nep-mac New Economics Papers
on Macroeconomics
Issue of 2013‒12‒20
58 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Shadow banks and macroeconomic instability By Roland Meeks; Benjamin Nelson; Piergiorgio Alessandri
  2. Friedman and Divisia Monetary Measures By william, barnett
  3. The Transmission of Monetary Policy Operations through Redistributions and Durable Purchases By Vincent Sterk; Silvana Tenreyro
  4. Fiscal Policy and the Nominal Term Premium By Kaszab, Lorant; Marsal, Ales
  5. Firm Risk and Leverage Based Business Cycles By Sanjay K. Chugh
  6. Sovereign risk, monetary policy and fiscal multipliers: a structural model-based assessment By Alberto Locarno; Alessandro Notarpietro; Massimiliano Pisani
  7. Learning about fiscal policy and the effects of policy uncertainty By Hollmayr, Josef; Matthes, Christian
  8. Do Central Banks Respond to Exchange Rate Movements? A Markow-Switching Structural Investigation By Ragna Alstadheim; Hilde C. Bjørnland; Junior Maih
  9. Foreign Exchange Interventions in Peru By Rossini, Renzo; Quispe, Zenón; Serrano, Enrique
  10. Fluctuations in Uncertainty By Nicholas Bloom
  11. Efficiency and Labor Market Dynamics in a Model of Labor Selection By Sanjay K. Chugh; Christian Merkl
  12. The trend-cycle decomposition of output and the Phillips curve: Bayesian estimates for Italy By Fabio Busetti; Michele Caivano
  13. Search Frictions, Credit Market Liquidity, and Net Interest Margin Cyclicality By Kevin E. Beaubrun-Diant; Fabien Tripier
  14. Bubbles and crowding-in of capital via a savings glut By Hillebrand, Marten; Kikuchi, Tomoo; Sakuragawa, Masaya
  15. Money Targeting in a Modern Forecasting and Policy Analysis System: an Application to Kenya By Michal Andrle; Andrew Berg; Enrico Berkes; Rafael A Portillo; Jan Vlcek; R. Armando Morales
  16. Macroprudential Regulation and Macroeconomic Activity By Karmakar, Sudipto
  17. The policy response to macroeconomic and fiscal imbalances in Italy in the last fifteen years By Antonio Bassanetti; Matteo Bugamelli; Sandro Momigliano; Roberto Sabbatini; Francesco Zollino
  18. Supply tightening or lack of demand? An analysis of credit developments during the Lehman Brothers and the sovereign debt crises By Paolo Del Giovane; Andrea Nobili; Federico Maria Signoretti
  19. Macroeconomic Policy in Belarus after Currency Crisis: Challenges and Perspectives (in Russian) By Dzmitry Kruk
  20. Debt Servicing, Aggregate Consumption, and Growth By Mark Setterfield; Yun Kim
  21. How Macroeconomic Imbalances Interact? Evidence from a Panel VAR Analysis By Blaise Gnimassoun; Valérie Mignon
  22. Can non-interest rate policies stabilize housing markets? By Kenneth N. Kuttner; Illyock Shim
  23. Exchange rate dynamics revisited By Jorge Braga de Macedo; Urho Lempinen
  24. Current account adjustment in EU countries: Does euro-area membership make a difference? By Herrmann, Sabine; Jochem, Axel
  25. Inside a bubble and crash: Evidence from the valuation of amenities By Ronan C. Lyons
  26. Wage growth and productivity growth: the myth and reality of 'decoupling' By Joao Paulo Pessoa; John Van Reenen
  27. REER Imbalances and Macroeconomic Adjustments in the Proposed West African Monetary Union By Asongu Simplice
  28. Incorporating Judgments and Dealing with Data Uncertainty in Forecasting at the Czech National Bank By Jan Bruha; Tibor Hledik; Tomas Holub; Jiri Polansky; Jaromir Tonner
  29. Loan/Loss Provisioning in Emerging Europe: Precautionary or Pro-Cyclical? By John Bonin; Marko Kosak
  30. The Investment-Financing-Growth Nexus: The Case of Liberia By Will Clark; Manuel Rosales
  31. Elasticity of substitution and technical progress: Is there a misspecification problem? By Saltari, Enrico; Federici, Daniela
  32. Impacts of Exogenous Shocks Using GTAP By durongkaveroj, wannaphong
  33. Fiscal Equalization, Government Expenditures and Endogenous Growth By Philippe Cyrenne; Manish Pandey
  34. Measuring Inflation Persistence in Brazil Using a Multivariate Model By Vicente da Gama Machado; Marcelo Savino Portugal
  35. Finance and growth: New evidence from Meta-analysis By Asongu Simplice
  36. Liberalization and financial sector competition: a critical contribution to the empirics with an African assessment By Asongu Simplice
  37. Sector-specific foreign direct investment, factor market distortions and non-immiserising growth By Mukherjee, Soumyatanu
  38. The Outcome of Directed Lending in Belarus: Mitigating Recession of Damening Long-Run Growth? By Dzmitry Kruk; Kiryl Haiduk
  39. Tasa de interés de largo plazo, interés técnico y pasivo pensional By Luis Eduardo Arango; Wilmar Cabrera; Esteban Gómez; Juan Carlos Mendoza
  40. Labour Market Developments and Social Welfare By Hermine Vidovic
  41. Prospects of economic and monetary integration of the CIS Member States By Anastasiya Luzgina
  42. Recent Trends and Challenges in the Labour Market in Belarus By Maryia Akulava; Gleb Shymanovich; Robert Kirchner
  43. Google Trends: Predicción del nivel de empleo agregado en Perú usando datos en tiempo real, 2005-2011 By Chang, Jillie; Del Río, Andrea
  44. Access to Finance Thresholds and the Finance-Growth Nexus By Ben Jelili, Riadh; Abdmoulah, Walid
  45. Debt Reduction, Fiscal Adjustment, and Growth in Credit-Constrained Economies By Emanuele Baldacci; Sanjeev Gupta; Carlos Mulas-Granados
  46. Sector-Level Productivity, Structural Change, and Rebalancing in China By Malhar Nabar; Kai Yan
  47. Limited Information Aggregation and Externalities - A Simple Model of Metastable Market By Gong, Zheng; Tian, Feng; Xu, Boyan
  48. Property Rights, Oil and Income Levels: Over a Century of Evidence By Brunnschweiler, Christa N.; Valente, Simone
  49. The Basic WIOD CGE Model: A computable general equilibrium model based on the World Input-Output Database By Koesler, Simon; Pothen, Frank
  50. Causality and interdependence in Pasinetti's works and in the modern classical approach By Bellino, Enrico; Nerozzi, Sebastiano
  51. Drivers of Growth: Evidence from Sub-Saharan African Countries By Manuk Ghazanchyan; Janet Gale Stotsky
  52. Knowledge Spillovers in Neoclassical Growth Model: an extension with Public Sector By Álvarez, Inmaculada; Barbero, Javier
  53. How do institutions matter in the income-equalizing effect of mobile phone penetration? By Asongu, Simplice A
  54. Model of currency integration involving the Republic of Belarus (in Russian) By Anastasiya Luzgina
  55. Welfare-Improving Ambiguity in Insurance Markets with Asymmetric Information By : Kostas Koufopoulos; : Roman Kozhan
  56. Size and age of establishments: evidence from developing countries By Ayyagari, Meghana; Demirguc-Kunt, Asli; Maksimovic, Vojislav
  57. High growth firms, innovation and competition: the case of the US pharmaceutical industry By Mariana Mazzucato; Stuart Parris
  58. "Sovereign debt crisis and Welfare states" (in Japanese) By Nobuki Mochida

  1. By: Roland Meeks (Essex University); Benjamin Nelson (Bank of England); Piergiorgio Alessandri (Bank of Italy)
    Abstract: We develop a macroeconomic model in which commercial banks can offload risky loans onto a ‘shadow’ banking sector and financial intermediaries trade in securitized assets. We analyze the responses of aggregate activity, credit supply and credit spreads to business cycle and financial shocks. We find that interactions and spillover effects between financial institutions affect credit dynamics, that high leverage in the shadow banking system heightens the economy’s vulnerability to aggregate disturbances, and that following a financial shock, a stabilization policy aimed solely at the securitization markets is relatively ineffective.
