nep-mac New Economics Papers
on Macroeconomics
Issue of 2013‒09‒13
37 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Procyclical Debt as Automatic Stabilizer. By Wesselbaum, D.
  2. Smoothed Interest Rate Setting by Central Banks and Staggered Loan Contracts By Yuki Teranishi
  3. How Do Income and Bequest Taxes Affect Income Inequality? The Role of Parental Transfers By Osamu Nakamura
  4. Evaluating Quantitative Easing: A DSGE Approach By Falagiarda, Matteo
  5. The macroeconomics of trend inflation By Guido Ascari; Argia M. Sbordone
  6. FOMC forecasts as a focal point for private expectations By Paul Hubert
  7. Liquidity Effects of Central Banks' Asset Purchase Programs By Mahmoudi, Babak
  8. Business cycles in EU new member states: How and why are they different? By Marcin Kolasa
  9. International Monetary Transmission to the Euro Area: Evidence from the US, Japan and China By Vespignania, Joaquin L.; Ratti, Ronald A.
  10. Fixed versus Variable Rate Debt Contracts and Optimal Monetary Policy By Tatiana Kirsanova; Jack Rogers
  11. Do Exchange Rates Affect Inflation? Evidence from Emerging Market Economies By Baki Demirel; Baris Alpaslan; Emre Guneser Bozdag
  12. On the impact of the global financial crisis on the euro area By Ligthart, Jenny; He, Xiaoli; Jacobs, Jan; Kuper, Gerard
  13. Chinese Monetary Expansion and the US Economy By Vespignania, Joaquin L.; Ratti, Ronald A.
  14. Dynamic Effects of Credit Shocks in a Data-Rich Environment By Jean Boivin; Marc P. Giannoni; Dalibor Stevanovic
  15. Japan's Challenging Debt Dynamics By Yvan Guillemette; Jan Strasky
  16. The macro-dynamics of sorting between workers and firms By Jeremy Lise; Jean-Marc Robin
  17. An Analysis of Macroeconomic State and Prospects of Pakistan during Recent Global Financial Turmoil By Mahmood, Haroon; Rehman, Kashif-ur-
  18. A Growth Perspective on Foreign Reserve Accumulation. By Cheng, G.
  19. Monetary Transmission to UK Retail Mortgage Rates before and after August 2007 By Jack R. Rogers
  20. Modeling the impact of forecast-based regime switches on macroeconomic time series By Bel, K.; Paap, R.
  21. Controlled dismantlement of the Eurozone: A proposal for a New European Monetary System and a new role for the European Central Bank By Stefan Kawalec; Ernest Pytlarczyk
  22. Fiscal delegation in a monetary union with decentralized public spending By Henrique S. Basso; James Costain
  23. Assessing future sustainability of french public finances By Jérôme Creel; Paul Hubert; Francesco Saraceno,
  24. Regional and Sectoral Evidence of the Macroeconomic Effects of Labor Reallocation: A Panel Data Analysis By D. Bakas; T. Panagiotidis; G. Pelloni
  25. Measuring the effect of the zero lower bound on yields and exchange rates By Eric T. Swanson; John C. Williams
  26. Estimating the Preferences of Central Bankers: An Analysis of Four Voting Records By Eijffinger, S.C.W.; Mahieu, R.J.; Raes, L.B.D.
  27. Inflation fan charts and different dimensions of uncertainty. What if macroeconomic uncertainty is high? By Halina Kowalczyk
  28. The contribution of intangible assets to sectoral productivity growth in the EU By Niebel, Thomas; O'Mahony, Mary; Saam, Marianne
  29. Sovereign defaults, business cycles and economic growth in Latin America, 1870-2012 By Boonman, Tjeerd M.
  30. La macroeconomie à l'épreuve des faits By Jean Luc Gaffard
  31. A Working Paper Presenting a Profile of Revisions in the Current Employment Statistics Program By Kenneth W. Robertson,
  32. Leverage asset pricing By Tobias Adrian; Emanuel Moench; Hyun Song Shin
  33. The International Financial Crisis and China's Foreign Exchange Reserve Management By Wang, Yongzhong; Freeman, Duncan
  34. REALLOCATION IN THE GREAT RECESSION: CLEANSING OR NOT? By Lucia Foster; Cheryl Grim; John Haltiwanger
  35. Assessing the forecasting power of the leading composite index in Macedonia By Petreski, Marjan
  36. Exchange Rates and Fundamentals: Closing a Two-country Model By Kano, Takashi
  37. Collateral constraints and rental markets By d'Albis, Hippolyte; Iliopoulos, Eleni

  1. By: Wesselbaum, D.
    Abstract: This paper shows that government debt creates a so far neglected wealth effect that has sizable effects on business cycle fluctuations. We present a new channel through which governments can influence cyclical fluctuations generated by any type of shock and contribute to macroeconomic stability. We provide evidence for the United States that debt moves procyclical with output. Then, we build a Real Business Cycle model with Non-Ricardian agents and use rules to describe fiscal policy. We show that procyclical debt generates smaller fluctuations compared to countercyclical debt. The striking consequence is that classical Keynesian fiscal policy destabilizes the business cycle in our framework.
