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on Macroeconomics |
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Issue of 2013‒10‒05
28 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Oleksiy Kryvtsov (Bank of Canada); Luba Petersen (Simon Fraser University) |
| Abstract: | The effectiveness of monetary policy depends, to a large extent, on market expectations of its future actions. In a standard New Keynesian business cycle model with rational expectations, systematic monetary policy reduces the variance of inflation and output gap by at least two-thirds. These stabilization benefits can be substantially smaller if expectations are non-rational. We design an economic experiment that identifies the contribution of expectations to macroeconomic stabilization achieved by systematic monetary policy. We find that, despite some non-rational component in expectations formed by experiment participants, monetary policy is quite potent in providing stabilization, reducing roughly a half of macroeconomic variance.te potent in providing stabilization, reducing roughly a half of macroeconomic variance. |
| Keywords: | Expectations, Monetary Policy, Inflation, Laboratory Experiment, Experimental Macroeconomics |
| JEL: | C9 D84 E3 E52 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:sfu:sfudps:dp13-09&r=mac |
| By: | Barbara Annicchiarico (University of Rome "Tor Vergata"); Fabio di Dio (Sogei S.p.a. IT Economia) |
| Abstract: | This paper studies the dynamic behaviour of an economy under different environmental policy regimes in a New Keynesian (NK) model with nominal and real uncertainty. We find the following results: (i) an emissions cap policy is likely to dampen macroeconomic fluctuations; (ii) staggered price adjustment alters significantly the performance of the environmental policy regime put in place, especially with an emissions intensity target; (iii) welfare tends to be higher with a tax on emissions when prices are sticky; (iv) the optimal policy response to inflation is found to be very strong as long as welfare is not affected by environmental quality and the environmental policy does not consist in an emissions cap. |
| Keywords: | New Keynesian Model,Environmental Policy,Macroeconomic Dynamics,Monetary Policy |
| JEL: | E32 E50 Q58 |
| Date: | 2013–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:286&r=mac |
| By: | Jochen Güntner |
| Abstract: | Following the bankruptcy of Lehman Brothers, interbank borrowing and lending dropped, whereas reserve holdings of depository institutions skyrocketed, as the Fed injected liquidity into the U.S. banking sector. This paper introduces bank liquidity risk and limited market participation into a real business cycle model with ex ante identical financial intermediaries and shows, in an analytically tractable way, how interbank trade and excess reserves emerge in general equilibrium. Investigating the role of the federal funds market and unconventional monetary policy for the propagation of aggregate real and financial shocks, I find that federal funds market participation is irrelevant in response to standard supply and demand shocks, whereas it matters for “uncertainty shocks”, i.e. mean-preserving spreads in the cross-section of liquidity risk. Liquidity injections by the central bank can absorb the effects of financial shocks on the real economy, although excess reserves might increase and federal funds might be crowded out, as a side effect. |
| Keywords: | Excess reserves, Federal funds market, Financial frictions, Liquidity risk, Unconventional monetary policy |
| JEL: | C61 E32 E51 E52 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:jku:econwp:2013_12&r=mac |
| By: | David Laidler (University of Western Ontario) |
| Abstract: | The economic crisis that began in 2007 and still lingers has invited comparison with the Great Depression of the 1930s. It has also generated renewed interest in Milton Friedman and Anna Schwartz’s explanation of the latter as mainly the consequence of the Fed’s failure as a lender of last resort at its onset, and the ineptitude of its policies thereafter. This explanation is reassessed in the light of events since 2007, and it is argued that its plausibility emerges enhanced, even though policy debates in recent years have paid more attention to interest rates and credit markets than to Friedman and Schwartz’s key variable, the quantity of money. |
| Keywords: | Great Depression; Great Contraction; Great Recession; Keynesianism; Monetarism; Lender of Last Resort; Money; High-powered money; Monetary base; Currency; Bank reserves; Quantitative easing; Open-market operations |
| JEL: | B22 E32 E51 E58 N2 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:uwo:epuwoc:20135&r=mac |
| By: | Acikgoz, Omer |
