign exchange reserves; emerging Asia;
    JEL: E43 E50 E52 E58
    Date: 2013–01–15
  14. By: Svensson, Roger (Research Institute of Industrial Economics (IFN))
    Abstract: Re-coinage implies that old coins are declared invalid and exchanged for new ones at fixed exchange rates and dates. Empirical evidence shows that re-coinage could occur as often as twice a year within a currency area in the Middle Ages. The exchange fee at re-coinage worked as a monetary tax for trade and inhabitants. The main purpose here is to set up a simple theory about short-lived coins, which has not been done before. It turns out that re-coinage works particularly well in relatively undeveloped economies. Such economies had a small volume of coins in circulation, which facilitates both re-minting and monitoring of a short-lived coinage system. Re-coinage had both positive and negative overlapping consequences: 1) a stable coinage with respect to weight and fineness, and no long-term inflation; 2) short-term disturbances in the velocity of money, price-levels and the volume of transactions; 3) the coins' function as a store of value deteriorated; and 4) inhibitions on trade, business and the division of labor. Debasement was the alternative method for collecting a monetary tax. It was less restrictive and had lower administrative costs for the coin issuer than re-coinage. Besides low monetization, the strong position of ecclesiastical coin issuers, who disliked manipulations of weights and fineness, was likely a factor in why re-coinage was preferred to debasement. However, the costs for society as a whole could be higher for secret debasements than routine calendar driven re-coinage, due to the high uncertainty.
    Keywords: Re-coinage; SShort-lived coinage system; Debasement; Monetary tax; Monetization; Inflation; Monetary system
    JEL: E31 E42 E52 N13
    Date: 2013–01–09
  15. By: Stijn Claessens; M. Ayhan Kose
    Abstract: This paper reviews the literature on financial crises focusing on three specific aspects. First, what are the main factors explaining financial crises? Since many theories on the sources of financial crises highlight the importance of sharp fluctuations in asset and credit markets, the paper briefly reviews theoretical and empirical studies on developments in these markets around financial crises. Second, what are the major types of financial crises? The paper focuses on the main theoretical and empirical explanations of four types of financial crises?currency crises, sudden stops, debt crises, and banking crises?and presents a survey of the literature that attempts to identify these episodes. Third, what are the real and financial sector implications of crises? The paper briefly reviews the short- and medium-run implications of crises for the real economy and financial sector. It concludes with a summary of the main lessons from the literature and future research directions.
    Keywords: Sudden stops, debt crises, banking crises, currency crises, defaults, policy implications, financial restructuring, asset booms, credit booms, crises prediction
    JEL: E32 F44 G01 E5 E6 H12
    Date: 2013–02
  16. By: Marczak, Martyna; Gómez, Victor
    Abstract: This article proposes a new multivariate method to construct business cycle indicators. The method is based on a decomposition into trend-cycle and irregular. To derive the cycle, a multivariate band-pass filter is applied to the estimated trend-cycle. The whole procedure is fully model-based. Using a set of monthly and quarterly US time series, two monthly business cycle indicators are obtained for the US. They are represented by the smoothed cycles of real GDP and the industrial production index. Both indicators are able to reproduce previous recessions very well. Series contributing to the construction of both indicators are allowed to be leading, lagging or coincident relative to the business cycle. Their behavior is assessed by means of the phase angle and the mean phase angle after cycle estimation. The proposed multivariate method can serve as an attractive tool for policy making, in particular due to its good forecasting performance and quite simple setting. The model ensures reliable realtime forecasts even though it does not involve elaborate mechanisms that account for, e.g., changes in volatility. --
    Keywords: business cycle,multivariate structural time series model,univariate band-pass filter,forecasts,phase angle
    JEL: E32 E37 C18 C32
    Date: 2013
  17. By: Sandra Eickmeier; Leonardo Gambacorta; Boris Hofmann
    Abstract: We explore the concept of global liquidity based on a factor model estimated using a large set of financial and macroeconomic variables from 24 advanced and emerging market economies. We measure global liquidity conditions based on the common global factors in the dynamics of liquidity indicators. By imposing theoretically motivated sign restrictions on factor loadings, we achieve a structural identification of the factors. The results suggest that global liquidity conditions are largely driven by three common factors and can therefore not be summarised by a single indicator. These three factors can be identified as global monetary policy, global credit supply and global credit demand.