    Keywords: Debt, Fiscal Rules, Non-Ricardian Agents, SVAR.
    JEL: E32 E62 H3
    Date: 2013
  2. By: Yuki Teranishi
    Abstract: We investigate a new source of economic stickiness: namely, staggered loan interest rate contracts under monopolistic competition. The paper introduces this mechanism into a standard New Keynesian model. Simulations show that a response to a financial shock is greatly amplified by the staggered loan contracts though a response to a productivity, cost-push or monetary policy shock is not much affected. We derive an approximated loss function and analyse optimal monetary policy. Unlike other models, the function includes a quadratic loss of the first-order difference in loan rates. Thus, central banks have an incentive to smooth the policy rate.
    Keywords: Staggered loan interest rate, economic fluctuation, optimal monetary policy
    JEL: E32 E44 E52 G21
    Date: 2013–07
  3. By: Osamu Nakamura (International University of University)
    Abstract: This paper analyzes the effectiveness of non-traditional monetary policy measures implemented by the Bank of Japan (BOJ) based on the quantity theory of money. The reduced form equation regression results explain that quantity easing policy measures have very limited effects on the economy, especially on inflation under the zero lower bound on interest rates. Therefore, it is worth noting that stimulating the demand-side economy and hence money demand through credit creation is much important rather than the expansion of money stock under the zero percent interest rates policy. In other words, the new phase of monetary easing policy measures by the BOJ will not be effective to overcome the deflationary gap, although around one percent inflation will be observed in the second and third fiscal year, which is expected to be affected by rise in import price through yen depreciation, according to the scenario simulation in this study.
    Keywords: non-traditional mone tary policy, money multiplier, quantitative easing (QE), quantity theory of money, inflation target policy
    JEL: E43 E52 E58
    Date: 2013–08
  4. By: Falagiarda, Matteo
    Abstract: This paper develops a simple Dynamic Stochastic General Equilibrium (DSGE) model capable of evaluating the effect of large purchases of treasuries by central banks. The model exhibits imperfect asset substitutability between government bonds of different maturities and a feedback from the term structure to the macroeconomy. Both are generated through the introduction of portfolio adjustment frictions. As a result, the model is able to isolate the portfolio rebalancing channel of Quantitative Easing (QE). This theoretical framework is employed to evaluate the impact on yields and the macroeconomy of large purchases of medium- and long-term treasuries recently carried out in the US and UK. The results from the calibrated model suggest that large asset purchases of government assets had stimulating effects in terms of lower long-term yields, and higher output and inflation. The size of the effects is nevertheless sensitive to the speed of the exit strategy chosen by monetary authorities.
    Keywords: unconventional monetary policies, quantitative easing, DSGE models, asset prices
    JEL: E43 E44 E52 E58
    Date: 2013–09
  5. By: Guido Ascari; Argia M. Sbordone
    Abstract: Most macroeconomic models for monetary policy analysis are approximated around a zero-inflation steady state, but most central banks target inflation at a rate of about 2 percent. Many economists have recently proposed even higher inflation targets to reduce the incidence of the zero lower bound (ZLB) constraint on monetary policy. In this survey, we show the importance of appropriately accounting for a low, positive trend inflation rate for the conduct of monetary policy. We first review empirical research on the evolution and dynamics of U.S. trend inflation, as well as some proposed new measures to assess the volatility and persistence of trend-based inflation gaps. Then we construct a generalized New Keynesian model that accounts for a positive trend inflation rate. We find that, in this model, higher trend inflation is associated with a more volatile and unstable economy and tends to destabilize inflation expectations. This analysis offers a note of caution in evaluating recent proposals to address the existing ZLB situation by raising the underlying rate of inflation.
    Keywords: Inflation (Finance) ; Monetary policy ; Inflation targeting
    Date: 2013
  6. By: Paul Hubert (Ofce sciences-po)
    Abstract: We explore empirically the theoretical prediction that public information acts as a focal point in the context of the US monetary policy. We aim at establishing whether the publication of FOMC inflation forecasts affects the cross-sectional dispersion of private inflation expectations. Our main finding is that publishing FOMC inflation forecasts has a negative effect on the cross-sectional dispersion of private current-year inflation forecasts. This effect is found to be robust to another survey dataset and to various macroeconomic controls. Moreover, we find that the dispersion of private inflation forecasts is not affected by the dispersion of views among FOMC members.
    Keywords: monetary policy,central bank communication,public information, survey expectations,dispersion
    JEL: E52 E58 E37
    Date: 2013–07
  7. By: Mahmoudi, Babak
    Abstract: I construct a model of the monetary economy, in which different assets provide liquidity services. Assets differ in terms of the liquidity services they provide, and money is the most liquid asset. The central bank can implement policies by changing the relative supply of money and other assets. I show that the central bank can change the overall liquidity and welfare of the economy by changing the relative supply of assets with different liquidity characteristics. A liquidity trap exists away from the Friedman rule that has a positive real interest rate; the central bank's asset purchase/sale programs may be ineffective in instances of low enough inflation rates. My model also enables me to study the welfare effects of a restriction on trade with government bonds.