| Abstract: | Aiyagari (1995) showed that long-run optimal fiscal policy features a positive tax rate on capital income in Bewley-type economies with heterogeneous agents and incomplete markets. However, determining the magnitude of the optimal capital income tax rate was considered to be prohibitively difficult due to the need to compute the optimal tax rates along the transition path. This paper shows that, in this class of models, long-run optimal fiscal policy and the corresponding allocation can be studied independently of the initial conditions and the transition path. Numerical methods based on this finding are used on a model calibrated to the U.S. economy. I find that the observed average capital income tax rate in the U.S. is too high, the average labor income tax rate and the debt-to-GDP ratio are too low, compared to the long-run optimal levels. The implications of these findings for the existing literature on the optimal quantity of debt and constrained efficiency are also discussed. |
| Keywords: | Optimal Taxation, Ramsey Problem, Incomplete Markets, Heterogeneous Agents |
| JEL: | E2 E21 E25 E6 E62 H3 H6 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:50160&r=mac |
| By: | Eckhard Hein; Achim Truger |
| Abstract: | The German debt brake is often regarded as a great success story, and has therefore served as a role model for the Euro area and its fiscal compact. In this paper we fundamentally criticize the debt brake. We show that (1) it suffers from serious shortcomings, and its success is far from certain even from a mainstream point of view; (2) from a Post-Keynesian perspective, it completely neglects the requirements for fiscal policies of member-countries in a currency union and will prevent fiscal policy from contributing to the necessary rebalancing in the Euro area; and (3) alternative scenarios, which could avoid the deflationary pressures of the German debt brake on domestic demand and contribute to internally rebalancing the Euro area, are extremely unlikely, as they would have to rely on unrealistic shifts in the functional income distribution and/or investment and savings behavior in Germany. |
| Keywords: | Fiscal Policy; Rebalancing; Functional Income Distribution; Debt Brake; Germany; Euro Area |
| JEL: | E25 E61 E62 E64 E65 H62 H63 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_776&r=mac |
| By: | Michael B Devereux (University of British Columbia, CEPR and NBER); Ozge Senay (University of St Andrews); Alan Sutherland (University of St Andrews and CEPR) |
| Abstract: | Over the past four decades, advanced economies experienced a large growth in gross external portfolio positions. This phenomenon has been described as Financial Globalization. Over roughly the same time frame, most of these countries also saw a substantial fall in the level and variability of inflation. Many economists have conjectured that financial globalization contributed to the improved performance in the level and predictability of inflation. In this paper, we explore the causal link running in the opposite direction. We show that a monetary policy rule which reduces inflation variability leads to an increase in the size of gross external positions, both in equity and bond portfolios. This appears to be a robust prediction of open economy macro models with endogenous portfolio choice. It holds across different modeling specifications and parameterizations. We also present preliminary empirical evidence which shows a negative relationship between inflation volatility and the size of gross external positions. |
| Keywords: | Nominal stability, Financial Globalization, Country Portfolios |
| JEL: | E52 E58 F41 |
| Date: | 2013–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmawp:1309&r=mac |
| By: | Filippo Ippolito; Ali K. Ozdagli; Ander Pérez Orive |
| Abstract: | We combine existing balance sheet and stock market data with two new datasets to study whether, how much, and why bank lending to firms matters for the transmission of monetary policy. The first new dataset enables us to quantify the bank dependence of firms precisely, as the ratio of bank debt to total assets. We show that a two standard deviation increase in the bank dependence of a firm makes its stock price about 25% more responsive to monetary policy shocks. We explore the channels through which this effect occurs, and find that the stock prices of bank-dependent firms that borrow from financially weaker banks display a stronger sensitivity to monetary policy shocks. This finding is consistent with the bank lending channel, a theory according to which the strength of bank balance sheets matters for monetary policy transmission. We construct a new database of hedging activities and show that the stock prices of bank-dependent firms that hedge against interest rate risk display a lower sensitivity to monetary policy shocks. This finding is consistent with an interest rate pass-through channel that operates via the direct transmission of policy rates to lending rates associated with the widespread use of floating-rates in bank loans and credit line agreements. |
| Keywords: | bank lending channel, monetary policy transmission, firm financial constraints, bank financial health, floating interest rates |
