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on Macroeconomics |
|
Issue of 2013‒09‒26
sixty-four papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Nilavongse, Rachatar |
| Abstract: | This paper studies the effects of credit supply disruptions in a dynamic stochastic general equilibrium (DSGE) framework. First, this paper examines the effects of credit supply disruptions in the business sector. The model with financially constrained households generates a bigger decline in aggregate consumption and GDP than the model without financially constrained households. The reason is that the spillover effect from the business sector to the household sector occurs through a labor income channel. With financially constrained households in the model, a collateral channel strengthens the spillover effects and amplifies business cycles. Then this paper examines the effects of credit supply disruptions in the household sector. A tightening of household credit conditions causes a substantial drop in aggregate consumption, which pushes inflation downward. Debt deflation further depresses consumption, labor demand, and investment, altogether generating a sharp decline in GDP. -- |
| Keywords: | financially constrained households,entrepreneurs,credit conditions,spillover effects,housing prices,collateral value |
| JEL: | E31 E32 E44 G01 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201348&r=mac |
| By: | Olivier J. Blanchard; Giovanni Dell'Ariccia; Paolo Mauro |
| Abstract: | This note explores how the economic thinking about macroeconomic management has evolved since the crisis began. It discusses developments in monetary policy, including unconventional measures; the challenges associated with increased public debt; and the policy potential, risks, and institutional challenges associated with new macroprudential measures. Rationale: The note contributes to the ongoing debate on several aspects of macroeconomic policy. It follows up on the earlier “Rethinking†paper, refining the analysis in light of the events of the past two years. Given the relatively fluid state of the debate (e.g., recent challenges to central bank independence), it is useful to highlight that while many of the tenets of the pre-crisis consensus have been challenged, others (such as the desirability of central bank independence) remain valid. |
| Keywords: | Monetary policy;Central banks;Inflation targeting;Liquidity;Interest rates;Capital flows;Fiscal policy;Public debt;Fiscal consolidation;Macroprudential Policy;Stabilization measures;Monetary policy, Inflation targets, Zero lower bound, Fiscal consolidation, Fiscal multipliers, Financial stability, Macroprudential policy |
| Date: | 2013–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfsdn:13/003&r=mac |
| By: | Hui Chen; Michael Michaux; Nikolai Roussanov |
| Abstract: | We estimate a structural model of household liquidity management in the presence of long-term mortgages. Households face counter-cyclical idiosyncratic labor income uncertainty and borrowing constraints, which affect optimal choices of leverage, precautionary saving in liquid assets and illiquid home equity, debt repayment, mortgage refinancing, and default. Taking the observed historical path of house prices, aggregate income, and interest rates as given, the model quantitatively accounts for the run-up in household debt and consumption boom prior to the financial crisis, their subsequent collapse, and mild recovery following the Great Recession, especially among the most constrained households. |
| JEL: | E21 E44 G21 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19421&r=mac |
| By: | Fatás, Antonio; Mihov, Ilian |
| Abstract: | The recovery from the last recession has been slower than any other recovery in the post-WWII period both in the US and in many other advanced economies. There is an ongoing debate around the causes of such a slow recovery. Are there any structural factors that are constraining the speed of recovery? Is it simply that recoveries from financial crises are slower than others? How should monetary and fiscal policy act in these circumstances? In this debate, there is a constant reference to a recovery phase in the business cycle, but such a phase is absent in the most-accepted methodology to characterize business cycles: that of the NBER business cycle dating committee. This paper explores data from the US to characterize and date a recovery phase in the business cycle. Rather than interpreting fluctuations as a two-phase cycle, we describe it as a succession of three distinct phases: expansions, recessions and recoveries. We discuss alternative methods to identify recoveries and provide a discussion of the potential benefits from using a proper definition of the recovery phase. |
| Keywords: | Business Cycles; NBER Business Cycles Dating Committee; Recessions; Recoveries |
| JEL: | E32 E50 E60 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9551&r=mac |
| By: | Axel Löffler; Gunther Schnabl (Institute for Economic Policy, University of Leipzig); Franziska Schobert |
| Abstract: | Given low interest rates in the large industrial countries and buoyant capital inflows into the emerging markets East Asian central banks have accumulated large stocks of foreign reserves. As the resulting easing of monetary conditions has become a threat to domestic price and financial stability, the East Asian central banks have embarked on substantial sterilization operations to absorb what we call 'surplus liquidity' from the domestic banking systems. This has brought the East Asian central banks into debtor positions versus the domestic banking systems. We show based on a central bank loss function that given buoyant capital inflows and exchange rate stabilization the absorption of surplus liquidity leads either to financial repression, or rising inflation or both. Assuming that a debtor central bank moved towards a freely floating exchange rate to gain monetary policy independence, we show that monetary policy independence is undermined by sterilization costs and revaluation losses on foreign reserves. |
| Keywords: | Debtor Central Banks, Monetary Policy Autonomy, Sterilization, Exchange Rate Regime, East Asia |
| JEL: | E52 E58 F31 |
| Date: | 2013–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:hlj:hljwrp:48-2013&r=mac |
| By: | Ahmad Naimzada; Marina Pireddu |
| Abstract: | In this paper we show how a rich variety of dynamical behaviors can emerge in the standard Keynesian income-expenditure model when a nonlinearity is introduced, both in the cases with and without endogenous government spending. A specific sigmoidal functional form is used for the adjustment mechanism of income with respect to the excess demand, in order to bound the income variation. With the aid of analytical and numerical tools, we investigate the stability conditions, bifurcations, as well as periodic and chaotic dynamics. Globally, we study multistability phenomena, i.e., the coexistence of different kinds of attractors. |
| Keywords: | nonlinearities, complex dynamics, Keynesian model, business cycle, fiscal policy |
| JEL: | C62 E12 E32 E62 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:254&r=mac |
| By: | Francesco Lippi (University of Sassari and EIEF); Stefania Ragni (University of Sassari); Nicholas Trachter (EIEF) |
| Abstract: | We study the optimal anticipated monetary policy in a flexible-price economy featuring heterogenous agents and incomplete markets which give rise to a business cycle. The optimal policy prescribes monetary expansions in recessions, when insurance is most needed by cash-poor unproductive agents. To minimize the inflationary effect of these expansions the policy prescribes monetary contractions in good times. Although the optimal monetary policy varies greatly through the business cycle it "echoes" Friedman's principle in the sense that the money supply is regulated such that its expected real return approaches the rate of time preference. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:eie:wpaper:1324&r=mac |
| By: | Hansen, Stephen; McMahon, Michael |
| Abstract: | We provide the first direct empirical support for the relevance of signalling in monetary policy. In our dynamic model, central bankers make policy under uncertain inflationary conditions and place different weights on output fluctuations. Signalling leads all bankers to be tougher on inflation initially, but to become less tough with experience. This evolution is more pronounced for members who weight output more ("doves"), which provides an additional test of our model. We structurally estimate the model using Bank of England data and confirm both predictions. Signalling increases the probability new members vote for high interest rates by up to 35%. |
| Keywords: | committees; monetary policy; signalling |
| JEL: | D78 E52 E58 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9607&r=mac |
| By: | Jagjit S. Chadha; Philip Turner; Fabrizio Zampolli |
