nep-mac New Economics Papers
on Macroeconomics
Issue of 2013‒03‒30
28 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Expected Regime Change: Transition Toward Nominal Exchange Rate Stability By Frantisek Brazdik
  2. Bounded Interest Rate Feedback Rules in Continuous-Time By d'Albis, Hippolyte; Augeraud-Véron, Emmanuelle; Hupkes, Hermen Jan
  3. Deep or aggregate habit formation? Evidence from a new-Keynesian business cycle model By Givens, Gregory
  4. Determinants of the rate of the Dutch unsecured overnight money market By Ronald Heijmans; Lola Hernández; Richard Heuver
  5. Central Bank Transparency and Financial Stability: Measurement, Determinants and Effects By Roman Horváth; Dan Vaško
  6. Seigniorage Revenue and Inflation Tax in Turkish economy By doğru, bülent
  7. Interest Rate Pass-Through and Monetary Policy Asymmetry: A Journey into the Caucasian Black Box By Rustam Jamilov; Balázs Égert
  8. Portfolio balance effects of the SNB's bond purchase program By Andreas Kettemann; Signe Krogstrup
  9. The cyclicality of the separation and job finding rates in France By Jean-Olivier Hairault; Thomas Le Barbanchon; Thepthida Sopraseuth
  10. More Facts about Prices: France Before and During the Great Recession. By Berardi, N.; Gautier, E.; Le Bihan, H.
  11. Diving through the end of the business cycle. How to cope with exponential debt growth in linear revenue regimes By Karl Svozil
  12. Rules of Thumb for Banking Crises in Emerging Markets By P. Manasse; R. Savona; M. Vezzoli
  13. Abenomics and Asset Prices: Is It Case of Self-Fulfilling Expectations? By Kazuo Ueda
  14. The short-run nationwide Macroeconomic effects of the Canterbury earthquakes By Doyle, Lisa; Noy, Ilan
  15. Extending Financialisation and Increasing Fragility of the Financial System By IANCU, Aurel
  16. Financial stress, regime switching and macrodynamics: Theory and empirics for the US, EU and non-EU countries By Chen, Pu; Semmler, Willi
  17. Extinderea financiarizarii si accentuarea fragilitatii sistemului financiar By IANCU, Aurel
  18. Monetary systems, sustainable growth and inclusive economic development By Omerčević, Edo
  19. Determinanti ai instabilitatii economice din Europa de Est, în perioada crizei financiare globale By OLTEANU, Dan Constantin
  20. A Theory of Competitive Saving Motive By Qingyuan Du; Shang-Jin Wei
  21. Quantifying Productivity Gains from Foreign Investment By Christian Fons-Rosen; Sebnem Kalemli-Ozcan; Bent E. Sørensen; Carolina Villegas-Sanchez; Vadym Volosovych
  22. Prediction Bias Correction for Dynamic Term Structure Models By Eran Raviv
  23. Why Italy's saving rate became (so) low? By Luigi Pierfranco Campiglio
  24. The macroeconomics of immigration By Kiguchi, Takehiro; Mountford, Andrew
  25. Price Indexes for Clinical Trial Research: A Feasibility Study By Ernst R. Berndt; Iain M. Cockburn
  26. The Dynamic Effect of Oil Rent on Industrial Value Added: a SVAR Approach By Fakhri Issaoui; Talel Boufateh; Ghassen El Montasser
  27. Spatial Price Differences and Inequality in China: Housing Market Evidence By Chao Li; John Gibson
  28. Advertising Expensive Mortgages By Umit G. Gurun; Gregor Matvos; Amit Seru

  1. By: Frantisek Brazdik
    Abstract: This work presents an extension of a small open economy DSGE model allowing the transition toward a monetary policy regime aimed at exchange rate stability to be described. The model is estimated using the Bayesian technique to fit the properties of the Czech economy. In the scenarios assessed, the monetary authority announces and changes its policy so that it is focused solely on stabilizing the nominal exchange rate after a specific transition period is over. Four representative forms of monetary policy are followed to evaluate their properties over the announced transition period. Welfare loss functions assessing macroeconomic stability are defined, allowing the implications of the transition period regime choice for macroeconomic stability to be assessed. As these experiments show, exchange rate stabilization over the transition period does not deliver the lowest welfare loss. Under the assumptions taken, the strict inflation-targeting regime is identified as the best-performing regime for short transition periods. However, it can be concluded that for longer transition periods the monetary policy regime should respond to changes in the exchange rate.
