nep-mac New Economics Papers
on Macroeconomics
Issue of 2013‒03‒23
fifty-one papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Optimal economic policy and oil prices shocks in Russia By Semko Roman
  2. Pre- versus Post-Crisis Central Banking in Qatar By Elsamadisy, Elsayed Mousa; Alkhater, Khalid Rashid; Basher, Syed Abul
  3. Food Prices and Inflation Targeting in Emerging Economies By Marc Pourroy; Benjamin Carton; Dramane Coulibaly
  4. Do heterogeneous expectations constitute a challenge for policy interaction? By Emanuel Gasteiger
  5. Cyclical relationship between exchange rates and macro-fundamentals in Central and Eastern Europe By Stavarek, Daniel
  6. Equilibrium Unemployment during Financial Crises By Andres Fernandez; Juan Herreno
  7. The Role of Macroeconomic Fundamentals in Malaysian Post Recession Growth By Lee, Chin
  8. Does Monetary Policy Matter in China? A Narrative Approach By Sun, Rongrong
  9. It’s not just for inflation: The usefulness of the median CPI in BVAR forecasting By Brent Meyer; Saeed Zaman
  10. Global dynamics at the zero lower bound By William T. Gavin; Benjamin D. Keen; Alexander Richter; Nathaniel Throckmorton
  11. Is Inflation Targeting Still on Target? The Recent Experience of Latin America By Luis Felipe Cespedes; Roberto Chang; Andres Velasco
  12. Using a DSGE Model to Assess the Macroeconomic Effects of Reserve Requirements in Brazil By Waldyr Dutra Areosa; Christiano Arrigoni Coelho
  13. The decentralised central bank: regional bank rate autonomy in Norway, 1850-1892. By Klovland, Jan Tore; Øksendal, Lars Fredrik
  14. Implicit intraday interest rate in the UK unsecured overnight money market By Marius Jurgilas; Filip Zikes
  15. Business cycle convergence or decoupling? Economic adjustment in CESEE during the crisis By Gächter, Martin; Riedl , Aleksandra; Ritzberger-Grünwald, Doris
  16. A disaggregated approach to the government spending shocks: an theoretical analysis By Cortuk, Orcan; Güler, Mustafa Haluk
  17. Shifting Mandates: The Federal Reserve’s First Centennial By Carmen M. Reinhart; Kenneth S. Rogoff
  18. Optimal devaluations By Constantino Hevia; Juan Pablo Nicolini
  19. "Wages, Exchange Rates, and the Great Inflation Moderation: A Post-Keynesian View" By Nathan Perry; Nathaniel Cline
  20. Reconstructing the great recession By Michele Boldrin; Carlos Garriga; Adrian Peralta-Alva; Juan M. Sánchez
  21. Welfare costs of shifting trend inflation By Taisuke Nakata
  22. Business Cycles, Unemployment and Entrepreneurial Entry - First Evidence from Germany By Michael Fritsch; Alexander Kritikos; Katharina Pijnenburg
  23. How Much do Bank Shocks Affect Investment? Evidence from Matched Bank-Firm Loan Data By Mary Amiti; David E. Weinstein
  24. Modeling monetary economies: an equivalence result By Gabriele Camera; YiLi Chien
  25. Macro-Institutional Instability and the Incentive to Innovate By Masino, Serena
  26. The determinants of macroeconomic forecasts and the Stability and Growth Pact By Patricia Martins; Leonida Correia
  27. Global and regional business cycles. Shocks and propagations By Leif Anders Thorsrud
  28. Policy Options to Durably Resolve Euro Area Imbalances By Yvan Guillemette; David Turner
  29. Inflation persistence and the rationality of inflation expectations By Sophocles N. Brissimis; Petros M. Migiakis
  30. Monetary regimes and statistical regularity: the Classical Gold Standard (1880-1913) through the lenses of Markov models By Daniela Bragoli; Camilla Ferretti; Piero Ganugi; Giancarlo Ianulardo
  31. A Tractable Monetary Model Under General Preferences By Tsz-Nga Wong
  32. Common stochastic trends and the Ricardian Equivalence in the OECD By Gogas, Periklis; Papadimitriou, Theophilos; Plakandaras, Vasilios; Kostikidou, Despoina
  33. Market Structure and Cost Pass-Through in Retail By Gee Hee Hong; Nicholas Li
  34. The Great Recession and Nonmetropolitan America By Rickman, Dan S.; Guettabi, Mouhcine
  35. On the interdependence of money supply and demand By Cavalieri, Duccio
  36. How Windfall Income Increases Gambling at Poker Machines By Hielke Buddelmeyer; Kyle Peyton
  37. Financial stress and economic dynamics: an application to France By Sofiane Aboura; Björn van Roye
  38. Taxing capital is a good idea: the role of idiosyncratic risk in an OLG model By Ryoji Hiraguchi; Akihisa Shibata
  39. How Does the Oil Price Shock Affect Consumers? By Liping Gao; Hyeongwoo Kim; Richard Saba
  40. Financial shocks and the macroeconomy: heterogeneity and non-linearities By Kirstin Hubrich; Antonello D’Agostino; Marianna Cervená; Matteo Ciccarelli; Paolo Guarda; Markus Haavio; Philippe Jeanfils; Caterina Mendicino; Eva Ortega; Maria Teresa Valderrama; Marianna Valentinyiné Endrész
  41. Uranium and nuclear Power: The role of exploration information in framing public policy By Charles F Mason
  42. Money market funds intermediation, bank instability, and contagion By Marco Cipriani; Antoine Martin; Bruno M. Parigi
  43. Does “Skin in the Game” Reduce Risk Taking? Leverage, Liability and the Long-Run Consequences of New Deal Banking Reforms By Kris James Mitchener; Gary Richardson
  44. Cost Inefficiency of Municipalities after Amalgamation By Katsuyoshi Nakazawa
  45. Do economies stall? The international evidence By Wai-Yip Alex Ho; James Yetman
  46. The Role of Household Saving in the Economic Rise of China By Steven Lugauer; Nelson C. Mark
  47. Consecințele migrației externe asupra pieței muncii din România By Juravle, Daniel
  48. Quarterisation of national income accounts of Pakistan By Hanif, Nadim; Iqbal, Javed; Malik, Jehanzeb
  49. Credit Constraints, Sector Informality and Firm Investments: Evidence from a Panel of Uruguayan Firms By Nestor Gandelman; Alejandro Rasteletti
  50. The Implications of Natural Resource Exports for Non-Resource Trade By Torfinn Harding; Anthony J Venables
  51. Credit Lines as Monitored Liquidity Insurance: Theory and Evidence By Viral V. Acharya; Heitor Almeida; Filippo Ippolito; Ander Perez

  1. By: Semko Roman
    Abstract: The goal of the paper is to explain and analyze whether Central Bank of Russia should include commodity prices into the lists of variables they try to respond. We augmented New Keynesian DSGE small open economy model of Dib (2008) with the oil stabilization fund and new Taylortype monetary policy rule and estimated the model using Bayesian econometrics. The results show that Central Bank’s mild response to the oil price changes may be desired in terms of minimizing fluctuations of inflation and output only in the case when stabilization fund would be absent, while this response is redundant when “excess” oil revenues can be saved in the fund.