| Abstract: | The financial crisis and subsequent economic recession led to a rapid increase in the issuance of public debt. But large-scale purchases of bonds by the Federal Reserve, and other major central banks, have significantly reduced the scale and maturity of public debt that would otherwise have been held by the private sector. We present new evidence that tilting the maturity structure of private sector holdings significantly influences term premia, even outside crisis times. Our framework helps explain both the bond yield conundrum and the effectiveness of quantitative easing. We suggest that these findings raise two important policy questions. One is: should a central bank, contrary to recent orthodoxy, use its balance sheet as an additional complementary instrument of monetary policy to influence, as part of the monetary transmission mechanism, the long-term interest rate? The second is: how should central banks and governments ensure that debt management properly takes account of the implications for both monetary and financial stability? |
| Keywords: | Quantitative easing; sovereign debt management; long-term interest rate; portfolio balance effect; exit strategy |
| JEL: | E43 E52 E63 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1318&r=mac |
| By: | Emmanuel Farhi; Iván Werning |
| Abstract: | We provide a unifying foundation for macroprudential policies in financial markets for economies with nominal rigidities in goods and labor markets. Interventions are beneficial because of an aggregate demand externality. Ex post, the distribution of wealth across agents affect aggregate demand and the efficiency of equilibrium through Keynesian channels. However, ex ante, these effects are not privately internalized in the financial decisions agents make. We obtain a formula that characterizes the size and direction for optimal financial market interventions. We provide a number of applications of our general theory, including macroprudential policies guarding against deleveraging and liquidity traps, capital controls due to fixed exchange rates or liquidity traps and fiscal transfers within a currency union. Finally, we show how our results are also relevant for redistributive or social insurance policies, such as income taxes or unemployment benefits, allowing one to incorporate the macroeconomic benefits associated with these policies. |
| JEL: | D5 D6 D62 E3 E4 E5 E58 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19313&r=mac |
| By: | Donal McGettigan; Kenji Moriyama; Jean F Noah Ndela Ntsama; Francois Painchaud; Haonan Qu; Chad Steinberg |
| Abstract: | In contrast to advanced markets (AMs), procyclical monetary policy has been a problem for emerging markets (EMs), with macroeconomic policies amplifying economic upswings and deepening downturns. The stark difference in policy has not been subject to extensive study and this paper attempts to address the gap. Key findings, using a large sample of EMs over the past 50 years, are: (i) EMs have adopted increasingly countercyclical monetary policy over time, although large differences remain among EMs and policies became more procyclical during the recent crisis. (ii) Inflation targeting and better institutions have been key factors behind the move to countercyclicality. (iii) Only deep financial markets allow EMs with flexible exchange rate regimes turn countercyclical. (iv) More countercyclical policy is associated with far less volatile output. The economically meaningful impact of IT on monetary policy countercyclicality and output variability is another reason in its favor, over and above better inflation outcomes. |
| Keywords: | Monetary policy;Emerging markets;Chile;Inflation targeting;Business cycles;Monetary Policy, Countercyclical Policy, Emerging Markets |
| Date: | 2013–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/96&r=mac |
| By: | Bernd Hayo (University of Marburg); Britta Niehof (University of Marburg) |
| Abstract: | In light of the recent financial and real economic crisis, it seems clear that macroeconomists need to better account for the influence of financial markets. This paper explores the consequences of treating the interaction between different financial markets, monetary policy, and the real economy seriously by developing a fully dynamic theoretical model. Starting from a standard New Keynesian framework, we reformulate and extend the model by means of stochastic differential equations so as to analyse spillover effects and steady-state properties. We solve the model for theoretically derived parameters, distinguishing between (almost) closed, equally sized, and differently sized economies. Applying Bayesian estimation methods, we estimate model parameters for Canada and the United States. Using Lyapunov techniques, we find evidence of instability in the US and Canadian financial systems. |
| Keywords: | New Keynesian Model, Philipps Curve, Taylor Rule, Stochastic Differential Equations. |
| JEL: | C02 C63 E44 E47 E52 F41 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201342&r=mac |
| By: | Uhlig, Harald |
| Abstract: | This paper seeks to understand the interplay between banks, bank regulation, sovereign default risk and central bank guarantees in a monetary union. I assume that banks can use sovereign bonds for repurchase agreements with a common central bank, and that their sovereign partially backs up any losses, should the banks not be able to repurchase the bonds. I argue that regulators in risky countries have an incentive to allow their banks to hold home risky bonds and risk defaults, while regulators in other “safe” countries will impose tighter regulation. As a result, governments in risky countries get to borrow more cheaply, effectively shifting the risk of some of the potential sovereign default losses on the common central bank. |
| Keywords: | bank regulation; common central bank; ECB; Euro zone crisis; European Central Bank; haircuts; repurchase operations; risk shifting; sovereign default risk |
| JEL: | E51 E58 E61 E65 G21 G28 H63 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9606&r=mac |
| By: | Albanesi, Stefania; Sahin, Aysegul |
| 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 differences in unemployment; labor force participation; labor market flows |
| JEL: | E24 J64 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9448&r=mac |
| By: | Timo Henckel; Gordon D. Menzies; Daniel J. Zizzo |
| Abstract: | A puzzle from the Great Recession is an apparent mismatch between a fall in the persistence of European inflation rates, and the increased variability of expert forecasts of inflation. We explain this puzzle and show how country specific beliefs about inflation are still quite close to the European Central Bank target of 2% (what we call official target credibility) but the degree of anchoring to this target has gone down, implying an erosion of what we call anchoring credibility. A decline in anchoring credibility can explain increased forecast variance independently of any changes in inflation persistence, contrary to standard time series models. |
| Keywords: | central bank credibility, excess volatility, euro, inferential expectations, inflation |
| JEL: | C51 D84 E31 E52 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2013-55&r=mac |
| By: | Michaillat, Pascal; Saez, Emmanuel |
| Abstract: | We present a static model of aggregate demand and unemployment. The economy has a nonproduced good, a produced good, and labor. Product and labor markets have matching frictions. A general equilibrium is a set of prices, market tightnesses, and quantities such that buyers and sellers optimize given prices and tightnesses, and actual tightnesses equal posted tightnesses. In each frictional market, there is one more variable than equilibrium condition. To close the model, we take all prices as parameters. We obtain the following results: (1) unemployment and unsold production prevail in equilibrium; (2) each market can be slack, efficient, or tight if the price is too high, efficient, or too low; (3) product market tightness and sales are positively correlated under aggregate demand shocks but negatively correlated under aggregate supply shocks; (4) transfers from savers to spenders stimulate aggregate demand, product market tightness, and employment; (5) the government-purchase multiplier is positive when the economy is slack, zero when the economy is efficient, and negative when the economy is tight; (6) with unequal distribution of profits and labor income, a wage increase may stimulate aggregate demand and reduce unemployment. |
| Keywords: | Aggregate Demand; Labor Market Tightness; Unemployment |
| JEL: | E24 E32 J64 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9609&r=mac |
| By: | Yang Lu (Hong Kong University of Science and Technology); Ernesto Pasten (Banco Central de Chile and Toulouse School of Economics); Robert King (Boston University) |