    Keywords: monetary policy change, new Keynesian models, small open economy.
    JEL: E17 E31 E52 E58 E61 F02 F41
    Date: 2013–03
  2. By: d'Albis, Hippolyte; Augeraud-Véron, Emmanuelle; Hupkes, Hermen Jan
    Abstract: This paper analyses the dynamic consequences of interest rate feedback rules in a flexible-price model where money enters the utility function. Two alternative rules are considered based on past or predicted inflation rates. The main feature is to consider inflation rates that are selected over a bounded time horizon. We prove that if the Central Bank’s forecast horizon is not too long, an active and forward-looking monetary policy is not destabilizing: the equilibrium trajectory is unique and monotonic. This is an advantage with respect to active and backward-looking policies that are shown to lead to a unique but fluctuating dynamic.
    Keywords: Interest Rate Rules, Indeterminacy, Functionnal Equations
    JEL: E31 E43 E52
    Date: 2013–03–07
  3. By: Givens, Gregory
    Abstract: Habit formation is a fixture of contemporary new-Keynesian models. The vast majority assume that agents form habits strictly over consumption of an aggregate good, leaving open the question of whether it might be preferable to have them form habits over differentiated products instead–an arrangement known as deep habits. I answer this question by estimating a model that nests both habit concepts as special cases. Estimates reveal that the data favor a specification in which consumption habits are stronger at the product level than at the aggregate level. A mix of significance tests and simulation results indicate that including deep habits greatly improves model fit, most notably with regard to inflation dynamics.
    Keywords: Deep Habits, Nominal Rigidities, Inflation Persistence
    JEL: E31 E32
    Date: 2013–02–25
  4. By: Ronald Heijmans; Lola Hernández; Richard Heuver
    Abstract: This paper investigates how changes in the monetary policy framework have affected the overnight money market lending rate for the Dutch segment of the euro area during tranquil and crisis times. We present an EGARCH model on the volatility of the overnight lending rate. The results show that modifications of the monetary policy framework in 2004 decreased the volatility of the rate. Since the turmoil of the crisis started the volatility increased again. Our method makes it possible for central banks to monitor the volatility of the rate and the impact of changes in the policy for the whole euro area.
    Keywords: financial stability; unsecured interbank money market; EONIA; monetary policy
    JEL: E42 E43 E44 E52 G20
    Date: 2013–03
  5. By: Roman Horváth; Dan Vaško
    Abstract: We develop a comprehensive index of the transparency of central banks regarding their policy framework to promote financial stability for 110 countries from 2000 to 2011 and examine the determinants and effects of this transparency. We find that the degree of transparency increased in the 2000s, though it still varied greatly across the countries in our study. Our regression results suggest that more developed countries exhibit greater transparency, that episodes of high financial stress have a negative effect on transparency and that the legal origin matters, too. Importantly, we find that transparency regarding the level of financial stability is strongly affected by monetary policy transparency. The central banks that have a transparent monetary policy are more likely to show increased transparency in their framework for financial stability. Our results also suggest a non-linear effect of central bank financial stability transparency on financial stress. Unless the financial sector experiences severe distress, greater transparency is beneficial for financial stability.
    Keywords: financial stability, transparency, central banks
    JEL: E52 E58
    Date: 2013–03
  6. By: doğru, bülent
    Abstract: The goal of this study is to test the implication of optimal seigniorage theory that in the long run higher tax rates are associated with higher inflation rates and higher nominal interest rates. For this purpose, we examine the long run relationship between nominal interest rates, inflation and tax revenue using time series dataset for Turkish Economy for the period 1980-2011. We estimate the Mankiw’s (1987) optimal seigniorage model for Turkish Economy with the cointegration and vector error correction methods (VECM). According to econometric result, in long run there is a causality relationship from inflation and tax revenue to nominal interest rates. However, in short run we could not find any evidence that support a causality from inflation and tax revenue to nominal interest rates.
