nep-mac New Economics Papers
on Macroeconomics
Issue of 2013‒07‒20
27 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Should monetary policy lean against the wind? An analysis based on a DSGE model with banking By Leonardo Gambacorta; Federico M. Signoretti
  2. Should inflation targeting be abandoned in favour of nominal income targeting? By Stan du Plessis; Malan Rietveld
  3. Parameter Uncertainty and the Fiscal Multiplier By Jamie Murray
  4. Three Revolutions in Macroeconomics: Their Nature and Influence By David Laidler
  5. Long-Run Risk and Hidden Growth Persistence By Pakos, Michal
  6. The Leading Indicator Property of the Term Spread and the Monetary Policy Factors in Japan By Hiroshi Nakaota; Yuichi Fukuta
  7. 'Rethinking Inflation Targeting: A Perspective from the Developing World' By Pierre-Richard Agénor; Luiz A. Pereira da Silva
  8. 最优货币政策和最优金融稳定政策的一般均衡分析 By guo, min; zhao, jizhi
  9. Sensitivity of fiscal-policy effects to policy coordination and business cycle conditions By Viren, Matti
  10. Monetary Neutrality under Evolutionary Dominance of Bounded Rationality By Gilberto Tadeu Lima; Jaylson Jair da Silveira
  11. Precautionary Saving over the Business Cycle By Edouard Challe; Xavier Ragot
  12. Health and Health Behaviors during the Worst of Times: Evidence from the Great Recession By Erdal Tekin; Chandler McCellan; Karen Jean Minyard
  13. The euro crisis: a view from the North By Honkapohja, Seppo
  14. Should Unemployment Insurance Be Asset-Tested? By Koehne, Sebastian; Kuhn, Moritz
  15. Macroeconomic effects of precautionary demand for oil By Alessio Anzuini; Patrizio Pagano; Massimiliano Pisani
  16. Slow Moving Debt Crises By Guido Lorenzoni; Ivan Werning
  17. Financial contagion reloaded: the case of Cyprus By Oehler-Sincai, Iulia Monica
  18. Akciové trhy zemí eurozóny s nejvyšším veřejným zadlužením By Kulhanek, Lumir
  19. Deflation Risk By Matthias Fleckenstein; Francis A. Longstaff; Hanno Lustig
  20. On the Size of Fiscal Multipliers: A Counterfactual Analysis By Jan Kuckuck; Frank Westermann
  21. The Requirements for Long-Run Fiscal Sustainability By Robert A Buckle; Amy A Cruickshank
  22. House Prices, Wealth Effects and Labour Supply By Richard Disney; John Gathergood
  23. Herd behavior in consumer inflation expectations - Evidence from the French household survey. By Andreas Karpf
  24. Risk Premium, Interest Rate Differential, and Subsidized Lending in Pakistan By Shabbir, Safia; Iqbal, Javed; Hameed, Saima
  25. Relationship and transaction lending in a crisis By Patrick Bolton; Xavier Freixas; Leonardo Gambacorta; Paolo Emilio Mistrulli
  26. Empirical Evidence on Growth Spillovers from China to New Zealand By Denise R Osborn; Tugrul Vehbi
  27. Export performance and macro-linkages: A look at the competitiveness and determinants of cocoa exports, production and prices for Ghana By Boansi, David

  1. By: Leonardo Gambacorta (Bank for International Settlements); Federico M. Signoretti (Bank of Italy)
    Abstract: The global financial crisis has reaffirmed the importance of financial factors for macroeconomic fluctuations. Recent work has shown how the conventional pre-crisis prescription that monetary policy should pay no attention to financial variables over and above their effects on inflation may no longer be valid in models that consider frictions in financial intermediation (Cúrdia and Woodford, 2009). This paper analyzes whether Taylor rules augmented with asset prices and credit can improve upon a standard rule in terms of macroeconomic stabilization in a DSGE with both a firms' balance-sheet channel and a bank-lending channel and in which the spread between lending and policy rates endogenously depends on banks' leverage. The main result is that, even in a model in which financial stability does not represent a distinctive policy objective, leaning-against-the-wind policies are desirable in the case of supply-side shocks whenever the central bank is concerned with output stabilization, while both strict inflation targeting and a standard rule are less effective. The gains are amplified if the economy is characterized by high private sector indebtedness.