    Keywords: shadow banks, securitization, financial accelerator
    JEL: E32 E44 E58 G23
    Date: 2013–11
  2. By: william, barnett
    Abstract: This paper explores the relationship between Milton Friedman’s work and the work on Divisia monetary aggregation, originated by William A. Barnett. The paradoxes associated with Milton Friedman’s work are largely resolved by replacing the official simple-sum monetary aggregates with monetary aggregates consistent with economic index number theory, such as Divisia monetary aggregates. Demand function stability becomes no more of a problem for money than for any other good or service. Money becomes relevant to monetary policy in all macroeconomic traditions, including New Keynesian economics, real business cycle theory, and monetarist economomics. Research and data on Divisia monetary aggregates are available for over 40 countries throughout the world from the online library within the Center for Financial Stability’s (CFS) program, Advances in Monetary and Financial Measurement. This paper supports adopting the standards of monetary data competency advocated by the CFS and the International Monetary Fund (2008, pp. 183-184).
    Keywords: Divisia monetary aggregates, demand for money, monetarism, index number theory
    JEL: E4 E41 E44 E5 E51 E52 E58 Y1
    Date: 2013–12–16
  3. By: Vincent Sterk; Silvana Tenreyro
    Abstract: A large literature has documented statistically significant effects of monetary policy on economic activity. The central explanation for how monetary policy transmits to the real economy relies critically on nominal rigidities, which form the basis of the New Keynesian (NK) framework. This paper studies a different transmission mechanism that operates even in the absence of nominal rigidities. We show that in an OLG setting, standard open market operations (OMO) carried by central banks have important revaluation effects that alter the level and distribution of wealth and the incentives to work and save for retirement. Specifically, expansionary OMO lead households to frontload their purchases of durable goods and work and save more, thus generating a temporary boom in durables, followed by a bust. The mechanism can account for the empirical responses of key macroeconomic variables to monetary policy interventions. Moreover, the model implies that different monetary interventions (e.g., OMO versus helicopter drops) can have different qualitative effects on activity. The mechanism can thus complement the NK paradigm. We study an extension of the model incorporating labor market frictions.
    JEL: E1 E31 E32 E52 E58
    Date: 2013–12
  4. By: Kaszab, Lorant; Marsal, Ales
    Abstract: Distortionary income taxation in a standard New Keynesian model substantially increases the nominal term-premium on long-term bonds relative to a model with lumpsum taxes. Also the empirical level of the nominal term premium can be matched with lower risk-aversion coefficient in case of a model with income taxes relative to a model with long-run inflation risks.
    Keywords: zero-coupon bond; nominal term premium; third-order approximation; distortionary income taxation
    JEL: E13 E31 E43 E44 E62
    Date: 2013–11
  5. By: Sanjay K. Chugh (Boston College)
    Abstract: I characterize cyclical fluctuations in the cross-sectional dispersion of firm-level productivity in the U.S. manufacturing sector. Using the estimated dispersion, or "risk," stochastic process as an input to a baseline DSGE financial accelerator model, I assess how well the model reproduces aggregate cyclical movements in the financial conditions of U.S. non-financial firms. In the model, risk shocks calibrated to micro data induce large and empirically-relevant fluctuations in leverage, a nancial measure typically thought to be closely associated with real activity. In terms of aggregate quantities, however, pure risk shocks account for only a small share of GDP fluctuations in the model, less than one percent. Instead, it is standard aggregate productivity shocks that explain virtually all of the model's real fluctuations. These results reveal a dichotomy at the core of a popular class of DSGE financial frictions models: risk shocks induce large financial fiuctuations, but have little effect on aggregate quantity fluctuations.
    Keywords: leverage, second-moment shocks, time-varying volatility, credit frictions, financial accelerator, business cycles
    JEL: E10 E20 E32 E44
    Date: 2013–03–02
  6. By: Alberto Locarno (Banca d’Italia); Alessandro Notarpietro; Massimiliano Pisani (Bank of Italy)
    Abstract: This paper briefly reviews the literature on fiscal multipliers and then presents results for the Italian economy obtained by simulating a dynamic general equilibrium model that allows for the possibility (a) that the zero lower bound may be binding and (b) that the initial public debt-to-GDP ratio may affect the financing conditions of the public and private sectors (sovereign risk channel). The results are the following. First, the public consumption multiplier is in general less than 1. Second, it goes above 1 only under extremely strong assumptions, namely the constancy of the monetary policy rate for an exceptionally long period (at least five years) and there is full time-coincidence between the fiscal and the monetary stimuli. Third, when the sovereign risk channel is active the government spending multiplier is much lower. Finally, in all cases tax multipliers are lower than government consumption multipliers.
    Keywords: Fiscal multiplier, monetary policy, zero lower bound, sovereign risk.
    JEL: E32 E52 E62
    Date: 2013–11
  7. By: Hollmayr, Josef; Matthes, Christian
    Abstract: The recent crisis in the United States has often been associated with substantial amounts of policy uncertainty. In this paper we ask how uncertainty about fiscal policy affects the impact of fiscal policy changes on the economy when the government tries to counteract a deep recession. The agents in our model act as econometricians by estimating the policy rules for the different fiscal policy instruments, which include distortionary tax rates. Comparing the outcomes in our model to those under full-information rational expectations, we find that assuming that agents are not instantaneously aware of the new fiscal policy regime (or policy rule) in place leads to substantially more volatility in the short run and persistent differences in average outcomes. --
    Keywords: DSGE,Fiscal Policy,Learning
    JEL: E32 D83 E62
    Date: 2013
  8. By: Ragna Alstadheim; Hilde C. Bjørnland; Junior Maih
    Abstract: Do central banks respond to exchange rate movements? According to Lubik and Schorfheide (2007) who estimate structural general equilibrium models with monetary policy rules, the answer is "Yes, some do". However, their analysis is based on a sample with multiple regime changes, which may bias the results. We revisit their original question using a Markov switching set up which explicitly al- lows for parameter changes. Fitting the data from four small open economies to the model, we find that the size of policy responses, and the volatility of struc- tural shocks, have not stayed constant during the sample period (1982-2011). In particular, central banks in Sweden and the UK switched from a high response to the exchange rate in the 1980s and early 1990s, to a low response some time after in flation targeting was implemented. Canada also observed a regime change, but the decline in the exchange rate response was small relative to the increase in the response to in flation and output. Norway, on the other hand, did not observe a shift in the policy response over time, as the central bank has stayed in a regime of high exchange rate response prior and post implementing in flation targeting.
    Keywords: Monetary policy, exchange rates, inflation targeting, markov switching, small open economy
    JEL: C68 E52 F41
    Date: 2013–12
  9. By: Rossini, Renzo (Banco Central de Reserva del Perú); Quispe, Zenón (Banco Central de Reserva del Perú); Serrano, Enrique (Banco Central de Reserva del Perú)
    Abstract: The unprecedented monetary expansion implemented by central banks in developed economies during recent years has induced an extraordinary flow of funds to emerging economies and supported high commodity prices. This has created upward pressures on the value of local currencies and a further expansion of available funds and lending. This situation gave rise to concerns about a posible misalignment of the real exchange rate relative to its equilibrium level, especially because it can be deemed a temporary response to the current phase of the cycle in developed economies, but with a potentially lasting negative impact on the tradable sector of the economy. In Peru, the response to this situation has been an intensification of sterilized intervention in the foreign exchange market and the use of reserve requirements on local banks foreign currency liabilities, reinforcing macro-financial stability in an economy with a partially dollarized financial system. Both instruments have contributed significantly to reducing excessive exchange rate volatility, building up an international reserve buffer, and ensuring a normal flow of bank credit.