    Keywords: Seigniorage, Inflation Tax, Turkish Economy, Error Correction Model, Cointegration Analysis.
    JEL: E40 E60 E62
    Date: 2013–03–03
  7. By: Rustam Jamilov; Balázs Égert
    Abstract: This paper analyses the interest rate pass-through for five economies of the Caucasus – Armenia, Azerbaijan, Georgia, Kazakhstan, and Russia. Employing an autoregressive distributed lag (ARDL) specification to monthly data, we find that the interest rate pass-through is systematically incomplete and sluggish, probably due to macroeconomic instability and low banking sector competition. It is not clear whether pass-through has improved over time and asymmetric adjustment is found to characterize the pass-through only occasionally. Overall, our results show a considerable degree of cross-country heterogeneity in the size and speed of the pass-through.
    Keywords: Interest Rate Pass-Through; Asymmetric Adjustment; Caucasus
    JEL: E43 E52 N25
    Date: 2013
  8. By: Andreas Kettemann; Signe Krogstrup
    Abstract: This paper carries out an empirical investigation of the impact on bond spreads of the announcement, purchases and exit from the SNB’s bond purchase program in 2009-2010. We find evidence in favor of a narrowing yield spread of covered bonds as a result of the program. The effect materialized in the days following the announcement of the SNB’s intention to buy bonds issued by private sector borrowers, as markets learned that the SNB was buying covered bonds. The specification of the bond spreads used allows us to identify this effect as a discounted portfolio balance effect of the expected purchases, as distinct from policy signalling. In contrast, we find no evidence of a further effect of the actual purchases and subsequent sales on bond spreads.
    Keywords: Portfolio balance, credit spread, corporate spread, unconventional monetary policy, central bank asset purchases, credit easing, zero lower bound
    JEL: E5 G1
    Date: 2013–03
  9. By: Jean-Olivier Hairault; Thomas Le Barbanchon; Thepthida Sopraseuth (PSE, University of Paris I; Crest; THEMA, Universite de Cergy-Pontoise)
    Abstract: In this paper, we aim to shed light on the relative contribution of the separation and job finding rates to French unemployment at business cycle frequencies by using administrative data on registered unemployment and labor force surveys. We first investigate the fluctuations in steady state unemployment, and then in current unemployment in order to take into account the unemployment deviations from equilibrium. Our results show the dominant role of the job finding rate in accounting for French unemployment fluctuations. The contribution of the job finding rate amounts to about two-thirds of the unemployment dynamics. With the two data sets, we find that both rates contributed to unemployment fluctuations during the nineties, while the job finding rate has been more significant in the last decade. In particular, the last business cycle episodes, including the last recession, exacerbate the role of the job finding rate.
    Keywords: unemployment variability, job separation; job finding, worker flows
    JEL: E24 J6
    Date: 2013
  10. By: Berardi, N.; Gautier, E.; Le Bihan, H.
    Abstract: Using micro price data covering the Great Recession period, we document new facts on price rigidity in France: (i) each month, 17% of prices are changed versus 23% in the United States. When sales are excluded, only 14% of prices are modified in France versus 15% in the United States; (ii) the distribution of price changes is dispersed with a lot of large and very small price changes; (iii) price increases are more frequent in January and September, even after controlling for sales; (iv) price changes related to sales and product replacements are less driven by inflation variations than regular price changes; (v) the monthly inflation rate is correlated to the frequencies of price decreases and increases. The volatility in the sizes of price increases and decreases is mainly due to sales and promotions; (vi) during the Great Recession, the patterns of price adjustment were only slightly modified: the frequency, average size and dispersion of price decreases increased a little.
    Keywords: price stickiness, inflation, consumer prices, sales, product substitution.
    JEL: E31 D40 L11
    Date: 2013
  11. By: Karl Svozil
    Abstract: Compound interest as well as inflation grows exponentially with time, whereas other means to repay debt grow polynomially. For this and other, mostly political, reasons, debt without inflation is unsustainable. We suggest a discontinuous way to eliminate debt by nullifying it.