    Keywords: global liquidity, monetary policy, credit supply, credit demand, international business cycles, factor model, sign restrictions
    Date: 2013–02
  18. By: Stijn Claessens; M. Ayhan Kose; Luc Laeven; Fabián Valencia
    Abstract: The global financial crisis of 2007-09 has led to an intensive research program analyzing a wide range of issues related to financial crises. This paper presents a summary of a forthcoming book, Financial Crises: Causes, Consequences, and Policy Responses, that includes 19 contributions examining these issues and distilling policy lessons. The book covers a wide range of crises, including banking, balance-of-payments, and sovereign debt crises. It reviews the typical patterns prior to crises, considers lessons on their antecedents, and analyzes their evolution and aftermath. It also provides valuable policy lessons on how to prevent, contain and manage financial crises.
    Keywords: Global financial crisis, sudden stops, debt crises, banking crises, currency crises, defaults, restructuring, welfare cost, asset price busts, credit busts, prediction of crises
    JEL: E32 F44 G01 E5 E6 H12
    Date: 2013–02
  19. By: Frédéric Dufourt (Aix-Marseille University (Aix-Marseille School of Economics), CNRS-GREQAM, EHESS & Institut Universitaire de France); Kazuo Nishimura (Institute of Economic Research, Kyoto University); Alain Venditti (Aix-Marseille University (Aix-Marseille School of Economics), CNRS-GREQAM, EHESS & EDHEC)
    Abstract: We analyze sunspot-driven fluctuations in the standard 2-sector RBC model with moderate increasing returns to scale. We provide a detailed theoretical analysis enabling us to derive relevant bifurcation loci and to characterize the steady-state local stability properties as a function of various structural parameters. With GHH preferences, we show that local indeterminacy occurs through flip and Hopf bifurcations for a large set of values of the elasticity of intertemporal substitution in consumption if the labor supply is sufficiently inelastic. With additively-separable preferences, we prove that local indeterminacy occurs through flip and Hopf bifurcations for any value of the elasticity of the labor supply, and can even be compatible with an arbitrarily low elasticity of intertemporal substitution in consumption. Finally, we provide a detailed quantitative analysis of the model. Computing, on a quarterly basis, a new set of empirical moments related to two broadly defined consumption and investment sectors, we are able to identify, among the set of admissible calibrations consistent with sunspot equilibria, the ones that provide the best fit of the data. The model properly calibrated solves several empirical puzzles traditionally associated with 2-sector RBC models.
    Keywords: Indeterminacy, sunspots, two-sector model, sector-specific externalities, real business cycles.
    JEL: C62 E32 O41
    Date: 2013–03
  20. By: Kevin Hoover
    Abstract: The potted histories of macroeconomics textbooks are typically Keynes-centric. Keynes is credited with founding macroeconomics, and the central developments in the field through the early 1970s, including large-scale macroeconometric models are usually termed “Keynesian.” The story of macroeconomics is framed as support or opposition (e.g., monetarism or the new classical macroeconomics) to Keynes. The real story is more complicated and involves at least two distinct threads. Keynes was important, but perhaps more important for the detailed development of the field were the early macroeconometricians – Ragnar Frisch and Jan Tinbergen. Frisch and Tinbergen adopted physical or mechanical metaphors in which aggregate quantities are central. Keynes’s vision of macroeconomics is better described as “medical.” It is based in human psychology and individual decision-making and sees the economy as an organic system. Whereas policymakers and economic advisers in Keynes view can operate only within the economic system, Frisch and Tinbergen laid the basis for an optimal-control approach to economic policy in which the policymaker stands outside the system. Recent new classical macroeconomics has adopted an uneasy amalgam of the medical and mechanical metaphors.