    Keywords: Monetary policy, central banking, foreign exchange intervention, reserve requirements
    JEL: E52 E58 F31
    Date: 2013–12
  10. By: Nicholas Bloom
    Abstract: This review article tries to answer four questions: (i) what are the stylized facts about uncertainty over time; (ii) why does uncertainty vary; (iii) do fluctuations in uncertainty matter; and (iv) did higher uncertainty worsen the Great Recession of 2007-2009? On the first question both macro and micro uncertainty appears to rise sharply in recessions. On the second question the types of exogenous shocks like wars, financial panics and oil price jumps that cause recessions appear to directly increase uncertainty, and uncertainty also appears to endogenously rise further during recessions. On the third question, the evidence suggests uncertainty is damaging for short-run investment and hiring, but there is some evidence it may stimulate longer-run innovation. Finally, in terms of the Great Recession, the large jump in uncertainty in 2008 potentially accounted for about one third of the drop in GDP.
    Keywords: Uncertainty, risk, volatility, investment
    JEL: E2 E3 O3 O4
    Date: 2013–12
  11. By: Sanjay K. Chugh (Boston College); Christian Merkl (Friedrich-Alexander-University Erlangen-Nuremberg)
    Abstract: We characterize efficient allocations and cyclical fluctuations in a labor selection model. Potential new hires are heterogenous in the cross-section in their degree of training costs. In a calibrated version of the model that identifies costly selection with micro-level data on training costs, efficient fluctuations feature highly volatile unemployment and hiring rates, in line with empirical evidence. We show analytically in a partial equilibrium version of the model that volatility arises from selection effects, rather than general equilibrium effects.
    Keywords: labor market frictions, hiring costs, efficiency, amplification
    JEL: E24 E32 J20
    Date: 2013–04–09
  12. By: Fabio Busetti (Bank of Italy); Michele Caivano (Bank of Italy)
    Abstract: A standard model-based trend-cycle decomposition of Italian GDP yields a likelihood function that is relatively flat and has two local maxima. A Bayesian estimation of the model identifies output gap and trend components that match the features of the Italian business cycle well. In a bivariate output and Phillips curve model it is found that: (i) the median value of the semi-elasticity of prices to the output gap is 0.5 after 20 quarters, (ii) the inflation cycle lags GDP on average by about 3 quarters.
    Keywords: Bayesian methods, potential output, unobserved components.
    JEL: C30 C50 E50
    Date: 2013–11
  13. By: Kevin E. Beaubrun-Diant; Fabien Tripier
    Abstract: The present paper contributes to the body of knowledge on search frictions in credit markets by demonstrating their ability to explain why the net interest margins of banks behave countercyclically. During periods of expansion, a fall in the net interest margin proceeds from two mechanisms: (i) lenders accept that they must finance entrepreneurs that have lower productivity and (ii) the liquidity of the credit market rises, which simplifies access to loans for entrepreneurs and thereby reinforces their threat point when bargaining the interest rate of the loan.
    Keywords: Search Friction;Matching Model;Nash Bargaining;Bank Interest Margin
    JEL: C78 E32 E44 G21
    Date: 2013–12
  14. By: Hillebrand, Marten; Kikuchi, Tomoo; Sakuragawa, Masaya
    Abstract: This paper uncovers a novel mechanism by which bubbles crowd in capital investment. If capital is initially depressed by a binding credit constraint, injecting a bubble triggers a savings glut. Higher returns in a new bubbly equilibrium attract additional investors who expand investment at the extensive margin. We demonstrate that crowding-in through this channel is a robust phenomenon that occurs along the entire time path after bubbles are injected. --
    Keywords: rational bubbles,savings glut,crowding-in,financial frictions
    JEL: E21 E32 E44
    Date: 2013
  15. By: Michal Andrle; Andrew Berg; Enrico Berkes; Rafael A Portillo; Jan Vlcek; R. Armando Morales
    Abstract: We extend the framework in Andrle and others (2013) to incorporate an explicit role for money targets and target misses in the analysis of monetary policy in low-income countries (LICs), with an application to Kenya. We provide a general specification that can nest various types of money targeting (ranging from targets based on optimal money demand forecasts to those derived from simple money growth rules), interest-rate based frameworks, and intermediate cases. Our framework acknowledges that ex-post adherence to targets is in itself an objective of policy in LICs; here we provide a novel interpretation of target misses in terms of structural shocks (aggregate demand, policy, shocks to money demand, etc). In the case of Kenya, we find that: (i) the setting of money targets is consistent with money demand forecasting, (ii) targets have not played a systematic role in monetary policy, and (iii) target misses mainly reflect shocks to money demand. Simulations of the model under alternative policy specifications show that the stronger the ex-post target adherence, the greater the macroeconomic volatility. Our findings highlight the benefits of a model-based approach to monetary policy analysis in LICs, including in countries with money-targeting frameworks.
    Keywords: Monetary policy;Kenya;Interest rates;Inflation targeting;Monetary aggregates;Demand for money;Low-income developing countries;Economic models;Monetary Policy, Money Targeting, Forecasting, Kenya, Low-Income Countries
    Date: 2013–11–25
  16. By: Karmakar, Sudipto
    Abstract: This paper develops a dynamic stochastic general equilibrium model to examine the impact of macroprudential regulation on bank’s financial decisions and the implications for the real sector. I explicitly incorporate costs and benefits of capital requirements. I model an occasionally binding capital constraint and approximate it using an asymmetric non linear penalty function. This friction means that the banks refrain from valuable lending. At the same time, countercyclical buffers provide structural stability to the financial system. I show that higher capital requirements can dampen the business cycle fluctuations. I also show that stronger regulation can induce banks to hold buffers and hence mitigate an economic downturn as well. Increasing the capital requirements do not seem to have an adverse effect on the welfare. Lastly, I also show that switching to a countercyclical capital requirement regime can help reduce fluctuations and raise welfare.
    Keywords: Capital Buffers, Prudential Regulation, Basel Core Banking Principles
    JEL: G01 G21 G28
    Date: 2013–05–31
  17. By: Antonio Bassanetti (Bank of Italy and IMF); Matteo Bugamelli (Bank of Italy); Sandro Momigliano (Bank of Italy); Roberto Sabbatini (Bank of Italy); Francesco Zollino (Bank of Italy)
    Abstract: This paper reviews the main macroeconomic trends and the debate on policy priorities in Italy since the end of the Nineties. In the decade up to the outbreak of the global crisis (1998-2007), in Italy the reform process came to a virtual standstill; this is partly due to the fragmentation of the political constituency, while a variety of favourable contingent factors masked the difficulties of the productive system. Had Italy been better positioned in terms of public finances and structural features in 2007, some of the adverse effects of the global and sovereign crises would have been avoided.