| Abstract: | How should policy be optimally designed when a monetary authority faces a private sector that is somewhat skeptical about policy announcements and which interprets economic data as providing evidence about the monetary authority's preferences or its ability to carry through on policy plans? To provide an answer to this question, we extend the standard New Keynesian macroeconomic model to include imperfect inflation control (implementation error relative to an inflation action) and Bayesian learning by private agents about whether the monetary authority is the committed type (capable of following through on announced plans) or an alternative type (producing higher and more volatile inflation). In a benchmark case, we find that optimal policy involves dramatic anti-inflation actions which include an interval of deflation during the early stages of a plan, motivated by investing in a reputation for strength. Such policies resemble recommendations during the 1980s for a "cold turkey" approach to disinflation. However, we also find that such policy is not robustly optimal. A more "gradualist" policy arises if the initial level of credibility is very low. We also investigate a setting where the alternative monetary authority follows a simple behavioral rule that mimics variations in the committed authority's policy action but with a bias toward higher and more volatile inflation. In this case, which we call a "tag along" alternative policymaker, a form of gradualism is always optimal. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed013:241&r=mac |
| By: | Zhen Huo; José-Víctor Ríos-Rull |
| Abstract: | We build a variation of the neoclassical growth model in which both wealth shocks (in the sense of wealth destruction) and financial shocks to households generate recessions. The model features three mild departures from the standard model: (1) adjustment costs make it difficult to expand the tradable goods sector by reallocating factors of production from nontradables to tradables; (2) there is a mild form of labor market frictions (Nash bargaining wage setting with Mortensen-Pissarides labor markets); (3) goods markets for nontradables require active search from households wherein increases in consumption expenditures increase measured productivity. These departures provide a novel quantitative theory to explain recessions like those in southern Europe without relying on technology shocks. |
| JEL: | E00 E2 E32 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19443&r=mac |
| By: | Crafts, Nicholas (Department of Economics, University of Warwick); Mills, Terence (Loughborough University) |
| Abstract: | We report estimates of the fiscal multiplier for interwar Britain based on quarterly data, time-series econometrics, and ‘defense news’. We find that the government expenditure multiplier was in the range 0.3 to 0.8, much lower than previous estimates. The scope for a Keynesian solution to recession was less than is generally supposed. We find that rearmament gave a smaller boost to real GDP than previously claimed. Rearmament may, however, have had a larger impact than a temporary public works program of similar magnitude if private investment anticipated the need to add capacity to cope with future defense spending. JEL classification: defense news ; multiplier ; public works ; rearmament JEL codes: E62 ; N14 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1018&r=mac |
| By: | Fons-Rosen, Christian; Kalemli-Ozcan, Sebnem; Sørensen, Bent E; Villegas-Sanchez, Carolina; Volosovych, Vadym |
| Abstract: | We quantify the causal effect of foreign investment on total factor productivity (tfp) using a new global firm-level database. Our identification strategy relies on exploiting the difference in the amount of foreign investment by financial and industrial investors and simultaneously controlling for unobservable firm and country-sector-year factors. Using our well identified firm level estimates for the direct effect of foreign ownership on acquired firms and for the spillover effects on domestic firms, we calculate the aggregate impact of foreign investment on country-level productivity growth and find it to be very small. |
| Keywords: | FDI; Knowledge Spillovers; Multinationals; Selection |
| JEL: | E32 F15 F36 O16 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9434&r=mac |
| By: | Svensson, Roger (Research Institute of Industrial Economics (IFN)) |
| Abstract: | Although the leaf-thin bracteates are the most fragile coins in monetary history, they were the main coin type for almost two centuries in large parts of medieval Europe. The usefulness of the bracteates can be linked to the contemporary monetary taxation policy. Medieval coins were frequently withdrawn by the coin issuer and re-minted, where people had to pay an exchange fee. Bracteates had several favourable characteristics for such a policy: 1) Low production costs; and 2) various pictures could be displayed given their relatively large diameter, making it easy to distinguish between valid and invalid types. The fragility was not a big problem, since the bracteates would not circulate for a long period. When monetization increased and it became more difficult to handle re-coinage (around 1300), the bracteates lost their function as the principal coin. However, for a further two centuries (1300–1500) they were used as small change to larger denominations. |
| Keywords: | Bracteates; Medieval coins; Re-coinage; Short-lived coinage system; Monetization; Monetary taxation policy; Small change |
| JEL: | E31 E42 E52 N13 |
| Date: | 2013–09–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:0973&r=mac |
| By: | Sukati, Mphumuzi |
| Abstract: | This paper investigates the concept of vector autoregression (VAR) and cointegration using a bivariate model of global oil prices and headline Consumer Price Index (CPI) in South Africa. The study aims to determine how much of inflation is driven by oil prices. Particular attention is paid to the theoretical underpinnings of cointergration analysis and the application of STATA software to undertake such analysis and perform test statistics. Contrary to the popular myth that a rise in global oil prices fuels inflation, this study has observed that global oil prices are not the drivers of inflation in South Africa. In this way, other macroeconomic indicators and policy developments need to be integrated in analyzing the determinants of South African inflation. |
| Keywords: | Consumer Price Index, Oil Prices, Vector Autoregression, Cointegration, STATA Software, South Africa |
| JEL: | E51 E6 E64 E65 |
| Date: | 2013–09–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:49797&r=mac |
| By: | Yasuo Hirose; Atsushi Inoue |
| Abstract: | This paper examines how and to what extent parameter estimates can be biased in a dynamic stochastic general equilibrium (DSGE) model that omits the zero lower bound constraint on the nominal interest rate. Our experiments show that most of the parameter estimates in a standard sticky-price DSGE model are not biased although some biases are detected in the estimates of the monetary policy parameters and the steady-state real interest rate. Nevertheless, in our baseline experiment, these biases are so small that the estimated impulse response functions are quite similar to the true impulse response functions. However, as the probability of hitting the zero lower bound increases, the biases in the parameter estimates become larger and can therefore lead to substantial differences between the estimated and true impulse responses. |
| Keywords: | Zero lower bound, DSGE model, Parameter bias, Bayesian estimation |
| JEL: | C32 E30 E52 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2013-60&r=mac |
| By: | Rudrani Bhattacharya; Ila Patnaik |
| Abstract: | How does access to credit impact consumption volatility? Theory and evidence from advanced economies suggests that greater household access to finance smooths consumption. Evidence from emerging markets, where consumption is usually more volatile than income, indicates that financial reform further increases the volatility of consumption relative to output. We address this puzzle in the framework of an emerging economy model in which households face shocks to trend growth rate, and a fraction of them are credit constrained. Unconstrained households can respond to shocks to trend growth by raising current consumption more than rise in current income. Financial reform increases the share of such households, leading to greater relative consumption volatility. Calibration of the model for pre and post financial reform in India provides support for the model's key predictions. |
| Keywords: | Credit;Emerging markets;India;Productivity;Consumption;External shocks;Household credit;Access to capital markets;Economic models;Macroeconomics, real business cycles, emerging market business cycle stylized facts, financial development. |
| Date: | 2013–05–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/120&r=mac |
| By: | William R. White |