| JEL: | G21 G32 E52 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1384&r=mac |
| By: | Coppola, Gianluigi |
| Abstract: | Macro Models are a series of free Apps available in App Store, and they work with Ipads. Each App simulates a specific macroeconomic model and presents both the static and the dynamic results. The first five Apps developed and published are: the Income-Expenditure model in three versions (I, II and III), the IS-LM model and the Taylor’s rule (IS-MP model). The economic model of each single App and several examples on how it works are outlined in this paper. |
| Keywords: | Macroeconomics, Income-Expenditure model, IS-LM, Taylor’s rule, APP. 3 |
| JEL: | E10 E17 |
| Date: | 2013–09–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:50300&r=mac |
| By: | Ramirez, Francisco |
| Abstract: | This study provides evidence of the relationship between credit and real activity in Central America and the Dominican Republic. We address the empirics of the link between credit and real activity for the case of a group of developing countries with limited financial markets where bank credit is the main source of external finance for the private sector. We compile information of credit to the private sector and the aggregate economic activity for Costa Rica, El Salvador, Honduras, Guatemala, Nicaragua and the DR. The data is analyzed using simple statistical tools (Granger causality tests and spectral analysis) to identify stylized facts on the credit-activity relationship. We find a positive relationship between credit and real activity in frequencies associated to business cycles for all countries. The credit - economic relationship in cycles lasting 10 or more years seems relevant in Costa Rica and the DR. There is evidence suggesting that credit precedes economic activity at business cycles frequencies in Costa Rica, El Salvador, Honduras, Nicaragua and the DR. Excluding Nicaragua, this pattern is observed also in cycles over 8 years for mentioned economies. In case of Guatemala there is no evidence of statistical precedence of credit to economic activity. |
| Keywords: | Credit; Business Cycles; Spectral Analysis;Granger Causality |
| JEL: | C32 E32 E51 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:50332&r=mac |
| By: | Zheng Liu (Federal Reserve Bank of San Francisco); Sylvain Leduc (Federal Reserve Bank of San Francisco) |
| Abstract: | We present empirical evidence and a theoretical argument that uncertainty shocks act like a negative aggregate demand shock, which raises unemployment and lowers inflation. We measure uncertainty using survey data from the United States and the United Kingdom. We estimate the macroeconomic effects of uncertainty shocks in a vector autoregression (VAR) model, exploiting the relative timing of the surveys and macroeconomic data releases for identification. Our estimation reveals that uncertainty shocks accounted for at least one percentage point increases in unemployment in the Great Recession and recovery, but did not contribute much to the 1981-82 recession. We present a DSGE model to show that, to understand the observed macroeconomic effects of uncertainty shocks, it is essential to have both labor search frictions and nominal rigidities. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed013:270&r=mac |
| By: | Federico Mandelman (Federal Reserve Bank of Atlanta) |
| Abstract: | During the last thirty years, labor markets in advanced economies where characterized by their remarkable polarization. As job opportunities in middle-skill occupations disappeared, employment opportunities concentrated in the highest- and lowest wage occupations. I develop a two-country stochastic growth model that incorporates trade in tasks, rather than in goods, and reveal that this setup can replicate the observed polarization in the U.S. This polarization was not an steady process: the relative employment share of each skill group significantly fluctuated over short-to medium horizons. I show that the domestic and international aggregate shocks estimated within this framework can rationalize such employment dynamics, while providing a good fit to the macroeconomic data. The model is estimated with employment data for different skills groups, and trade-weighted macroeconomic indicators. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed013:291&r=mac |
| By: | Esteban Perez Caldentey; Matias Vernengo |