    Keywords: EMU, fiscal policy, macroeconomic imbalances, global crisis
    JEL: E6 H3 K0 N1
    Date: 2013–11
  18. By: Paolo Del Giovane (Bank of Italy); Andrea Nobili (Bank of Italy); Federico Maria Signoretti (Bank of Italy)
    Abstract: We estimate a structural econometric model for the credit market in Italy, using bank-level information and the responses of Italian banks to the euro-area Bank Lending Survey to identify demand and supply, focusing on the recent financial crisis. The main results are the following. First, while in normal circumstances the functioning of the Italian credit market is consistent with a standard imperfect-competition model, during phases of high tension there are credit-rationing phenomena. Second, supply restrictions have a relevant impact on lending, both when they are due to banks’ balance-sheet constraints and when they are the effect of greater perceived borrower riskiness. Third, to a large extent the tightening during the sovereign debt crisis reflected the common shock of the widening sovereign spread, not idiosyncratic bank funding problems. Fourth, the role of supply was stronger during the sovereign than the global financial crisis, mainly due to greater banks’ funding difficulties. In a counterfactual exercise we estimate that in the second quarter of 2012 interest rates were more than 2 percentage points higher and the stock of loans more than 8 percent lower than would have been the case without the tightening of lending standards in the course of the entire crisis.
    Keywords: credit rationing, supply tightening, financial crisis, sovereign debt crisis
    JEL: E30 E32 E51
    Date: 2013–11
  19. By: Dzmitry Kruk (Belarusian Economic Research and Outreach Center (BEROC))
    Abstract: This paper deals with economic policy in Belarus after the currency crisis of 2011. There was a trade-off between the desire of the government to soften economic policy given cyclical recession and high and volatile inflation expectations. In the first half of 2012, the choice was made in favor of enhancing financial stability: the output grew mainly due to foreign demand, which was crucial for macroeconomic equilibrium. Furthermore, a positive shock in foreign trade allowed domestic demand to grow somehow. However, when the positive shock exhausted, the government changed a policy mix and shifted the economy to the regime of catch-up growth. The latteê led to the waste of advantages in price competitiveness obtained due to the currency crisis of 2011, and the country returned to the pre-crisis trajectory of output growth. It is argued, that this trajectory is much more dangerous than before, as it generates lower growth at the background of rapidly progressing external imbalances. Structural reforms seem to be the only option to break the vicious circle.
    Keywords: Belarus, currency crisis, inflation expectations, macroeconomic policy
    Date: 2013–06
  20. By: Mark Setterfield (Department of Economics, Trinity College); Yun Kim (Department of Economics, Trinity College)
    Abstract: We develop a neo-Kaleckian growth model that emphasizes the importance of consumption behavior. In our model, workers first make consumption decisions based on their gross income, and then treat debt servicing commitments as a substitute for saving. Workers' borrowing is induced by their desire to keep up with the consumption standard set by rentiers' consumption, reflecting an aspect of the relative income hypothesis. As a result of this consumption and debt servicing behavior, consumer debt accumulation and income distribution have effects on aggregate demand, profitability, and economic growth that differ from those found in existing models. We also investigate the financial sustainability of the Golden Age and Neoliberal growth regimes within our framework. It is shown that distributional changes between the Golden Age and the Neoliberal regimes, together with corresponding changes in consumption emulation behavior via expenditure cascades, suffice to make the Neoliberal growth regime unsustainable.
    Keywords: Consumer debt, emulation, income distribution, Golden Age regime, Neoliberal regime, expenditure cascades, growth
    JEL: E12 E44 O41
    Date: 2013–12
  21. By: Blaise Gnimassoun; Valérie Mignon
    Abstract: This paper aims at investigating the interactions between three key macroeconomic imbalances, namely Global imbalances,current-account discrepancies (external imbalances), output gaps (internal imbalances), and exchange-rate misalignments. To this end, we rely on the estimation of a panel VAR model for a sample of 22 industrialized countries over the 1980-2011 period. Our findings show that macroeconomic imbalances strongly interact through a causal relationship. We evidence that if current-account disequilibria threaten the stability of the global economy, their origin can be found in internal imbalances and exchange-rate misalignments: positive output-gap shocks as well as currency overvaluation deepen current-account deficits. In addition, while variations in external imbalances mainly result from exchange-rate misalignments in the euro area, they are mostly explained by output gaps for non-eurozone members.
    Keywords: Global imbalances;current account;output gap;exchange-rate misalignments;panel VAR
    JEL: F32 F31 C33
    Date: 2013–12
  22. By: Kenneth N. Kuttner (Williams College); Illyock Shim (Bank for International Settlements)
    Abstract: Using data from 57 countries spanning more than three decades, this paper investigates the effectiveness of nine non-interest rate policy tools, including macroprudential measures, in stabilising house prices and housing credit. In conventional panel regressions, housing credit growth is significantly affected by changes in the maximum debt-service-to-income (DSTI) ratio, the maximum loan-to-value ratio, limits on exposure to the housing sector and housingrelated taxes. But only the DSTI ratio limit has a significant effect on housing credit growth when we use mean group and panel event study methods. Among the policies considered, a change in housing-related taxes is the only policy tool with a discernible impact on house price appreciation.
    Keywords: House prices, housing credit, financial stability, macroprudential policy
    JEL: E44 G21 G28 R31
    Date: 2013–12
  23. By: Jorge Braga de Macedo; Urho Lempinen
    Abstract: Many monetary and fiscal policy decision makers and economists hold the view that exchange rates are volatile even though nominal exchange rates vary less than many other financial market prices and yields. This paper seeks an explanation for this puzzle by contrasting exchange rate dynamics in a general equilibrium model to those presented in Dornbusch (1976) and Kouri (1978). Kouri introduced the "acceleration hypothesis'', according to which the rate of currency depreciation is given by the ratio of the current account deficit to the sum of holdings of foreign assets by domestic agents and holdings of domestic assets by foreign agents. In this paper, we derive the "generalized acceleration hypothesis'', assuming price flexibility but imperfect substitutability of assets. A Kouri type gradual adjustment of the current account induces stickiness in portfolio adjustments and exchange rate adjustment. Uncertainty in the model arises from monetary policy and supply side shocks. Due to general equilibrium constraints on wealth and investment behavior, the speed of adjustment is defined by the sum of speculative (expectations sensitive) demand for foreign (domestic) assets by domestic (foreign) agents, deducted by the stock of domestic assets traded out by domestic residents. The adjustment speed is then higher and the market correction mechanism through the current account stronger. The model developed in this paper includes the three key channels of external adjustment of an economy: the capital account or portfolio allocation channel as applied by Kouri (and also by Dornbusch, although under perfect substitutability of assets), the current account channel as applied by Kouri and the asset valuation channel as applied in Gourinchas & Rey (2007). In a linearized testing environment, we study three different cases of exchange rate dynamics. Sampling 10 000 continuous time paths of Monte Carlo simulations for 30 years, and using the 90% variation range as the metric, the Dornbusch formulation yields a 200% variation range about the mean, reduced to 100% in the Kouri case and to 20% in the general equilibrium case.
    JEL: F31 F32
    Date: 2013–12
  24. By: Herrmann, Sabine; Jochem, Axel
    Abstract: The paper evaluates current account dynamics in countries with different exchange rate regimes within the EU. In this, the empirical analysis explicitly differentiates between countries with a flexible and a fixed exchange rate regime and members of a monetary union. In addition, we model the adjustment process of external disequilibria by referring to the flexibility of exchange rates and interest rates. The sample covers annual data for 27 EU countries from 1994 to 2011. The estimation is based on a simple autoregressive model and comes to the conclusion that current account adjustment is significantly hampered in countries that are members of a monetary union. This holds particularly in comparison with floating exchange rate regimes owing to lower exchange rate flexibility. However, the persistence of current account balances in member countries of a monetary union is also more pronounced than in fixed-rate regimes due to less flexible interest rates as a result of the single monetary policy. --
    Keywords: Balance of Payments,European Monetary Union,Exchange Rate Regime,Current Account Adjustment,Financial Crisis
    JEL: E52 F32 F33 F34
    Date: 2013
  25. By: Ronan C. Lyons (Department of Economics, Trinity College Dublin)
    Abstract: Housing markets and their cycles are central to understanding macroeconomic fl uctuations. As housing is an inherently spatial market, an understanding of the economics of location-specific amenities is needed. This paper examines this topic, using a rich dataset of 25 primary location-specific characteristics and over 1.2 million sales and rental listings in Ireland, from the peak of a real estate bubble in 2006 to 2012 when prices had fallen by more than half. It finds clear evidence that the price effects of amenities are greater than rent effects, something that may be explained by either tenant search thresholds or buyers' desire to "lock in" access to fixed-supply amenities. Buyer lock-in concerns would be most prevalent at the height of a bubble and thus would be associated with pro-cyclical amenity pricing. Instead there is signicant evidence that the relative price of amenities is counter-cyclical. This suggests the Irish housing market bubble was characterized by "property ladder" effects, rather than "lock-in" concerns.