    Keywords: DSGE, monetary policy, asset prices, credit channel, Taylor rule, leaning-against-the-wind
    JEL: E30 E44 E50
    Date: 2013–07
  2. By: Stan du Plessis (Department of Economics, University of Stellenbosch); Malan Rietveld (Department of Economics, University of Stellenbosch)
    Abstract: In the wake of the international financial crisis nominal income targeting has received renewed attention from a number of leading macroeconomists as alternative to inflation targeting. The case for nominal income targeting has been built on both positive and negative arguments. The negative case relates to perceived inadequacies of inflation targeting, including: the presumed lack of robustness of inflation targeting to aggregate supply shocks, inadequate concern with financial stability, as well as concerns with the accountability of inflation targeting central banks. The positive case for nominal income targeting is that it will better suit current macroeconomic circumstances and policy needs, without sacrificing the gains made by inflation targeting. A thorough evaluation of these arguments is presented in this paper with the conclusion that the case for nominal income targeting is weak compared with the way in which inflation targeting has been implemented internationally.
    Keywords: Nominal income target, inflation target, monetary policy
    JEL: E52 E58
    Date: 2013
  3. By: Jamie Murray (The Treasury)
    Abstract: I present a simple estimated model of the New Zealand economy which is used to assess the sensitivity of the impact multiplier and output losses associated with fiscal consolidations to uncertainty over model parameters. I find that, in normal times, the fiscal multiplier can be expected to lie between 0.1 and 0.5, with a central estimate of 0.3. Uncertainty over the output effects of fiscal tightening can be attributed to several model parameters and it is found that a bad outcome is likely to be worse than a good outcome is to be better – output risks are skewed to the downside. Sensitivity analysis reveals that if monetary policy in New Zealand were to be constrained by the zero-lower bound, the fiscal impact multiplier would rise substantially, consistent with the empirical evidence for other OECD countries in that position.
    Keywords: Fiscal impact multiplier; Ricardian equivalence; DSGE; SVAR; consolidation; monetary policy; uncertainty; lower bound
    JEL: E62 E43 E32 F33 F41
    Date: 2013–07
  4. By: David Laidler (University of Western Ontario)
    Abstract: Harry Johnson’s 1971 ideas about the factors affecting the success of the Keynesian Revolution and the Monetarist Counter-revolution are summarised and extended to the analysis of the Rational Expectations - New Classical (RE-NC) Revolution. It is then argued that, whereas Monetarism brought about a revival of the quantity theory of money from the limbo into which Keynesianism had pushed it, RE-NC modelling was responsible for that theory’s most recent disappearance. This happened despite the fact that, initially, RE-NC economics appeared to be a mainly technical extension and refinement of Monetarism, rather than a radically new economic doctrine. Some implications of this story for todays’ macroeconomics are briefly discussed.
    Keywords: Keynesianism, Monetarism, Rational expectations New Classical economics Quantity Theory; Money; Velocity; Monetary policy; Inflation; Unemployment; Business cycle; Phillips curve
    JEL: B21 E31 E41 E52
    Date: 2013
  5. By: Pakos, Michal
    Abstract: An extensive literature has analyzed the implications of hidden shifts in the dividend growth rate. However, corresponding research on learning about growth persistence is completely lacking. Hidden persistence is a novel way to introduce long-run risk into standard business-cycle models of asset prices because it tightly intertwines the cyclical and long-run frequencies. Hidden persistence magnifies endogenous changes in the forecast variance of the long-run dividend growth rate despite homoscedastic consumption innovations. Not only does changing forecast variance make discrimination between protracted spells of anemic growth and brief business recessions difficult, it also endogenously induces additional variation in asset price discounts due to the preference for early uncertainty resolution.
    Keywords: Asset Pricing, Learning, Hidden Persistence, Forecast Variance, Economic Uncertainty, Business Cycles, Long-Run Risk, Peso Problem, Timing Premium
    JEL: E13 E21 E27 E32 E37 E44 G12 G14
    Date: 2013–04–17
  6. By: Hiroshi Nakaota (Faculty of Social Relations, Kyoto Bunkyo University); Yuichi Fukuta (Graduate School of Economics, Osaka University)
    Abstract: Many studies have observed the leading indicator property of the term spread (LIPTS), which indicates that the term spread\the difference between long- and short-term interest rates\has information on future economic conditions. We examine whether this property is related to monetary policy or not by using Japanese monthly data with consideration for structural changes. Results of structural change tests show that the term spread has predictive ability for the future economic activity from 1982:4 to 1997:8. Decomposing the term spread into three parts; one is explained by past monetary policy shocks, another is explained by expected future call rates and the other is the remaining part, we find that all three parts are significantly related to the future economic growth rate. Hence, we find that the monetary policy plays an important role for the LIPTS.