| Abstract: | In recent decades, the declarations of “independent” central banks and the conduct of monetary policy have been assigned an ever increasing role in the pursuit of economic and financial stability. This is curious since there is, in practice, no body of scientific knowledge (evidence based beliefs) solid enough to have ensured agreement among central banks on the best way to conduct monetary policy. Moreover, beliefs pertaining to every aspect of monetary policy have also changed markedly and repeatedly. This paper documents how the objectives of monetary policy, the optimal exchange rate framework, beliefs about the transmission mechanism, the mechanism of political oversight, and many other aspects of domestic monetary frameworks have all been subject to great flux over the last fifty years. ; The paper also suggests ways in which the current economic and financial crisis seems likely to affect the conduct of monetary policy in the future. One possibility is that it might lead to yet another fundamental reexamination of our beliefs about how best to conduct monetary policy in an increasingly globalized world. The role played by money and credit, the interactions between price stability and financial stability, the possible medium term risks generated by “ultra easy” monetary policies, and the facilitating role played by the international monetary (non) system all need urgent attention. The paper concludes that, absent the degree of knowledge required about its effects, monetary policy is currently being relied on too heavily in the pursuit of “strong, balanced and sustainable growth.” |
| Keywords: | National security |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:155&r=mac |
| By: | Giuseppe Ciccarone; Francesco Giuli; Enrico Marchetti |
| Abstract: | We introduce some elements of Prospect Theory into a general equilibrium model with monopolistic competition in the good market and real wage rigidities due to (right to manage or efficient) wage bargaining, or to efficiency wages. We show that, under these types of labor market frictions, an increase in workers’ loss aversion: (i) reduces the equilibrium wage and in this way increases potential output; (ii) induces workers to work and consume less and in this way decreases potential output. If the former effect is greater (smaller) than the latter one, loss aversion increases(decreases) potential output. We also show that, under all the types of labor market frictions we consider, if loss aversion reduces equilibrium output, it also enhances the plausibility of nominal price rigidities. |
| Keywords: | Macroeconomic equilibrium; Prospect theory; Behavioral economics |
| JEL: | E20 D03 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:rtr:wpaper:0183&r=mac |
| By: | WANG, Kent (The Wangyanan Institute for Studies in Economics, Xiamen University, China); WANG, Shin-Huei (Université catholique de Louvain, CORE, Belgium); PAN, Zheyao (The Wangyanan Institute for Studies in Economics, Xiamen University, China) |
| Abstract: | Yes. By using real-time structure break monitoring techniques we find evidence against monotonic response pattern, specifically three response structures of US stock market to the federal monetary policy actions based on a sample from 1989-2010. We re-estimate the market response in each of the three structures and find results stronger than previously documented especially in 2001-2008. We propose a “FedGap” variable which measures the deviation of Fed policy from the “Taylor Rule” in explanation and find it to be significant with economic meaning. We conclude that market responses proportionally to the size of the FedGap and it thus serves as a new “macro-state” factor which can explain the dynamic response patterns of financial markets. We also examine the issue from the bond market, and find similar results. |
| Keywords: | real-time structure breaks, dynamic market response, monetary policy, Taylor Rule, FedGap |
| JEL: | E44 G12 G14 G28 |
| Date: | 2013–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2013029&r=mac |
| By: | ERMİŞOĞLU, ERGUN; KANIK, BİROL |
| Abstract: | Economic policy uncertainty is now widely accepted as one of the leading factors responsible for the global sluggish recovery. Measurement of these uncertainties is a crucial task for recent disccussions on the effects of policy uncertainty on the economic and financial variables. While indices to measure these economic policy uncertainies for several countries have been constructed, there does not exist one for Turkey. This note reviews the concept of economic policy uncertainty index as an economic policy uncertainty measure by presenting US and Europe indices, introduces a similar index for Turkey, and shows that the constructed index can be used as an uncertainty measure. |
| Keywords: | Ekonomik Politika Belirsizliği, Türkiye |
| JEL: | E60 E61 E63 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:49920&r=mac |
| By: | DAO, Nguyen-Thang (Université catholique de Louvain, CORE, Belgium; Vietnam Centre for Economic and Policy Research (VEPR), Hanoi, Vietnam); DAVILA, Julio (Université catholique de Louvain, CORE, Belgium) |
| Abstract: | Yes. By using real-time structure break monitoring techniques we find evidence against monotonic response pattern, specifically three response structures of US stock market to the federal monetary policy actions based on a sample from 1989-2010. We re-estimate the market response in each of the three structures and find results stronger than previously documented especially in 2001-2008. We propose a “FedGap” variable which measures the deviation of Fed policy from the “Taylor Rule” in explanation and find it to be significant with economic meaning. We conclude that market responses proportionally to the size of the FedGap and it thus serves as a new “macro-state” factor which can explain the dynamic response patterns of financial markets. We also examine the issue from the bond market, and find similar results. |
| Keywords: | real-time structure breaks, dynamic market response, monetary policy, Taylor Rule, FedGap |
| JEL: | E44 G12 G14 G28 |
| Date: | 2013–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:cor:louvco:2013030&r=mac |
| By: | Christopher J. Ruhm |
| Abstract: | Using data from multiple sources, over the 1976-2009 period, I show that total mortality has shifted over time from strongly procyclical to being essentially unrelated to macroeconomic conditions. The relationship also shows some instability over time and is likely to be poorly measured when using short (less than 15 or 20 year) analysis periods. The secular change in the association between macroeconomic conditions and overall mortality primarily reflects trends in effects for specific causes of death, rather than changes in the composition of total mortality across causes. Deaths due to cardiovascular disease and transport accidents continue to be procyclical (although possibly less so than in the past), whereas strong countercyclical patterns of cancer fatalities and some external sources of death (particularly those due to accidental poisoning) have emerged over time. The changing effect of macroeconomic conditions on cancer deaths may partially reflect the increasing protective influence of financial resources, perhaps because these can be used to obtain sophisticated (and expensive) treatments that have become available in recent years. That observed for accidental poisoning probably has occurred because declines in mental health during economic downturns are increasingly associated with the use of prescribed or illicitly obtained medications that carry risks of fatal overdoses. |
| JEL: | E3 I1 I12 I18 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19287&r=mac |
| By: | Avanidhar Subrahmanyam; Sheridan Titman |
| Abstract: | Feedback from stock prices to cash flows occurs because information revealed by firms’ stock prices influences the actions of competitors. We explore the implications of feedback within a noisy rational expectations setting with incumbent publicly traded firms and privately held new entrants. In this setting the equilibrium relation among stock prices and both future dividends and aggregate output depends on the strategic environment in which these firms operate. In general, under reasonable conditions, the relations between prices, dividends, and economic output in our framework are consistent with empirical evidence in the macroliterature. We also generate new, potentially testable, implications. |
| JEL: | E3 G12 G14 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19383&r=mac |
| By: | Russell Cooper; Kalin Nikolov |
| Abstract: | This paper studies the interaction of government debt and interbank markets. Both markets are known to be fragile: excessively responsive to fundamentals and prone to strategic uncertainty. The goal is to understand the channels that link these markets and to evaluate policy measures for their stability. |
| JEL: | E44 G33 H12 H63 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19278&r=mac |
| By: | Barry Eichengreen |
| Abstract: | Many economists are accustomed to thinking about Federal Reserve policy in terms of the institution’s dual mandate, which refers to price stability and high employment, and in which the exchange rate and other international variables matter only insofar as they influence inflation and the output gap – which is to say, not very much. This conventional view is heavily shaped by the distinctive circumstances of the last three decades, when the influence of international considerations on Fed policy has been limited. I discuss how the Federal Reserve paid significant attention to international considerations in its first two decades, followed by relative inattention to such factors in the two-plus decades that followed, then back to renewed attention to international aspects of monetary policy in the 1960s, before the recent period of benign neglect of the international dimension. This longer perspective is a reminder that just because the Fed has not attached priority to international aspects of monetary policy in the recent past is no guarantee that it will not do so in the future. |
