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on Macroeconomics |
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Issue of 2013‒12‒29
151 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Mark Setterfield |
| Abstract: | This paper discusses central banks’ use of the interest rate as the instrument of monetary policy, in light of a reconsideration of macroeconomic theory induced by the financial crisis and Great Recession. Three main guiding principles for the future conduct of interest rate policy are identified: beware real effects; beware positive feedbacks; and beware discontinuities. The paper also reflects on the use of policy targets as a “quasi-instrument” of stabilization policy. |
| Keywords: | Interest rates, monetary policy, central banking, New Consensus, Post Keynesian Economics |
| JEL: | E12 E43 E52 E58 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:tri:wpaper:1320&r=mac |
| By: | Christoffel, Kai (European Central Bank); Jaccard, Ivan (European Central Bank); Kilponen, Juha (Bank of Finland Research) |
| Abstract: | How do cyclical fiscal stabilisation policies affect welfare and government bond risk premia? Using a new Keynesian model we find that the effects of fiscal policy rules on the bond premium and welfare crucially depend on the source of business cycle fluctuations. The overall effect is estimated using Bayesian methods and the mechanism is deconstructed by examining the propagation mechanism of the different shocks. We find that the impact of fiscal policy cyclicality on welfare and risk premia is highly non-linear and that these effects are of a policy relevant magnitude. Finally, we find that the welfare cost of highly procyclical fiscal policies are very large, but also excessive fiscal stabilization can generate non-negligible welfare losses. |
| Keywords: | New Keynesian models; fiscal policy; bond risk premium; monetary policy |
| JEL: | E32 E52 E62 G12 |
| Date: | 2013–12–11 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2013_032&r=mac |
| By: | Carlos Garriga; Finn E. Kydland; Roman Sustek |
| Abstract: | Mortgage loans are a striking example of a persistent nominal rigidity. As a result, under incomplete markets, monetary policy affects decisions through the cost of new mortgage borrowing and the value of payments on outstanding debt. Observed debt levels and payment to income ratios suggest the role of such loans in monetary transmission may be important. A general equilibrium model is developed to address this question. The transmission is found to be stronger under adjustable- than fixed-rate contracts. The source of impulse also matters: persistent inflation shocks have larger effects than cyclical fluctuations in inflation and nominal interest rates |
| JEL: | E32 E52 G21 R21 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19744&r=mac |
| By: | Eric Sims; Jonathan Wolff |
| Abstract: | How does the magnitude of the output response to a change in government spending vary over the business cycle? What are the welfare effects of fiscal shocks? This paper studies the state-dependence of the output and welfare effects of shocks to government purchases in a DSGE model with real and nominal frictions and a rich fiscal financing structure. Both the output multiplier (the change in output for a one dollar change in government spending) and the welfare multiplier (the consumption equivalent change in welfare for the same change in spending) move significantly across states, though movements in the welfare multiplier are quantitatively much larger than for the output multiplier. The output multiplier is high in bad states of the world resulting from negative "supply" shocks and low when bad states result from "demand" shocks. The welfare multiplier displays the opposite pattern -- it tends to be high in demand-driven recessions and low in supply-driven downturns. In an historical simulation based on estimation of the model parameters, the output multiplier is found to be countercyclical and strongly negatively correlated with the welfare multiplier. |
| JEL: | E0 E1 E2 E3 E31 E6 E62 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19749&r=mac |
| By: | Alok Kumar (Department of Economics, University of Victoria) |
| Abstract: | Empirical evidence suggests that inflation has positive effect on both output and unemployment in the long run in the United States. This paper develops a monetary model in which a higher inflation rate increases both output and unemployment. The model has two key features: (i) separation between workers and owners of firms (employers) and (ii) endogenous labor force participation. Changes in money supply redistributes consumption between employers and workers. This redistribution along with endogenous labor force participation creates a channel by which a higher inflation rate increases output, unemployment, and labor force participation. The Friedman rule does not maximize social welfare. |
| Keywords: | employers, workers, money creation, inflation, output, unemployment, labor force participation rate, welfare |
| JEL: | E21 E31 E41 E52 |
| Date: | 2013–12–17 |