    Keywords: leading indicator property of the term spread (LIPTS), term spread, future economic activity, monetary policy
    JEL: E32 E43 E44
    Date: 2013–07
  7. By: Pierre-Richard Agénor; Luiz A. Pereira da Silva
    Abstract: This paper discusses recent experiences with inflation targeting (IT), the challenges that it faces since the global financial crisis, and ways to address them. The discussion is conducted from the perspective of upper middle-income countries (MICs). As background for the analysis, the second part provides a review of financial systems in MICs (with a focus on the role of bank credit), the extent to which exposure to capital flows affect economic stability in these countries, and the link between excessive credit growth and financial crises. The third and fourth parts review the main features and evidence on the performance of IT regimes in MICs. The fifth part discusses a number of challenges that IT faces, including fiscal dominance, fear or floating, imperfect credibility, and with respect to an explicit financial stability objective assigned to monetary policy. The issue of complementarity between macroprudential regulation and monetary policy, in the context of an "integrated" IT (or IIT) regime, is taken up next. The nature of monetary policy rules in an IIT regime, and their practical implementation, is also discussed. Our analysis suggests that there are robust arguments to support the view that in an IIT regime monetary policy should react in a state contingent fashion to a credit gap measure---and possibly to the real exchange rate---to address the time-series dimension of systemic risk. However, monetary policy and macroprudential policy are largely complementary instruments. They must be calibrated jointly, in the context of macroeconomic models that account for the type of credit market imperfections observed in MICs and for the fact that macroprudential regimes may affect in substantial ways the monetary transmission mechanism.
    Date: 2013
  8. By: guo, min; zhao, jizhi
    Abstract: 本文建立一个含有商业银行风险承担意愿的一般均衡模型,同时,将货币政策目标和金融稳 定目标纳入统一的政策目标分析框架。理论模型的分析结果表明:在单一货币政策目标的情 况下,货币政策与金融稳定政策具有完全替代性;当且仅当货币政策和金融稳定政策充分协 调时,才能实现物价稳定和金融稳定的政策效果。
    Keywords: 货币政策 金融稳定 风险承担 一般均衡
    JEL: E61
    Date: 2013–07–09
  9. By: Viren, Matti (Bank of Finland Research)
    Abstract: This paper deals with the problems of assessing the effects of fiscal policy in the European Monetary Union. Here, we face wide cross-country differences in key fiscal parameters, some of which may also be vary over time (business cycle). Moreover, these effects may also depend on trade spillover effects and thus on the extent of policy coordination. Our empirical analyses make use of data for 15 EU countries, mainly for the period 1970-2011. The results clearly indicate that fiscal multipliers are not constant across countries and time, being much larger during economic recessions. By contrast, the policy coordination-effects appear to be more homogenous, although it turns out that small countries may benefit more from coordination.
    Keywords: fiscal policy; policy coordination; government deficit; EMU
    JEL: E61 E63 H62
    Date: 2013–06–24
  10. By: Gilberto Tadeu Lima; Jaylson Jair da Silveira
    Abstract: We provide evolutionary game-theoretic microfoundations to a dynamic complete nominal adjustment in response to a monetary shock. To this end, we develop an approach based on a new analytical notion to which we refer as boundedly rational inattentiveness. We investigate the behavior of the price level in an context in which a firm can either pay a cost to update its information set and establish the optimal price (Nash strategy) or freely use information from the previous period and establish a lagged optimal price (bounded rationality strategy). We devise an evolutionary micro-dynamics that, by interacting to the dynamics of the aggregate variables, determines the co-evolution of the distribution of information-updating strategies in the population of firms and the extent of the nominal adjustment of the general price level to a monetary shock. Although the bounded rationality strategy is the only survivor in the long-run evolutionary equilibrium, money is nonetheless neutral. The evolutionary learning dynamics takes the information-updating process to an equilibrium configuration in which, despite all firms play the bounded rationality strategy, the corresponding price level is the symmetric Nash equilibrium price.