    JEL: E12 E52 E58 F41
    Date: 2013–03–15
  2. By: Elsamadisy, Elsayed Mousa; Alkhater, Khalid Rashid; Basher, Syed Abul
    Abstract: In the years before the global financial crisis of 2008--2010, Qatar experienced a huge build-up of liquidity surplus in the banking system, mainly driven by surging net capital inflows. This paper identifies various sources of interbank liquidity in Qatar and discusses the various implications of structural primary liquidity surplus for the money market in particular and the economy at large. The paper attempts to evaluate the Qatar Central Bank policy making and conduct during the pre- and post-crisis periods within a framework of the Austrian monetary overinvestment theories, and concludes that the central bank had forcibly committed several forced monetary policy mistakes, which resulted in a breakdown in the interest rate channel of the monetary policy transmission mechanism. This led to the inability of the central bank to control the interbank interest rate and to an accelerating inflation rate during the pre-crisis years. In contrast, a dramatic change in the central bank's monetary policy framework and a deliberate monetary policy mistake on behalf of the central bank resulted in a restoration of the interest rate channel of the monetary policy transmission mechanism, stabilization of the interbank interest rate close to the central bank's policy rate and a sharp deceleration in the inflation rate in the post-crisis period. The paper concludes by offering brief policy recommendations.
    Keywords: Monetary policy framework; Monetary policy mistakes; Liquidity management; Structural liquidity surplus; Financial crisis.
    JEL: E51 E52 E58
    Date: 2013–03–21
  3. By: Marc Pourroy; Benjamin Carton; Dramane Coulibaly
    Abstract: The two episodes of food price surges in 2007 and 2011 have been particularly challenging for developing and emerging economies’ central banks and have raised the question of how monetary authorities should react to such external relative price shocks. We develop a new-Keynesian small open-economy model and show that non-food inflation is a good proxy for core inflation in high-income countries, but not for middle-income and low-income countries. Although, in these countries we find that associating non-food inflation and core inflation may be promoting badly-designed policies, and consequently central banks should target headline inflation rather than non-food inflation. This result holds because non-tradable food represents a significant share in total consumption. Indeed, the poorer the country, the higher the share of purely domestic food in consumption and the more detrimental lack of attention to the evolution in food prices.
    Keywords: Monetary Policy, Commodities, Food prices, DSGE models
    JEL: E32 E52 O23
    Date: 2013
  4. By: Emanuel Gasteiger
    Abstract: Yes, indeed; at least when it comes to fiscal and monetary policy interaction. We examine a Neo-Classical economy, where agents have either rational or adaptive expectations. We demonstrate that the monetarist solution can be unique and stationary under a passive fiscal/active monetary policy regime, because active monetary policy incorporates expectational heterogeneity. In contrast, under an active fiscal/passive monetary policy regime, the fiscalist solution is prone to explosive dynamics d e to empirically plausible expectational heterogeneity. However, conditional on stationarity, both regimes can yield promising business cycle dynamics, which are absent in the homogeneous expectations benchmark.
    Keywords: Inflation, Heterogeneous Expectations, Fiscal and Monetary Policy
    JEL: E31 D84 E52 E62
    Date: 2013–03–18
  5. By: Stavarek, Daniel
    Abstract: We present empirical evidence on the business cycle relationship between nominal and real effective exchange rate, real GDP, consumption, investment, export, import and general government debt for a group of ten countries from the Central and Eastern Europe. We apply cross-correlation on cyclically filtered and seasonally adjusted quarterly time series over the period 1998-2010. The results are mixed in intensity, direction and cyclicality but show generally weak correlation between exchange rates and fundamentals. Sufficiently high coefficients are found only for government debt and import. We also apply simple regressions to relate the correlation to openness and welfare of the economy. The correlation between exchange rates and macroeconomic aggregates tends to be more pronounced in less open and relatively poorer countries.
    Keywords: business cycle; cross correlation; exchange rate; macroeconomic fundamental; openness; wealth
    JEL: E32 E44 F31
    Date: 2013–03–21
  6. By: Andres Fernandez; Juan Herreno
    Abstract: Financial crises in both emerging and developed economies have been characterized by large output drops and spikes in unemployment and interest rates. To account for these stylized facts this paper builds a business cycle model where financial and labor market frictions interact as occasionally binding borrowing constraints and search frictions. The model is calibrated to a Sudden Stop-prone emerging economy and also to some peripheral European economies in the recent crisis. The model accounts for unemployment dynamics both during crises and at regular business cycle frequencies. The paper also assesses the welfare implications of policies that reduce real minimum wages during crises.
    JEL: E32 E44 F41
    Date: 2013–02
  7. By: Lee, Chin
    Abstract: This study aims to find out the role of macroeconomic fundamentals in Malaysian post recession growth. The selected macroeconomic variables are exports, imports, price level, money supply, interest rate, exchange rate and government expenditure. The technique of cointegration was employed to assess the long run equilibrium relationships among the variables. Then, this study performs the Granger causality tests based on VECM to establish the short run causality among the variables. The long-run cointegrating relationship shown that an increase in exports, government expenditure or depreciation of exchange rate will promote long-term economic growth while increase in inflation, interest rate and imports will tamper the Malaysian economic growth. The results of short-run Granger-causality indicated that price level and government spending Granger-caused economic growth in the short-run. In conclusion, based on the results of long-run and short run analysis, the fiscal policy is probably the most appropriate tool in promoting economic growth in Malaysia during the post recession period.
    Keywords: Malaysia post recession growth
    JEL: E3 E32 E52 F1 F31 H5
    Date: 2013
  8. By: Sun, Rongrong
    Abstract: This paper applies the narrative approach to monetary policy in China to tackle two problems of policy measurement. The first problem arises because the PBC (the central bank of China) applies multiple instruments and none of them per se can adequately reflect changes in its monetary policy. The second one is the classical identification problem: the causation direction of the observed interaction between central bank actions and real activity needs to be identified. The PBC’s documents are used to infer the intentions behind policy movements. Three shocks are identified for the period 2000-2011 that are exogenous to real output. Estimates using these shocks and various robustness tests indicate that monetary policy has large and persistent impact on output in China.