| JEL: | E4 N1 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19405&r=mac |
| By: | Balázs Égert |
| Abstract: | This paper analyses the original Reinhart-Rogoff dataset, made public by Herndon et al. (2013), on the basis of descriptive statistics and formal econometric testing. First, based on the public debt thresholds(30%, 60% and 90%) proposed by Reinhart and Rogoff (2010), descriptive statistics reveal that real GDP growth slows considerably as the central government debt-to-GDP ratio goes beyond the 30% threshold and that no further slowdown can be observed in the data as the debt-to-GDP ratio rises above 60% and 90% during the periods 1790-2009 and 1946-2009. For the United States (1946-2009), the negative nonlinear finding completely disappears for any level of public debt, once reverse causality and influential outliers are accounted for. Looking at general (and central) government debt during the more recent period of 1960-2009 suggests that economic slowdown occurs when public debt moves above 60% or 90% of GDP. But it seems more appropriate to determine nonlinearity and the associated debt threshold endogenously. Therefore, in a second stage, we put the Reinhart-Rogoff dataset to a formal econometric test by employing nonlinear threshold models. Overall, our estimation results indicate that the nonlinear relation from debt to growth is not very robust. Taken with a pinch of salt, our results suggest, however, that there may be a tipping point at around 20% of GDP, beyond which central government debt has a negative influence on growth. Further (and greater) thresholds may exist but their magnitude is highly uncertain. For general government debt (1960-2009), the threshold beyond which negative growth effects kick in is considerably higher at about 50%. Finally, individual country estimates reveal a large amount of cross-country heterogeneity. For some countries including the United States, a nonlinear negative link can be detected at about 30% of GDP. For others, the thresholds are surrounded by a great amount of uncertainty or no nonlinearities can be established. This instability may be a result of threshold effects changing over time within countries and depending on economic conditions, not captured in our estimations. Overall, our results can be seen as a formal econometric confirmation that the 90% public debt threshold is not in the data. But our results also seem to suggest that public debt might have a negative effect on economic performance kicking in at already fairly moderate public debt levels. Furthermore, the absence of threshold effects or low estimated thresholds may not preclude the emergence of further threshold effects, especially as public debt levels are rising to unprecedentedly high levels. |
| Keywords: | public debt; economic growth; nonlinearity; threshold effects |
| JEL: | E6 F3 F4 N4 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2013-23&r=mac |
| By: | Alonso-Ortiz, Jorge; Leal Ordonez, Julio |
| Abstract: | In this work we study the impact on the size of the informal sector of a tax levied on formal workers, and transfers that may be distributed to both formal and informal workers alike. We build a search model that features an informal sector and we calibrate it to data from Mex- ico. We investigate whether changes in size and distribution of transfers between formal and informal workers have a significant impact on the size of the informal sector. We find that changes in the distribution, for a given size, create a range of variation of 19.35pp. Analogously, changes in size create a range of variation of 5.7pp, resulting in a total range of variation of 51.2pp. This implies that it is possible to substantially increase formalization by rising extra tax resources as long as they accrue to formal workers. We illustrate the validity of our approach simulating the introduction of Seguro Popular. |
| Keywords: | Informal Sector, Search, Tax and Transfer Programs, Seguro Popular |
| JEL: | E24 E26 E62 J64 J65 |
| Date: | 2013–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:49568&r=mac |
| By: | Oğuz Esen; Ayla Oğuş Binatlı |
| Abstract: | � The recent global financial crisis has underlined the need to go beyond the microprudential perspective to financial instability and move in a macroprudential direction. There is a growing consensus among policymakers and academics that macroprudential policy should be adopted. Through these changes, policymakers appear to be moving in a direction broadly consistent with Minsky’s view. The theoretical framework of macroprudential policy can be found in Minsky’s financial instability theory. Emerging economies, including Turkey, have adopted macroprudential tools to prevent and mitigate system wide risks. This paper offers a Minsky perspective on macroprudential policy and evaluates macroprudential tools through an examination of the Turkish experience as a case study. � |
| Keywords: | Macroprudential policy, Minsky |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:uma:periwp:wp308&r=mac |
| By: | Tamura, Kentaro; Tabakis, Evangelos |
| Abstract: | Credit claims (or bank loans) represent a large share of the collateral accepted by the Eurosystem in its credit operations in recent years. Hence the techniques and procedures used in the use of credit claims as collateral have become significant elements of the monetary policy implementation mechanism in the euro area. The procedures involved in credit claim collateralisation, however, are generally more complex than those for marketable assets traded in regulated markets or in other markets accepted by the Eurosystem. While several types of credit claims are eligible as Eurosystem collateral, each type of credit claim has different characteristics which require specific considerations in the eligibility assessment. This paper provides an overview of the issues involved in the use of credit claims as collateral and relates these to some measures taken by both the public and the private sector aimed at facilitating their use in the euro area. The paper also elaborates on the syndicated loan market in the euro area as this market is sizeable, while it appears that the use of such loans as collateral remains limited. JEL Classification: G10, G12, G13 |
| Keywords: | central bank collateral eligibility, Credit claim, syndicated loan |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:20130148&r=mac |
| By: | Yamada, Tomoaki |
| Abstract: | We investigate economic inequalities of Japanese economy from 2004 to 2012 using the Keio household panel survey. We present cross-sectional dispersion earnings, consumption expenditure, and wealth inequalities from time-series and life cycle dimensions. Wage and hours inequalities, which are calculated from the earnings of male and female, full-time and part-time workers and correlations are provided. We also show that the residual inequalities, which are usually interpreted as idiosyncratic income risks that households face, rise over the life cycle. |
| Keywords: | Economic inequality; Wage; Hours worked; Consumption; Wealth |
| JEL: | D12 D31 E21 |
| Date: | 2013–09–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:49813&r=mac |
| By: | Sampawende J.-A. Tapsoba |
| Abstract: | The paper uses a multi-region DSGE model to quantify the macroeconomic implications of three adjustment scenarios for India: growth-friendly, social-friendly, and a benchmark case centered on bringing down unproductive spending and strengthening the consumption tax. Simulations indicate that fiscal consolidation yields considerable long-term benefits but also entails output costs in the near term. The scenarios in which deficit reduction is accompanied by greater investment and social spending lead to better results than the benchmark case. The consolidation package alone is not enough to maximize net gains. Other factors, such as the pace and the credibility of consolidation, the concomitant implementation of structural reforms, and global economic conditions, play a critical role in the success of fiscal consolidation. |
| Keywords: | Fiscal consolidation;India;Economic growth;Fiscal reforms;Economic models;fiscal consolidation, open economy macroeconomics, DSGE models, India. |
| Date: | 2013–05–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/127&r=mac |
| By: | Kiss, Christian |
| Abstract: | This paper is (over the formulas) self explaining . The measurement of economies no longer by GDP alone, but by an Index that includes other important factors as well, a So-cial factors relativized GDP. This index cuts out the part of the GDP that is long term fro-zen up by social transfers (using the highly aggregated GINI coefficient). Social factors relativized GDP: GDP – GDP x GINI = K_Index Written differently: (1 – GINI) x GDP = K_Index Inflation indexed Version: (1 – GINI – Inflation) x GDP = K_Index_Infl. Productivity Index: K_Index / Labor Force = K_PROD Inflation indexed Productivity Index: K_Index_Infl. / Labor Force = K_PROD_Infl. Debt-to-K_Index: National debt / K_Index = K_Debt Debt-to-K_Index_Infl: National debt / K_Index_Infl. = K_Debt_Infl. |