    Keywords: bounded rationality; evolutionary dynamics; monetary neutrality
    JEL: E31 C73 D83
    Date: 2013–02–20
  11. By: Edouard Challe (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique); Xavier Ragot (Centre de recherche de la Banque de France - Banque de France, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales [EHESS] - Ecole des Ponts ParisTech - Ecole normale supérieure de Paris - ENS Paris - Institut national de la recherche agronomique (INRA))
    Abstract: We study the macroeconomic implications of time-varying precautionary saving within a general equilibrium model with borrowing constraint and both aggregate shocks and uninsurable idiosyncratic unemployement risk. Our framework generates limited cross-sectional household heterogeneity as an equilibrium outcome, thereby making it possible to analyse the role of precautionary saving over the business cycle in an analytically tractable way. The time-series behaviour of aggregate consumption generated by our model is much closer to the data than that implied by the comparable hand-to-mouth and representative-agent models, and comparable to that produced by the(intractable) Krusell-Smith (1998) model.
    Date: 2013–07–10
  12. By: Erdal Tekin; Chandler McCellan; Karen Jean Minyard
    Abstract: While previous studies have shown that recessions are associated with better health outcomes and behaviors, the focus of these studies has been on the relatively milder recessions of the late 20th century. In this paper, we examine if the previously established counter-cyclical pattern in health and heath behaviors is held during the Great Recession. Using data from the Behavioral Risk Factor Surveillance System (BRFSS) between 2005 and 2011 and focusing on a wide range of outcomes capturing health and health behaviors, we show that the association between economic deterioration and these outcomes has weakened considerably during the recent recession. In fact, majority of our estimates indicate that the relationship has practically become zero, though subtle differences exist among various sub-populations. Our results are consistent with the evidence emerging from several recent studies that suggests that the relationship between economic activity and health and health behaviors has become less noticeable in the recent years.
    JEL: E32 I00 I10 I12 I14 I15
    Date: 2013–07
  13. By: Honkapohja, Seppo (Bank of Finland Research)
    Abstract: The paper provides an overview of the sovereign debt crisis. I first consider the build-up of the crisis.I then discuss policy choices when a financial crisis erupts and assess the adjustment processes in the crisis countries, including alternatives to policies of austerity. Finally I take up institutional improvements that can help in resolving the current crisis and avoiding a future one. These include the banking union and the strengthened Stability and Growth Pact and related institutional rules. Current high levels of public and private debt together with still weak bank balance sheets are a major unsolved problem.
    Keywords: financial crisis; sovereign debt; European integration
    JEL: E62 E65 F36
    Date: 2013–06–28
  14. By: Koehne, Sebastian (IIES, Stockholm University); Kuhn, Moritz (University of Bonn)
    Abstract: We study asset-tested unemployment insurance in an incomplete markets model with moral hazard during job search. Asset testing has two counteracting effects on welfare. On the one hand, it improves consumption insurance by introducing state contingent transfers to agents most in need. On the other hand, it worsens the moral hazard problem, since workers have a reduced incentive to save and fewer private resources are used for consumption smoothing during unemployment. Our results show that in a realistically calibrated model of the U.S. economy the two effects nearly offset each other – the optimal rate of asset-testing is approximately zero. This finding is robust to several alternative specifications of the model, including a case with heterogeneous time-discount factors. We conclude that the current U.S. unemployment insurance system is approximately optimal.
    Keywords: unemployment insurance, asset-testing, incomplete markets, consumption and saving
    JEL: E21 E24 J65
    Date: 2013–07
  15. By: Alessio Anzuini (Bank of Italy); Patrizio Pagano (Bank of Italy); Massimiliano Pisani (Bank of Italy)
    Abstract: We evaluate the macroeconomic effects of shocks specific to the oil market, which mainly reflect fluctuations in precautionary demand for oil driven by uncertainty about future supplies. A two-stage identification procedure is used. First, daily changes in the futures-spot spread proxy for precautionary demand shocks and the path of oil prices is estimated. This information is then exploited to restrict the oil price response in a VAR. Impulse responses suggest that such shocks reduce output and raise prices. Historical decomposition shows that they contributed significantly to the U.S. recessions in the 1990s and in the early 2000s, but not to the most recent slump.
