|
on Macroeconomics |
|
Issue of 2013‒05‒24
28 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Kienzler, Daniel; Schmid, Kai Daniel |
| Abstract: | We show that actively stabilizing economic activity plays a more prominent role in the conduct of monetary policy when potential output is subject to hysteresis. We augment a basic New Keynesian model by hysteresis in potential output and contrast simulation outcomes of this extended model to the standard model. We find that considering hysteresis allows for a more realistic propagation of macroeconomic shocks and persistent movements in output after monetary shocks. Our central policy implication of active output gap stabilization arises from stability analyses and welfare considerations. -- |
| Keywords: | Monetary Policy,Hysteresis,Potential Output,Output Gap Mismeasurement |
| JEL: | E32 E50 E52 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuewef:55&r=mac |
| By: | Silvana Tenreyro; Gregory Thwaites |
| Abstract: | We estimate the impulse response of key US macro series to the monetary policy shocks identified by Romer and Romer (2004), allowing the response to depend flexibly on the state of the business cycle. We find strong evidence that the effects of monetary policy on real and nominal variables are more powerful in expansions than in recessions. The magnitude of the difference is particularly large in durables expenditure and business investment. The effect is not attributable to differences in the response of fiscal variables or the external finance premium. We find some evidence that contractionary policy shocks have more powerful effects than expansionary shocks. But contractionary shocks have not been more common in booms, so this asymmetry cannot explain our main finding. |
| Keywords: | asymmetric effects of monetary policy, transmission mechanism, recession, durable goods, local projection methods |
| JEL: | E52 E32 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1218&r=mac |
| By: | Ippei Fujiwara, Tomoyuki Nakajima, Nao Sudo, Yuki Teranishi |
| Abstract: | How should monetary policy respond to a global liquidity trap," where the two countries may fall into a liquidity trap simultaneously? Using a two-country New Open Economy Macroeconomics model, we first characterise optimal monetary policy, and show that the optimal rate of inflation in one country is affected by whether or not the other country is in a liquidity trap. We next examine how well the optimal monetary policy is approximated by relatively simple monetary policy rules. The interest-rate rule targeting the producer price index performs very well in this respect. |
| Keywords: | Zero interest rate policy, two-country model, international spillover, monetary policy coordination |
| JEL: | E52 E58 F41 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:csg:ajrcwp:1304&r=mac |
| By: | Evgeny Gorunov (Gaidar Institute for Economic Policy); Pavel Trunin (Gaidar Institute for Economic Policy) |
| Abstract: | Recent slowdown of economic growth forces Russian political authorities to seek for policy measures to support economic activity. Monetary expansion is considered as one of the possible alternatives, which we consider inappropriate. During the whole post-crisis period monetary authorities of advances economies in their attempts to boost recovery relied heavily on different sorts of monetary stimulus. Thus it is sometimes argued that Russia should better use such kind of experience and shift to aggressive monetary expansion. This view is mostly wrong since it shows misunderstanding of the goals of the monetary easing policy implemented in advanced economies and also ignores the differences between Russia and advanced countries with respect to macroeconomic conditions. There are two main reasons for extraordinary monetary expansion in advanced economies: sizable cyclical recession and “zero lower bound” problem. Since none of these is present in Russia there’s no reason for implementation of monetary easing policy. |
| Keywords: | monetary policy, Bank of Russia |
| JEL: | E41 E42 E52 E58 E61 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:gai:wpaper:0067&r=mac |
| By: | Marco Del Negro; Marc P. Giannoni; Frank Schorfheide |
| Abstract: | It has been argued that existing DSGE models cannot properly account for the evolution of key macroeconomic variables during and following the recent Great Recession, and that models in which inflation depends on economic slack cannot explain the recent muted behavior of inflation, given the sharp drop in output that occurred in 2008-09. In this paper, we use a standard DSGE model available prior to the recent crisis and estimated with data up to the third quarter of 2008 to explain the behavior of key macroeconomic variables since the crisis. We show that as soon as the financial stress jumped in the fourth quarter of 2008, the model successfully predicts a sharp contraction in economic activity along with a modest and more protracted decline in inflation. The model does so even though inflation remains very dependent on the evolution of both economic activity and monetary policy. We conclude that while the model considered does not capture all short-term fluctuations in key macroeconomic variables, it has proven surprisingly accurate during the recent crisis and the subsequent recovery. |