    Date: 2013–03
  12. By: P. Manasse; R. Savona; M. Vezzoli
    Abstract: This paper employs a recent statistical algorithm (CRAGGING) in order to build an early warning model for banking crises in emerging markets. We perturb our data set many times and create “artificial” samples from which we estimated our model, so that, by construction, it is flexible enough to be applied to new data for out-of-sample prediction. We find that, out of a large number (540) of candidate explanatory variables, from macroeconomic to balance sheet indicators of the countries’ financial sector, we can accurately predict banking crises by just a handful of variables. Using data over the period from 1980 to 2010, the model identifies two basic types of banking crises in emerging markets: a “Latin American type”, resulting from the combination of a (past) credit boom, a flight from domestic assets, and high levels of interest rates on deposits; and an “Asian type”, which is characterized by an investment boom financed by banks’ foreign debt. We compare our model to other models obtained using more traditional techniques, a Stepwise Logit, a Classification Tree, and an “Average” model, and we find that our model strongly dominates the others in terms of out-of-sample predictive power.
    JEL: E44 G01 G21
    Date: 2013–03
  13. By: Kazuo Ueda (The University of Tokyo)
    Abstract: Asset prices have responded in a surprising way to the announcement of a policy package in late 2012 by Shinzo Abe, then the President of the LDP.The package (henceforth, Abenomics) has placed a central focus on aggressive monetary easing. The yen has weakened by about 20% against the dollar since then. Japan’s stock market has gone up by about 30%. I offer a tentative evaluation of Abenomics in the light of the experience with non-conventional monetary policy (NCM) by major central banks including the Bank of Japan (BOJ).
    Date: 2013–03
  14. By: Doyle, Lisa; Noy, Ilan
    Abstract: We examine the short-run impact of the Canterbury earthquakes (4/9/2010, and 22/2/2011) on the New Zealand economy using VAR macro-models. Maybe surprisingly, we find little evidence of a pronounced impact on the aggregate economy. Our results suggest that the earthquakes reduced CPI inflation moderately, and the first earthquake had a small but short-lived, adverse effect on real gross domestic product (GDP) growth. At the very worse, it appears that policies (by the government and the Reserve Bank) have been successful in mitigating any serious adverse impact. The more significant impact of the earthquakes is to be found at the regional level.
    Keywords: Canterbury earthquakes, short-run, natural disasters, macroeconomic variables,
    Date: 2013
  15. By: IANCU, Aurel (National Institute of Economic Research, Romanian Academy)
    Abstract: Financialisation is a complex and dynamic process of enlarging the monetary and financial relations in economy and society. This paper deals with the analysis of the financial market structure such as: the role and magnitude of financial sectors, the dynamics of the banking sector versus the stock market and the rising role of the shadow banking sector. Also it explains and analyses the ways and modalities to develop financialisation by growing the public and private indebtedness, extension of the securitisation process and using the financial derivatives on a large scale. Considered endogenous factors, they all increase the fragility of the financial system.
    Keywords: financialisation, financial sector, stock market, shadow banking, indebtedness, financial innovation, securitisation, financial derivatives
    JEL: E44 G01 G18 G23 G24 G28 G32
    Date: 2013–03
  16. By: Chen, Pu; Semmler, Willi
    Abstract: Over-borrowing and financial stress has recently become an important issue in macroeconomic and policy discussions in the US as well as in the EU. In this paper we study two regimes of financial stress. In a regime of high financial stress, stress shocks can have large and persistent impacts on the real side of the economy whereas in regimes of low stress, shocks can easily dissipate having no lasting effects. In order to study the macroeconomic dynamics, with alternative paths resulting from financial stress shocks, we introduce a macromodel with a finance-macro link which uses multi-period decisions framework of economic agents. The agents can, in a finite horizon context, borrow and accumulate assets where however the above two scenarios may occur. The model is solved through nonlinear model predictive control (NMPC). Empirically then we use a Multi-Regime VAR (MRVAR) to study the impact of financial stress shocks on the macroeconomy in a large number of countries. --
    Keywords: financial stress,macro dynamics,MRVAR
    JEL: E3 G21
    Date: 2013
  17. By: IANCU, Aurel (National Institute of Economic Research, Romanian Academy)
    Abstract: Financialisation is a complex and dynamic process of enlarging the monetary and financial relations in economy and society. This paper deals with the analysis of the financial market structure such as: the role and magnitude of financial sectors, the dynamics of the banking sector versus the stock market and the rising role of the shadow banking sector. Also it explains and analyses the ways and modalities to develop financialisation by growing the public and private indebtedness, extension securitisation process and using the financial derivatives on a large scale. Considered endogenous factors, they all increase the fragility of the financial system.