    Keywords: macroeconomics, Keynes, Frisch, Tinbergen, Klein, macroeconometric models, macroeconomic policy
    JEL: B22 B23
    Date: 2013–01
  21. By: Tullio Jappelli (University of Naples Federico II, CSEF and CEPR); Mario Padula (University “Ca’ Foscari” of Venice and CSEF)
    Abstract: We study a model in which financial sophistication improves portfolio returns and therefore the incentive to substitute consumption intertemporally. The model delivers an Euler equation in which consumption growth is positively correlated with financial sophistication. We test the model's prediction using panel data on consumption and financial literacy from the Italian Survey of Household Income and Wealth (SHIW), and an appropriate instrumental variable procedure. We find that consumption growth is positively correlated with financial literacy. Under plausible assumptions, we provide estimates of the intertemporal elasticity of substitution that are in line with previous literature (between 0.2 and 0.4). We complement our results with direct evidence on the link between financial literacy and the return to saving.
    Keywords: Consumption Growth, Euler Equation, Financial Literacy
    JEL: E2 D8 G1 J24
    Date: 2013–02–22
  22. By: Bernd Hayo (University of Marburg); Florian Neumeier (University of Marburg)
    Abstract: This paper empirically analyses the relationship between political leaders socioeconomic backgrounds and public budget deficits utilising panel data on 21 OECD countries from 1980 to 2008. Building on sociological, as well as economic, research, we argue that the socioeconomic status of political decision-makers, i.e., presidents or prime ministers, is an important determinant of fiscal budget decisions. Our theory-consistent findings show that the tenures of lower-class leaders i.e., leaders of low socioeconomic status are associated with a deficit-to-GDP ratio which is 1.6 percentage points higher than that during tenures of upperclass leaders.
    Keywords: Budget deficit, political leaders, socioeconomic status, time preference.
    JEL: E62 H11 H62 Z13
    Date: 2013
  23. By: Casselmann, Farina
    Abstract: This paper analyzes the Capital Requirements Directive IV and the Capital Requirements Regulation, a new legislative package proposed by the European Commission in July 2011 which aims to strengthen the regulation of the banking sector and amend the European Union's rules on capital requirements for banks and investment firms. It is argued that the CRD IV package makes a great contribution towards creating a sounder and safer financial system, however, several aspects are insufficiently addressed and/or not comprehensive enough to produce the anticipated results. It is found that the main fallacies of the CRD IV proposal lay in increased risk-taking, procyclicality, deficient implementation, overreliance on credit rating agencies, and risk weightings. Moreover, the proposal does not touch upon the issues of the shadow banking system, diversification, the problem of 'too-big-to-fail' or the 'Volcker Rule'. It is, hence, concluded that the CRD IV proposal is not ambitious enough to address essential issues of systemic risk, regulatory arbitrage, or the fragility of the financial system. --
    JEL: E25 E44 F4
    Date: 2013
  24. By: Paolo Pini
    Abstract: The way forward for Italy, within a Europe that has to change. A Europe that is too economics-minded and not politically-minded enough, where growth and employment are stifled by tight budgets. Yet another path is possible, if we still keep the single currency but if we change regulations and economic policies. And introduce more democracy, also in the economy.
    Keywords: European crisis; Euro; Economic policy
    JEL: E6 O52 P16
    Date: 2013–02–01
  25. By: Massimiliano Mazzanti; Paolo Pini
    Abstract: In this paper we discuss three issues which the CGIL New Labour Plan (NLP) arises and are worthily to be stressed. The first issue is general, and regards the European context in which the Plan is placed, and in particular in the present European economic crisis in which austerity policy is dominant. The second issue is about the role of green economy, and the main aims of development and sustainable growth, and the tools emphasised by the Plan to pursue this goal. The third issue regards wages and the negotiation between trade unions and employers over distribution of productivity gains and the ways to generate these gains following centralized and/or decentralized bargaining.