| Keywords: | Inflation (Finance) ; Recessions ; Keynesian economics ; Stochastic analysis ; Equilibrium (Economics) ; Econometric models |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:618&r=mac |
| By: | Aleksander Berentsen; Alessandro Marchesiani; Christopher J. Waller |
| Abstract: | An increasing number of central banks implement monetary policy via a channel system or a floor system. We construct a general equilibrium model to study the properties of these systems. We find that the optimal framework is a floor system if and only if the target rate satisfies the Friedman rule. Unfortunately, the optimal floor system requires either transfers from the fiscal authority to the central bank or a reduction in seigniorage payments from the central bank to the government. This is the unpleasant fiscal arithmetic of a floor system. When the central bank faces financing constraints on its interest expense, we show that it is optimal to operate a channel system. |
| Keywords: | Monetary policy, floor system, channel system, standing facilities |
| JEL: | E52 E58 E59 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:121&r=mac |
| By: | Paul Hubert (Ofce sciences-po) |
| Abstract: | Policymakers at the Federal Open Market Committee (FOMC) publish forecasts since 1979. We examine the effects of publishing FOMC inflation forecasts in two steps using a structural VAR model. We assess whether they influence private inflation expectations and the underlying mechanism at work: do they convey policy signals for forward guidance or help interpreting current policy decisions? We provide original evidence that FOMC inflation forecasts are able to influence private ones. We also find that FOMC forecasts give information about future Fed rate movements and affect private expectations in a different way than Fed rate shocks. This body of evidence supports the use of central bank forecasts to affect inflation expectations especially while conventional policy instruments are at the zero lower bound |
| Keywords: | Monetary policy, Forecasts, FOMC, influence, Policy signals, structural Var |
| JEL: | E52 E58 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:1303&r=mac |
| By: | Fernando M. Martin |
| Abstract: | Making the central bank more independent from political pressures lowers inflation and increases the primary deficit, persistently. In the long-run, however, fiscal considerations are paramount and inflation comes back up to accommodate the higher financial burden of accumulated public debt. Endowing instead the central bank with an explicit inflation target lowers long-run inflation and implies non-trivial welfare gains for private agents. Inflation-targeting has the added virtue of determining the primary deficit independently of political frictions. The theory helps explain several key developments in postwar U.S. policy. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2013-017&r=mac |
| By: | Covi, Giovanni |
| Abstract: | The general aim of the paper is to address the doubts that too often the Central Banks’ tools and operations don’t fit for a fine tuning of the economies, and this is even more true in harsh times. The paper begins with an overview on the great failures respectively of the Federal Reserve, the so called "golden silence" in the 1929 Great Crash, and of the European Central Bank during the second great contraction, the 2008 Financial Crisis. Then I critically appraise the so-called “Two pillar approach”, a methodological tool employed by the ECB for assessing the risks to price stability. I survey the literature on the subject with the purpose of going at the roots of the “technical” difficulties. The first outcome emphasizes the existing disagreement between the criticisms and the proposed solutions. The second outcome is the unanimity of the opinions that the inflation target chosen at 2% by ECB for the Eurozone is too low, thereby making the whole MPS excessively restrictive. I conclude observing that the “core” inflation-target of 2% is in fact at the very basis of the ECB non-intervention policy. For a simple and sobering reason: even if between 2003 and 2008 the stock market bubble was growing at unreal rate, since the inflation target wasn’t in any jeopardy, the European Central Bank didn’t do anything. Maintaining the goal of price stability was much more important than assuring financial stability, thereby preventing the Financial Crisis. |
| Keywords: | Monetary Policy – Central Banking – European Central Bank – Inflation - Financial Crisis |
| JEL: | E52 E58 |
| Date: | 2013–05–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:47085&r=mac |
| By: | Paul Hubert (Ofce sciences-po) |
| Abstract: | The European Central Bank publishes inflation projections quarterly. This paper aims at establishing whether they influence private forecasts and whether they may be considered as an enhanced means of implementing policy decisions by facilitating private agents’ information processing. We provide original evidence that ECB inflation projections do influence private inflation expectations. We also find that ECB projections give information about future ECB rate movements, and that the ECB rate has different effects if complemented or not with the publication of ECB projections. We conclude that ECB projections enable private agents to correctly interpret and predict policy decisions. |