    Keywords: exogenous shocks, the narrative approach, real effects of monetary policy
    JEL: E52 E58
    Date: 2012
  9. By: Brent Meyer; Saeed Zaman
    Abstract: In this paper we investigate the forecasting performance of the median CPI in a variety of Bayesian VARs (BVARs) that are often used for monetary policy. Until now, the use of trimmed-mean price statistics in forecasting inflation has often> been relegated to simple univariate or “Philips-Curve” approaches, thus limiting their usefulness in applications that require consistent forecasts of multiple macro variables. We find that inclusion of an extreme trimmed-mean measure—the> median CPI—significantly improves the forecasts of both headline and core CPI. across our wide-ranging set of BVARs. While the inflation forecasting improvements are perhaps not surprising given the current literature on core inflation statistics, we also find that inclusion of the median CPI improves the forecasting> accuracy of the central bank’s primary instrument for monetary policy—the federal funds rate. We conclude with a few illustrative exercises that highlight the usefulness of using the median CPI.>
    Keywords: Bayesian statistical decision theory ; Forecasting ; Monetary policy ; Simulation modeling
    Date: 2013
  10. By: William T. Gavin; Benjamin D. Keen; Alexander Richter; Nathaniel Throckmorton
    Abstract: This article presents global solutions to standard New Keynesian models to show how economic dynamics change when the nominal interest rate is constrained at its zero lower bound (ZLB). We focus on the canonical New Keynesian model without capital, but we also study the model with capital, with and without investment adjustment costs. Our solution method emphasizes accuracy to capture the expectational effects of hitting the ZLB and returning to a positive interest rate. We find that the response to a technology shock has perverse consequences when the ZLB binds, even when a discount factor shock drives the interest rate to zero. Although we do not model the large scale asset purchases used by the Fed since 2009, our results suggest that the economy may have trouble recovering if the interest rate remains at zero. Given the perverse dynamics at the ZLB, we evaluate how monetary policy affects the likelihood of encountering the ZLB. We find that the probability of hitting the ZLB depends importantly on the monetary policy rule. A policy rule based on a dual mandate, such as the one proposed by Taylor (1993), is more likely to cause ZLB events when the central bank places greater emphasis on the output gap.
    Keywords: Monetary policy ; Bonds
    Date: 2013
  11. By: Luis Felipe Cespedes; Roberto Chang; Andres Velasco
    Abstract: This paper reviews the recent experience of a half-dozen Latin American inflation targeting (IT) nations. Repeated and large deviations from the standard IT framework are documented: exchange market interventions have been lasting and widespread; the real exchange rate has often become a target of policy, though this target is seldom made explicit; a range of other non-conventional policy tools, especially changes in reserve requirements but occasionally taxes or restrictions on international capital movements, also came into common use. As in developed nations, during the 2008-2009 crisis issues of liquidity provision took center stage. A first evaluation of the emerging modified framework of monetary policy is also attempted. In general terms, the new approach seems to have been effective, at the very least since the region weathered the crisis reasonably well. But also, and perhaps more importantly, many questions remain about the desirability of non-conventional monetary policies in Latin America.
    JEL: E52 E58 F41
    Date: 2013–03
  12. By: Waldyr Dutra Areosa; Christiano Arrigoni Coelho
    Abstract: The goal of this paper is to present how a Dynamic General Equilibrium Model (DSGE) can be used by policy makers in the qualitative and quantitative evaluation of the macroeconomics impacts of two monetary policy instruments: (i) short term interest rate and (ii) reserve requirements ratio. In our model, this last instrument affects the leverage of banks that have to deal with agency problems in order to raise funds from depositors. We estimated a modified version of Gertler and Karadi (2011), incorporating a reserve requirement ratio, in order to answer two questions: (i) what is the impact of a transitory increase of 1% p.y. of the short term interest rate on macroeconomic variables like GDP, inflation and investment? (ii) what is the macroeconomic impact of a transitory increase of 10% in the reserve requirement ratio? We found that these two shocks have the same qualitative effects on the most of the macroeconomic variables, but that the impact of interest rate is much stronger.
    Date: 2013–01
  13. By: Klovland, Jan Tore (Dept. of Economics, Norwegian School of Economics and Business Administration); Øksendal, Lars Fredrik (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: Before 1893 the regional branches of Norges Bank set their own bank rates. We discuss how bank rate autonomy could be reconciled with the fixed exchange rate commitments of the silver and gold standard. Although the headquarters of the bank was in Trondhjem, we find that the Christiania branch played the key role in providing leadership in bank rate policy. Foreign interest rate impulses were important for bank rate decisions, but there was also some leeway for responding to idiosyncratic shocks facing the Norwegian economy.
    Keywords: Bank rate; gold standard; monetary policy.
    JEL: E58 N23
    Date: 2013–03–11
  14. By: Marius Jurgilas (Norges Bank (Central Bank of Norway)); Filip Zikes (Bank of England)
    Abstract: This paper estimates the intraday value of money implicit in the UK unsecured overnight money market. Using transactions data on overnight loans advanced through the UK large value payments system CHAPS in 2003-2009, we find a positive and economically significant intraday interest rate. While the implicit intraday interest rate is quite small pre-crisis, it increases more than tenfold during the financial crisis of 2007-2009. The key interpretation is that an increase in implicit intraday interest rate reects the increased opportunity cost of pledging collateral intraday and can be used as an indicator to gauge the stress of the payment system. We obtain qualitatively similar estimates of the intraday interest rate by using quoted intraday bid and offer rates and confirm that our results are not driven by the intraday variation in the bid-ask spread.
    Keywords: Interbanl money market, Intraday liquidity
    JEL: E42 E58 G21
    Date: 2013–03–14
  15. By: Gächter, Martin (BOFIT); Riedl , Aleksandra (BOFIT); Ritzberger-Grünwald, Doris (BOFIT)
    Abstract: We analyze business cycle convergence in the EU by focusing on the decoupling vs. convergence hypothesis for central, eastern and south eastern Europe (CESEE). In a nutshell, we fnd that business cycles in CESEE have decoupled considerably from the euro area (EA) during the financial crisis in terms of both cyclical dispersion (i.e. the deviation of output gaps) and cyclical correlation. The results are mainly driven by smaller countries, which can be explained by the fact that small economies seem to have larger cyclical swings as they are more dependent on external demand, which causes a decoupling in terms of higher output gap deviations from the EA cycle in times of economic crises. At the same time, this does not necessarily affect business cycle synchronization as measured by cyclical correlations, where the strength of the linear relationship of two cycles is measured. However, despite the recent declines in the co-movement, we generally observe high correlation levels of CESEE countries with the EA after their EU accession in 2004. Finally, we find a significant decoupling of trend growth rates between EA and CESEE until the onset of the financial crises. Since the beginning of the crisis, trend growth rates have declined both in CESEE and the EA with the trend growth differential decreasing significantly from about three to below two percentage points in 2011.
    Keywords: business cycles; EMU; CESEE; optimum currency areas
    JEL: E32 E52 F15 F33 F44
    Date: 2013–02–05
  16. By: Cortuk, Orcan; Güler, Mustafa Haluk
    Abstract: We examine different types of government spending while literature usually treats government spending as a homogenous compound. We disaggregate the government spending into three parts; namely, government investment, government wage component consumption (i.e. wage expenditure) expenditure, and non-wage component consumption (i.e. purchases of goods and services). Next, we estimate a dynamic stochastic general equilibrium model that features a transmission mechanism with different types of government spending. In this regard, we manage to distinguish between different types of government spending where each type of spending has varied role in the economy. Such set up enables them produce different effects on macroeconomic variables.