| URL: | http://d.repec.org/n?u=RePEc:vic:vicddp:1302&r=mac |
| By: | M. Falagiarda; A. Saia |
| Abstract: | This paper proposes a new Dynamic Stochastic General Equilibrium (DSGE) model with credit frictions and a banking sector, which endogenizes loan-to-value (LTV) ratios of households and banks by expressing them as a function of systemic and idiosyncratic proxies for risk. Moreover, the model features endogenous balance sheet choices and a novel formulation of the targeted leverage ratio, in which assets are risk-weighted by risk-sensitivity measures. The results highlighted in this paper are important along two dimensions. First of all, the presence of endogenous LTV ratios exacerbates the procyclicality of lending conditions. Second, the model contributes to deeper understand the role of prudential regulatory frameworks in affecting business cycle fluctuations and in restoring macroeconomic and financial stability. The results suggest that when the economy is severely stressed by shocks originating in the financial sector, prudential regimes such as Basel II and Basel III are capable of downsizing substantially aggregate volatility, with Basel III found to be significantly more effective than Basel II. |
| JEL: | E32 E44 E61 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp916&r=mac |
| By: | Bruce White (The Treasury) |
| Abstract: | This paper surveys the evolution of macroeconomic policy, in the New Zealand context, from the beginning of the end of the Great Inflation of the 1970s/1980s, through to the current recovery from the Great Recession brought on by the Global Financial Crisis. The 30 or so years since the late 1970s is divided into four periods: the run-up to the mid-1984 currency crisis; the period of reform from that point until the early 1990s; the subsequent extended period of non-inflationary growth in the 1990s and into the 2000s (punctuated by the Asian Financial Crisis in 1997/98); and the GFC and the years since. The paper reviews macroeconomic policy and developments across each of these periods in relation to fiscal policy, monetary policy, exchange rate policy and prudential supervision, all of which at various times have been used with macroeconomic objectives in mind. The paper concludes with some observations on where macro policy appears to be headed, suggesting that is towards achieving some re-integration of its individual components. |
| Keywords: | Macroeconomy; fiscal policy; monetary policy; exchange rate policy; macro-prudential policy; prudential supervision |
| JEL: | E52 E62 E63 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:nzt:nztwps:13/30&r=mac |
| By: | Nikolay Ushakov (National Research University Higher School of Economics) |
| Abstract: | Higher wage flexibility of new hires is introduced as an extension of the baseline model in Gali (2010), combining the New Keynesian monetary analysis framework with labor market frictions. It was shown that the possibility of higher wage flexibility of new hires has an implication forcrucial labor market decisions made by households and firms,as well as on the form of social welfare loss function that is used to evaluate alternative monetary policies. Obtained extension allows one to conduct normative monetary policy analysis for different scenarios of degrees of higher wage flexibility fornew hires. Optimal monetary policy in the presence of higher wage flexibility of new hires is characterized by a higher incentive to make inflation more stable and by less incentive to facilitate adjustment of real wages in response to real shocks. Thus, the possibility of higher wage flexibility of new hires provides support toward more strict inflation targeting in the presence of nominal price and wage rigidities |
| Keywords: | Relative wage flexibility of new hires, optimal monetary policy, New Keynesian framework, search and matching in the labor market, unemployment |
| JEL: | E32 E52 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:hig:wpaper:44/ec/2013&r=mac |
| By: | Holmberg, Karolina (Monetary Policy Department, Central Bank of Sweden) |
| Abstract: | Using panel data of 68,800 small and large firms, I examine whether firms are subject to shifts in the supply of credit over the business cycle. Shifts in the supply of credit are identified by exploring how firms substitute between commitment credit - lines of credit - and non-commitment credit. I find that firms on average rely more on commitment credits when monetary policy is tight and when the financial health of banks is weaker. The results are consistent with a bank lending channel of monetary policy and with shifts in the supply of credit following deteriorations in banks' balance sheets. |
| Keywords: | Bank Lending Channel; Bank Capital; Business Fluctuations |
| JEL: | E32 E44 E51 G01 G21 |
| Date: | 2013–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0280&r=mac |
| By: | Ranaldo, Angelo; Reynard, Samuel |