    JEL: E6 Q5 J3
    Date: 2013–01–10
  26. By: Charlot, Olivier (THEMA, University of Cergy-Pontoise); Malherbet, Franck (CREST, Ecole Polytechnique, IZA and fRDB); Ulus, Mustafa (Galatasaray University Economic Research Center)
    Abstract: This paper studies the effects of the introduction of unemployment compensation (UC) in countries characterized by pervasive informality. We provide a simple framework to analyze the impact of UC on the allocation of workers between formal and informal activities, as well as the allocation of workers between sectors featuring different incentives to go informal. We show that a reasonable amount of UC may reduce informality, while larger amounts of UC induce large disincentives to go formal because of the level of taxation involved. We also argue that the financing of UC should be part and parcel of a well- conceived UC system. We show that UC finance based on payroll taxes is likely to entail an excess level of informality resulting from cross-subsidies between heterogenous sectors. The introduction of a simple layoff tax meant to finance the UC system is then shown to reduce informality, hence highlighting how a well-designed financing scheme may be used as a supplementary instrument to curb informality.
    Keywords: Informality; Labor Market Imperfections; Unemployment Insurance
    JEL: E24 E26 J60 L16 O10
    Date: 2013–02–22
  27. By: Ehrhart, H.; Guerineau, S.
    Abstract: In this paper we assess the impact of commodity price volatility on tax revenues, while existing works were concentrated on its effect on economic growth. Our empirical analysis is carried out on 80 developing countries over 1980-2008. We compute country-specific indices which measure the volatility of the international price of 41 commodities in the sectors of agriculture, minerals and energy. We find robust evidence that tax revenues in developing countries are hurt by the volatility of commodity prices. More specifically, the volatility of import prices decreases revenues from international trade tax while the volatility of export prices reduces revenues from income tax. We also show that this negative effect on tax revenues is not homogenous between countries. First, the export price volatility impact is negative except for oil exporters for whom it is null. Second, the magnitude of the negative impact of import price volatility on tax revenues depends on the tariff structure, i.e. is greater in countries where tariff dispersion is high.
    Keywords: Price Volatility, Tax revenues, Commodities, Developing economies.
    JEL: E62 O13 F10
    Date: 2013
  28. By: Jäntti, Markus (Swedish Institute for Social Research); Pirttilä, Jukka (School of Management); Selin, Håkan (Uppsala Center for Fiscal Studies)
    Abstract: We utilise repeated cross sections of micro data from several countries, available from the Luxembourg Income Study, LIS, to estimate labour supply elasticities, both at the intensive and extensive margin. The benefit of the data is that it spans over four decades and includes a large number of tax reform episodes, with tax rate variation arising both from cross-sectional and country-level differences. Using these data, we investigate whether micro and macro estimates differ in a systematic way. The results do not provide clear support to the view that elasticities at the macro level would be higher than corresponding micro elasticities.
    Keywords: Labour supply; earnings; taxation; cross-country comparisons
    JEL: E24 H21 J22
    Date: 2013–01–16
  29. By: Gani Aldashev
    Abstract: Is the decline in voter turnout an indicator of a worse health of a representative democracy? We build a simple probabilistic-voting model with endogenous turnout to address this question. We ?nd that a lower turnout caused by a higher cost of voting implies higher political rents. Contrarily, a lower turnout caused by a higher ideological mobility of voters or by a lower expressive bene?t of voting implies lower political rents. If voters have a civic-duty motive to vote which depends on the level of rents, multiple equilibria (a high-rents and a low-rents) can arise.
    Keywords: voter turnout, political rents, electoral competition.
    JEL: E62 H3
    Date: 2013
  30. By: Nasir Iqbal (Pakistan Institute of Development Economics, Islamabad); Vince Daly (Department of Economics Kingston University, UK)
    Abstract: This study empirically explores the growth effects of rent seeking activity (RSA) for a group of 52 developing/transitional countries, using a dynamic panel data approach. The modelling framework is a Mankiw-Romer-Weil (MRW) conditional convergence model augmented by measures of the opportunities for RSA, namely indices for the extent of democracy and corruption control. We find that health is more relevant than educational participation as a measure of human capital development in the MRW model. The overall empirical analysis shows that RSA retards economic growth, in that democratic institutions, which are inimical to RSA, are growth enhancing. We also find that reduction in the extent of corruption is only growth-enhancing if supported by well-developed democratic institutions.
    Keywords: Rent-seeking, Economic Growth, Panel Data
    JEL: E13 O43 O47
    Date: 2013

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