    Keywords: Housing markets; amenity valuation; search costs; market cycles
    JEL: R31 E32 H4 D62 H23
    Date: 2013–12
  26. By: Joao Paulo Pessoa; John Van Reenen
    Abstract: Employees in the UK are not being denied their fair share of economic growth, according to research by João Paulo Pessoa and John Van Reenen. Their investigation of claims that wage growth has become 'decoupled' from productivity growth finds that decoupling has been overstated and cannot be used to justify redressing the balance between wages and profits. They show that the share of UK income going to labour is basically the same now as it was 40 years ago. The real problem is inequality among employees: wage inequality has risen massively since the late 1970s. Improving skills in the bottom half of the education distribution will boost productivity and real wages.
    Keywords: Decoupling, Wages, Productivity, Compensation, Labour Income Share
    JEL: E24 J20 J30
    Date: 2013–12
  27. By: Asongu Simplice (Yaoundé/Cameroun)
    Abstract: With the spectre of the Euro crisis hunting embryonic monetary unions, we use a dynamic model of a small open economy to analyze REERs imbalances and examine whether the movements in the aggregate real exchange rates are consistent with the underlying macroeconomic fundamentals in the proposed West African Monetary Union (WAMU). Using both country-oriented and WAMU panel-based specifications, we show that the long-run behavior of the REERs can be explained by fluctuations in the terms of trade, productivity, investment, debt and openness. While there is still significant evidence of cross-country differences in the relationship between underlying macroeconomic fundamentals and corresponding REERs, the embryonic WAMU has a stable error correction mechanism with four of the five cointegration relations having signs that are consistent with the predictions from economic theory. Policy implications are discussed and the conclusions of the analysis are a valuable contribution to the scholarly and policy debate over whether the creation of a sustainable monetary union should precede convergence in macroeconomic fundamentals that determine REER adjustments.
    Keywords: Exchange rate; Macroeconomic impact; Proposed WAMU
    JEL: F31 F33 F42 O55
    Date: 2013–09
  28. By: Jan Bruha; Tibor Hledik; Tomas Holub; Jiri Polansky; Jaromir Tonner
    Abstract: This paper focuses on the forecasting process at the Czech National Bank with an emphasis on incorporating expert judgments into forecasts and addressing data uncertainty. At the beginning, the core model and the forecasting process are described and it is presented how data and the underlying uncertainty are handled. The core of the paper contains five case studies, which reflect policy issues addressed during forecasting rounds since 2008. Each case study first describes a particular forecasting problem, then the way how the issue was addressed, and finally the effect of incorporating off-model information into the forecast is briefly summarized. The case studies demonstrate that a careful incorporation of expert information into a structural framework may be useful for generating economically intuitive forecasts even during very turbulent times, and we show that such judgements may have important monetary policy implications.
    Keywords: DSGE models, forecasting, Kalman filter, monetary policy.
    JEL: C53 C54 E17
    Date: 2013–10
  29. By: John Bonin (Department of Economics, Wesleyan University); Marko Kosak (Faculty of Economics, University of Ljubljana, Ljubljana, Slovenia)
    Abstract: The recent global financial crisis has generated considerable interest in reviewing the regulatory environment surrounding the banking sectors in most countries and proposals for changes designed to avoid such a severe outcome in the future. In this paper, we consider a particular aspect relevant to bank regulation, namely, the cyclicality of loan loss provisioning, in a region of emerging market economies. All eleven of the countries in our sample are currently new members of the European Union, the first group entering 2004 and the last country joining in 2013. Our time period from 1997 to 2010 covers roughly one and a half business cycles, starting with the impact of the Russian financial crisis and followed by a rapid growth of bank credit prior to the included global financial crisis. We find that the determinants of loan loss provisioning by banks in the region are similar to those found in the literature for other countries both developed and developing ones. We find evidence on income smoothing through provisioning and capital management by substitution. Unlike the results in much of the literature, we do not find statistically significant evidence of bank-specific pro-cyclicality, i.e., a strong positive relationship between provisioning and individual bank loan growth. However, we do find strong and robust evidence of macroeconomic pro-cyclicality, i.e., a strong positive relationship between provisioning and country GDP growth. Based on the innovative policy of dynamic (statistical) provisioning instrument adopted by Spanish regulators in 2000 to smooth provisioning over the business cycle, we draw implications for regulatory design specific to this region in which financial sectors are bank-centric and financial deepening is occurring.
    Date: 2013–12
  30. By: Will Clark; Manuel Rosales
    Abstract: Liberia is facing large infrastructure gaps and developmental needs that constrain the country’s growth potential. The government has set an ambitious agenda to transform the economy and to reach middle-income country status by 2030 by scaling up investment in infrastructure and human capital. Fiscal space remains constrained by rigidities in current spending and the government will need to resort to borrowing to close some of the gaps. This paper presents an estimate of the nexus between public investment, financing, and growth in Liberia using an inter-temporal macroeconomic model. The model has been calibrated as much as possible to Liberian economic data and assumes that public investment has a high economic and social rate of return and is highly complementary toward private sector investment. The objective of the paper is to contribute to the debate on how fast public investment should be scaled up to address the country’s developmental needs. The paper also highlights the trade-offs and potential risks associated with different financing options and the required changes in fiscal policy to ensure macroeconomic stability.
    Keywords: Public investment;Liberia;Infrastructure;Economic growth;Debt sustainability;Fiscal policy;Economic models;Public Investment, Growth, Debt Sustainability, Fiscal Policy, Infrastructure, Aid.
    Date: 2013–11–22
  31. By: Saltari, Enrico; Federici, Daniela
    Abstract: In Saltari et al. (2012, 2013) we estimated a dynamic model of the Italian economy. The main result of those papers is that the weakness of the Italian economy in the last two decades is due to the total factor productivity slowdown. In those models the information and communication technology (ICT) capital stock plays a key role in boosting the efficiency of the traditional capital, and hence of the whole economy. The ICT contribution is captured in a multiplicative way through a weighting factor. The other key parameter at center of our model to explain the Italian productivity decline is the elasticity of substitution. Recent literature provides estimates well below 1 -- thus rejecting the traditional Cobb-Douglas production function -- though there is no particular value on which the consensus converges. In our opinion, however, these estimates are affected by a specification problem, which has theoretical roots. The technological parameters are long run in nature but the estimates are based on short-run data: the "real" issue is to bridge this gap. Our aim is to look more deeply into the estimation procedure of the technological parameters. The standard estimation results present a common fundamental problem of serially correlated residuals so that the standard errors will be under-estimated (i.e. biased downwards). We think that at the root of this problem there are two theoretical issues: the estimated models are static in nature and do not incorporate frictions and rigidities. Our modelling strategy takes into account, though implicitly, adjustment costs without leaving out the optimization hypothesis. Although we cannot in general say that these properties get rid of the serial correlation problem, the correlation statistics for our model does show that residuals are not serially correlated.
    Keywords: Keywords: CES production function; Elasticity of substitution; Income distribution; Factor-augmenting technical progress and ICT technical change.