| Abstract: | This paper explains the effects of monetary policy surprises on long-term interest rates and stock prices in terms of changes in expected inflation, real interest rate and dividend growth, and relates these effects to markets’ perceptions of economic shocks and Fed’s information set. We analyze stock and bond futures price co-movements and relate them to Treasury Inflation-Protected Securities (TIPS) data. The sign of long-term interest rate reactions is mostly driven by changes in expected inflation. The sign of stock price reactions is mostly driven by changes in expected dividend growth, but it is also sometimes determined by changes in expected real rates. The co-movements of long-term interest rates and stock prices are determined by the co-movements of expected inflation and dividend growth. The majority of Fed’s interest rate surprises are expected to be followed by negative co-movements between inflation and output. This can be due to relatively more frequent “inflation” or “supply” shocks together with Fed’s private information. Most Fed’s actions are perceived as reactions to economic shocks rather than true policy shocks. |
| JEL: | E52 E58 E43 E44 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:usg:sfwpfi:2013:22&r=mac |
| By: | Giovanni Di Bartolomeo; Patrizio Tirelli; Nicola Acocella |
| Abstract: | We challenge the widely held belief that New-Keynesian models cannot predict optimal positive in�flation rates. In fact these are justi�fied by the Phelps argument that monetary fi�nancing can alleviate the burden of distortionary taxation. We obtain this result because, in contrast with previous contributions, our model accounts for public transfers as a component of fi�scal outlays. We also contradict the view that the Ramsey policy should minimize in�ation volatility and induce near-random walk dynamics of public debt in the long-run. In our model it should instead stabilize debt-to-GDP ratios in order to mitigate steady-state distortions. Our results thus provide theoretical support to policy-oriented analyses which call for a reversal of debt accumulated in the aftermath of the 2008 fi�nancial crisis. |
| Keywords: | Trend infl�ation, monetary and fi�scal policy, Ramsey plan |
| JEL: | E52 E58 J51 E24 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:263&r=mac |
| By: | Gliksberg, Baruch (Department of Economics, University of Haifa) |
| Abstract: | This paper specifi�es determinacy regions in the parameter space of monetary and �fiscal policy interactions in economies with �finance and tax distortions. It shows that the initial valuation of government debt is the �fixed point of a continuous mapping that takes a closed interval on the real line into itself. It implements the Krasnoselski-Mann-Baily theorem to compute the equilibrium real value of nominal government debt. This computation indicates whether policy interactions are sustainable or lead to a default. The model exhibits nominal determinacy if and only if it exhibits real determinacy. Distorting taxes have dramatic effect on determinacy regions. Admissible monetary-�scal policy interactions vary as the economy approaches the peak of its Laffer curve: the range of active �scal responses to government debt narrows,whereas passive �fiscal stances become inconsistent with equilibrium. Furthermore, policy targets vary when regimes switch from passive fiscal stances to active �fiscal stances. Whereas passive fiscal stances focus entirely on secondary defi�cits, active fi�scal stances should focus mainly on primary de�ficits. |
| Keywords: | Distorting Taxes; Finance Constraints; Fiscal Rules; Fiscal Theory of Prices; Monetary Fiscal Regimes; Computation of the Equilibrium; |
| JEL: | C62 C68 E42 E62 E63 H60 |
| Date: | 2013–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:haf:huedwp:wp201302&r=mac |
| By: | Douglas Sutherland; Peter Hoeller |
| Abstract: | Policy reforms aimed at boosting long-run growth often have side effects – positive or negative – on an economy’s vulnerability to shocks and their propagation. Macroeconomic shocks as severe and protracted as those since 2007 warrant a reconsideration of the role growth-promoting policies play in shaping the vulnerability and resilience of an economy to macroeconomic shocks. Against this background, this paper looks at a vast array of policy recommendations by the OECD that promote longterm growth – contained in Going for Growth and the Economic Outlook – and attempts to establish whether they underpin macroeconomic stability or whether there is a trade-off. Politiques de croissance et stabilité macroéconomique Les réformes visant à stimuler la croissance à long terme ont souvent des effets secondaires – positifs ou négatifs – sur la vulnérabilité d’une économie face à des chocs et à leur propagation. Des chocs macroéconomiques aussi graves et prolongés que ceux observés depuis 2007 justifient un réexamen de la contribution des politiques de promotion de la croissance à la vulnérabilité et à la résilience d’une économie face à de telles perturbations. Dans cette optique, le présent document passe en revue un large éventail de recommandations d’action formulées par l’OCDE pour encourager la croissance à long terme – qui figurent dans Objectif croissance et les Perspectives économiques – et cherche à déterminer si les actions recommandées favorisent la stabilité macroéconomique ou si des arbitrages s’imposent. |