    Keywords: Open-Market Operation, Liquidity Effects, Liquidity Trap
    JEL: E0 E4 E5
    Date: 2013–06–21
  8. By: Marcin Kolasa (National Bank of Poland, Warsaw School of Economics)
    Abstract: This paper uses the business cycle accounting framework to investigate the differences between economic fluctuations in Central and Eastern European (CEE) countries and the euro area. We decompose output movements into the contributions of four economic wedges, affecting the production technology, the agents’ intra- and intertemporal choices, and the aggregate resource constraint. We next analyze the observed cross-country differences in business cycles with respect to these four identified wedges. Our results indicate that business cycles in the CEE countries do differ from those observed in the euro area, even though substantial convergence has been achieved after the eastern EU enlargement. The major differences concern the importance of the intraand intertemporal wedges, which account for a larger proportion of output fluctuations in the CEE region and also exhibit relatively little comovement with their euro area counterparts.
    Keywords: business cycle accounting; business cycle synchronization
    JEL: E32 F44
    Date: 2013
  9. By: Vespignania, Joaquin L. (School of Economics and Finance, University of Tasmania); Ratti, Ronald A. (School of Business, University of Western Sydney)
    Abstract: There are marked differences in the effect of increases in monetary aggregates in China, Japan and the U.S. on Euro area economic and financial variables over 1999-2012. Increases in monetary aggregates in China are associated with significant increases in the world price of commodities and with increases in Euro area inflation, industrial production and exports. Results are consistent with shocks to China’s M2 facilitating domestic growth with expansionary consequences for the Euro area economy. In contrast, increases in monetary aggregates in Japan are associated with significant appreciation of the Euro and decreases in Euro area industrial production and exports. Production of goods highly competitive with European goods in Japan and expenditure switching in Japan are consistent with the results. U.S. monetary expansion has relatively small effects on the Euro area over this period compared to results reported in the literature for earlier sample periods.
    Keywords: International monetary transmission, China’s monetary aggregates, Euro area Commodity prices
    JEL: E52 E58 F31 F42
    Date: 2013–08–05
  10. By: Tatiana Kirsanova (University of Glasgow); Jack Rogers (Department of Economics, University of Exeter)
    Abstract: What role does the proportion of fixed versus variable rate debt contracts play in the macroeconomy? We explore this issue by integrating borrowing-constrained households with a quantity-optimising banking sector that lends under either fixed or variable rates. Our framework is then used to investigate the relationships between the structure of debt contracts and monetary policy. In particular, we study the propagation of productivity shocks in the non-durable sector under Ramsey monetary policy. The introduction of overlapping debt contracts tempers the effect of the financial multiplier and reduces the deterministic component of social welfare, but we also show that an appropriate design of debt contracts, including both their length and their interest rate composition, can reduce volatility of the key economic variables, in such a way that the financial sector can play a stabilising role in the economy. We demonstrate that an intermediate ratio of fixed- and variable-rate debt contracts is socially optimal.
    Keywords: Optimal Monetary Policy, Fixed Rate Debt, Durable Goods, Collateral Constraints, Financial Accelerator.
    JEL: E52
    Date: 2013
  11. By: Baki Demirel (University of Gaziosmanpasa, Faculty of Economics and Administrative Sciences, Economics); Baris Alpaslan (University of Manchester, School of Social Sciences, Economics); Emre Guneser Bozdag (University of Gazi, Faculty of Economics and Administrative Sciences, Economics)
    Abstract: After 1980s, chronic inflation in Turkey has shaken the confidence in the domestic currency, and thus operating debit-credit transactions through dollars. The aim of this study is to analyse the impact of exchange rate pass-through into inflation in both Turkey and emerging market economies that were highly dollarized and shifted to a flexible exchange rate regime, together with inflation targeting policy in an attempt to switch to the advanced economy, and to examine whether stabilization programs under flexible exchange rate regimes and particularly inflation targeting policy may eliminate dollarization in the periods 1995-2001 and 2002-2010.
    Keywords: De-Dollarization, Inflation Targeting, Exhange Rate Pass-Through
    JEL: E42 E52 E58
    Date: 2013–09
  12. By: Ligthart, Jenny; He, Xiaoli; Jacobs, Jan; Kuper, Gerard (Groningen University)
    Abstract: This paper analyses the impact of the Global Financial Crisis on the Euro area utilizing a simple dynamic macroeconomic model with interaction between monetary policy and fiscal policy. The model consists of an IS curve, a Phillips curve, a term structure relation, a debt accumulation equation and a Taylor monetary policy rule supplemented with a Zero Lower Bound, and a fiscal policy rule. The model is alibrated/estimated for EU-16 countries for the period 1980Q1-2009Q4. The impact of the Global Financial Crisis is studied by means of impulse responses following a combined, prolonged aggregate demand and public debt shock. The simulation mimicking the GFC turns out to work fairly well. However, the required size of the shock is quite large.