    Keywords: Vector autoregression, Oil shock, Futures, News.
    JEL: C2 E3 O41
    Date: 2013–07
  16. By: Guido Lorenzoni; Ivan Werning
    Abstract: What circumstances or policies leave sovereign borrowers at the mercy of self-fulfilling increases in interest rates? To answer this question, we study the dynamics of debt and interest rates in a model where default is driven by insolvency. Fiscal deficits and surpluses are subject to shocks but influenced by a fiscal policy rule. Whenever possible the government issues debt to meet its current obligations and defaults otherwise. We show that low and high interest rate equilibria may coexist. Higher interest rates, prompted by fears of default, lead to faster debt accumulation, validating default fears. We call such an equilibrium a slow moving crisis, in contrast to rollover crises where investor runs precipitate immediate default. We investigate how the existence of multiple equilibria is affected by the fiscal policy rule, the maturity of debt, and the level of debt.
    JEL: E6 F3 F34
    Date: 2013–07
  17. By: Oehler-Sincai, Iulia Monica
    Abstract: In the present case study, our main objective is to bring to the forefront the main factors that led to the double-dip recession of the Cypriot economy. We analyze determinants such as “tax haven” status, interlinks with the Greek economy, spillovers originating in the Euro Area as a whole (through the debt crisis) and Greece in particular. In spite of the fiscal reform of 2002 and the new fiscal system in force since the 1st of January 2003, Cyprus continued to be a “tax haven”. Its high investment attractiveness spurred the “Cyp-Rus” relations, boosted an outsized banking sector (representing 800% of Cyprus GDP in 2010-2011) and generated an unsustainable proportion between the real and the “virtual” economy. Besides, the public sector became larger than required by such a small economy, its share in the total yearly value added being close to one quarter. Taking into consideration all these factors, we conclude that the „W”-shaped recession of the Cypriot economy is a sui generis one and the questioning of its “fiscal paradise” status is even more acute than in the case of countries such as Luxembourg or Liechtenstein.
    Keywords: Cyprus, financial contagion, tax haven, Cyp-Rus, Cyprus-Greece, recession, euro zone, debt crisis
    JEL: E44 F21 F33 F44 H81
    Date: 2013–05
  18. By: Kulhanek, Lumir
    Abstract: In this paper, first, we will take notice of the development of the stock markets in six euro area countries with highest public debt: Greece, Italy, Portugal, Ireland, Belgium, and Spain. Subsequently, a comparison of returns and volatility will be made with the development of selected developed stock markets (France, Germany, the United Kingdom, USA), where only France and Germany are part of the euro area. Both main quantitative characteristics of stock market indexes will be analyzed (monthly returns and risks), as well as trends of volatility development among particular countries. The comparison of stock market volatility in examined period from 2003:03 to 2013:02 has confirmed divergence in volatility development trends in six euro area countries with highest public debt after the year 2009.
    Keywords: stock market returns, risk, euro area, public debt
    JEL: E44 E62 G12 H63
    Date: 2013–04
  19. By: Matthias Fleckenstein; Francis A. Longstaff; Hanno Lustig
    Abstract: We study the nature of deflation risk by extracting the objective distribution of inflation from the market prices of inflation swaps and options. We find that the market expects inflation to average about 2.5 percent over the next 30 years. Despite this, the market places substantial probability weight on deflation scenarios in which prices decline by more than 10 to 20 percent over extended horizons. We find that the market prices the economic tail risk of de- flation very similarly to other types of tail risks such as catastrophic insurance losses. In contrast, inflation tail risk has only a relatively small premium. De- flation risk is also significantly linked to measures of financial tail risk such as swap spreads, corporate credit spreads, and the pricing of super senior tranches. These results indicate that systemic financial risk and deflation risk are closely related.