| Keywords: | growth, business cycle, economic policy, volatility, politique économique, cycles d’activité, croissance, volatilité |
| JEL: | E32 E52 E62 O40 |
| Date: | 2013–11–28 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1091-en&r=mac |
| By: | Brown, M.; Haas, R. de; Sokolov, V. (Tilburg University, Center for Economic Research) |
| Abstract: | Abstract: We exploit variation in consumer price inflation across 71 Russian regions to examine the relationship between the perceived stability of the local currency and financial dollarization. Our results show that regions with higher inflation experience an increase in the dollarization of household deposits and a decrease in the dollarization of (long-term) household credit. The negative impact of inflation on credit dollarization is weaker in regions with less-integrated banking markets, suggesting that the asset-liability management of banks constrains the currency-portfolio choices of households. |
| Keywords: | Financial dollarization;financial integration;regional inflation |
| JEL: | E31 E42 E44 F36 G21 P22 P24 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2013073&r=mac |
| By: | Branimir Jovanovic (University of Rome Tor Vergata) |
| Abstract: | We compare the government investment and government consumption multipliers in the advanced economies during the recent ?scal consolidation, folloeing the Blanchard and Leigh (2013) approach. We find that, in the highly-indebted countries, the investment multplier is likely to be much higher than what has been assumed by the policy makers and much higher that the consumption multiplier. This points out that the consolidation should be accompanied by increased public investment. |
| Keywords: | fiscal consolidation, fiscal multiplier, public consumption, public investment, public debt |
| JEL: | E52 E62 E63 G01 |
| Date: | 2013–12–17 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:301&r=mac |
| By: | Hashmat Khan (Department of Economics, Carleton University); Abeer Reza (Bank of Canada) |
| Abstract: | We highlight that a broad class of DSGE models with housing and collateralized borrowing predict a fall in both house prices and consumption following positive government spending shocks. By contrast, we show that house prices and consumption in the U.S. rise persistently after identified positive government spending shocks, using a structural vector autoregression methodology and accounting for anticipated effects. We clarify that modifying preferences alone, as previously suggested in the literature, does not help in obtaining the correct house price response. We then show that only when monetary policy strongly accommodates government spending shocks, the impact effects on house prices and total consumption are positive. The model, however, does not deliver the persistent rise in house prices and consumption as evident in the data. Properly accounting for the empirical evidence on government spending shocks and house prices using a DSGE model, therefore, remains a significant challenge. |
| Keywords: | House prices; Consumption; Government spending |
| JEL: | E21 E44 E62 |
| Date: | 2013–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:car:carecp:13-10&r=mac |
| By: | Carrera, César (Banco Central de Reserva del Perú); Ramírez-Rondán, Nelson (Banco Central de Reserva del Perú) |
| Abstract: | One of the most important structural relationships for policy makers is the Phillips curve; thus, this topic is the focus of ongoing theoretical and empirical research. We estimate the degree of information stickiness implied by the sticky information Phillips curve proposed by Mankiw and Reis (2002). Using threshold models we identify regimes of high and low inflation and find that each regime is associated with a specific degree of information stickiness. We find evidence that agents update information faster when inflation is higher. |
| Keywords: | Infl ation, Sticky Information, Phillips Curve, Threshold model |
| JEL: | C22 C26 E31 E52 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:rbp:wpaper:2013-017&r=mac |
| By: | Alok Kumar (Department of Economics, University of Victoria) |
| Abstract: | The optimal infation rate and the relationship between inflation and unemployment are central issues in macroeconomics. It is widely accepted that inflation is a monetary phenomenon. However, there is little consensus with regard to unemployment. Economists differ widely in their view of labor markets and wage-setting mechanisms. The present paper develops a search-theoretic monetary model with imperfect labor markets. It studies the issue of the optimal inflation rate and the relationship between inflation and unemployment under four widely used wage-setting mechanisms: search and matching, wage posting, union bargaining, and efficiency wage. It finds that a higher inflation rate reduces output and employment under all wage setting mechanisms. The Friedman rule is not optimal under any wage setting mechanism except wage posting. |