    Date: 2013
  13. By: Vespignania, Joaquin L. (School of Economics and Finance, University of Tasmania); Ratti, Ronald A. (School of Business, University of Western Sydney)
    Abstract: This paper examines the influence of monetary shocks in China on the U.S. economy over 1996-2012. The influence on the U.S. is through the sheer scale of China’s growth through effects in demand for imports, particularly that of commodities. China’s growth influences world commodity/oil prices and this is reflected in significantly higher inflation in the U.S. China’s monetary expansion is also associated with significant decreases in the trade weighted value of the U.S. dollar that is due to the operation of a pegged currency. China manages the exchange rate and has extensive capital controls in place. In terms of the Mundell–Fleming model, with imperfect capital mobility, sterilization actions under a managed exchange rate permit China to pursue an independent monetary policy with consequences for the U.S.
    Keywords: Keywords: International monetary transmission, China’s monetary aggregates
    JEL: E52 F41 F42
    Date: 2013–08–05
  14. 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.
    Keywords: Credit shock, structural factor analysis
    JEL: E32 E44 C32
    Date: 2013
  15. By: Yvan Guillemette; Jan Strasky
    Abstract: This working paper presents the background and the details of the simulations behind Box 1.4 of the May 2013 OECD Economic Outlook. A small simulation model is used to evaluate the contribution that the three pillars of the government’s strategy – fiscal consolidation, growth-boosting structural reforms and higher inflation – could make to reversing the rise in Japan’s public debt ratio, currently about 230% of GDP. The findings indicate that fiscal consolidation amounting to around 10 percentage points of GDP is necessary by 2020 to eliminate the primary deficit, as targeted in the current medium-term fiscal strategy. With moderately higher growth coming from increased female labour force participation and higher productivity growth, as well as inflation gradually rising to 2% thanks to unconventional monetary policy measures, the debt ratio would likely be put on a resolute downward trajectory by the end of this decade, although it is likely to remain around 200% of GDP in 2035.<P>L'inquiétante évolution de la dette publique au Japon<BR>Ce document de travail présente la toile de fond et les détails des simulations derrière l’encadré 1.4 du numéro de Mai 2013 des Perspectives économiques de l’OCDE. Un modèle de simulation de petite taille est utilisé pour évaluer dans quelle mesure les trois piliers de la stratégie gouvernementale – consolidation budgétaire, réformes structurelles pour doper la croissance et inflation plus élevée – pourraient contribuer à renverser l’évolution du ratio d’endettement publique au Japon, actuellement autour de 230% du PIB. Les résultats indiquent qu’environ 10 points de PIB de consolidation budgétaire sont nécessaires d’ici 2020 pour éliminer le déficit primaire, tel que prévue par la stratégie fiscale à moyen terme. Avec une croissance accrue due à une augmentation de la participation des femmes au marché du travail, et à une inflation plus élevée due aux mesures de politique monétaire non conventionnelles, le ratio d’endettement serait vraisemblablement sur une pente résolument descendante d’ici la fin de la décennie, bien qu’il demeurerait quand même autour de 200% en 2035.
    Keywords: growth, Japan, simulation, inflation, deficit, debt, consolidation, fiscal, reform, arrow, budget, projection, croissance, budget, Japon, simulation, inflation, déficit, projections, dette, consolidation, fiscal, réforme, flèche
    JEL: E63 H68
    Date: 2013–08–14
  16. By: Jeremy Lise (Institute for Fiscal Studies and University College London); Jean-Marc Robin (Institute for Fiscal Studies and Sciences Po)
    Abstract: We develop an equilibrium model of on-the-job search with ex-ante heterogeneous workers and firms, aggregate uncertainty and vacancy creation. The model produces rich dynamics in which the distributions of unemployed workers, vacancies and worker-firm matches evolve stochastically over time. We prove that the surplus function, which fully characterises the match value and the mobility decision of workers, does not depend on these distributions. We estimate the model on US labour market data from 1951-2007 and predict the fit for 2008-12. We use the model to measure the cyclicality of mismatch between workers and jobs.
    Keywords: On-the-job search, heterogeneity, aggregate fluctuations, mis-match
    JEL: E24 E32 J63 J64
    Date: 2013–08
  17. By: Mahmood, Haroon; Rehman, Kashif-ur-
    Abstract: The overall economic situation of the world is facing a threat with a deep and prolonged recession as the consequence of the squeeze in the fiscal system which was triggered by housing mortgage crisis in the United States. The importunate financial ramification of the worldwide macroeconomic inequality smoothed the progress of the expansion of the housing fizz with the amplification of toxic assets that burst in September 2008 as many of the major investment and commercial banks and leasing institutions collapsed. This study aims to contribute in summarizing these events and the diffusion of this financial turmoil through the advanced economies like United States and the Eurozone to the developing economy of Pakistan. The paper analyzes specifically Pakistan’s current macroeconomic situation during this financial crisis. It also discusses the consequences of the surge in food and oil prices. This study also evaluates the government’s response to the deteriorating conditions and proposes a number of policy measures.