| Keywords: | Economic Indicator, GDP, GNP, GINI, Productivity, Inequality, Income Distribution, Poverty Growth, Poverty Measurement, Macro Models, International Economic Order, International Industrial Order, Econometrics, Econometric Methods, Econometric Modeling, Macroeconometrics, Mathematical Methods, Mathematical Models, Numerical Methods, National Income and Product Account, Economic Growth, Wage, Economic Growth, Multisector Growth, Saving Growth, Aggregate Produc-tivity, Gross National Product, Gross Domestic Product, Macroeconomic Model, Macroeconomic Time Series, Micro to Macro, National Income Accounting, National Wealth, Econometric Modeling |
| JEL: | A10 A13 C10 C12 C60 E10 F02 O47 |
| Date: | 2013–08–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:49890&r=mac |
| By: | Buetzer, Sascha; Jordan, Christina; Stracca, Livio |
| Abstract: | In this paper, we address the question of whether cross-country differences in civic capital, notably interpersonal trust, have contributed to the build-up of macroeconomic imbalances over the last three decades. We analyse the link between a stylised index of economic imbalances (a combination of the government budget balance, the inflation rate and the current account balance) and interpersonal trust, alongside other measures of civic and cultural capital, obtained from value survey data for 65 advanced and emerging countries. For the whole set of countries, we find robust empirical evidence for a negative and significant relationship between trust and macroeconomic imbalances which may therefore partly reflect underlying heterogeneity in civic capital. Within the euro area, differences in trust exist although they are not particularly large from an international perspective. With the nexus between trust and macroeonomic imbalances being equally robust we can attribute one fifth of the variation in intra-euro area imbalances to differences in interpersonal trust. Euro area membership and EU fiscal rules do not appear to have weakened the link between the two variables. JEL Classification: F33, F42, Z1 |
| Keywords: | culture, euro area, Macroeconomic imbalances, Trust |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20131584&r=mac |
| By: | Chu, Angus C.; Cozzi, Guido; Furukawa, Yuichi |
| Abstract: | This study analyzes the cross-country effects of monetary policy on innovation and international technology transfer. We consider a scale-invariant North-South quality-ladder model that features innovative R&D in the North and adaptive R&D in the South. To model money demand, we impose cash-in-advance constraints on these two types of R&D investment. We find that an increase in the Southern nominal interest rate causes a permanent decrease in the rate of international technology transfer, a permanent increase in the North-South wage gap, and a temporary decrease in the rate of Northern innovation. An increase in the Northern nominal interest rate causes a temporary decrease in the rate of Northern innovation, a permanent decrease in the North-South wage gap, and an ambiguous effect on the rate of international technology transfer depending on the relative size of the two economies. We also calibrate the model to China-US data and find that the cross-country welfare effects of monetary policy are quantitatively significant. Specifically, permanently decreasing the nominal interest rate to zero in China leads to a welfare gain of 3.37% in China and a welfare gain of 1.25% in the US. Permanently decreasing the nominal interest rate to zero in the US leads to welfare gains of 0.33% in the US and 1.24% in China. |
| Keywords: | Monetary policy, economic growth, R&D, North-South product cycles, FDI |
| JEL: | O30 O40 E41 F43 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:usg:econwp:2013:19&r=mac |
| By: | Elish Kelly; Seamus McGuinness; Philip O’Connell; David Haugh; Alberto González Pandiella |
| Abstract: | Young people have been hit hard by unemployment during the Irish recession. While much research has been undertaken to study the effects of the recession on overall labour market dynamics, little is known about the specific effects on youth unemployment and the associated challenges. This paper attempts to fill this gap by comparing the profile of transitions to work before the recession (2006) and as the economy emerged from the recession (2011). The results indicate that the rate of transition of the youth from unemployment to employment fell dramatically. The fall is not due to changes in the composition or the characteristics of the unemployed group but to changes in the external environment, which implied that the impact of certain individual characteristics changed over the course of the recession. In particular, for youth, education and nationality have become more important for finding a job in Ireland. Les transitions de périodes de chômage et emploi parmi les jeunes dans la récession irlandaise Les jeunes ont été durement frappés par le chômage pendant la récession irlandaise. Beaucoup de recherches ont été menées pour étudier les effets de la récession sur la dynamique globale du marché du travail, mais on sait peu de ses effets spécifiques sur le chômage des jeunes et les défis associés. Cet article tente de combler cette lacune en comparant le profil des transitions vers le travail avant la récession (2006) et au moment où l'économie a émergé de la récession (2011). Les résultats indiquent que le taux de transition des jeunes du chômage à l'emploi a diminué de façon spectaculaire. La chute n'est pas due à des changements dans la composition ou les caractéristiques du groupe des chômeurs, mais à des changements dans l'environnement externe, ce qui implique que l'impact de certaines caractéristiques individuelles a changé au cours de la récession. En particulier, pour les jeunes, l'éducation et la nationalité sont devenus plus importants pour trouver un emploi en Irlande. |
| Keywords: | Ireland, youth unemployment, Great recession, longitudinal data, transitions, decomposition techniques, techniques de décomposition, Grande récession, chômage des jeunes, transitions, données longitudinales |
| JEL: | E24 J21 J61 J64 |
| Date: | 2013–08–16 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1084-en&r=mac |
| By: | Karlan, Dean S.; Zinman, Jonathan |
| Abstract: | The long-run price elasticity of demand for credit is a key parameter for intertemporal modeling, policy levers, and lending practice. We use randomized interest rates, offered across 80 regions by Mexico’s largest microlender, to identify a 29-month dollars-borrowed elasticity of -1.9. This elasticity increases from -1.1 in year one to -2.9 in year three. The number of borrowers is also elastic. Credit bureau data does not show evidence of crowd-out. Competitors do not respond by reducing rates, perhaps because Compartamos’ profits are unchanged. The results are consistent with multiple equilibria in loan pricing. |
| Keywords: | interest rate elasticities; interest rate policy; interest rates; microcredit |
| JEL: | E43 G21 O11 O12 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9503&r=mac |
| By: | Manoj Atolia (Florida State University); Ryan Chahrour (Boston College) |
| Abstract: | What do firms learn from their interactions in markets, and what are the implications for aggregate dynamics? We address this question in a multi-sector real-business cycle model with a sparse input-output structure. In each sector, firms observe their own productivity, along with the prices of their inputs and the price of their output. We show that general equilibrium market-clearing conditions place heavy constraints on average expectations, and characterize a set of cases where average expectations (and average dynamics) are exactly those of the full-information model. This "aggregate irrelevance" of information can occur even when sectoral expectations and dynamics are quite different under partial information, and despite the fact that each sector represents a non-negligible portion of the overall economy. In numerical examples, we show that even when the conditions for aggregate irrelevance of information are not met, aggregate dynamics remain nearly identical to the full-information model under reasonable calibrations. |
| Keywords: | Imperfect information, Information frictions, Dispersed information, Sectoral linkages, Strategic complementarity, Higher-order expectations |
| JEL: | D52 D57 D80 E32 |
| Date: | 2013–09–16 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:832&r=mac |
| By: | Alonso-Ortiz, Jorge |
| Abstract: | Taxes and transfers are widespread institutions among middle income and high income countries. In this chapter I survey main aggregate features of such institutions and features of the labor market. To study the relation between taxes and transfers and labor market outcomes I survey some important results in the literature. The main selection criteria for this survey is the use of general equilibrium models. |