| Abstract: | We argue that a fundamental difference between Post-Keynesian approaches to economic growth lies in their treatment of investment. Kaleckian-Robinsonian models postulate an investment function dependent on the accelerator and profitability. Some of these models rely on the importance of profitability, captured by the profit share, to make the case for profit-led growth. For their part, Kaldorian models place the emphasis on the accelerator. More important, investment is a derived demand; that is, it is ruled by the adjustment of capacity to exogenous demand, which, in turn, determines the normal level of capacity utilization. In our view, the Kaldorian approach is better equipped to deal with some of the issues relating income distribution to accumulation with effective demand in the long run. We develop a Kaldorian open-economy model to examine the conditions under which an increase in real wages can produce profit or wage-led growth, showing that the limit to a wage-led expansion is a binding external constraint. The role and limitations of wages as a determinant of growth are further examined through spectral techniques and cycle analysis for a subset of developed economies. The evidence indicates that real wages are positively related to growth, investment, and capacity utilization. It also highlights the role of finance in sustaining expansions, suggesting that debt-led growth should not be identified with profit-led growth. |
| Keywords: | Kaldorian and Kaleckian Models; Profit-, Wage-, and Debt-Led Growth; Investment; Derived Demand; External Constraint |
| JEL: | B50 E32 O40 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_775&r=mac |
| By: | Rangan Gupta; Shawkat Hammoudeh; Mampho P. Modise; Duc Khuong |
| Abstract: | This article attempts to examine whether the equity premium in the United States can be predicted from a comprehensive set of 18 economic and financial predictors over a monthly out-of-sample period of 2000:2 to 2011:12, using an in-sample period of 1990:2-2000:1. To do so, we consider, in addition to the set of variables used in Rapach and Zhou (2013), the forecasting ability of four other important variables: the US economic policy uncertainty, the equity market uncertainty, the University of Michigan’s index of consumer sentiment, and the Kansas City Fed’s financial stress index. Using a more recent dataset compared to that of Rapach and Zhou (2013), our results from predictive regressions show that the newly added variables do not play any significant statistical role in explaining the equity premium relative to the historical average benchmark over the out-of-sample horizon, even though they are believed to possess valuable informative content about the state of the economy and financial markets. Interestingly, however, barring the economic policy uncertainty index, the three other indexes considered in this study yields economically significant out-of-sample gains, especially during recessions, when compared to the historical benchmark. |
| Keywords: | Equity premium forecasting, asset pricing model, economic uncertainty, business cycle |
| JEL: | C22 C38 C53 C58 E32 G11 G12 G14 G17 |
| Date: | 2013–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:20&r=mac |
| By: | D'Adamo, Gaetano (Universidad de Valencia); Rovelli, Riccardo (University of Bologna) |
| Abstract: | During the last decade, economists have intensively searched for evidence on the importance of the Balassa-Samuelson (B-S) hypothesis in explaining nominal convergence. One general result is that B-S can at best explain only part of the excess inflation observed in the European catching-up countries, which suggests that other factors may be at play. In these and related studies, however, the potential role of the exchange rate regime in affecting price convergence in Europe has been overlooked. In this respect, we claim that the choice of the exchange rate regime has decisively affected the path of nominal convergence. To show this, we first model the (endogenous) choice of the exchange rate regime and, in a second stage, estimate a B-S type of regression for each regime. Our results show that, for countries which pegged to or adopted the euro, the effect of the same increase in the dual productivity growth (that is, the difference in productivity growth between the traded and non-traded sectors) on the dual inflation differential is more than twice as large as that in the "flexible" countries. We conclude that, in a catching-up country, premature euro adoption may foster excess inflation, beyond that which is to be expected as a consequence of productivity convergence on the basis of the B-S effect. |
| Keywords: | exchange rate regimes, Balassa-Samuelson effect, inflation, euro adoption |
| JEL: | C34 E52 F31 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7627&r=mac |
| By: | Andrey Launov (Department of Economics, Johannes Gutenberg-Universitaet Mainz, Germany); Klaus Wälde (Department of Economics, Johannes Gutenberg-Universitaet Mainz, Germany) |
| Abstract: | To which extent does an increase in operating effectiveness of public employment agencies on the one hand and a reduction of unemployment benefits on the other reduce unemployment? Using the recent labour market reform in Germany as background we find that the role of unemployment benefit reduction for the re- duction of unemployment is very modest (7% of the observed decline). Enhanced effectiveness of public employment agencies, to the contrary, explains a substan- tial part (34%) of the observed post-reform unemployment decline. If disincentive effects of PEA reforms had been avoided, the effect could have increased to 51%. |