    JEL: E31 G13
    Date: 2013–07
  20. By: Jan Kuckuck (Universitaet Osnabrueck); Frank Westermann (Universitaet Osnabrueck)
    Abstract: The Structural Vector Auto-regression (SVAR) approach to estimating fiscal multipliers, following the seminal paper by Blanchard and Perotti (2002), has been widely applied in the literature. In our paper we discuss the interpretation of these estimates and suggest that they are more useful for forecasting purposes than for policy advice. Our key point is that policy instruments often react to each other. We analyze a data set from the US and document that these interactions are economically and statistically significant. Increases in spending have been financed by subsequent increases in taxes. Increases in taxes have been complemented by additional spending cuts in subsequent quarters. In a counterfactual analysis we report fiscal multipliers that abstract from these dynamic responses of policy instruments to each other.
    Keywords: Fiscal policy, government spending, net revenues, structural vector autoregression
    JEL: E62 H20 H50
    Date: 2013–06–28
  21. By: Robert A Buckle; Amy A Cruickshank (The Treasury)
    Abstract: New Zealand, like many other countries, is experiencing a changing demographic profile from one dominated by young people during the 20th century to one where the population is more evenly distributed across age groups. This has implications for the economy and society, including the government's fiscal position in the future and for the sustainability of its spending programmes. This paper discusses the link between the government budget constraint and fiscal sustainability, how fiscal sustainability can be measured and why it’s important. We also examine the Treasury’s current approach to modelling the extent of fiscal adjustment required and options available to achieve this adjustment. The paper proposes criteria to evaluate potential policy changes to address these long-term fiscal challenges and suggests areas where further work could be worthwhile.
    Keywords: Long-run fiscal sustainability; fiscal consolidation; public debt; public social expenditure; taxation
    JEL: E61 E62 H68
    Date: 2013–07
  22. By: Richard Disney; John Gathergood
    Abstract: We examine the impact of housing wealth on labour supply using exogenous local variations in house prices and household panel data for Britain. Our analysis controls for variations in local labour demand and income expectations which might co-determine house prices and labour supply. We find significant effects of house price variations on labour supply, consistent with leisure being a normal good. Labour supply is particularly sensitive to house prices among the young and older men. Our findings imply that housing wealth losses may have contributed to the unexpectedly high rates of labour market activity in Britain during the Great Recession.
    Keywords: Labour supply; Wealth effects; House prices JEL codes: E51, E52, F31, F33
    Date: 2013–02
  23. By: Andreas Karpf (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: This article investigates whether the formation of individual inflation expectations is biased towards a consensus and is thus subject to some kind of herding behavior. Basing on the traditional Carlson-Parkin approach to quantify qualitative survey expectations and its extension by Kaiser and Spitz (2002) in an ordered probit context, a method to gain individual level inflation expectations is proposed using a Markov chain Monte Carlo Hierarchical Bayesian estimation method. This method is applied to micro survey data about inflation expectations of households from the monthly French household survey “Enquête mensuelle de conjoncture auprès des ménages - ECAMME” (January 2004 to December 2012). Finally a non-parametric test for herding behavior (Bernardt et al., 2006) is conducted on the cohort-level expectation estimates, showing that the expectation formation is not subject to a bias towards the expectation consensus. In constrast, it exhibits a strong anti-herding tendency which is consistent with the findings of other studies (Rülke and Tillmann, 2011).
    Keywords: Herd behavior, inflation, rational expectations.
    JEL: E31 E37 D12 D82 D84
    Date: 2013–07
  24. By: Shabbir, Safia; Iqbal, Javed; Hameed, Saima
    Abstract: Episodes of monetary contraction increases the risk premium of the enterprises which results in higher effective interest rate differential between market loans and subsidized loan; making these firms more reliant on subsidized loans. Since subsidies are easier to exploit and hard to administer. This study evaluates the subsidized lending schemes of Pakistan using information on risk premium and effective interest rate differential of 174 exporting corporate firms over thirteen years (1999-2011). Our results shows that export finance schemes (EFS) helped promoting exports, while long term financing facility (LTFF) facilitated fixed capital formation of these corporate firms. Additionally, using matched sample with loan level data from eCIB, we found that during the phases of high interest rate differential enterprises substituted their short term market loans with subsidized loans (export finance); while no such substitution is observed between long term loans and LTFF.