    Keywords: Macroeconomic situation, Financial turmoil, Recession, Housing bubble. Government response
    JEL: E66
    Date: 2013–08–25
  18. By: Cheng, G.
    Abstract: Based on a dynamic open-economy macroeconomic model, this paper aims at understanding the contribution of domestic financial underdevelopment to foreign reserve accumulation in some emerging market economies, especially in China. It is argued that foreign reserve accumulation is part and parcel of a growth strategy based on strong capital investment in a financially constrained economy. It is further proved using a Ramsey problem that purchasing international reserves is a welfare-improving policy in terms of production efficiency gains if it is jointly used with capital controls. In fact, when domestic firms are occasionally credit-constrained and they do not have a direct access to international financial market, they need domestic saving instruments to increase their retained earnings so that they can sufficiently invest in capital. The central bank plays the role of financial intermediary and provides domestic firms with liquid public bonds, thus relaxing domestic financial constraints. The proceeds of domestic public bonds are invested abroad due to the limited scope of domestic financial market and a depressed domestic interest rate, leading to foreign reserve stockpiling. The speed of foreign reserve accumulation would slow down once the economic growth rate decelerates and the domestic financial market develops.
    Keywords: Foreign reserves, capital controls, credit constraints, domestic savings, capital investment, economic growth, Chinese economy.
    JEL: E22 F31 F41 F43
    Date: 2013
  19. By: Jack R. Rogers (Department of Economics, University of Exeter)
    Abstract: This paper investigates the transmission from UK policy and a range of wholesale money market rates to retail mortgage rates using the long-run estimator proposed by Phillips and Loretan (1991), with a single-equation error correction model (SEECM) framework, from 1995 to 2009. I document the economy-wide effect of the financial market turmoil since August 2007, and show how this has altered long- and short-term relationships. In the long-run there is evidence of a contrast between the discounted mortgage rates that banks may use to initially attract customers, and standard variable rates, with pass-through complete for the former but not for the latter. For fixed rate mortgages, pass-through is generally complete. Since the crisis, for eight of the seventeen estimated relationships I find strong evidence in the long-run of both a significant jump in equilibrium spreads, and a fall in pass-through, whilst in the short-run there is a considerable weakening of the process that re-adjusts retail rates back towards their equilibrium with the money market. Although I do not find strong statistical evidence for an asymmetric re-adjustment process before August 2007, retail mortgage rates generally take considerably longer to move back towards their equilibrium with wholesale rates during times when they are relatively expensive. These results add to previous studies by showing that the UK retail banking sector is imperfectly competitive at the aggregate level, and also suggest that discounted rates are used as a highly competitive loss-leader product.
    Keywords: Mortgage Rates, Monetary Transmission, Error Correction Model.
    JEL: E43 E52
    Date: 2013
  20. By: Bel, K.; Paap, R.
    Abstract: Forecasts of key macroeconomic variables may lead to policy changes of governments, central banks and other economic agents. Policy changes in turn lead to structural changes in macroeconomic time series models. To describe this phenomenon we introduce a logistic smooth transition autoregressive model where the regime switches depend on the forecast of the time series of interest. This forecast can either be an exogenous expert forecast or an endogenous forecast generated by the model. Results of an application of the model to US inflation shows that (i) forecasts lead to regime changes and have an impact on the level of inflation; (ii) a relatively large forecast results in actions which in the end lower the inflation rate; (iii) a counterfactual scenario where forecasts during the oil crises in the 1970s are assumed to be correct leads to lower inflation than observed.
    Keywords: forecasting;nonlinear time series;inflation;regime switching
    Date: 2013–08–08
  21. By: Stefan Kawalec (Capital Strategy Sp. z o. o.); Ernest Pytlarczyk (BRE Bank S.A.)
    Abstract: In Kawalec and Pytlarczyk (2013), we argue that the single European currency constitutes a serious threat to the European Union and the Single European Market,and we propose a controlled dismantlement of the Eurozone. In this paper, we undertake a deeper analysis of the measures which would minimize the risks throughout the process of the Eurozone dismantlement and contribute to rebuilding confidence in the future of Europe. · The dismantlement should be the result of a consensual decision to replace the euro with an alternative system of currency coordination. · The dismantlement should start with the exit of the most competitive countries. In the meantime, the euro should remain the common currency of less competitive countries. · The European Central Bank (ECB) should be preserved as the central bank for all 17 Eurozone member countries, even after some of those countries have replaced the euro with new currencies. In this capacity, the ECB should be in charge of designing,preparing, and implementing the segmentation of the Eurozone as well as managing the new currency coordination system – European Monetary System 2. · The forthcoming EU – USA free trade agreement would build new momentum for economic growth and contribute to restoring confidence in the future of Europe. As of today, neither the member states of the Eurozone nor European institutions such as the European Commission or the ECB have been able to come up with a game-changing proposal such as the Eurozone dismantlement. However, this may change as a result of adverse economic and political developments. One of the potential triggers could be the situation in France. Classification-JEL: E5, E58, F15, F31, G18
    Keywords: Eurozone crisis; Euro breakup; European Central Bank; Dismantlement of the Eurozone; currency coordination; European Monetary System 2.