| Keywords: | search-theoretic monetary model, inflation, unemployment, Friedman Rule, search and matching, wage posting, unions, efficiency wage |
| JEL: | E40 E30 |
| Date: | 2013–12–17 |
| URL: | http://d.repec.org/n?u=RePEc:vic:vicddp:1303&r=mac |
| By: | Amit Bhaduri |
| Abstract: | The paper explains a curious redirection of economic policies that uses the policy framework of Kalecki and Keynes only to undermine it. It does not negate their theory of demand management, but reformulates it to serve the powerful interests of finance in the era of financial globalisation. As a result accountability to finance rather than to the citizens becomes more important for democratic governments and credit rating dominates democratic performance. |
| Keywords: | aggregate demand, real and money wage, income distribution, trade war, shadow banks, endogenous money, credit rating |
| JEL: | E21 E42 E44 E62 F21 F51 G12 G15 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:wii:pnotes:pn:12&r=mac |
| By: | Jang, Tae-Seok; Okano, Eiji |
| Abstract: | In this paper, we examine the effects of foreign productivity shocks on monetary policy in a symmetric open economy. Our two-country model incorporates the New Keynesian features of price stickiness and monopolistic competition based on the cost channel of Ravenna and Walsh (2006). In particular, in response to asymmetric productivity shocks, firms in one country achieve a more efficient level of production than those in another economy. Because the terms of trade are directly affected by changes in both economies’ output levels, international trade creates a transmission channel for inflation dynamics in which a deflationary spiral in foreign producer prices reduces domestic output. When there is a decline in economic activity, the monetary authority should react to this adverse situation by lowering the key interest rate. The impulse response function from the model shows that a productivity shock can cause a real depreciation of the exchange rate when economies are closely integrated through international trade. |
| Keywords: | cost channel; new Keynesian model; productivity shocks; terms of trade; two-country model |
| JEL: | E24 E31 J3 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpm:dynare:029&r=mac |
| By: | Pinter, Gabor (Bank of England); Theodoridis, Konstantinos (Bank of England); Yates, Tony (University of Bristol and Centre for Macroeconomics) |
| Abstract: | We identify a ‘risk news' shock in a vector autoregression (VAR), modifying Barsky and Sims’s procedure, while incorporating sign restrictions to simultaneously identify monetary policy, technology and demand shocks. The VAR-identifed risk news shock is estimated to account for around 2%-12% of business cycle fluctuations depending on which risk proxy we use; regardless, contemporaneous risk and risk news shocks together account for about 20%. This is substantially lower than the 60% reported in Christiano, Motto, and Rostagno’s full-information exercise. We fit a DSGE model with financial frictions to these impulse responses and find that, in order to match the fall in consumption recorded by the VAR, we have to allow for 75% of consumers to be living hand-to-mouth. |
| Keywords: | News shock; business cycles; risk; financial frictions; vector autoregression |
| JEL: | C10 C32 E20 E30 E58 G21 |
| Date: | 2013–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0483&r=mac |
| By: | Bouoiyour, Jamal; Selmi, Refk |
| Abstract: | How does inflation uncertainty interact with inflation rate? The purpose of this article is to assess this question in Egypt in a wavelets transform framework. We investigate the direction of causality in the relationship inflation-inflation uncertainty by combining component GARCH model, wavelets decomposition and scale-by-scale nonlinear causality test. We find a strong evidence in favor of Friedman-ball hypothesis in both time domain and the different frequencies. This study succeeds to resolve the inconsistencies and to point a robust nonlinear effect of inflation on inflation uncertainty, which is more intense at high frequency bands than at low ones. We attribute this result to the complexity in predicting how strongly and how quickly prices will respond to monetary policy, the asymmetry between inflation booms and recessions, the incidence of exogenous shocks, the co-movement of permanent shocks with inflation and the downward expectations of monetary authorities. |
| Keywords: | Inflation, inflation uncertainty, GARCH, wavelets, nonlinear causality. |
| JEL: | C1 C6 E3 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:52414&r=mac |
| By: | Franziska Bremus; Claudia M. Buch; Katheryn N. Russ; Monika Schnitzer |