    JEL: C30 E22 E23 O33
    Date: 2013–12–13
  32. By: durongkaveroj, wannaphong
    Abstract: This paper aims at investigating the sectoral impacts from exogenous shocks using CGE model through GTAP model which is implemented by GEMPACK. Three shocks include population growth in NAFTA region, Industrial Growth in Thailand, and Income Growth (measured by GDP) in NAFTA region. The result was very precise and benefit to policymakers corresponding to the objective of CGE model. According to the results, relatively, income growth in NAFTA region yields a highest welfare effect among all shocks which confirms the standard welfare functions.
    Keywords: CGE model, GTAP, exogenous shock
    JEL: A1 C68 E6 E65
    Date: 2013–11–15
  33. By: Philippe Cyrenne; Manish Pandey
    Abstract: This paper analyzes the effect of a fiscal equalization system on the composition of government expenditures of subnational governments. We incorporate vertical equalization transfers with optimal choice of the composition of government expenditures in an endogenous growth model and show that such transfers reduce the incentives of recipient subnational governments to undertake productive expenditures. Using data for Canadian provinces, we find evidence that, after controlling for a number of determinants of government expenditures, the ratio of productive expenditures to total government expenditures was lower in equalization-receiving than non-receiving provinces.
    JEL: H7 E62
    Date: 2013–11
  34. By: Vicente da Gama Machado; Marcelo Savino Portugal
    Abstract: We estimate inflation persistence in Brazil in a multivariate framework of unobserved components, accounting for the following sources affecting inflation persistence: Deviations of expectations from the actual policy target; persistence of the factors driving inflation; and the usual intrinsic measure of persistence, evaluated through lagged inflation terms. Data on inflation, output and interest rates are decomposed into unobserved components. To simplify the estimation of a great number of unknown variables, we employ Bayesian analysis. Our results indicate that expectations-based persistence matters considerably for inflation persistence in Brazil
    Date: 2013–11
  35. By: Asongu Simplice (Yaoundé/Cameroun)
    Abstract: Purpose – In a meta-study, we have bridged the gap between the pros and cons of a questionable finance-growth nexus. Design/methodology/approach – Over 20 fundamental characteristics that have influenced the debate over the last decades have been examined. The empirical evidence is based on 196 outcomes from 20 studies. We assess the degree of heterogeneity and identify causes of the observed differentiation. Findings – Our findings also show evidence of publication bias. Overall, a genuine effect exists between financial development and economic growth. A finance-growth nexus might not be appealing in our era because of: endogeneity-based estimations, publication bias and, effects of financial activity. A historical justification has also been discussed. Practical implications – Encouraging the publication of results with findings that are not consistent with the mainstream positive finance-growth nexus should provide new scholarly insights into the relationship. Depending on the specific context of sampled countries, the role of policy has also been to encourage financial development through measures that may expose countries to negative external shocks like financial crises. Policy makers that have been viewing the challenges of development exclusively from this point of view for the rewards of growth may not be getting the financial dynamics correctly. Originality/value – Very few meta-analysis studies have focused on the finance-growth nexus.
    Keywords: Meta analysis; Finance; Economic growth; Publication bias
    JEL: C1 C4 E0 O0
    Date: 2013–09
  36. By: Asongu Simplice (Yaoundé/Cameroun)
    Abstract: This paper investigates how financial, trade, institutional and political liberalization policies have affected financial sector competition in Africa using updated data to appraise second generation reforms. The ‘freedom to trade’ and ‘economic freedom’ indices are employed. Hitherto, unexplored financial sector concepts of formalization, semi-formalization, informalization and non-formalization are also introduced. The following findings are established. Firstly, relative to money supply: (1) with the exception of the economic freedom mechanism, liberalization policies have generally decreased the growth of the formal financial sector to the benefit of other financial sectors; (2) apart from the foreign direct investment and economic freedom channels, liberalization policies have been fruitful for semi-formal financial development at the cost of other financial sectors and; (3) with the exception of economic freedom, both the informal and non-formal sectors have developed owing to liberalization to the detriment of the formal financial sector. Secondly, relative to GDP, the semi-formal, informal and/or non-formal financial sectors have also generally improved as a result of liberalization. Policy implications are discussed.
    Keywords: Welfare; Banking; Liberalization; Shadow economy; Africa
    JEL: D60 E50 F30 O17 O55
    Date: 2013–09
  37. By: Mukherjee, Soumyatanu
    Abstract: This paper explores a 3×3 full-employment H-O-S model with tariff-protection in the capital-intensive import-competing sector and inflows of FDI (foreign direct investment) to an export sector (using foreign capital as a specific input) within the ‘foreign enclave’ of a small open developing economy; whereas there are labour market distortion in the domestic organised tariff-protected import-competing sector and capital market distortion in the domestic unorganised sector of this typical economy. I have considered implications of sector-specific foreign capital inflows on national income (or social welfare, crudely however) of the economy under two different scenarios: when entire income from foreign capital is fully repatriated back to the source country; and when supply of FDI is a positive function of net return to foreign capital in the recipient country, coupled with labour-augmenting type technology transfer. It is found that the possibility of non-immiserising growth improves in the presence of labour market distortion in the organised sector while credit market imperfection in the unorganised sector deteriorates it. However in the presence of technology transfer, existence of labour market distortion is no longer a necessary condition for obtaining such result due to foreign capital inflows to the foreign enclave of this small open developing economy. Existence of output-generated increasing returns in the sector within the foreign enclave will not alter our results; while under the second scenario it will enhance the possibility of non-immiserising growth by raising the tax-revenue from foreign capital income in the host country through increasing the rental to foreign capital. These results are counter-intuitive with respect to the existing theoretical results suggesting immiserising growth owing to sector-specific foreign capital inflows using 3×3 or 2×3 full-employment models without any linkages.
    Keywords: Sector-specific FDI; Foreign Enclave; General Equilibrium; Labour Market Distortion; Technology Transfer.
    JEL: F11 F12 F13 F16 F35
    Date: 2013–12–14
  38. By: Dzmitry Kruk; Kiryl Haiduk
    Abstract: This study analyzes the effects of directed lending upon total factor productivity and GDP growth in Belarus over the period of 2000–2012. In theory, directed lending can enhance physical capital accumulation and make the access to credit easier, but empirical studies often show that it leads to unproductive hoarding of capital and financing of lower-yielding projects. This study seeks to explore which of these effects has dominated in the Belarusian economy during a last decade. We find that expansion of directed lending has negatively affected TFP dynamics and thus negatively contributed to the rates of economic growth. However, the detected negative impact of directed lending on total factor productivity was enfeebled by the expansion of market loans. In the future, this link between directed and market loans could cease to exit due to liquidity constraint commercial banks face. If continued, directed lending may cause a more severe negative impact on TFP, and consequently undermine long-run economic growth.
    Keywords: Belarus, financial repression, directed lending, economic growth, transition economies, cointegration, vector error-correction model
    JEL: C32 O16 P34
    Date: 2013–03
  39. By: Luis Eduardo Arango; Wilmar Cabrera; Esteban Gómez; Juan Carlos Mendoza
    Abstract: Este artículo se pregunta si es oportuno modificar la tasa de interés técnica utilizada para descontar el pasivo pensional del nivel actual de 4% anual, dada, por un lado, la trayectoria reciente que ha tenido la tasa de interés real y, por otro, las circunstancias diferentes que vive la economía en relación con 1994 cuando fue fijada en dicho nivel. Se hacen diferentes pronósticos y simulaciones utilizando distintos enfoques estadísticos y financieros. Así mismo, se toma en cuenta la restricción macroeconómica que impone el crecimiento de muy largo plazo de la economía. Los resultados sugieren que no se debería mover la tasa de descuento del pasivo pensional y que ésta debería continuar en el 4% anual.