| Keywords: | Employment agencies, unemployment benefi?ts, labour market reform, unemployment, structural model |
| JEL: | E24 J65 J68 |
| Date: | 2013–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:jgu:wpaper:1307&r=mac |
| By: | Tanweer Ali (Empire State College, SUNY) |
| Abstract: | This paper examines the development of employment policy in the United Kingdom. Past public-sector direct employment schemes, including those associated with the workfare model, had been discredited as ineffective across the OECD. In numerous countries, however, newer job creation schemes were implemented from the 1990s, aimed at addressing some of the shortcomings of earlier projects, and utilizing the growth of smaller community-based projects – the Intermediate Labour Markets, or ILMs. With the onset of the current economic downturn, and the substantial rise in cyclical unemployment, policy-makers more closely examined options for a demand-led strategy. Although ILMs had not been created with a view to forming part of a comprehensive job guarantee, the potential of these schemes to form part of a wider national strategy was clearly seen. In 2009 the government announced a job guarantee for young people, the Future Jobs Fund. This initiative was inspired at least in part by the work of Hyman Minsky. Although the Future Jobs Fund was scrapped in May 2010, it represents a bold step in active labour market policy. Subsequent analysis of the data related to the Future Jobs Fund indicate that it was a success, achieving its goals even under conservative assumptions. |
| Keywords: | Job guarantee, full employment, unemployment, work, community |
| JEL: | E61 H41 I31 I38 J23 J68 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:pkwp1106&r=mac |
| By: | Barnett, Richard C.; Bhattacharya, Joydeep; Bunzel, Helle |
| Abstract: | This paper argues that income received via redistributive transfers, unlike labor income, requires no direct sacrifice of leisure; this makes it attractive to many voters even if it leaves them poorer. This point is made within the classic Meltzer and Richard (1981) model wherein heterogeneous voters evaluate an income-redistribution program that finances a lump-sum transfer to all via a distorting income tax. The political-equilibrium policy under majority rule is the tax most preferred, utility-wise, by the median voter. She, and many poorer voters, may support income redistribution that, ironically, leaves them poorer in income terms but with higher utility. |
| Keywords: | income redistribution; voting; Meltzer-Richard |
| JEL: | D72 E6 H2 |
| Date: | 2013–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:36600&r=mac |
| By: | Cecilia Frale (Ministry of the Economy and Finance); Stefano Grassi (University of kent and CREATES); Massimiliano Marcellino (EUI Florence); Gianluigi Mazzi (EUROSTAT); Tommaso Proietti (University of Rome "Tor Vergata") |
| Abstract: | The paper deals with the estimation of monthly indicators of economic activity for the Euro area and its largest member countries that possess the following attributes: relevance, representativeness and timeliness. Relevance is obtained by referring our monthly indicators to gross domestic product at chained volumes, the most important measure of the level of economic activity. Representativeness is achieved by entertaining a very large number of (timely) time series on monthly indicators relating to the level of economic activity, providing a more or less complete coverage. The indicators are modelled with a large scale parametric factor model. We discuss its specification and provide details on the statistical treatment. Computational efficiency is crucial to estimate a large scale parametric factor model of the dimension considered in our application (considering about 170 series). To achieve it we apply state of the art state space methods that can handle temporal aggregation, and any pattern of missing values. |
| Keywords: | Index of coincident indicators,Temporal Disaggregation,Multivariate State Space Models,Dynamic factor Models,Quarterly National accounts |
| JEL: | E32 E37 C53 |
| Date: | 2013–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:287&r=mac |
| By: | Patrick Bolton; Xavier Freixas; Leonardo Gambacorta; Paolo Emilio Mistrulli |
| 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:upf:upfgen:1385&r=mac |
| By: | Jan Hagemejer (National Bank of Poland; Faculty of Economic Sciences, University of Warsaw); Krzysztof Makarski (National Bank of Poland; Warsaw School of Economics); Joanna Tyrowicz (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland) |