    Date: 2013
  22. By: Henrique S. Basso (Banco de España); James Costain (Banco de España)
    Abstract: This paper studies the effects of delegating control of sovereign debt issuance to an independent authority in a monetary union where public spending decisions are decentralized. The model assumes that no policy makers are capable of commitment to a rule. However, consistent with Rogoff (1985) and with the recent history of central banking, it assumes that an institution may be designed to have a strong preference for achieving some clear, simple, quantitative policy goal. Following Beetsma and Bovenberg (1999), we show that in a monetary union where a single central bank interacts with many member governments, debt is excessive relative to a social planner’s solution. We extend their analysis by considering the establishment of an independent fiscal authority (IFA) mandated to maintain long-run budget balance. We show that delegating sovereign debt issuance to an IFA in each member state shifts down the time path of debt, because this eliminates aspects of deficit bias inherent in democratic politics. Delegating to a single IFA at the union level lowers debt further, because common pool problems across regions’ deficit choices are internalized. The establishment of a federal government with fiscal powers over the whole monetary union would be less likely to avoid excessive deficits, because only the second mechanism mentioned above would apply. Moreover, the effective level of public services would be lower, if centralized spending decisions are less informationally efficient
    Keywords: fi scal authority, delegation, decentralization, monetary union, sovereign debt
    JEL: E61 E62 F41 H63
    Date: 2013–09
  23. By: Jérôme Creel (Ofce sciences-po,Escp Europe); Paul Hubert (Ofce sciences-po); Francesco Saraceno, (Ofce sciences-po,Luiss school of european political economy Italy)
    Abstract: This paper contributes to the debate on the French public finances'consolidation by investigating the long-term sustainability of France’s fiscal position. We trace the historical trends of government’s tax receipts and expenditures. We find that while the level of public expenditure in France is larger than in the rest of the Euro Area (mostly because of public wages and social benefits), its trend is comparable to its neighbours. Net lending is also under control, thanks to the high levels of taxation, so that we see no real risk of future unsustainability. However, the French tax system is unfair, is not sufficiently progressive, and is too complex. The paper then proceeds to assess the future of France’s public finances on the basis of the current debate on the Euro Area fiscal rules. We report two analyses theoretical and empirical that project the inflation rate and output gap paths for the next twenty years. We finally assess fiscal rules on this ground. The ‘fiscal compact’ fares rather poorly compared to the alternative rules that we assess.
    Keywords: deficits,debts,debt management,fiscal rules,fiscale compact,golden rule
    JEL: E62 E63 H61 H68
    Date: 2013–07
  24. By: D. Bakas; T. Panagiotidis; G. Pelloni
    Abstract: This paper re-examines Lilien’s sectoral shifts hypothesis for U.S. unemployment. We employ a monthly panel that spans from 1990:01 to 2011:12 for 48 U.S. states. Panel unit root tests that allow for crosssectional dependence reveal the stationarity of unemployment. Within a framework that takes into account dynamics, parameter heterogeneity and cross-sectional dependence in the panel, we show that sectoral reallocation is significant not only at the aggregate level but also at the state level. The magnitude and the statistical significance of the latter as measured by Lilien’s index increases when both heterogeneity and cross-sectional dependence are taken into account.
    JEL: C33 E24 E32 J21 R23
    Date: 2013–09
  25. By: Eric T. Swanson; John C. Williams
    Abstract: The zero lower bound on nominal interest rates began to constrain many central banks’ setting of short-term interest rates in late 2008 or early 2009. According to standard macroeconomic models, this should have greatly reduced the effectiveness of monetary policy and increased the efficacy of fiscal policy. However, these models also imply that asset prices and private-sector decisions depend on the entire path of expected future short-term interest rates, not just the current level of the monetary policy rate. Thus, interest rates with a year or more to maturity are arguably more relevant for asset prices and the economy, and it is unclear to what extent those yields have been affected by the zero lower bound. In this paper, we apply the methods of Swanson and Williams (2013) to medium- and longer-term yields and exchange rates in the U.K. and Germany. In particular, we compare the sensitivity of these rates to macroeconomic news during periods when short-term interest rates were very low to that during normal times. We find that: 1) USD/GBP and USD/EUR exchange rates have been essentially unaffected by the zero lower bound, 2) yields on German bunds were essentially unconstrained by the zero bound until late 2012, and 3) yields on U.K. gilts were substantially constrained by the zero lower bound in 2009 and 2012, but were surprisingly responsive to news in 2010–11. We compare these findings to the U.S. and discuss their broader implications.