    Keywords: Disaggregated government spending, Government investment, Government wage consumption, Government non-wage component consumption, DSGE model.
    JEL: E62 H50
    Date: 2013–03–13
  17. By: Carmen M. Reinhart; Kenneth S. Rogoff
    Abstract: The mandate of the Federal Reserve has evolved considerably over its hundred-year history. From an initial focus in 1913 on financial stability, to fiscal financing in World War II and its aftermath, to a strong anti-inflation focus from the late 1970s, and then back to greater emphasis on financial stability since the Great Contraction. Yet, as the Fed’s mandate has expanded in recent years, its range of instruments has narrowed, partly based on a misguided belief in the inherent stability of financial markets. We briefly discuss the active use in an earlier era of multiple instruments, including reserve requirements, credit controls and interest rate ceilings.
    JEL: E02 E5 N1 N12 N2
    Date: 2013–03
  18. By: Constantino Hevia; Juan Pablo Nicolini
    Abstract: We analyze optimal policy in a simple small open economy model with price setting frictions. In particular, we study the optimal response of the nominal exchange rate following a terms of trade shock. We depart from the New Keynesian literature in that we explicitly model interna-tionally traded commodities as intermediate inputs in the production of local final goods and assume that the small open economy takes this price as given. This modification not only is in line with the long-standing tradition of small open economy models, but also changes the optimal movements in the exchange rate. In contrast with the recent small open economy New Keynesian literature, our model is able to reproduce the comovement between the nominal exchange rate and the price of exports, as it has been documented in the commodity currencies literature. Although we show there are preferences for which price stability is optimal even without flexible fiscal instruments, our model suggests that more attention should be given to the coordination between monetary and fiscal policy (taxes) in small open economies that are heavily dependent on exports of commodities. The model we propose is a useful framework in which to study fear of floating.
    Keywords: Monetary policy
    Date: 2013
  19. By: Nathan Perry; Nathaniel Cline
    Abstract: Several explanations of the "great inflation moderation" (1982-2006) have been put forth, the most popular being that inflation was tamed due to good monetary policy, good luck (exogenous shocks such as oil prices), or structural changes such as inventory management techniques. Drawing from Post-Keynesian and structuralist theories of inflation, this paper uses a vector autoregression with a Post-Keynesian identification strategy to show that the decline in the inflation rate and inflation volatility was due primarily to (1) wage declines and (2) falling import prices caused by international competition and exchange rate effects. The paper uses a graphical analysis, impulse response functions, and variance decompositions to support the argument that the decline in inflation has in fact been a "wage and import price moderation," brought about by declining union membership and international competition. Exchange rate effects have lowered inflation through cheaper import and oil prices, and have indirectly affected wages through strong dollar policy, which has lowered manufacturing wages due to increased competition. A "Taylor rule" differential variable was also used to test the "good policy" hypothesis. The results show that the Taylor rule differential has a smaller effect on inflation, controlling for other factors.
    Keywords: Inflation; Taylor Rule; Post-Keynesian; Structuralist
    JEL: E12 E31
    Date: 2013–03
  20. By: Michele Boldrin; Carlos Garriga; Adrian Peralta-Alva; Juan M. Sánchez
    Abstract: This paper evaluates the role of the construction sector in accounting for the performance of the U.S. economy in the last decade. During the Great Recession (2008-09) employment in the construction sector experienced an unprecedented decline that followed the largest expansion in employment since the 1950s. A simple input-output exercise reveals that the contribution of construction to the variations of the macro variables was significant. Despite the small size of the construction sector, its inter- linkages with other sectors in the economy propagate the effect from changes in the demand of residential investment, hence amplifying the effect on the overall economy. The importance of interlinkages is illustrated in a static model and then quantified in a generalized framework that includes xed and residential investment. The model is calibrated to reproduce the boom-bust dynamics of construction employment in the period 2000-10. We nd that construction and its interlinkages account for a large share of the actual changes in aggregate employment and gross domestic product during the expansion and the recession. Through the lens of the standard business cycle accounting, the recession generated in the model, as in the data, is due to the worsening of the labor wedge.
    Keywords: Construction industry ; Business cycles ; Recessions
    Date: 2013
  21. By: Taisuke Nakata
    Abstract: This paper studies the welfare consequences of exogenous variations in trend inflation in a New Keynesian economy. Consumption and leisure respond asymmetrically to a rise and a decline in trend inflation. As a result, an increase in the variance of shocks to the trend inflation process decreases welfare not only by increasing the volatilities of consumption and leisure, but also by decreasing their average levels. I find that the welfare cost of drifting trend inflation is modest and that it comes mainly from reduced average levels of consumption and leisure, not from their increased volatilities.
    Date: 2013
  22. By: Michael Fritsch (School of Economics and Business Administration, Friedrich-Schiller-University Jena); Alexander Kritikos (German Institute for Economic Research (DIW Berlin), and University of Potsdam, and IZA (Bonn) and IAB (Nuremberg)); Katharina Pijnenburg (German Institute for Economic Research (DIW Berlin))
    Abstract: We investigate whether people become more willingly self-employed during boom periods or in recessions and to what extent it is the business cycle or the employment status influencing entry rates into entrepreneurship. Our analysis for Germany reveals that start-up activities are positively influenced by unemployment rates and that the cyclical component of real GDP has a negative effect. This implies that new business formation is counter-cyclical. Further disentangling periods of low and high unemployment periods reveals a "low unemployment retard effect".
    Keywords: Self-employment, business cycle, unemployment, start-up
    JEL: L26 E32
    Date: 2013–03–20
  23. By: Mary Amiti; David E. Weinstein
    Abstract: We show that supply-side financial shocks have a large impact on firms’ investment. We do this by developing a new methodology to separate firm credit shocks from loan supply shocks using a vast sample of matched bank-firm lending data. We decompose loan movements in Japan for the period 1990 to 2010 into bank, firm, industry, and common shocks. The high degree of financial institution concentration means that individual banks are large relative to the size of the economy, which creates a role for granular shocks as in Gabaix (2011). As a result, idiosyncratic bank shocks—i.e., movements in bank loan supply net of borrower characteristics and general credit conditions—can have large impacts on aggregate loan supply and investment. We show that these idiosyncratic bank shocks explain 40 percent of aggregate loan and investment fluctuations.