    Keywords: financialisation, financial sector, stock market, shadow banking, indebtedness, financial innovation, securitisation, financial derivatives
    JEL: E44 G01 G18 G23 G24 G28 G32
    Date: 2013–01
  18. By: Omerčević, Edo
    Abstract: The main objective of this study is to review the literature on monetary issues and discuss how money and monetary systems contribute to the achievement of sustainable growth and inclusive economic development. The paper is based on an extensive review of literature that deals with monetary issues with the objective of building a case that the achievement of sustainable growth and inclusive economic development requires the right monetary system to be put in place which supports those objectives. The review of literature and theoretical reasoning assert that in order to achieve the stated economic objectives there is a need to develop and implement a different concept of money than the existing one. This study shows that the current monetary system does not provide a platform to achieve the desired economic objectives, irrespective of whether conventional or Islamic banking is the major banking and financial services provider. Theoretical models are outlined which can provide the foundation for healthy economic environment for sustainable growth and development. This including the discussion on a return to metallic moneys in form of the Islamic Gold Dinar system, a fiat monetary system based on the concept of Free-Money and a monetary model which is built on a commodity-based information system that can be easily implemented using today’s existing information and communication technology.
    Keywords: Economic growth, economic development, monetary systems
    JEL: E40 E42
    Date: 2013–01–29
  19. By: OLTEANU, Dan Constantin (National Institute of Economic Research, Romanian Academy)
    Abstract: This study aims at identifying and quantifying the influence of the endogenous and exogenous factors which affected the macroeconomic stability of the Emerging European (EE) Countries, under the conditions of the global financial crisis. The specific objectives to which the research included in this work focused are the following: (i) research on formation mechanisms of the main structural imbalances preceding the economic crisis from the EE countries, with focus on the role of inflows of foreign capital and over-lending, next to the analysis of their role in amplifying the effects of the global crisis; (ii) empirical studying of the short- and medium-term impact of the foreign capital reduction over the domestic absorption and the pace of gross domestic product in the EE countries, and also the factors that influence this correlation; (iii) a quantitative analysis of the extent to which the effects of the recession in the exporting and importing countries affected the dynamics of the export volume of the European countries; (iv) the construction of a monetary condition index for Romania and studying the way its evolved during the crisis, in order to establish the extent in which the decline of the domestic product from the previous trend was correlated with the evolution of monetary conditions. The work identifies the particular external vulnerability of the EE countries as the main driver of instability during the recession period, next to the high previous lending growth. The current recession fully showed the negative side of the dependency on foreign capital and external demand for export, of the EE economies.
    Keywords: Emerging Europe, Over-lending, Capital Movements, International Trade, Economic Growth of Open Economies
    JEL: E51 F32 F14 F43
    Date: 2013–03
  20. By: Qingyuan Du; Shang-Jin Wei
    Abstract: Motivated by recent empirical work, this paper formalizes a theory of competitive savings - an arms race in household savings for mating competition that is made more fierce by an increase in the male-to-female ratio in the pre-marital cohort. Relative to the empirical work, the theory can clarify a number of important questions: What determines the strength of the savings response by males (or households with a son)? Can women (or households with a daughter) dis-save? What are the conditions under which aggregate savings would go up in response to a higher sex ratio? While the theory can be best tested using data from countries with a sex ratio imbalance, the competitive saving motive is likely to be present and important in all countries.
    JEL: E2 F3 O16
    Date: 2013–03
  21. By: Christian Fons-Rosen; Sebnem Kalemli-Ozcan; Bent E. Sørensen; Carolina Villegas-Sanchez; Vadym Volosovych
    Abstract: We quantify the causal effect of foreign investment on total factor productivity (TFP) using a new global firm-level database. Our identification strategy relies on exploiting the difference in the amount of foreign investment by financial and industrial investors and simultaneously controlling for unobservable firm and country-sector-year factors. Using our well identified firm level estimates for the direct effect of foreign ownership on acquired firms and for the spillover effects on domestic firms, we calculate the aggregate impact of foreign investment on country-level productivity growth and find it to be very small.