| Abstract: | Does the mere presence of big banks affect macroeconomic outcomes? In this paper, we develop a theory of granularity (Gabaix, 2011) for the banking sector, introducing Bertrand competition and heterogeneous banks charging variable markups. Using this framework, we show conditions under which idiosyncratic shocks to bank lending can generate aggregate fluctuations in the credit supply when the banking sector is highly concentrated. We empirically assess the relevance of these granular effects in banking using a linked micro-macro dataset of more than 80 countries for the years 1995-2009. The banking sector for many countries is indeed granular, as the right tail of the bank size distribution follows a power law. We then demonstrate granular effects in the banking sector on macroeconomic outcomes. The presence of big banks measured by high market concentration is associated with a positive and significant relationship between bank-level credit growth and aggregate growth of credit or gross domestic product. |
| Keywords: | Granularity, concentration, bank competition, macroeconomic outcomes, bank markups |
| JEL: | E32 G21 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1348&r=mac |
| By: | Ivrendi, Mehmet; Yildirim, Zekeriya |
| Abstract: | This paper investigates both the effects of domestic monetary policy and external shocks on fundamental macroeconomic variables in six fast growing emerging economies: Brazil, Russia, India, China, South Africa and Turkey - denoted hereafter as BRICS_T. The authors adopt a structural VAR model with a block exogeneity procedure to identify domestic monetary policy shocks and external shocks. Their research reveals that a contractionary monetary policy in most countries appreciates the domestic currency, increases interest rates, effectively controls inflation rates and reduces output. They do not find any evidence of the price, output, exchange rates and trade puzzles that are usually found in VAR studies. Their findings imply that the exchange rate is the main transmission mechanism in BRICS_T economies. The authors also find that that there are inverse J-curves in five of the six fast growing emerging economies and there are deviations from UIP (Uncovered Interest Parity) in response to a contractionary monetary policy in those countries. Moreover, world output shocks are not a dominant source of fluctuations in those economies. -- |
| Keywords: | monetary policy,inflation,international trade,exchange rate,SVAR |
| JEL: | E52 E63 F14 F31 C51 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201361&r=mac |
| By: | Brigitte Granville; Dominik Nagly |
| Abstract: | This paper studies the bargaining power of the debtors versus the creditors in Europe’s Economic and Monetary Union (EMU). |
| Keywords: | Bargaining power, competitiveness, disagreement cost, European Monetary Union, internal devaluation, transfer union |
| JEL: | C79 E02 E42 E58 E61 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:cgs:wpaper:47&r=mac |
| By: | Pasquale Foresti; Ugo Marani; Giuseppe Piroli |
| Abstract: | In this paper, we employ a block structured near-vector autoregression in order to compare the reactions to euro-area shocks in four New Member States (Bulgaria, Hungary, Czech Republic and Romania) and in the Old Member State of the EU. Thanks to the methodology adopted we also study the effects of national economic policies and their reactions to national shocks in each New Member State. Our analysis highlights that possible asymmetric effects of the ECB's monetary policy cannot be excluded and that the potential accession of the New Member States may increase the level of fiscal indiscipline in the eurozone. |
| Keywords: | Monetary Union, Monetary and Fiscal Policies Interaction, Economic Shocks. |
| JEL: | E52 E61 F33 F36 |
| Date: | 2013–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:eei:rpaper:eeri_rp_2013_14&r=mac |
| By: | Haavio, Markus (Bank of Finland Research); Mendicino , Caterina (Economic Research Department, Bank of Portugal); Punzi , Maria Teresa (School of Economics, University of Nottingham) |
| Abstract: | This article empirically studies the linkages between financial variable downturns and economic recessions. We present evidence that real asset prices tend to lead real cycles, while loan-to-GDP and loan-to-deposit ratios lag them. Using a probit analysis, we document that downturns in real asset prices, particularly real house prices, are useful leading indicators of economic recessions. |
| Keywords: | macro-financial linkages; turning point analysis; probit models |
| JEL: | C53 E32 E37 G17 |
| Date: | 2013–12–19 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2013_035&r=mac |
| By: | Fisher, Richard W. (Federal Reserve Bank of Dallas) |
| JEL: | E52 |
| Date: | 2013–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddsp:141&r=mac |
| By: | Michael Rousakis (European University Institute) |
| Abstract: | This paper reconsiders the effects of expectations on economic fluctuations. It does so within a competitive monetary economy featuring producers and consumers with heterogeneous information about productivity. Agents' expectations are coordinated by a noisy public signal which generates non-fundamental, purely expectational shocks. Agents' expectations, however, have different implications for the economy. Hence, depending on how monetary policy is pursued, purely expectational shocks can behave like either demand shocks, as conventionally thought, or supply shocks - increasing output and employment yet lowering inflation. On the policy front, conventional policy recommendations are overturned: inflation stabilization is suboptimal, whereas output-gap stabilization is optimal. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed013:681&r=mac |