    Keywords: Risk Premium, Interest rate differential, Subsidized lending
    JEL: E43 G32 H20
    Date: 2013–06–20
  25. By: Patrick Bolton (Columbia University, NBER and CEPR.); Xavier Freixas (Universitat Pompeu Fabra, Barcelona Graduate School of Economics and CEPR); Leonardo Gambacorta (Bank for International Settlements); Paolo Emilio Mistrulli (Bank of Italy)
    Abstract: We study how relationship lending and transaction lending vary over the business cycle. We develop a model in which relationship banks gather information on their borrowers, which allows them to provide loans for profitable firms during a crisis. Due to the services they provide, operating costs of relationship banks are higher than those of transaction banks. In our model, where relationship banks compete with transaction banks, a key result is that relationship banks charge a higher intermediation spread in normal times, offering continuation-lending at more favourable terms than transaction banks to profitable firms in a crisis. Using detailed credit register information for Italian banks before and after the Lehman Brothers’ default, we are able to study how both types of bank responded to the crisis and we test existing theories of relationship banking. Our empirical analysis confirms the basic prediction of the model that relationship banks charged a higher spread before the crisis, offered more favourable continuation-lending terms in response to the crisis, and suffered fewer defaults, thus confirming the informational advantage of relationship banking.
    Keywords: relationship banking, transaction banking, crisis
    JEL: E44 G21
    Date: 2013–07
  26. By: Denise R Osborn; Tugrul Vehbi (The Treasury)
    Abstract: This paper provides a quantitative analysis of the impact on New Zealand of economic growth in China through the framework of an econometric model. The analysis compares the roles of China and the US both for growth in New Zealand and also for world commodity prices, the latter being important for New Zealand as an exporter of primary products. Finally, in the light of the increasing role of China in the world economy over the last two to three decades, the paper also investigates whether spillover effects from China to New Zealand have changed over this period. Using models estimated from the mid- 1980s to 2011, we find that growth spillovers from China are important for New Zealand, with estimates of the accumulated increase in domestic GDP from a one percent increase in output growth in China being in the range of around 0.2 to 0.4 percent. It is striking that growth spillovers are substantially greater from the US than from China, despite the latter's increasing importance in the world economy. Both domestic and foreign shocks have been important drivers of real exchange rate fluctuations, while the contribution of the latter has been relatively more important. The time-varying estimates provide some evidence of time-variation, with the greatest impact from China applying for about a decade from the mid-1990s, but also being relatively large in the latter part of our sample period.
    Keywords: C32, E32, F43, F44
    Date: 2013–07
  27. By: Boansi, David
    Abstract: This study presents an analysis of Ghana’s performance in export of cocoa using the revealed comparative advantage and revealed symmetric comparative advantage measures of competitiveness for the periods 1964-69 (immediate years following the collapse of world price of cocoa), 1983-92 (Reform and Adjustment Period) and 2000-2010 (recent decade). In addition, the magnitude and effects of key economic determinants of cocoa exports, production and farm gate price for Ghana are estimated. RCA and RSCA figures computed in the current study show that Ghana has comparative advantage in export of both raw and processed cocoa, with its advantage being higher in exports of the raw product. Ghana’s performance in export of cocoa has improved significantly since 1983. This observation is attributed to initiation of the Economic Recovery Program in 1983(which created the right conditions for agricultural investment and helped address inefficiencies in marketing and fiscal disciplines), the Agricultural Services Rehabilitation Project (ASRP) between 1987 and 1990 (which helped in strengthening the capacity of agricultural research, extension and policy planning), opening up of the domestic market to competition through partial liberalization of internal marketing from the early 1990s, establishment of a price stabilization system and continuous government support to the sector through increased public spending on infrastructure and productivity-enhancing innovations. Improvement in the export performance, anticipated increases in global demand and world price of cocoa, wide yield gap of Ghana, positive attitude of farmers towards supply of cocoa due to increased government support, and intensification of competition on the domestic market indicate potential for further improvement in Ghana’s production and export of cocoa. However, upon estimates obtained in the current study, to realize any further improvement in the performance of the cocoa subsector, measures should be put in place to bridge the wide yield gap, ensure continuous government support to various stakeholders in the supply chain, and tighten the loose border between Ghana and Côte d’Ivoire to help minimize smuggling in times of increasing farm gate price of cocoa in Côte d’Ivoire
    Keywords: Competitiveness, cocoa exports, value addition, determinants, government support, price stabilization, world price of cocoa, producer price of cocoa, cocoa production
    JEL: E6 F1 F11 F13 Q11 Q13 Q14 Q17 Q18
    Date: 2013–07–12

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