| Keywords: | taxes and transfers, general equilibrium, heterogeneous agents, life cy- cle, idiosyncratic risk |
| JEL: | E24 H31 H53 |
| Date: | 2013–08–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:49569&r=mac |
| By: | Russell Cooper; Guozhong Zhu |
| Abstract: | This paper studies household financial choices: why are these decisions dependent on the education level of the household? A life cycle model is constructed to understand a rich set of facts about decisions of households with different levels of education attainment regarding stock market participation, stock share in wealth, stock adjustment rate and wealth-income ratio. The model, including preferences and both participation and portfolio adjustment costs, is estimated to match the asset allocation decisions of different education groups. Using the estimated parameters we argue that education matters for financial decisions mainly through its effect on mean income. We also study the sensitivity of household financial decisions to: (i) government programs that support consumption floors and (ii) changes in reimbursement for medical expenditures. |
| JEL: | D14 E21 G11 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19455&r=mac |
| By: | Itai Agur; Sunil Sharma |
| Abstract: | The paper examines the implementation of macro-prudential policy. Given the coordination, flow of information, analysis, and communication required, macro-prudential frameworks will have weaknesses that make it hard to implement policy. And dealing with the political economy is also likely to be challenging. But limiting discretion through the formulation of macro-prudential rules is complicated by the difficulties in detecting and measuring systemic risk. The paper suggests that oversight is best served by having a strong baseline regulatory regime on which a time-varying macro-prudential policy can be added as conditions warrant and permit. |
| Keywords: | Macroprudential Policy;Monetary policy;Political economy;Financial systems;Financial risk;Macro-prudential policy, systemic risk, financial stability, regulation |
| Date: | 2013–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/65&r=mac |
| By: | Demyanyk, Yuliya; Hryshko, Dmytro; Luengo-Prado, Maria Jose; Sørensen, Bent E |
| Abstract: | Using credit report data from two of the three major credit bureaus in the United States, we infer with high certainty whether households move to other labor markets defined by metropolitan areas. We estimate how moving patterns relate to labor market conditions, personal credit, and homeownership using panel regressions with fixed effects which control for all constant individual-specific traits. We interpret the patterns through simulations of a dynamic model of consumption, housing, and location choice. We find that homeowners with negative home equity move more than other homeowners, in particular when local unemployment growth is high---overall, negative home equity is not an important barrier to labor mobility. |
| Keywords: | credit contraint; credit reports; mobility; unemployment |
| JEL: | D1 E2 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9474&r=mac |
| By: | David Rosnick; |
| Abstract: | Recent estimates of the U.S. economic gains that would result from the proposed Trans-Pacific Partnership (TPP) are very small — only 0.13 percent of GDP by 2025. Taking into account the un-equalizing effect of trade on wages, this paper finds the median wage earner will probably lose as a result of any such agreement. In fact, most workers are likely to lose — the exceptions being some of the bottom quarter or so whose earnings are determined by the minimum wage; and those with the highest wages who are more protected from international competition. Rather, many top incomes will rise as a result of TPP expansion of the terms and enforcement of copyrights and patents. The long-term losses, going forward over the same period (to 2025), from the failure to restore full employment to the United States have been some 25 times greater than the potential gains of the TPP, and more than five times as large as the possible gains resulting from a much broader trade agenda. |
| Keywords: | trade, trans-pacific partnership, TPP, jobs, GDP growth, wages, workers |
| JEL: | E E2 E24 F F1 F13 F16 J J3 J31 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:epo:papers:2013-14&r=mac |
| By: | Bo Zhao |
| Abstract: | This paper studies an economy inhabited by overlapping generations of homeowners and investors, with the only difference between the two being that homeowners derive utility from housing services whereas investors do not. Tight collateral constraint limits the borrowing capacity of homeowners and drives the equilibrium interest rate level down to the housing price growth rate, which makes housing attractive as a store of value for investors. As long as the rental market friction is high enough, the investors will hold a positive number of vacant houses in equilibrium. A housing bubble arises in an equilibrium in which investors hold houses for resale purposes only and without the expectation of receiving a dividend either in terms of utility or rent. The model can be applied to China, where the housing bubble can be attributed to the rapid decline in the replacement rate of the pension system. |
| JEL: | D21 E13 E21 R21 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19354&r=mac |
| By: | Ioan Carabenciov; Charles Freedman; Roberto Garcia-Saltos; Douglas Laxton; Ondra Kamenik; Petar Manchev |
| Abstract: | This is the sixth of a series of papers that are being written as part of a project to estimate a small quarterly Global Projection Model (GPM). The GPM project is designed to improve the toolkit to which economists have access for studying both own-country and cross-country linkages. In this paper, we add three more regions and make a number of other changes to a previously estimated small quarterly projection model of the US, euro area, and Japanese economies. The model is estimated with Bayesian techniques, which provide a very efficient way of imposing restrictions to produce both plausible dynamics and sensible forecasting properties. |
| Keywords: | Forecasting models;Real effective exchange rates;Interest rates;External shocks;Unemployment;Demand;Spillovers;World Economic Outlook;Macroeconomic Modeling, Bayesian Estimation, Monetary Policy |
| Date: | 2013–04–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/87&r=mac |
| By: | Blagov , Boris (BOFIT); Funke, Michael (BOFIT) |
| Abstract: | An estimated Markov-switching DSGE modelling framework that allows for parameter shifts across regimes is employed to test the hypothesis of regime-dependent credibility of Hong Kong’s linked exchange rate system. The model distinguishes two regimes with respect to the time-series properties of the risk premium. Regime-dependent impulse responses to macroeconomic shocks reveal substantial differences in spreads. These findings contribute to efforts at modelling exchange rate regime credibility as a non-linear process with two distinct regimes. |
| Keywords: | Markov-switching DSGE models; exchange rate regime credibility; Hong Kong |
| JEL: | C51 C52 E32 F41 |
| Date: | 2013–09–04 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2013_024&r=mac |
| By: | Casey B. Mulligan |
| Abstract: | Measured in percentage points, the Affordable Care Act will, by 2015, add about twelve times more to average marginal labor income tax rates nationwide than the Massachusetts health reform added to average rates in Massachusetts following its 2006 statewide health reform. The rate impacts are different between the two laws for several reasons, especially that: the populations subject to the two laws are different, the Affordable Care Act’s employer penalty is an order of magnitude greater, before either reform Massachusetts had already been offering more means-tested and employment-tested health insurance assistance than other states had, and the subsidized health insurance plans created by the Massachusetts reform were less substitutable for employer-provided insurance than are the subsidized plans to be created nationwide next year. |
| JEL: | E24 H31 I18 I38 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19366&r=mac |
| By: | Jonathan N. Millar; Stephen D. Oliner; Daniel E. Sichel |
| Abstract: | We use a large project-level dataset to estimate the length of the planning period for commercial construction projects in the United States. We find that these time-to-plan lags are long, averaging about 17 months when we aggregate the projects without regard to size and more than 28 months when we weight the projects by their construction cost. The full distribution of time-to-plan lags is very wide, and we relate this variation to the characteristics of the project and its location. In addition, we show that time-to-plan lags lengthened by 3 to 4 months, on average, over our sample period (1999 to 2010). Regulatory factors are associated with the variation in planning lags across locations, and we present anecdotal evidence that links at least some of the lengthening over time to heightened regulatory scrutiny. |
| JEL: | E22 E32 L50 L74 R52 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19408&r=mac |