    Keywords: Tasa de interés real, tasa de interés técnica, pasivo pensional, regla de oro. Classification JEL: E44, H55.
    Date: 2013–12
  40. By: Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Summary Employment and activity rates in the new EU Member States (NMS) declined significantly up to the early 2000s and started to increase along with strong GDP growth thereafter. Job losses following the outbreak of the economic and financial crisis varied substantially across countries and have not been offset yet. Overall, the low-educated and the young people are very disadvantaged on the NMS labour markets. With the exception of Poland and Slovenia, non-standard types of employment are uncommon in the NMS, following the pattern of Southern EU countries. Employment protection legislation has been adjusted to ‘European standards’ in the entire region. Union density and consequently the impact of trade unions on wage setting and employment in the NMS fell dramatically. In all NMS unemployment insurance schemes as well as minimum wage regulations were introduced at the beginning of the 1990s, but are less generous than in the EU-15.
    Keywords: labour market, labour market institutions
    JEL: J21 J52 J60 J64 J65 K31
    Date: 2013–11
  41. By: Anastasiya Luzgina (Belarusian Economic Research and Outreach Center (BEROC))
    Abstract: The paper lists reasons for participation of the Republic of Belarus in economic integration in the territory of the Former Soviet Union. The author looks at the prospects of convergence in economic and monetary spheres of the CIS member states.
    Keywords: Belarus, CIS, economic integration, convergence analysis, monetary integration
    Date: 2013–07
  42. By: Maryia Akulava (Belarusian Economic Research and Outreach Center (BEROC)); Gleb Shymanovich (IPM Research Center); Robert Kirchner (German Economic Team Belarus (GET Belarus))
    Abstract: The labour market plays an important role in the Belarusian economy. It is characterized by state dominance, as the private sector is relatively small, and overregulation. The policy of sustaining low wage disparities and excessive employment allows the authorities to eliminate inequality and curtail poverty, thus includes important functions of social policy. However, the economic costs of this policy are quite high, and are present in form of an inefficient allocation of the labour force due to its low mobility and weak motivation. Against this background, a number of challenges have arisen, which make a policy reaction necessary. First, Belarus’an labour market is experiencing a shortage of labour supply due to long-term negative demographic factors. Second, this problem is aggravated by labour migration, which seems to have picked up recently, even though exact numbers are difficult to obtain. Up to now response to these challenges has been limited to hikes in salaries and incomes, coupled with certain administrative measures to restrict cross-border mobility for certain industries. However, the key issue is to ensure productivity gains, which form the basis for subsequent wage increases. For this to happen, a wide-ranging liberalization of the labour market is a key condition. This implies also a de-coupling of social policy issues from labour market policies to a certain degree. Increasing the mobility of the labour force (relocation) across sectors will certainly have a positive impact in this respect, as a lot of potential is still underutilized.
    Keywords: Migration, Belarus
    Date: 2013–08
  43. By: Chang, Jillie (Universidad del Pacífico); Del Río, Andrea (Universidad del Pacífico)
    Abstract: En este documento se analiza si la información proporcionada por Google Trends puede reflejar el comportamiento de variables macroeconómicas de Perú, como el Índice de Empleo de Lima para Empresas de 100 y más Trabajadores (IE100). Utilizando esta fuente de información se construyó un índice que representa a la población que busca trabajo, el cual fue denominado Índice de Google de Desempleo (IGD). Los resultados indican que el modelo que incluye este índice mejora la predicción del IE100. Asimismo, se encuentra que este permite realizar predicciones contemporáneas y un periodo hacia adelante; empero, no permite anticipar la senda futura para más de un periodo. La importancia de estos hallazgos radica en que Google Trends es una fuente de información con una frecuencia más alta (semanal) que está disponible cuatro meses antes que las fuentes oficiales. En tal sentido, resulta una herramienta útil para toma de decisiones de los hacedores de política en particular en épocas de crisis, en donde el seguimiento y predicción de las variables de la actividad económica en tiempo real es fundamental.
    Keywords: Internet, motor de búsquedas, Google, Perú, empleo, análisis de series de tiempo, predicciones
    JEL: C22 E24 C82 C53
    Date: 2013–12
  44. By: Ben Jelili, Riadh; Abdmoulah, Walid
    Abstract: Based on Aghion et al. (2005), this article provides new insights regarding whether financial development can affect economic growth non-linearly by adopting the concept of threshold effects. The empirical approach adopted in this article allows for the finance-growth relationship to be piecewise linear with a set of indicators including access to finance acting as a regime-switching trigger. Using cross-country observations from 144 countries stretching from 1985 to 2009, strong evidence of threshold effects in finance-growth link is found. It is suggested that financial development in general, and access to finance in particular, is among the important forces contributing to crosscountry (non)-convergences in growth rates.
    Keywords: Financial development, Access to finance, Economic growth, Threshold regression.
    JEL: C54 E20
    Date: 2013–12
  45. By: Emanuele Baldacci; Sanjeev Gupta; Carlos Mulas-Granados
    Abstract: This paper assesses the effects of fiscal consolidations associated with public debt reduction on medium-term output growth during periods of private debt deleveraging. The analysis covers 107 countries and 79 episodes of public debt reduction driven by discretionary fiscal adjustments during 1980–2012. It shows that expenditure-based, front-loaded fiscal adjustments can dampen growth when there are credit supply restrictions. Instead, fiscal adjustments that are gradual and rely on a mix of revenue and expenditure measures can support output expansion, while reducing public debt. In this context, protecting public investment is critical for medium-term growth, as is the implementation of supply-side, productivity-enhancing reforms.
    Keywords: Public debt;Fiscal consolidation;Debt reduction;Fiscal policy;Credit restraint;Economic growth;Cross country analysis;Debt consolidation, fiscal adjustments, output growth
    Date: 2013–11–22
  46. By: Malhar Nabar; Kai Yan
    Abstract: This paper studies structural changes underlying China's remarkable and unprecedented growth in recent years. While patterns of structural transformation across China's provinces are broadly in line with international experience, one important difference is in labor productivity differentials between services and the rest of the economy. Specifically, the gap between labor productivity in the rest of the economy and services has widened across China's provinces as they have moved from low to middle income, which is contrary to the trend observed in cross-country experience. Evidence from a panel of China's provinces suggests that credit and labor market frictions have inhibited labor productivity growth in services relatively more than in the rest of the economy. Reducing these frictions is essential for achieving the next stage of China's development, one in which the service sector will need to play a more prominent role as an engine of growth. The evidence also suggests that improving labor productivity in services will lift the consumption share of GDP, thereby advancing the needed rebalancing of domestic demand in China.
    Keywords: Labor productivity;China;Services sector;Demand;Economic growth;China, structural change, service sector, productivity
    Date: 2013–11–27
  47. By: Gong, Zheng; Tian, Feng; Xu, Boyan
    Abstract: We analyze a model in which agents’ decisions to enter or exit investments are influenced from their individual and external parties’ transaction histories. Actual investment outcomes are unknown to all participants until the end of decision periods, but outcomes do change depending on the number of participating players in the market and the market’s current state of condition. In this particular model, agents have access to external parties’ information from those who are within their specific social network. Our study of limited information aggregation mainly focuses on market responses to investors’ decisions of exiting the investment. With social structures complicating investment outcomes, we present a model that describes how markets can enter relatively stable statuses long enough for exiting participants to return, which brings the investment back to normal conditions. Our model also supports previous studies that limited information aggregation can cause the exogenous shock effect of global collapse.