| Abstract: | In many countries the fiscal tension associated with the global financial crisis brings about the discussion about unprivatizing the social security system. This paper employs an OLG model to assess ex ante the effects of such changes to the pension reform in Poland from 1999 as implemented in 2011 and proposed in 2013. We simulate the behavior of the economy without the implemented/proposed changes and compare it to a status quo defined by the reform from 1999. We find that the changes implemented in 2011 and all of the proposed reform scenarios from 2013 are detrimental to welfare. The effects on capital and output are small and depend on the selected fiscal closure. Implied effective replacement rates are lower. These findings are robust to time inconsistency. The shortsightedness of the governments imposes welfare costs. |
| Keywords: | OLG, PAYG, pension system reform, time inconsistency |
| JEL: | C68 E17 E25 J11 J24 H55 D72 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:war:wpaper:2013-26&r=mac |
| By: | Martínez Romera, José Pablo |
| Abstract: | El objeto de este artículo es sintetizar la larga historia de la Teoría de las Áreas Monetarias Óptimas, desde las ideas primigenias de mediados del siglo XX hasta los últimos debates surgidos en los albores del siglo XXI, haciendo especial hincapié en las aportaciones del considerado padre de dicha teoría, Robert Mundell. A lo largo de este recorrido cronológico se mantendrá como principal referente geográfico el continente europeo, ya que generalmente se ha considerado el territorio más propicio para unificaciones monetarias, y de hecho en los últimos 15 años ha protagonizando la más ambiciosa de todas: el euro. Asimismo en la Teoría de las Áreas Monetarias Óptimas también pueden encontrarse ciertas claves para entender la crisis en la que la UEM lleva inmersa en los últimos años. |
| Keywords: | Áreas Monetarias Óptimas; Integración Monetaria y Económica; UEM |
| JEL: | E42 F15 F33 F36 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:uam:wpaper:201304&r=mac |
| By: | Fernando Lefort (Facultad de Economía y Empresa, Universidad Diego Portales); Fernando Diaz (Facultad de Economía y Empresa, Universidad Diego Portales) |
| Abstract: | We analyze whether changes in external macroeconomic conditions are associated with changes in the dynamics of risk and changes in the degree of informativeness of the price system for the Chilean economy. By focusing our analysis in Chile, we hope to isolate the effect of external macroeconomic volatility from the effects that weak institutions or a poor rule of law might have over domestic markets performance. We find that the dynamics of local financial risks is associated with the evolution of the overall economic conditions of the country, with a strong reduction in idiosyncratic and systematic risks during periods of stable macroeconomic conditions. Since the level and composition of financial risks can affect the net benefits of acquiring and trading on private information, we conjecture that external economic conditions can also affect the informativeness of domestic stock prices. We find that the ability of domestic stock prices to reflect fundamentals information improves during times of stable external conditions. In spite of this, we provide evidence that traditional measures of informationally market efficiency in the R2 literature fail to detect such changes and attempt to explain the reason behind the inability of these measures to properly proxy for stock price informativeness. |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:ptl:wpaper:45&r=mac |
| By: | Tomas Havranek; Roman Horvath; Zuzana Irsova; Marek Rusnak |
| Abstract: | We collect 2,735 estimates of the elasticity of intertemporal substitution in consumption from 169 published studies that cover 104 countries during different time periods. The estimates vary substantially from country to country, even after controlling for 30 aspects of study design. Our results suggest that income and asset market participation are the most effective factors in explaining the heterogeneity: households in developing countries and countries with low stock market participation substitute a smaller fraction of consumption intertemporally in response to changes in expected asset returns. Micro-level studies that focus on sub-samples of poor households or households not participating in asset markets also find systematically smaller values of the elasticity. |
| Keywords: | Elasticity of intertemporal substitution, consumption, meta-analysis, Bayesian model averaging |
| JEL: | C83 D91 E21 |
| Date: | 2013–08–15 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2013-1056&r=mac |
| By: | Zinn, Jesse |
| Abstract: | In this paper I examine the implications of self-attribution bias on consumption and savings decisions. When self-attributive learning replaces rational expectations in a model of intertemporal choice, two departures from the permanent-income hypotheses manifest. One is that consumers tend to under-save early in life. Another is a relatively high degree of covariance between changes in consumption and changes in income. No other factor on its own has been able to explain both of these empirical anomalies that the permanent-income hypothesis has faced. |