    JEL: E44 G21 G31
    Date: 2013–03
  24. By: Gabriele Camera; YiLi Chien
    Abstract: This paper offers a methodological contribution to monetary theory. First, it presents a model economy with cash-in-advance constraints, following the work of Lucas in the early 80’s; then, it specializes the model to preferences and shocks assumed in the Lagos and Wright (2005) framework. Second, it derives the main equations describing allocations under competitive pricing and demonstrates that the two models—which on the surface appear different—are mathematically equivalent. Such equivalence result is extended to stationary equilibrium under non-competitive pricing; in both models, allocations depend on a free parameter controlling price markups.
    Keywords: Monetary theory ; Money ; Inflation (Finance)
    Date: 2013
  25. By: Masino, Serena
    Abstract: This paper investigates the channels through which macroeconomic and institutional instability prevents or hinders innovative investment undertakings financed by the domestic private sector. The analysis is based on a sample of 44 countries representing all levels of development and considers a number of instability dimensions. The results suggest a negative impact of real, monetary and political instability on the aggregate level of national R&D financed by the business sector. Thus, they highlight the desirability of stable macro-institutional environments in preventing avoidance or abandonment of private innovation undertakings.
    Keywords: Macroeconomic Volatility, Political Instability, R&D Investment, Innovation
    JEL: O11 O33 O31 C33
    Date: 2013–03–17
  26. By: Patricia Martins; Leonida Correia
    Abstract: This paper identifies the determinants of macroeconomic forecasts (budget balance, public debt and real GDP growth), of the governments of the 15 EU countries. We have used the forecasts of the Stability and Convergence Programmes submitted between 1998/99 and 2008/09 and the European Commission’s. Results show that, in general, economic growth forecasts submitted by European governments are more optimistic than those published by the European Commission. The lack of accuracy of government forecasts is due to “misinformation” regarding the economic situation at the time of their publication. The differences between observed and forecast changes of budget balance and public debt are explained by the output growth forecast errors and the forecasts of the changes in the two fiscal indicators. These forecast changes tend to revise downwards the changes submitted in the previous Program. Therefore, the governments’ “bad intention” seems to result from their lack of commitment to the objectives of previous programs and it explains the recurrent delays in the implementation of their fiscal consolidation plans.
    Keywords: European Union, Stability and Growth Pact, forecast errors
    JEL: E62 H6
    Date: 2013–02
  27. By: Leif Anders Thorsrud (BI Norwegian Business School and Norges Bank)
    Abstract: We study the synchronization of real and nominal variables across four different regions of the world, Asia, Europe, North and South America, covering 32 different countries. Employing a FAVAR framework, we distinguish between global and regional demand and supply shocks and document the relative contributions of these shocks to explaining macroeconomic fluctuations and synchronization. Our results support the decoupling hypothesis advanced in recent business cycle studies and yields new insights regarding the causes of business cycle synchronization. In particular, global supply shocks cause more severe activity fluctuations in European and North American economies than in Asian and South American economies, whereas global demand shocks shift activity in the different regions in opposite directions at longer horizons. Furthermore, demand shocks play a larger role than that found in related studies. Finally, only innovations to the Asian activity and price factors have significant spillover effects on shared global factors, demonstrating the growing importance of Asia in the global economy.
    Keywords: Business cycles, Factor model, Globalization, International macro
    JEL: C11 C38 F41 F44
    Date: 2013–02–27
  28. By: Yvan Guillemette; David Turner
    Abstract: A simple econometric framework is presented linking current account balances of euro area countries to intra and extra euro area competitiveness, cyclical positions, fiscal positions and the oil price. The framework is then used to cyclically-adjust observed current account balances and illustrate the scale of the additional adjustments to competitiveness and/or fiscal balances required in the euro area periphery to bring structural current account balances to levels compatible with sustainable net external debt levels. In Spain and Portugal, cost competitiveness relative to the rest of the euro area would need to improve by about 30%, and by more than twice that in Greece. In peripheral countries, a combination of structural reforms to boost productivity and enhance the flexibility of labour markets, ambitious fiscal consolidation and reductions in labour taxes could substantially facilitate the rebalancing process and reduce the extent to which the burden of adjustment is reliant on further prolonged demand weakness. Surplus and/or strong competitiveness countries could help by likewise making labour and product markets more flexible, accepting above-normal inflation for an extended period and boosting demand, perhaps through reduced fiscal austerity.<P>Options de politiques publiques pour réduire durablement les déséquilibres de la zone euro<BR>Un cadre économétrique simple est développé qui lie la balance au compte courant des pays de la zone euro à la compétitivité intra et extra euro, aux positions cycliques, aux positions budgétaires et au prix du pétrole. Ce cadre est ensuite utilisé pour corriger les balances courantes observées pour le cycle économique et pour illustrer la taille des ajustements additionnels à la compétitivité et/ou aux budgets nécessaires dans la périphérie de la zone euro pour amener les comptes courants structurels à des balances compatibles avec des niveaux durables de dette extérieure nette. L’Espagne et le Portugal nécessiteraient une amélioration de leur compétitivité par rapport au reste de la zone euro de l’ordre de 30%, et la Grèce de plus de deux fois cela. Dans la périphérie de la zone euro, une combinaison de réformes structurelles pour stimuler la productivité et améliorer la flexibilité du marché du travail, de consolidation budgétaire ambitieuse et d’allègement de la taxation du travail pourrait faciliter substantiellement le processus de rebalancement et réduire la mesure dans laquelle le poids de l’ajustement repose sur une faiblesse de la demande prolongée. Les pays en surplus ou avec une forte compétitivité pourraient aider en rendant eux aussi les marchés du travail et des produits plus flexibles, en acceptant une inflation plus élevée que normal sur une longue période et en stimulant la demande, peut-être en atténuant l’austérité fiscale.
    Keywords: Greece, Italy, Portugal, Germany, euro area, competitiveness, unit labour costs, current accounts, Spain, Ireland, imbalances, periphery, external debt, Grèce, Italie, Portugal, Allemagne, compétitivité, Espagne, compte courant, Irlande, coûts unitaires, dette extérieure, déséquilibres, périphérie
    JEL: E61 F32 F34 J31
    Date: 2013–03–20
  29. By: Sophocles N. Brissimis (University of Piraeus); Petros M. Migiakis (Bank of Greece)
    Abstract: The rational expectations hypothesis for survey and model-based inflation forecasts ? from the Survey of Professional Forecasters and the Greenbook respectively ? is examined by properly taking into account persistence in the data. The finding of near-unit-root effects in inflation and inflation expectations motivates the use of a local-to-unity specification of the inflation process that enables us to test whether the data are generated by locally non-stationary or stationary processes. Thus, we test, rather than assume, stationarity of near-unit-root processes. In addition, we set out an empirical framework for assessing relationships between locally non-stationary series. In this context, we test the rational expectations hypothesis by allowing the co-existence of a long-run relationship obtained under the rational expectations restrictions with short-run "learning" effects. Our empirical results indicate that the rational expectations hypothesis holds in the long run, while forecasters adjust their expectations slowly in the short run. This finding lends support to the hypothesis that the persistence of inflation comes from the dynamics of expectations.