| Keywords: | Monetary policy, ECB, Private forecasts, Influence, Structural Var |
| JEL: | E52 E58 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:1304&r=mac |
| By: | Dabrowski , Marek (BOFIT) |
| Abstract: | Achieving price stability has been a serious challenge for CIS countries. In the first half of the 1990s, they experienced very high inflation or hyperinflation, which had originated in the perestroika period and following the dissolution of the ruble area. After the introduction of new currencies and stabilization programs in the mid-1990s, inflation moderated to two-digit levels. However, for lack of sufficient fiscal policy support, this partial progress did not succeed in preventing the financial crisis of 1998/99. The economic boom of the 2000s allowed for a return to macroeconomic stability with stronger fiscal fundamentals, but nevertheless proved insufficient to withstand the shock from the global financial crisis of 2008/09. The paper analyses the evolution monetary policy regimes of in the CIS countries over the decade of the 2000s and early 2010s and is based on the publicly available cross-country statistics and other information provided by the IMF. The paper compares financial openness in these economies both de jure and de facto. These findings will be tested against the empirical data on exchange rate movements and changes in central banks’ international reserves. The paper concludes with a discussion on practical choices which CIS countries have in respect of their future monetary policy regimes. |
| Keywords: | monetary policy; CIS; financial openness; inflation |
| JEL: | E42 E58 P24 P52 |
| Date: | 2013–05–02 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2013_008&r=mac |
| By: | Jean Boivin; Marc P. Giannoni; Dalibor Stevanovic |
| Abstract: | We examine the dynamic effects of credit shocks using a large data set of U.S. economic and financial indicators in a structural factor model. The identified credit shocks, interpreted as unexpected deteriorations of credit market conditions, immediately increase credit spreads, decrease rates on Treasury securities, and cause large and persistent downturns in the activity of many economic sectors. Such shocks are found to have important effects on real activity measures, aggregate prices, leading indicators, and credit spreads. Our identification procedure does not require any timing restrictions between the financial and macroeconomic factors, and yields interpretable estimated factors. <P> |
| Keywords: | Credit shock, structural factor analysis, |
| JEL: | E32 E44 C32 |
| Date: | 2013–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2013s-11&r=mac |
| By: | Alex Nikolsko-Rzhevskyy (Lehigh University); David Papell (University of Houston) |
| Abstract: | The size of the output gap coefficient is the key determinant of whether quantitative easing since 2009 and continued near-zero interest rates can by justified by a Taylor rule. Fed Chair Ben Bernanke and Vice-Chair Janet Yellen have argued that John Taylor proposed a monetary policy rule with a larger output gap coefficient in his 1999 paper than in his 1993 paper, and have used this argument to justify negative prescribed interest rates in 2009-2010 and near-zero interest rates through 2015. While Taylor neither proposed nor advocated a different rule in 1999 than in 1993, he did not draw a distinction between the implications of the two rules. In accord with common practice at the time, Taylor used revised data. We show that, using real-time data available to policymakers (although not to Taylor when he wrote the paper), there is a sharp difference in the implications of rules with a smaller and a larger output gap coefficient. If John Taylor had been able to use real-time data in his 1999 paper, the importance of the distinction between Taylor’s original rule with a smaller output gap coefficient and other rules with a larger coefficient would have been evident much earlier. |
| Keywords: | Real-Time Data, Monetray Policy Rules, Taylor Rule |
| JEL: | E52 |
| Date: | 2013–05–20 |
| URL: | http://d.repec.org/n?u=RePEc:hou:wpaper:2013-140-17&r=mac |
| By: | Xiong , Qiyue (BOFIT) |
| Abstract: | This paper focuses on the role the bank lending channel in transmission of monetary policy in China. Using unbalanced quarterly panel data from 2Q2000 to 4Q2011, a one-step GMM estimator is applied to establish the existence the bank lending channel. The findings suggest central bank monetary policy asymmetrically affects bank lending behavior. Small banks are found more sensitive to contractionary monetary policy in the Chinese context. Well capitalized banks appear to be more likely to adjust their lending behaviors in response to expansionary monetary policy, and conversely, undercapitalized banks tend to adjust with the advent of contractionary monetary policy. The importance of the bank lending channel declines after China introduced stricter capital regulations in early 2004, but the effect is still apparent in times of expansionary policy. |