    JEL: E32 F13 F36 O16
    Date: 2013–03
  22. By: Eran Raviv (Erasmus University Rotterdam)
    Abstract: When the yield curve is modelled using an affine factor model, residuals may still contain relevant information and do not adhere to the familiar white noise assumption. This paper proposes a pragmatic way to improve out of sample performance for yield curve forecasting. The proposed adjustment is illustrated via a pseudo out-of-sample forecasting exercise implementing the widely used Dynamic Nelson Siegel model. Large improvement in forecasting performance is achieved throughout the curve for different forecasting horizons. Results are robust to different time periods, as well as to different model specifications.
    Keywords: Yield curve; Nelson Siegel; Time varying loadings; Factor models
    JEL: E43 E47 G17
    Date: 2013–03–07
  23. By: Luigi Pierfranco Campiglio (DISCE, Università Cattolica)
    Abstract: The aim of this paper is to explain why a low and declining saving rate should be a problem in a world of free capital flows and increasing wealth. In Italy consumer households’ saving have been the main driver of economic stability and growth, funding investments and public debt, and despite international turbulences Italy was acknowledged as a high saving country until the early 1990’s. Ever since, however, households saving rate plunged, in spite of an increasing financial wealth, and our aim is to explain why: we suggest two main causes. The first is related to the economic policies implemented to deal with four major economic events, prompted by economic misalignments: a) the 1992’s currency crisis, b) the run-up to the Euro, c) the 2006’ turning point, preceding the 2008’s crisis, and d) the 2009’s public debt crisis and the following policy of fiscal consolidation. These four events were dealt with economic policies which overlooked the huge income and saving shifts from households to government and private sectors: rising tax burden, especially indirect taxes, freezing of nominal public expenditures and falling real wages were the main policy instruments, while a decreasing households’ income and saving was a primary consequences. Households have been struggling to smooth their standard of life drawing on their saving and wealth, but the effort became all the more difficult as the saving rate was falling below a critical level, increasing the probability of negative saving and debt. Gross national saving turned less than aggregate investment, prompting an increasing borrowing from abroad and a corresponding negative current account. The second cause is structural and covers two crucial issues: the first is the deep economy impacts of a changing age structure, as a consequence of a sudden fertility drop. The second issue is related to the falling households size composition jointly with the rising share of quasi-fixed costs necessary for a decent life. We show how and why a well designed Welfare State could help to restore income stability and saving, tackling the widespread problem of changing age structure in most countries.
    Keywords: saving, personal income, distribution, welfare programs, crisis management, Italy
    JEL: E21 D31 E32 H12 H53 N14
    Date: 2013–02
  24. By: Kiguchi, Takehiro; Mountford, Andrew
    Abstract: Immigration has been a significant part of US population growth over recent decades, with the number of ``foreign born to non-US nationals" rising from approximately 10 million in 1970 to nearly 40 million or 12.9% of the US total population in 2010. In this paper, using a VAR with sign restriction identification, we find that unexpected increases in the working population lead to temporary reductions in GDP per capita and consumption per capita as would be predicted by the standard neoclassical growth model. However they do not lead to increases in non-residential investment or short run decreases in real wages as would also be predicted. The paper shows how a neoclassical growth model with a CES production function where migrant labor and capital are complements to skilled domestic labor and substitutes to each other can produce responses closer to those in the VAR. The paper thus provide support for the microeconometric studies on the impacts of immigration which found that immigrant labor is complementary to, rather than a substitute for, most native labor.
    Keywords: Macroeconomics, Immigration
    JEL: E0 E2 E26 F2
    Date: 2013–03
  25. By: Ernst R. Berndt; Iain M. Cockburn
    Abstract: We estimate hedonic price indexes for clinical trial research, an important component of biomedical R&D, using a large sample of agreements between trial sponsors and clinical investigators obtained from MediData Solutions Worldwide Inc. Nominal prices measured as total grant cost per patient rose by a factor of 4.5 between 1989 and 2011, while the NIH Biomedical R&D Price Index (BRDPI) focused on input costs rose only 2.2-fold. Most of the disparity appears to be attributable to changes in the nature and organization of clinical trials: during this period the average number of patients per site fell substantially while “site work effort” more than doubled. After controlling for these changes in the characteristics of investigator agreements using a variety of methods based on hedonic regressions, we find that the estimated rate of inflation in clinical trials costs tracks the BDRPI very closely. Results from this study suggest that it should be feasible for statistical agencies to develop a producer price index for this type of R&D activity, contributing to broader efforts to develop a deflator for contracted R&D services.