    Keywords: Inflation; rational expectations; high persistence
    JEL: C50 E31 E52
    Date: 2013–01
  30. By: Daniela Bragoli (Department of Economics and Social Sciences, Universita Cattolica del Sacro Cuore); Camilla Ferretti (Department of Economics and Social Sciences, Universita Cattolica del Sacro Cuore); Piero Ganugi (Department of Industrial Engineering, Universita degli Studi di Parma); Giancarlo Ianulardo (Department of Economics, University of Exeter)
    Abstract: We aim at characterizing the Classical Gold Standard period (CGS) in order to verify if it is endowed with statistical regularity. We study the statistical properties of two-state annual transition matrices of countries switching from a sound state to a crisis state focusing on Reinhart and Rogoff 2009 dataset on external debt crises. The CGS period is governed by homogeneity both in time and across statistical units: the Homogeneous Markov Chain Model holds whereas the Mover Stayer Model does not. Our work is linked to the literature on the CGS and credibility (Bordo and Rockoff 1996). We follow a pure statistical approach to highlight two decisive channels of the credibility mechanism. The first is the stabilization of the probability of default of sound countries. The second is the fact that the CGS makes periphery/deficit countries homogeneous to the core with respect to the probability of default. Both channels are decisive because poor developing countries can borrow at favorable conditions and finance a level of investment greater than their capacity of saving.
    Keywords: Classical Gold Standard; Credibility; Time Homogeneous Markov Chain; Mover Stayer.
    JEL: E42 N10 C13
    Date: 2013
  31. By: Tsz-Nga Wong
    Abstract: Consider the monetary model of Lagos and Wright (JPE 2005) but with general preferences and general production. I show that preferences satisfying UXXUHH – (UXH)2 = 0 is a sufficient condition for the existence and uniqueness of monetary equilibrium with degenerate money distribution. I solve for the entire class of exact solutions to the above non-linear second order partial differential equation. This class of preferences includes ones with constant return to scale, for example, constant elasticity of substitution (CES), and ones used in many other macroeconomics literatures. I also analyze the welfare implication of monetary policy in this economy.
    Keywords: Economic models
    JEL: E40 D83
    Date: 2013
  32. By: Gogas, Periklis (Democritus University of Thrace, Department of International Economic Relations and Development); Papadimitriou, Theophilos (Democritus University of Thrace, Department of International Economic Relations and Development); Plakandaras, Vasilios (Democritus University of Thrace, Department of International Economic Relations and Development); Kostikidou, Despoina (Democritus University of Thrace, Department of International Economic Relations and Development)
    Abstract: A common topic of research amid the financial crisis is the ability of households to respond to the increased taxes and intense fiscal austerity. This ongoing dilemma about the right path to growth revived the interest about Ricardian Equivalence. The theorem states that with given government consumption, the consumption of households should be stable to compensate for future debt and taxes. In this way, the need for liquidity resulting from financial instability would be compensated by household savings. The paper attempts to investigate the long-run relationship between public debt and private consumption. The dataset under examination consists of fifteen OECD countries. Using a multivariate Johansen VECM approach with annual data for the period 1980 – 2010 we find evidence in support of the Ricardian equivalence proposition (the existence of a positive relationship between debt and consumption) for only four countries: Australia, Canada, Iceland and the U.S. For the rest of the countries the Ricardian equivalence is rejected.
    Keywords: Ricardian Equivalence; Consumption; Debt; VAR models; VEC models; Response function; Variance decomposition
    JEL: E21
    Date: 2013–03–19
  33. By: Gee Hee Hong; Nicholas Li
    Abstract: We examine the extent to which vertical and horizontal market structure can together explain incomplete retail pass-through. To answer this question, we use scanner data from a large U.S. retailer to estimate product level pass-through for three different vertical structures: national brands, private label goods not manufactured by the retailer and private label goods manufactured by the retailer. Our findings emphasize that accounting for the interaction of vertical and horizontal structure is important in understanding how market structure affects pass-through, as a reduction in double-marginalization can raise pass-through directly but can also reduce it indirectly by increasing market share.
    Keywords: Inflation and prices, Transmission of monetary policy
    JEL: E30 E31 L11 L16
    Date: 2013
  34. By: Rickman, Dan S.; Guettabi, Mouhcine
    Abstract: The influence of the housing market bubble on U.S. business cycle dynamics during the previous decade has been well-documented. Yet, little if anything is known about how nonmetropolitan areas fared during the period. This study examines the association of regional housing market bubbles with relative nonmetropolitan economic performance during the business cycle phases of the decade. To better infer causality the study makes extensive use of exogenous measures of asymmetric labor demand shocks. Among the primary findings, the study establishes the important role of natural amenity attractivness in regional housing market cycles and regional employment population growth dynamics.
    Keywords: Great Recession; Housing Market Bubble; Natural Amenities; Nonmetropolitan
    JEL: R11 R12 R21 R23 R31
    Date: 2013–03–03
  35. By: Cavalieri, Duccio
    Abstract: This is a short essay on the present state of a controversial problem: that of the relationship between the supply and the demand for money. Exogeneous or endogenous money supply? The different positions taken in the literature on the subject are examined and discussed. The author's confidence in their interdependence is then expressed and motivated.
    Keywords: Money, horizontalism, verticalism, structuralism
    JEL: E41 E51 E58
    Date: 2013–02
  36. By: Hielke Buddelmeyer (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne); Kyle Peyton (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)
    Abstract: In December 2008 and March-April 2009 the Australian Government used fiscal stimulus as a short-run economic stabilization tool for the first time since the 1990s. In May-June 2012, households received lump sum cheques as compensation for the introduction of the Carbon Tax scheduled for 1 July 2012. This paper examines the relationship between these financial windfalls and spending at electronic gaming machines (EGMs) using data from 62 local government areas in Victoria, Australia. The results show large increases in spending at EGMs during the periods when Australian households received economic stimulus cheques. Increased spending at EGMs in December 2008 amounted to 1% of the total stimulus for that period. We conclude that the 2008-2009 stimulus packages substantially increased gambling at EGMs in Victoria. We find no unexpected increase in spending at EGMs in the months when Carbon Tax compensation cheques were paid.