| Keywords: | bank characteristics; capital regulation; bank lending channel; asymmetric effects |
| JEL: | E52 |
| Date: | 2013–05–02 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2013_007&r=mac |
| By: | Stefania Albanesi (Federal Reserve Bank of New York and CEPR); Aysegul Sahin (Federal Reserve Bank of New York) |
| Abstract: | The unemployment gender gap, defined as the difference between female and male unemployment rates, was positive until 1980. This gap virtually disappeared after 1980, except during recessions when men's unemployment rate always exceeds women's. We study the evolution of these gender differences in unemployment from a long-run perspective and over the business cycle. Using a calibrated three-state search model of the labor market, we show that the rise in female labor force attachment and the decline in male attachment can mostly account for the closing of the gender unemployment gap. Evidence from nineteen OECD countries also supports the notion that convergence in attachment is associated with a decline in the gender unemployment gap. At the cyclical frequency, we find that gender differences in industry composition are important in recessions, especially the most recent, but they do not explain gender differences in employment growth during recoveries. |
| Keywords: | Gender unemployment gap, labor market attachment |
| JEL: | E24 J64 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:hka:wpaper:2013-04&r=mac |
| By: | Charlotte Christiansen (Aarhus University and CREATES); Jonas Nygaard Eriksen (Aarhus University and CREATES); Stig V. Møller (Aarhus University and CREATES) |
| Abstract: | We examine sentiment variables as new predictors for US recessions. We combine sentiment variables with either classical recession predictors or with common factors based on a large panel of macroeconomic and ?nancial variables. Sentiment variables hold vast predictive power for US recessions in excess of both the classical recession predictors and the common factors. The strong importance of the sentiment variables is documented both in-sample and out-of-sample. |
| Keywords: | Business cycles; Forecasting; Factor analysis; Probit model; Sentiment variables |
| JEL: | C22 C25 E32 E37 G17 |
| Date: | 2013–04–25 |
| URL: | http://d.repec.org/n?u=RePEc:aah:create:2013-14&r=mac |
| By: | Mark L. Egan; Casey B. Mulligan; Tomas J. Philipson |
| Abstract: | Many national accounts of economic output and prosperity, such as gross domestic product (GDP) or net domestic product (NDP), offer an incomplete picture by ignoring, for example, the value of leisure, home production, and the value of health. Discussed shortcomings have focused on how unobserved dimensions affect GDP levels but not their cyclicality, which affects the measurement of the business cycle. This paper proposes new measures of the business cycle that incorporate monetized changes in health of the population. In particular, we incorporate in GDP the dollar value of mortality, treating it as depreciation in human capital analogous to how NDP measures treat depreciation of physical capital. We examine the macroeconomic fluctuations in the United States and globally during the past 50 years, taking into account how depreciation in health affects the cycle. Because mortality tends to be pro-cyclical, fluctuations in standard GDP measures are offset by monetized changes in health; booms are not as valuable as traditionally measured because of increased mortality, and recessions are not as bad because of reduced mortality. Consequently, we find that U.S. business cycle fluctuations appear milder than commonly measured and may even be reversed for the majority of “recessions” after accounting for the cyclicality of health. We find that adjusting for mortality reduces the measured U.S. business cycle volatility during the past 50 years by about 37% in the United States and 46% internationally. We discuss future research directions for more fully incorporating the cyclicality of unobserved health capital into standard output measurement. |
| JEL: | E01 I1 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19058&r=mac |
| By: | L. Marattin |
| Abstract: | This paper offers a formal analysis of the relationship between changes in government primary balance and debt-to-GDP ratio. it establishes the conditions under which a fiscal consolidation increases - instead of decreasing - the stock of government liabilities relative to aggregate output. A crucial role is played by the relationship between the elasticities of average cost of debt and nominal output to primary balance: while the former depends on debt maturity and risk premia dynamics, the latter relates to the well-known controversy on the size of government spending multipliers. The paper shows an application to the ongoing fiscal consolidation process in the Eurozone. |
| JEL: | E62 H32 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp880&r=mac |
| By: | Richard Dennis; Tatiana Kirsanova |