    JEL: E31 L65 O49
    Date: 2013–03
  26. By: Fakhri Issaoui; Talel Boufateh; Ghassen El Montasser
    Abstract: This paper studies the dynamic effect of oil rents on industrial added value in a sample of countries with different levels of development. Using a SVAR model, we tested the effect of a real shock and a nominal shock on the variables of the model. The main obtained results are three. First, we confirmed that the Dutch disease (DD) problem is a short-term phenomenon that takes place each time there is a shock on oil rents. Second, the ephemeral nature of the phenomenon confirms the neoclassical assumption stating that the effect of nominal shocks on real variables is only short term. Third, the effect of long-term real shock on oil rents is positive for all countries which score interdependence between industry on the one hand and oil rents on the other.
    Keywords: Dutch disease, Oil rents, Industrial added value, SVAR, Tunisia.
    JEL: E37 Q32 Q34 Q38 Q43
    Date: 2013–03–04
  27. By: Chao Li (University of Waikato); John Gibson (University of Waikato)
    Abstract: The large literature on regional inequality in China is hampered by incomplete evidence on price dispersion across space, making it hard to distinguish real and nominal inequality. The two main methods used to calculate spatial deflators have been to price a national basket of goods and services across China’s different regions or else to estimate a food Engel curve and define the deflator as that needed for nominally similar households to have the same food budget shares in all regions. Neither approach is convincing with the data available in China. Moreover, a focus on tradable goods like food may be misplaced because of the emerging literature on the rapid convergence of traded goods prices within China that contrasts with earlier claims of fragmented internal markets. In a setting where traded goods prices converge rapidly, the main source of price dispersion across space should come from non-traded items, and especially from housing given the fixity of land. In this paper we use newly available data on dwelling sales in urban China to develop spatially-disaggregated indices of house prices, which are then used as spatial deflators for both provinces and core urban districts. These new deflators complement existing approaches that have relied more on traded goods prices, and are used to re-examine the evidence on the level of regional inequality. Around one-quarter of the apparent spatial inequality disappears once account is taken of cost-of-living differences.
    Keywords: housing; inequality; prices; spatial; China
    JEL: E31 O15 R31
    Date: 2013–03–15
  28. By: Umit G. Gurun; Gregor Matvos; Amit Seru
    Abstract: We use a unique dataset that combines information on advertising by subprime lenders and mortgages originated by them from 2002 to 2007 to study the relationship between advertising and the nature of mortgages obtained by consumers. We exploit the richness of our data and measure the relative expensiveness of a given mortgage as the excess rate of a mortgage after accounting for a broad set of borrower, contract, and regional characteristics associated with a given mortgage--less expensive mortgages, all else equal, are better products from the perspective of the consumer. We find a strong positive relationship between the intensity of local advertising and the expensiveness of mortgages extended by lenders within a given region, with the relationship strongest for advertising through newspapers, the most heavily used channel for local advertising of mortgages. This pattern survives even after conditioning for a rich set of borrower, loan and region characteristics and exploiting differences in advertising within a given lender. Advertisers lend to consumers who, all else equal, default less, making it unlikely that our results are driven by unobservable borrower quality. We also exploit variation in mortgage advertising induced by the entry of Craigslist across different regions to demonstrate that the relation between advertising and expensiveness of mortgages is not likely to be spurious. We corroborate that advertising is most effective when targeted at groups that might be less informed about mortgages, such as the poor, the less educated and minorities. These findings are inconsistent with the “informative view” under which advertising allows consumers to find cheaper products, and instead support the “persuasive view” that advertising in the subprime mortgage market was used to steer consumers into expensive choices.
    JEL: E65 G18 G21 L85
    Date: 2013–03

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