    Keywords: Information aggregation, Social structure, Internet Externality, Simulation
    JEL: D83 D85
    Date: 2013–12–04
  48. By: Brunnschweiler, Christa N.; Valente, Simone
    Abstract: We investigate the effects of different regimes of control rights over oil exploitation on aggregate domestic income. We construct a new panel dataset on petroleum ownership structures for up to 68 countries between 1867-2008, distinguishing among regimes of Domestic Control, Foreign Control, and international Partnerships. Results show that Partnerships tend to generate higher domestic income than Foreign and Domestic Control. This result is robust to controlling for political regimes (i.e. democracy, anocracy, autocracy), time effects, and other factors. Existing theories of incomplete contracts capture several aspects, but not the general mechanism underlying the relationships between aggregate domestic income and control regimes in primary sectors
    Keywords: Property rights, Control rights, National Income, Panel data, Petroleum
    JEL: D23 F20 O13
    Date: 2013–12
  49. By: Koesler, Simon; Pothen, Frank
    Abstract: This report presents the Basic WIOD CGE model. The model represents the first implementation of the World Input-Output Database (WIOD) into the CGE framework and is tailored to provide a maximum fit with WIOD data. The model is specifically designed such that it can serve as the basis for research in fields like environmental, climate and trade policy. It incorporates key features of WIOD such as bilateral and bisectoral trade ows, satellite accounts for energy consumption, greenhouse gas as well as other emissions to air on a sectoral level. As all WIOD data is available in the form of a consistent time series ranging from 1995 to 2009, the model can be calibrated to any year within this time period. The model relies on substitution elasticities which are consistently estimated from the same dataset the model itself is calibrated to. Moreover, the data preparation facilities and model are designed deliberately as exible as possible in order to allow researchers to use them as a basis for various applications. This enables researchers to secure the numerous advantages of the WIOD dataset when using CGE models for future research. --
    Keywords: Computable General Equilibrium Models (CGE),Input-Output,World Input Output Database (WIOD)
    JEL: C67 C68 E01
    Date: 2013
  50. By: Bellino, Enrico; Nerozzi, Sebastiano
    Abstract: The formal representation of economic theories normally takes the form of a model, that is, a system of equations which connect the endogenous variables with the values of the parameters which are taken as given. Sometimes, it is possible to identify one or more equations which are able to determine a subset of endogenous variables priorly and independently of the other equations and of the value taken by the remaining variables of the system. The first group of equations and variables are thus said to determine causally the remaining variables. In Pasinetti’s works this notion of causality has often been emphasized as a formal property having the burden to convey some deep economic meaning. In this work, we will go through those Pasinetti’s works where this notion of causality plays a central role, with the purpose to contextualize it within the econometric debate of the Sixties, to enucleate its economic meaning and to show its connections with other fields of the modern classical approach.
    Keywords: causality, interdependence, modern classical approach, Ricardo theory distribution, Keynes’ analysis, ‘given quantities’, surplus approach, structural dynamics, vertical integration
    JEL: B00 B24 B51 C50 E12
    Date: 2013–12–12
  51. By: Manuk Ghazanchyan; Janet Gale Stotsky
    Abstract: This study examines the drivers of growth in Sub-Saharan African countries, using aggregate data, from the past decade. We correlate recent growth experience to key determinants of growth, including private and public investment, government consumption, the exchange regime and real exchange rate, and current account liberalization, using various econometric methodologies, including fixed and random effects models, with cluster-robust standard errors. We find that, depending on the specification, higher private and public investments boost growth. Some evidence is found that government consumption exerts a drag on growth and that more flexible exchange regimes are beneficial to growth. The real exchange rate and liberalization variables are not significant.
    Keywords: Economic growth;Sub-Saharan Africa;Private investment;Public investment;Foreign exchange;Exchange rate regimes;Real effective exchange rates;Sub-Saharan Africa, growth, exchange rate regimes, real exchange rate
    Date: 2013–11–22
  52. By: Álvarez, Inmaculada (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.); Barbero, Javier (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.)
    Abstract: We propose a framework to analyze convergence between regions, incorporating the public sector and technological knowledge spillovers in the context of a Neoclassical Growth Model. Secondly, we apply novel estimation methods pertaining to the spatial econometrics literature introducing a spatial autoregressive panel data model based on instrumental variables estimation. Additionally, we introduce marginal effects associated with changing explanatory variables. Our model makes it possible to analyze, in terms of convergence, the results obtained in Spanish regions with the policies implemented during the period 1980-2007. The results support the idea that investments in physical, private and public capital, as well as in education have a positive effect on regional development and cohesion. Therefore, we can conclude that it is possible to obtain better results for regional convergence with higher rates of public investment. We also obtain interesting results that confirm the existence of spillover effects in economic growth and public policies, identifying their magnitude and significance.
    Keywords: speed of convergence; growth models; public policies.
    JEL: E13 H54 O41
    Date: 2013–12
  53. By: Asongu, Simplice A
    Abstract: The object of this paper is to complement theoretical ‘mobile penetration’ literature with empirical evidence in a dual manner: on the one hand, assess the income-redistributive effect of mobile phone penetration and; on the other hand, the instrumentality of good governance in this nexus. Main findings suggest an equalizing income-redistributive effect, with a higher magnitude in the presence of government quality instruments. It follows that, good governance is a necessary condition for a higher income-equalizing effect of mobile phone penetration. The empirical evidence which deviates from mainstream country-specific and microeconomic survey-based approaches is on 52 African countries. ‘Mobile phone’-oriented poverty reduction channels are also discussed.
    Keywords: Mobile Phones; Shadow Economy; Poverty; Inequality; Africa
    JEL: E00 G20 I30 L96 O33
    Date: 2013–09
  54. By: Anastasiya Luzgina (Belarusian Economic Research and Outreach Center (BEROC))
    Abstract: The paper presents a model of foreign exchange integration in the post-Soviet countries. The author considers the possibility of introducing a supranational unit of account in the most economically integrated countries in the medium term, namely Belarus, Kazakhstan and Russia.
    Keywords: Belarus, CIS, currency integration, unit of account
    Date: 2013–08
  55. By: : Kostas Koufopoulos; : Roman Kozhan
    Date: 2013
  56. By: Ayyagari, Meghana; Demirguc-Kunt, Asli; Maksimovic, Vojislav
    Abstract: Survey data from 120 developing countries are used to examine the relation between establishment size and age in the formal sector. Existing research suggests that manufacturing establishments in developing countries do not grow over time, most likely because of market imperfections and regulations. To the contrary, this paper finds that the average plant in developing countries that is more than 40 years old employs almost five times as many workers as the average plant that is five years old or younger. The analysis finds consistent evidence when it looks within a large country, India, based on detailed manufacturing census data over 23 years. It also finds that differences in financial development across Indian states, while substantial, have a minor effect on firm growth, consistent with inefficiency of state-owned financial systems. These results hold controlling for differences in labor regulations across states, capital intensity, labor regulations, and firms born before and after the major reforms.
    Keywords: Microfinance,Banks&Banking Reform,Scientific Research&Science Parks,Science Education,Labor Markets
    Date: 2013–12–01
  57. By: Mariana Mazzucato (SPRU, University of Sussex, UK); Stuart Parris (Faculty of Economics, Open University, UK)
    Keywords: R&D, Growth, Venture capitalist, quantile regression, pharmaceutical industry
    Date: 2013–12
  58. By: Nobuki Mochida (Faculty of Economics, the University of Tokyo)
    Abstract: This paper examines the welfare state under a sovereign debt crisis during first ten years in the 21st century. We rely on data to check whether generalizing claim about the unsustainability of the welfare state hold up . The investors' valuation of a country's fiscal position is time varying, that is dependent on the level of the international risk. While the welfare state cannot be held resp onsible for the sovereign debt crisis, the impetus for reform remains. Using International social survey program (ISSP) data, we can say that taxpayers who are in favor of income redistribution and government program still form majority.
    Date: 2013–11

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