| Keywords: | Cognative Biases, Uncertainty, Consumption, Saving |
| JEL: | D03 E21 |
| Date: | 2013–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:50314&r=mac |
| By: | Moritz Drechsel-Grau; Kai Daniel Schmid |
| Abstract: | In this paper we demonstrate that interpersonal comparisons do not only influence people's level of utility but also lead to "keeping up with the Joneses"-behavior as reference consumption substantially affects households' consumption-savings decisions. By applying the insights from the literature on self-reported well-being to the analysis households' economic decisions, we estimate the causal effect of changes in reference consumption, defined as the consumption level of all households who are perceived to be richer, on households' savings and consumption. Using annual household data from the German Socio-Economic Panel (SOEP) for the years 2002 through 2011 allows us to control for various sources of unobserved heterogeneity. We find that when controlling for changes in own income, increases in reference consumption lead to lower savings and increased consumption as predicted by the Relative Income Hypothesis. Furthermore, households in the (upper) middle class of the income distribution are most strongly affected. An increase in reference consumption of 100 euros induces an average reduction of household savings of 10 to 25 euros depending on the household's position in the income distribution. The economic implications of such behavior are particularly helpful for understanding the link between changes in income inequality and developments in aggregate household savings and consumption. Our model attributes between 30 and 40 percent of the variation in changes of household savings to inequality changes. |
| Keywords: | Household Savings, Household Consumption, Interdependent Preferences, Reference Consumption, Relatice Income Hypothesis, Income Inequality |
| JEL: | D12 D11 E21 C23 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:imk:wpaper:118-2013&r=mac |
| By: | Richard S.Grossman (Department of Economics, Wesleyan University); Ronan C. Lyons (Trinity College, Dublin & Balliol College, Oxford); Kevin Hjortshøj O’Rourke (All Souls College, Oxford & CEPR & NBER & IIIS, Trinity College Dublin); Madalina A. Ursu (London School of Economics) |
| Abstract: | Information on the performance of equities during the latter part of the globalized long nineteenth century is scarce, particularly for smaller European economies such as Ireland. Using a dataset of over 35,000 price‐year observations from the Investor’s Monthly Manual, this paper constructs new monthly Irish stock market price indices for the period 1864-1930, encompassing periods of significant economic and political turmoil in Irish history. In addition to a total market index covering all 118 equity securities issued by 94 companies, sector-specific indices are presented for railways, financial services companies, and miscellaneous industrial and retail companies. Weighted by market capitalization, nominal equity prices were largely static in the 1860s, before increasing by almost 60% in nominal terms between 1870 and 1878. Between 1878 and 1879, equity prices fell by one sixth in the space of a year, after which there was a secular rise in equity prices for two decades, with equity prices in 1899 twice what they had been in 1864. Between the turn of the century and the outbreak of the Great War, though, prices fell by 25%, a pattern that stands in stark contrast to returns on the London exchange, which were greater during 1894-1913 than during the preceding two decades. The period from 1914 until 1929 saw a number of boom-bust cycles, concurrent with war and other political events affecting Ireland, including its independence movement. Railway equities, which had trebled between the mid-1860s and the turn of the century, fell sharply during the 1910s and 1920s. In contrast, financial equity prices – which were just 20% higher in 1920 than in 1864 – rose strongly during the 1920s. Overall, the average annual gain in equity prices over the period was just 0.9%, well below levels associated with an equity premium puzzle. |
| Keywords: | Irish stock exchange, Investor’s Monthly Manual, long-run stock returns, 19th Century, 20th Century, Ireland |
| JEL: | E3 G12 N23 N24 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:wes:weswpa:2013-007&r=mac |
| By: | Kalpana Kochhar |
| Abstract: | The proposed SDN discusses the specific macro-critical aspects of women’s participation in the labor market and the constraints that prevent women from developing their full economic potential. Building on earlier Fund analysis, work undertaken by other organizations and academic research, the SDN presents possible policies to overcome these obstacles in different types of countries. |
| Keywords: | Women;Labor markets;Gender equality;Employment;Fiscal policy;Developed countries;Emerging markets |
| Date: | 2013–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfsdn:13/10&r=mac |