| Abstract: | Discretionary policymakers cannot manage private-sector expectations and cannot coordinate the actions of future policymakers. As a consequence, expectations traps and coordination failures can occur and multiple equilibria can arise. To utilize the explanatory power of models with multiple equilibria it is first necessary to understand how an economy arrives to a particular equilibrium. In this paper we employ notions of learnability and self-enforceability to motivate and identify equilibria of particular interest. Central among these criteria are whether the equilibrium is learnable by private agents and jointly learnable by private agents and the policymaker. We use two New Keynesian policy models to identify the strategic interactions that give rise to multiple equilibria and to illustrate our methods for identifying equilibria of interest. Importantly, unless the Pareto-preferred equilibrium is learnable by private agents, we find little reason to expect coordination on that equilibrium. |
| Keywords: | Discretionary policymaking, multiple equilibria, coordination, equilibrium selection |
| JEL: | E52 E61 C62 C73 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:acb:cbeeco:2013-611&r=mac |
| By: | Stephen Hansen; Carlos Velasco Rivera; Michael McMahon |
| Abstract: | Using voting data from the Bank of England, we show that different individual assessments of the economy strongly influence votes after controlling for individual policy preferences. We estimate that internal members form more precise assessments than externals and are also more hawkish, though preference differences are very small if members vote strategically. Counterfactual analysis shows that committees add value through aggregating private assessments, but that gains to larger committees taper off quickly beyond five members. There is no evidence that externals add value through preference moderation. Since their assessments also have lower precision, mixed committees may not be optimal. |
| Keywords: | Committees, Monetary policy |
| JEL: | E52 E58 D78 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2013-19&r=mac |
| By: | Douglas J. Elliott; Greg Feldberg; Andreas Lehnert |
| Abstract: | Since the financial crisis of 2007-2009, policymakers have debated the need for a new toolkit of cyclical "macroprudential" policies to constrain the build-up of risks in financial markets, for example, by dampening credit-fueled asset bubbles. These discussions tend to ignore America's long and varied history with many of the instruments under consideration to smooth the credit cycle, presumably because of their sparse usage in the last three decades. We provide the first comprehensive survey and historic narrative of these efforts. The tools whose background and use we describe include underwriting standards, reserve requirements, deposit rate ceilings, credit growth limits, supervisory pressure, and other financial regulatory policy actions. The contemporary debates over these tools highlighted a variety of concerns, including "speculation," undesirable rates of inflation, and high levels of consumer spending, among others. Ongoing statistical work suggests that macroprudential tightening lowers consumer debt but macroprudential easing does not increase it. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2013-29&r=mac |
| By: | Philip R. Lane (Institute for International Integration Studies, Trinity College Dublin) |
| Abstract: | This paper reviews the growth record of the member countries of the euro area and assesses the outlook for future economic performance. We describe how the external and fiscal adjustment challenges facing the euro periphery amplify the growth risks facing these countries. We address how growth prospects can be improved by shifts in the macroeconomic policy mix, carefully-timed structural reforms, debt restructuring and the resolution of the existential crisis facing the euro area. |
| Keywords: | euro crisis, structural reform, external adjustment |
| JEL: | E63 F32 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:iis:dispap:iiisdp426&r=mac |
| By: | Daron Acemoglu; Ufuk Akcigit; Nicholas Bloom; William R. Kerr |
| Abstract: | We build a model of firm-level innovation, productivity growth and reallocation featuring endogenous entry and exit. A key feature is the selection between high- and low-type firms, which differ in terms of their innovative capacity. We estimate the parameters of the model using detailed US Census micro data on firm-level output, R&D and patenting. The model provides a good fit to the dynamics of firm entry and exit, output and R&D, and its implied elasticities are in the ballpark of a range of micro estimates. We find industrial policy subsidizing either the R&D or the continued operation of incumbents reduces growth and welfare. For example, a subsidy to incumbent R&D equivalent to 5% of GDP reduces welfare by about 1.5% because it deters entry of new high-type firms. On the contrary, substantial improvements (of the order of 5% improvement in welfare) are possible if the continued operation of incumbents is taxed while at the same time R&D by incumbents and new entrants is subsidized. This is because of a strong selection effect: R&D resources (skilled labor) are inefficiently used by low-type incumbent firms. Subsidies to incumbents encourage the survival and expansion of these firms at the expense of potential high-type entrants. We show that optimal policy encourages the exit of low-type firms and supports R&D by high-type incumbents and entry. |