    Keywords: Interest rates ; Monetary policy
    Date: 2013
  26. By: Eijffinger, S.C.W.; Mahieu, R.J.; Raes, L.B.D. (Tilburg University, Center for Economic Research)
    Abstract: Abstract: This paper analyzes the voting records of four central banks (Sweden, Hungary, Poland and the Czech Republic) with spatial models of voting. We infer the policy preferences of the monetary policy committee members and use these to analyze the evolution in preferences over time and the differences in preferences between member types and the position of the Governor in different monetary policy committees.
    Keywords: Ideal points;Voting records;Central Banking;NBP;CNB;MNB;Riksbank.
    JEL: E58 E59 C11
    Date: 2013
  27. By: Halina Kowalczyk (National Bank of Poland, Economic Institute)
    Abstract: The paper discusses problems associated with communicating uncertainty by means of ‘fan charts’, used in many central banks for presenting density forecasts of inflation and other macroeconomic variables. Limitations of fan charts in the case of high macroeconomic uncertainty are shown. Issues related to definition of uncertainty are addressed, stressing the need to distinguish between statistical model errors and uncertainty due to lack of knowledge. Modifications of the standard methods of constructing fan charts are suggested. The proposed approach is based on t wo d istributions, o ne of w hich is s ubjective and describes possible macroeconomic scenarios, while the other describes model errors. Total uncertainty is represented as a mixture distribution or density convolution. The proposed approach, although it is a mix of judgment and statistics, allows preserving information about scenarios and separating in the analysis different types of uncertainties.
    Date: 2013
  28. By: Niebel, Thomas; O'Mahony, Mary; Saam, Marianne
    Abstract: In this paper we report on new data on intangible investment at the level of 1-digit NACE industries of 10 EU countries. The data are constructed as a sectoral breakdown of the INTANInvest database, which contains measures of intangible investment at the level of the aggregate business sector. With the sectoral data we assess the contribution of intangibles to productivity growth based on growth accounting and econometric estimation of production functions. The growth accounting contribution of intangibles to labor productivity growth is generally highest in manufacturing and finance. The estimated output elasticity of intangibles lies between 0.1 and 0.2, considerably below values found in previous research using aggregate data. --
    Keywords: Intangible Assets,Labor Productivity,Growth Accounting,Panel Regressions
    JEL: E22 J24 O47
    Date: 2013
  29. By: Boonman, Tjeerd M. (Groningen University)
    Abstract: Sovereign debt crises have regained attention since the recent crises in several European countries. This paper focuses on a particular aspect of the debt crisis literature: the impact of sovereign default on economic growth. Previous research agrees on the negative impact, but not on size and duration. We are particularly interested in the heterogeneity of crisis impacts: Why are some crises deeper and longer than others? And what is the role of business cycles? We analyze four Latin American countries (Argentina, Brazil, Chile and Mexico) for the period 1870-2012, covering 14 sovereign debt defaults. We find that most sovereign defaults start in recessions, and in unfavorable international circumstances. Economic growth is heavily affected in the year of the default and the year after. Then economic growth picks up, but recovery is far from smooth, including periods of recurrent negative growth. We observe strong heterogeneity in the impact, which we attribute to commodity price changes, economic growth and government expenditure in the run-up to the crisis.
    Date: 2013
  30. By: Jean Luc Gaffard (Ofce sciences-po, University de Nice Sophia Antipolis,Skema Business School)
    Abstract: L’objet de cet article est de proposer une lecture de l’évolution des faits et des idées économiques, dans la perspective de montrer que les vieilles idées resurgissent sous de nouveaux atours, au point d’en cacher les lacunes et de rendre les crises,non seulement, difficiles à prévoir, mais même à imaginer.Vouloir incriminer la seule finance et l’incapacité des économistes d’en cerner les véritables arcanes pour les expliquer ne saurait suffire, pas plus d’ailleurs que ne le saurait la tentative de construire une macroéconomie pour temps de crise différente de celle pour temps calmes. Les crises ne viennent pas de nulle part.Elles sontle fruit d’une longue maturation dont les clés sont difficilement perceptibles par temps calme,mais existent bel et bien
    Keywords: Chômage,crise,dépression,inflation
    JEL: E
    Date: 2013–09
  31. By: Kenneth W. Robertson, (U.S. Bureau of Labor Statistics)
    Abstract: The Current Employment Statistics (CES) survey, conducted by the U.S. Bureau of Labor Statistics, is a large monthly survey of businesses that produces timely estimates of employment, hours, and earnings by industry and geographic area. The survey produces estimates about three weeks after the week that includes the 12th of the month, and then produces revised estimates for the same reference period as additional responses for that reference period are collected over the next two months. This paper examines the distribution of response by several characteristics, and provides profiles of monthly revisions at the national, state, and metropolitan area level.
    Keywords: Bureau of Labor Statistics, Current Employment Statistics, response, revisions
    JEL: E24
    Date: 2013–08
  32. By: Tobias Adrian; Emanuel Moench; Hyun Song Shin
    Abstract: We investigate intermediary asset pricing theories empirically and find strong support for models that have intermediary leverage as the relevant state variable. A parsimonious model that uses detrended dealer leverage as a price-of-risk variable, and innovations to dealer leverage as a pricing factor, is shown to perform well in time series and cross-sectional tests of a wide variety of equity and bond portfolios. The model outperforms alternative specifications of intermediary pricing models that use intermediary net worth as a state variable, and it performs well in comparison to benchmark asset pricing models. We draw implications for macroeconomic modeling.