    Keywords: Gambling, stimulus, Australia, windfall income, electronic gaming
    JEL: E21 E62 H3 H5 L83
    Date: 2013–02
  37. By: Sofiane Aboura; Björn van Roye
    Abstract: In this paper, we develop a financial stress index for France that can be used as a real-time composite indicator for the state of financial stability in France. We take 17 financial variables from different market segments and extract a common stress component using a dynamic approximate factor model. We estimate the model with a combined maximum-likelihood and Expectation-Maximization algorithm allowing for mixed frequencies and an arbitrary pattern of missing data. Using a Markov-Switching Bayesian VAR model, we show that an episode of high financial stress is associated with significantly lower economic activity, whereas movements in the index in a low-stress regime do not incur significant changes in economic activity. Therefore, this index can be used in real time as an early warning signal of systemic risk in the French financial sector
    Keywords: Financial stress index, Financial Systems, Recessions, Slowdowns, Financial Crises
    JEL: E44 F3 G01 G20 G14
    Date: 2013–03
  38. By: Ryoji Hiraguchi (Faculty of Economics, Ritsumeikan University); Akihisa Shibata (Institute of Economic Research, Kyoto University)
    Abstract: We investigate an overlapping generations model (OLG) model in which agents who live for two periods receive idiosyncratic productivity shocks when they are old. We show that a combination of lump-sum and linear capital taxes can always Pareto-improve the allocation, that is, it can raise the equilibrium welfare of one generation without affecting that of the others. As D?vila et al. (Econometrica (2012)) show, a capital reduction in one period raises the welfare levels of agents who are old in that period, but lowers that of the young agents, because it reduces their wages. We show that the government can compensate for these wage losses by additionally taxing the old agents, such that their welfare gains remain positive.
    Keywords: idiosyncratic risk; capital tax, incomplete markets, overlapping generations
    JEL: E5
    Date: 2013–03
  39. By: Liping Gao; Hyeongwoo Kim; Richard Saba
    Abstract: Edelstein and Kilian (2009) point out that the oil price shock involves a reduction in consumer spending, which results in a decrease in the demand for goods and services. This paper empirically evaluates this argument by empirically investigating effects of the oil price shock on six CPI sub-indices in the US. We find substantial decreases in the relative price in less energy-intensive sectors, but not in energy-intensive sectors. Our findings are consistent with those of Edelstein and Kilian (2009) in the sense that spending adjustments play an important role in price dynamics.
    Keywords: Oil Price Shocks; Pass-Through Effect; Consumer Price Sub-Index; Consumption Expenditures; Income Effect
    JEL: E21 E31 Q43
    Date: 2013–03
  40. By: Kirstin Hubrich (European Central Bank); Antonello D’Agostino (European Stability Mechanism); Marianna Cervená (Magyar Nemzeti Bank); Matteo Ciccarelli (European Central Bank); Paolo Guarda (Banque centrale du Luxembourg); Markus Haavio (Suomen Pankki); Philippe Jeanfils (National Bank of Belgium); Caterina Mendicino (Banco de Portugal); Eva Ortega (Banco de España); Maria Teresa Valderrama (Oesterreichische Nationalbank); Marianna Valentinyiné Endrész (Magyar Nemzeti Bank)
    Abstract: This paper analyses the transmission of financial shocks to the macroeconomy. The role of macro-financial linkages is investigated from an empirical perspective for the euro area as a whole, for individual euro area member countries and for other EU and OECD countries. The following key economic questions are addressed: 1) Which financial shocks have the largest impact on output over the full sample on average? 2) Are financial developments leading real activity? 3) Is there heterogeneity or a common pattern in macro-financial linkages across the euro area and do these linkages vary over time? 4) Do cross-country spillovers matter? 5) Is the transmission of financial shocks different during episodes of high stress than it is in normal times, i.e. is there evidence of non-linearities? In summary, it is found that real asset prices are significant leading indicators of real activity whereas the latter leads loan developments. Furthermore, evidence is presented that macro-financial linkages are heterogeneous across countries – despite persistent commonalities – and time-varying. Moreover, they differ between euro area and other countries. Results also indicate that cross-country spillovers matter. Finally, important non-linearities in the transmission of financial shocks are documented, as the evidence suggests that the transmission differs in episodes of high stress compared with normal times. JEL Classification: E 440, E320, C320
    Keywords: macro-financial linkages, financial shocks, lead-lag relationships, heterogeneity, cross-country spillovers, non-linearities
    Date: 2013–02
  41. By: Charles F Mason
    Abstract: An addressing climate change becomes a high priority it seems likely that there will be a surge in interest in deploying nuclear power. Other fuel bases are too dirty (coal), too expensive (oil, natural gas) or too speculative (solar, wind) to completely supply the energy needs of the global economy. To the extent that the global society does in fact choose to expand nuclear power there will be a need for additional production. That increase in demand for nuclear power will inevitably lead to an increase in demand for uranium. While some of the increased demand for uranium will be satisfied by expanding production from existing deposits, there will undoubtedly be pressure to find and develop new deposits, perhaps quite rapidly. Looking forward, it is important that policies be put in place that encourage an optimal allocation of future resourcs towards exploration. In particular, I argue there is a valid concern that privately optial levels of industrial activity wilol fail to fully capture all potential social gains; these sub-optimal exploration levels are linked to a departure between the private and social values of exploration information.
    Keywords: Uranium and nuclear power, climate change, uranium, public policy
    JEL: E21 E62 F43 H63 O11 Q33
    Date: 2013
  42. By: Marco Cipriani; Antoine Martin; Bruno M. Parigi
    Abstract: In recent years, U.S. banks have increasingly relied on deposits from financial intermediaries, especially money market funds (MMFs), which collect funds from large institutional investors and lend them to banks. In this paper, we show that intermediation through MMFs allows investors to limit their exposure to a given bank (i.e., reap gains from diversification). However, since MMFs are themselves subject to runs from their own investors, a banking system intermediated through MMFs is more unstable than one in which investors interact directly with banks. A mechanism through which instability can arise in an MMF-intermediated financial system is the release of private information on bank assets, which is aggregated by MMFs and could lead them to withdraw en masse from a bank. In addition, we show that MMF intermediation can also be a channel of contagion among banking institutions.
    Keywords: Intermediation (Finance) ; Money market funds ; Bank investments ; Financial crises
    Date: 2013
  43. By: Kris James Mitchener; Gary Richardson
    Abstract: This essay examines how the Banking Acts of the 1933 and 1935 and related New Deal legislation influenced risk taking in the financial sector of the U.S. economy. The analysis focuses on contingent liability of bank owners for losses incurred by their firms and how the elimination of this liability influenced leverage and lending by commercial banks. Using a new panel data set, we find contingent liability reduced risk taking. In states with contingent liability, banks used less leverage and converted each dollar of capital into fewer loans, and thus could survive larger loan losses (as a fraction of their portfolio) than banks in limited liability states. In states with limited liability, banks took on more leverage and risk, particularly in states that required banks with limited liability to join the Federal Deposit Insurance Corporation. In the long run, the New Deal replaced a regime of contingent liability with deposit insurance, stricter balance sheet regulation, and increased capital requirements, shifting the onus of risk management from bankers to state and federal regulators.