| Keywords: | industrial policy, productivity growth, innovation, R&D |
| JEL: | E02 L1 O31 O32 O33 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1216&r=mac |
| By: | Nicholas Apergis; Arusha Cooray |
| Abstract: | The goal of the present paper is to investigate not only the dynamics of the Greek public debt, but also the appropriate measures required for achieving fiscal consolidation. The empirical estimation is carried out using a macroeconomic dataset spanning the period 1980-2008 and both the 3SLS methodological approach on a theoretical model and the structural VAR methodology to perform forecast tests and to calibrate the future paths of the public debt variable up to 2020. The results suggest that only an aggressive growth policy could permit the country to achieve debt sustainability. The results are expected to have important implications to policy makers for designing effective macroeconomic policy in terms of achieving sustainable levels of public debt. |
| Keywords: | primary balance, public debt, structural modeling, Greece |
| JEL: | E62 C51 C30 E27 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2013-25&r=mac |
| By: | Diego A. Comin; Martí Mestieri |
| Abstract: | This chapter discusses different approaches pursued to explore three broad questions related to technology diffusion: what general patterns characterize the diffusion of technologies, and how have they changed over time; what are the key drivers of technology, and what are the macroeconomic consequences of technology. We prioritize in our discussion unified approaches to these three questions that are based on direct measures of technology. |
| JEL: | E0 F0 N0 O0 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19052&r=mac |
| By: | Carlos Garriga (Federal Reserve Bank of St. Louis); Mark P. Keightley (Florida State University) |
| Abstract: | This paper analyzes the effectiveness of three different types of education policies: tuition subsidies (broad based, merit based, and flat tuition), grant subsidies (broad based and merit based), and loan limit restrictions. We develop a quantitative theory of college within the context of general equilibrium overlapping generations economy. College is modeled as a multi-period risky investment with endogenous enrollment, time-to-degree, and dropout behavior. Tuition costs can be financed using federal grants, student loans, and working while at college. We show that our model accounts for the main statistics regarding education (enrollment rate, dropout rate, and time to degree) while matching the observed aggregate wage premiums. Our model predicts that broad based tuition subsidies and grants increase college enrollment. However, due to the correlation between ability and financial resources most of these new students are from the lower end of the ability distribution and eventually dropout or take longer than average to complete college. Merit based education policies counteract this adverse selection problem but at the cost of a muted enrollment response. Our last policy experiment highlights an important interaction between the labor-supply margin and borrowing. A significant decrease in enrollment is found to occur only when borrowing constraints are severely tightened and the option to work while in school is removed. This result suggests that previous models that have ignored the student's labor supply when analyzing borrowing constraints may be insufficient. |
| Keywords: | Student Loans, Education Subsidies, Higher Education |
| JEL: | E0 H52 H75 I22 J24 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:hka:wpaper:2013-02&r=mac |
| By: | Elena Sinelnikova, (Gaidar Institute for Economic Policy) |
| Abstract: | Traditional microeconomic approaches to demand for money problem are considered in the article. It also discusses current view of monetary theory on concept of “money”. New approach gives reasoning to existence of variety of payment innovations. It provides theoretical base for inclusion of variable that describes innovations in payment sphere into equation of money demand in Russia. As a result a stable (during 2000—2010 years) money demand equation is obtained |
| Keywords: | money demand, payment innovations, stability, search and matching theory |
| JEL: | E41 E31 E52 C22 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:gai:ppaper:135&r=mac |
| By: | Marco Del Negro; Giorgio Primiceri |
| Abstract: | This note corrects a mistake in the estimation algorithm of the time-varying structural vector autoregression model of Primiceri (2005) and proposes a new algorithm that correctly applies the procedure proposed by Kim, Shephard, and Chib (1998) to the estimation of VAR or DSGE models with stochastic volatility. Relative to Primiceri (2005), the correct algorithm involves a different ordering of the various Markov Chain Monte Carlo steps. |
| Keywords: | Markov processes ; Regression analysis ; Econometric models |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:619&r=mac |