    Keywords: Asset pricing ; Intermediation (Finance) ; Macroeconomics ; Financial leverage
    Date: 2013
  33. By: Wang, Yongzhong; Freeman, Duncan
    Abstract: The US financial crisis and subsequent European sovereign debt crisis not only constitute serious threats to the security of China’s foreign exchange reserves, but also provide an advantageous opportunity for China to change its ideas on foreign exchange reserve management. First, according to rules of thumb, the authors assess the optimal size of China’s foreign exchange reserves in terms of short-term external debt, imports and domestic liquid assets. Second, the paper estimates the asset structure of China’s foreign reserves based on the statistics on China’s holding of US and Japanese securities. Third, the authors calculate the People’s Bank of China sterilization costs from the perspective of issuing central bank notes and raising required reserve ratios. Fourth, the paper measures the total and net investment yield of China’s foreign reserves in terms of nominal dollars, real dollars (dollar index) and nominal renminbi. Finally, the authors put forward suggestions on how to accelerate the diversification of China’s international reserves.
    Keywords: International financial crisis, foreign exchange reserves, management, diversification.
    JEL: E58 F31 G18
    Date: 2013–03–29
  34. By: Lucia Foster; Cheryl Grim; John Haltiwanger
    Abstract: The high pace of output and input reallocation across producers is pervasive in the U.S. economy. Evidence shows this high pace of reallocation is closely linked to productivity. Resources are shifted away from low productivity producers towards high productivity producers. While these patterns hold on average, the extent to which the reallocation dynamics in recessions are “cleansing” is an open question. That is, are recessions periods of increased reallocation that move resources away from lower productivity activities towards higher productivity uses? It could be recessions are times when the opportunity cost of time and resources are low implying recessions will be times of accelerated productivity enhancing reallocation. Prior research suggests the recession in the early 1980s is consistent with an accelerated pace of productivity enhancing reallocation. Alternative hypotheses highlight the potential distortions to reallocation dynamics in recessions. Such distortions might arise from many factors including, for example, distortions to credit markets. We find that in post-1980 recessions prior to the Great Recession, downturns are periods of accelerated reallocation that is even more productivity enhancing than in normal times. In the Great Recession, we find the intensity of reallocation fell rather than rose (due to the especially sharp decline in job creation) and the reallocation that did occur was less productivity enhancing than in prior recessions.
    Date: 2013–08
  35. By: Petreski, Marjan
    Abstract: The objective of the paper is to evaluate the forecasting power of the leading composite index of Macedonia. The leading index is a weighted index of indicators which are considered to lead the economic cycle. The main dynamic model in which, first, GDP is represented as autoregressive process, and then lags of the leading index are added, is used to measure the forecasting error behavior with the addition of the leading index and with the imposition of larger time span in the model. The main finding is that the inclusion of the leading index in the model reduces the forecasting error. The forecasting time of the leading composite index in Macedonia is found to be between one and two quarters.
    Keywords: economic cycle, leading index, root mean squared forecasting error, Macedonia, distributed lags model
    JEL: E37
    Date: 2013–09–01
  36. By: Kano, Takashi
    Abstract: In an influential paper, Engel and West (2005) claim that the near random-walk behavior of nominal exchange rates is an equilibrium outcome of a variant of present-value models when economic fundamentals follow exogenous first-order integrated processes and the discount factor approaches one. Subsequent empirical studies further confirm this proposition by estimating a discount factor that is close to one under distinct identification schemes. In this paper, I argue that the unit market discount factor implies the counterfactual joint equilibrium dynamics of random-walk ex-change rates and economic fundamentals within a canonical, two-country, incomplete market model. Bayesian posterior simulation exercises of a two-country model based on post-Bretton Woods data from Canada and the United States reveal difficulties in reconciling the equilibrium random-walk proposition within the two-country model; in particular, the market discount factor is identified as being much lower than one.
    Keywords: Exchange rates, Present-value model, Economic fundamentals, Random walk, Two- country model, Incomplete markets, Cointegrated TFPs, Debt elastic risk premium
    JEL: E31 E37 F41
    Date: 2013–09
  37. By: d'Albis, Hippolyte; Iliopoulos, Eleni
    Abstract: We study a benchmark model with collateral constraints and heterogeneous discounting. Contrarily to a rich literature on borrowing limits, we allow for rental markets. By incorporating this missing market, we show that impatient agents choose to rent rather than to own the collateral in the neighborhood of the deterministic steady state. Consequently, impatient agents are not indebted and borrowing constraints play no role in local dynamics.
    Keywords: heterogeneous discounting, collateral constraints, rental market, credit market.
    JEL: E30 R31
    Date: 2013–09–03

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