    JEL: E44 G28 G33 N22
    Date: 2013–03
  44. By: Katsuyoshi Nakazawa (University of Toyo)
    Abstract: This paper focuses on the increase in slack costs due to municipality amalgamation, which is pushed forward in several countries to achieve economies of scale. Employing the stochastic frontier cost function to estimate the inefficiency of local public expenditure due to slack, this study investigated 479 Japanese municipalities that had amalgamated from 2000 to 2005. This work used the technical inefficiency variable “Number of municipalities that participated in an amalgamation” and a dummy variable for “The newly-established-municipality form of amalgamation.” Results show that these variables have an impact on the cost inefficiency of local public expenditure. Average efficiency scores in the two estimations carried out were 1.145 and 1.100. The estimation results showed that municipality amalgamation produces integration costs (slack) in an administrative organization. The degree of slack depends on the form of amalgamation.
    Keywords: Municipality amalgamation; Cost inefficiency; Slack cost; Stacastic frontier analysis; Japan
    JEL: E62 H20 K34 N00
    Date: 2013
  45. By: Wai-Yip Alex Ho; James Yetman
    Abstract: A "stalling" economy has been defined as one that experiences a discrete deterioration in economic performance following a decline in its growth rate to below some threshold level. Previous efforts to identify stalls have focused primarily on the US economy, with the threshold level being chosen endogenously, and have suggested that the concept of a stall may be useful for macroeconomic forecasting. We examine the international evidence for stalling in a panel of 51 economies using two different definitions of a stall threshold (time-invariant and related to lagged average growth rates) and two complementary empirical approaches (insample statistical significance and out-of-sample forecast performance). We find that the evidence for stalling based on time-invariant thresholds is limited: only 12 of the 51 economies in our sample experience statistically significant stalls, and including a stall threshold generally results in only modest improvements to out-ofsample forecast performance. When we instead model the stall threshold as varying with average growth rates, the number of economies with statistically-significant stalls actually declines (to nine), but in 71% of the cases we examine, including a stall threshold results in an improvement in out-of-sample forecast performance.
    Keywords: business cycles, stall speed, Markov switching
    Date: 2013–03
  46. By: Steven Lugauer (University of Notre Dame); Nelson C. Mark (University of Notre Dame and National Bureau of Economic Research and Hong Kong Institute for Monetary Research)
    Abstract: The saving rate in China is high by historical and international norms. The high saving rate has funded capital accumulation which in turn has been the primary driver of China's economic growth. We review the evidence on Chinese household saving and conduct a small study to assess the importance of the precautionary motive for saving.
    Keywords: Household Saving, Precautionary Motive, China
    JEL: E21 F42
    Date: 2013–04
  47. By: Juravle, Daniel
    Abstract: Migration is an important component of contemporary society. Leaving the homeland for a better life and a well paid job is currently the most dynamic form of working population movement. For the host countries migration provides experienced cheap workforce capable of high performance. But the current economic crisis drastically reduced immigrant inflows thanks to high unemployment rates and less available work permits for migrant destination countries. Despite expectations, the return migration stayed at low levels because usually the origin country economic downturn was even worse; and the fall in remittances was also smaller than the statistics said. For Romania, emigrants represent a considerable loss because they are still reflecting the reduced capacity of the Romanian economy to generate jobs and appropriate remuneration. During the crisis, the migration outflows still continuated to grow although the remittances significally reduced, showing that they no longer go so well. Beneficiary are also the mother countries which through the money send by the citizens that work in another country they cover most of the times, a significant part of GDP. All the aspects mentioned above including the level of remittances and the effects of the migration will be analyzed in this paper.
    Keywords: labor market, emigration, remittances, emigrants, economic growth.
    JEL: E24 F22 R11 R51
    Date: 2013–03–12
  48. By: Hanif, Nadim; Iqbal, Javed; Malik, Jehanzeb
    Abstract: Arby (2008) quarterised the production side of annual GDP, and its subsectors, for 1972 to 2005 based on constant prices of 1999-2000 as well as on current prices. This study provides quarterly estimates of (sectoral and overall) gross domestic production in Pakistan during 1999-2000 to 2009-2010 based on constant prices of 1999-2000 as well as on current prices. Seasonality in quarterly gross domestic product in Pakistan mainly arises from agriculture. Furthermore, the study also provides estimates of various components of expenditures side of the GDP for 1972-1973 to 2009-2010 for the first time as far as we know.
    Keywords: Quarterisation, National Income Accounts
    JEL: E01 Y10
    Date: 2013–03–21
  49. By: Nestor Gandelman; Alejandro Rasteletti
    Abstract: This paper explores whether the extent of informality in a sector affects a firm's investment decision directly or indirectly through a credit availability channel. The dataset used in the estimation of the econometric models consists of an unbalanced panel of Uruguayan firms for the period 1997-2008. The results suggest that financial restrictions affect investment decisions in Uruguay, as an increase in credit to the private sector translates into higher investment rates. A one percentage point increase in overall credit growth translates into a one half percent increase in investment rates. It is also found that, although there is no direct effect of informality on the firm investment decision, there is an indirect effect through the borrowing channel. More specifically, financial restrictions reduce the amount of investment undertaken by Uruguayan firms, the effect being smaller if the firm operates in a sector with lower informality.
    JEL: E26 G21 O16 O4
    Date: 2013–03
  50. By: Torfinn Harding; Anthony J Venables
    Abstract: Foreign exchange windfalls such as those from natural resource revenues change non-resource exports, imports, and the capital account. We study the balance between these responses and, using data on 41 resource exporters for 1970-2006, show that the response to a dollar of resource revenue is, approximately, to decrease non-resource exports by 75 cents and increase imports by 25 cents, implying a negligible effect on foreign saving. The negative per dollar impact on exports is larger for countries which have good institutions and higher income levels. These countries have a higher share of manufacturing in their non-resource exports, and we show that manufactures are more susceptible than other products to being crowded out by resource exports.
    Keywords: natural resources, Dutch disease, resource curse, trade, exports, imports
    JEL: E21 E62 F43 H63 O11 Q33
    Date: 2013
  51. By: Viral V. Acharya; Heitor Almeida; Filippo Ippolito; Ander Perez
    Abstract: We propose and test a theory of corporate liquidity management in which credit lines provided by banks to firms are a form of monitored liquidity insurance. Bank monitoring and resulting credit line revocations help control illiquidity-seeking behavior by firms. Firms with high liquidity risk are likely to use cash rather than credit lines for liquidity management because the cost of monitored liquidity insurance increases with liquidity risk. We exploit a quasi-experiment around the downgrade of General Motors (GM) and Ford in 2005 and find that firms that experienced an exogenous increase in liquidity risk (specifically, firms that relied on bonds for financing in the pre-downgrade period) moved out of credit lines and into cash holdings in the aftermath of the downgrade. We observe a similar effect for firms whose ability to raise equity financing is compromised by pricing pressure caused by mutual fund redemptions. Finally, we find support for the model’s other novel empirical implication that firms with low hedging needs (high correlation between cash flows and investment opportunities) are more likely to use credit lines relative to cash, and are also less likely to face covenants and revocations when using credit lines.
    JEL: E22 E5 G21 G31 G32
    Date: 2013–03

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