| By: | Janda, Karel; Zetek, Pavel |
| Abstract: | Agricultural output in developing countries still represents a substantial part of GDP. This ratio has actually increased in some areas such as Latin America. As such, there is an increasing importance of microfinance institutions (MFIs) focusing on activities associated with agriculture and encouraging entrepreneurship in agriculture and in the rural communities in general. The contribution of microfinance institutions consists mainly in providing special-purpose loans, usually without collateral. However, questions exist as to the magnitude and adequate level of risk of providing micro-credit loans in relation to the interest rates being charged. We review two main approaches to setting interest rates in MFIs. One approach takes the view that interest rates should be set at a high level due to the excessive risk that these institutions undertake. The second approach is to convince the public of the possibility of reducing these rates through cost savings, increased efficiency, and sharing best practice, etc. Subsequently we econometrically analyse the impact of macroeconomic factors on microfinance interest rates in Latin America and the Caribbean. We show that these results depend on the chosen indicator of interest rate. |
| Keywords: | microfinance, interest rate, macroeconomic factors, agriculture |
| JEL: | E43 G21 O13 |
| Date: | 2013–09–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:49973&r=mac |
| By: | Beber, Alessandro; Brandt, Michael; Luisi, Maurizio |
| Abstract: | We construct daily real-time indices capturing the public information on realized and anticipated economic activity. The one-month change in realized fundamentals predicts US stock returns across horizons with strongest results between a month and a quarter. The information in anticipated fundamentals that is orthogonal to the realized data predicts returns even more strongly particularly at longer horizons up to two quarters. Splitting the sample into times of high versus low uncertainty, as measured by the cross-sectional dispersion of economist forecasts, we show that the predictability is largely concentrated in high-uncertainty times. Finally, extending the analysis internationally, we find similar results that are curiously much stronger when US data are used as predictors than global composites or local data. |
| Keywords: | macroeconomic uncertainty; state of the economy; stock market predictability |
| JEL: | G12 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9528&r=mac |
| By: | Coricelli, Fabrizio; Ravasan, Farshad R; Wörgötter, Andreas |
| Abstract: | The surge in the German current account surplus in the 2000s is often interpreted as the result of efficiency-enhancing structural reforms, especially in the labor market. However, this interpretation is puzzling because the growth rate of the German economy has been one of the lowest in the Euro area in the 2000s. Using empirical evidence and a simple theoretical two-sector model, the paper argues that the German surplus is closely linked to the increasing gap between productivity growth in manufacturing and services. Such gap is due not only to improvements in the manufacturing sector but also to a significant slowdown of productivity growth in services. Therefore, despite the success in export markets, the German surplus may signal long-run weaknesses associated with constraints on service growth and the inability of productivity growth in manufacturing to create positive spill-over effects on services. Persistence of barriers to liberalization in services may partly explain these phenomena. The paper concludes that higher and more balanced growth could lead to an equilibrium reduction of the current account surplus. |
| Keywords: | German current account surplus; structural change; unbalanced productivity change |
| JEL: | E21 E22 F31 F41 O40 |
| Date: | 2013–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9527&r=mac |
| By: | Patrick Bolton; Xavier Freixas; Leonardo Gambacorta |
| 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, but offer continuation-lending at more favorable 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 relationship and transaction-banks 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 favorable 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: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:714&r=mac |
| By: | International Monetary Fund. Western Hemisphere Dept. |
| Keywords: | Macroprudential Policy;Banks;Capital flows;Financial stability;Financial Sector Assessment Program;Brazil; |
| Date: | 2013–06–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:13/148&r=mac |
| By: | Ojo, Marianne |
| Abstract: | This paper not only addresses how linkages, direct and facilitating linkages, can benefit microfinance institutions – and particularly in jurisdictions where the Savings Group Outreach involvement is particularly low, but also illustrates ways and means whereby group lending and other more recent innovative methods used by micro lenders to secure repayments, could increase the desired effects, efficiency and impact of microfinance in selected jurisdictions. In so doing, it addresses some of the existing and persisting problems of micro finance in rural areas. An innovative aspect of the paper is evidenced through its recommendation of the Micro-Savings Requirement Scheme - which offers numerous benefits – as will be highlighted in this paper. |
| Keywords: | microfinance; regulation; agency theory; Micro-Savings Requirement Scheme |
| JEL: | E2 E6 G2 G21 G23 G28 K2 |
| Date: | 2013–09–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:49927&r=mac |
| By: | Österholm, Pär (National Institute of Economic Research) |
| Abstract: | In this paper, the author evaluates forecasting models for Swedish GDP growth which make use of data from Sweden´s most important business survey, the Economic Tendency Survey. Employing nine years of quarterly real-time data, an out-of-sample forecast exercise is conducted. Results indicate that the survey data have informational value that can be used to improve forecasts, thereby confirming the empirical relevance of survey data for GDP forecasters. |
| Keywords: | Out-of-sample forecasts; Real-time data |
| JEL: | E22 E27 |
| Date: | 2013–09–13 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nierwp:0130&r=mac |
| By: | Theodore Koutmeridis (University of St Andrews) |
| Abstract: | During the past four decades both between and within group wage inequality increased significantly in the US. I provide a microfounded justification for this pattern, by introducing private employer learning in a model of signaling with credit constraints. In particular, I show that when financial constraints relax, talented individuals can acquire education and leave the uneducated pool, this decreases unskilled-inexperienced wages and boosts wage inequality. This explanation is consistent with US data from 1970 to 1997, indicating that the rise of the skill and the experience premium coincides with a fall in unskilled-inexperienced wages, while at the same time skilled or experienced wages do not change much. The model accounts for: (i) the increase in the skill premium despite the growing supply of skills; (ii) the understudied aspect of rising inequality related to the increase in the experience premium; (iii) the sharp growth of the skill premium for inexperienced workers and its moderate expansion for the experienced ones; (iv) the puzzling coexistence of increasing experience premium within the group of unskilled workers and its stable pattern among the skilled ones. The results hold under various robustness checks and provide some interesting policy implications about the potential conflict between inequality of opportunity and substantial economic inequality, as well as the role of minimum wage policy in determining the equilibrium wage inequality. |
| Keywords: | wage inequality, experience premium, skill premium, employer learning, signaling, financial constraints, minimum wages |
| JEL: | D31 D82 E44 J31 |
| Date: | 2013–09–12 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmawp:1307&r=mac |
| By: | Andreas Fuster; Paul S. Willen |
| Abstract: | Surprisingly little is known about the importance of mortgage payment size for default, as efforts to measure the treatment effect of rate increases or loan modifications are confounded by borrower selection. We study a sample of hybrid adjustable-rate mortgages that have experienced large rate reductions over the past years and are largely immune to these selection concerns. We show that interest rate reductions dramatically affect repayment behavior, even for borrowers who are significantly underwater on their mortgages. Our estimates imply that cutting a borrower’s payment in half reduces his hazard of becoming delinquent by about 55 percent, an effect approximately equivalent to lowering the borrower’s combined loan-to-value ratio from 145 to 95 (holding the payment fixed). These findings shed light on the driving forces behind default behavior and have important implications for public policy. |
| JEL: | E43 G21 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19345&r=mac |