| By: | Roland Meeks; Benjamin Nelson; Piergiorgio Alessandri |
| Abstract: | We develop a macroeconomic model in which commercial banks can offload risky loans to 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; high leverage in the shadow banking system makes the economy excessively vulnerable to aggregate disturbances; and following a financial shock, stabilization policy aimed solely at the securitization markets is relatively ineffective. |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2013-78&r=mac |
| By: | Kirsanova, Tatiana; Leith, Campbell; Chen, Xiaoshan |
| Abstract: | Most of the literature estimating DSGE models for monetary policy analysis assume that policy follows a simple rule. In this paper we allow policy to be described by various forms of optimal policy - commitment, discretion and quasi-commitment. We find that, even after allowing for Markov switching in shock variances, the inflation target and/or rule parameters, the data preferred description of policy is that the US Fed operates under discretion with a marked increase in conservatism after the 1970s. Parameter estimates are similar to those obtained under simple rules, except that the degree of habits is significantly lower and the prevalence of cost-push shocks greater. Moreover, we find that the greatest welfare gains from the ‘Great Moderation’ arose from the reduction in the variances in shocks hitting the economy, rather than increased inflation aversion. However, much of the high inflation of the 1970s could have been avoided had policy makers been able to commit, even without adopting stronger anti-inflation objectives. More recently the Fed appears to have temporarily relaxed policy following the 1987 stock market crash, and has lost, without regaining, its post-Volcker conservatism following the bursting of the dot-com bubble in 2000. |
| Keywords: | Bayesian Estimation, Interest Rate Rules, Optimal Monetary Policy, Great Moderation, Commitment, Discretion, |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:edn:sirdps:480&r=mac |
| By: | Pau Rabanal (IMF); Dominic Quint (Free University Berlin) |
| Abstract: | In this paper, we study the optimal mix of monetary and macroprudential policies in an estimated two-country model of the euro area. The model includes real, nominal and financial frictions, and hence both monetary and macroprudential policies can play a role. We find that the introduction of a macroprudential rule would help in reducing macroeconomic volatility, improve welfare, and partially substitute for the lack of national monetary policies. Macroprudential policies always increase the welfare of savers, but their effects on borrowers depend on the shock that hits the economy. In particular, macroprudential policies may entail welfare costs for borrowers under technology shocks, by increasing the countercyclical behavior of lending spreads. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed013:604&r=mac |
| By: | Yue ZHAO (yGraduate School of Economics, Kyoto University) |
| Abstract: | Jermann and Quadrini (2012) show that compared with productivity shocks, direct shocks to the credit system ("nancial shocks") have contributed to the most frequently observed dynamics of both real and nancial variables in the US within a closed economy framework. We develop a simple two-country model featuring an international bond market and enforcement constraints within both countries in an attempt to quantify the role of productivity and nancial shocks. We construct time series of productivity shocks and nancial shocks using the US and Japanese quarterly data since 2001 and conduct simultaneous replication on major indicators of real variables and aggregate nancial ows. The main results were as follows. First, for both the US and Japan, productivity shocks account for most real variable dynamics such as output and investment, while nancial shocks well capture the trend of consumption, current account, and labor trends in the US and succeed in replicating Japan's debt repurchase behavior. Nevertheless, it is noteworthy that nancial shocks served as key factors in accounting for the observed troughs of output, labor, and consumption, as well as the peaks of debt repurchase and the US current account during the 2007-09 nancial crisis. Second, it is surprising that observable international spillover eect appeared only in Japan's debt repurchases. As it is widely considered that the Japanese economy have been deeply in uenced by US economic uctuations, our quantitative results raise questions about this opinion. |
| Keywords: | Business uctuations, nancial friction, open economy, simulation |
| JEL: | E32 E37 E44 F41 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:881&r=mac |
| By: | Nyamongo, Esman; Ndirangu, Lydia Ndirangu2 |
| Abstract: | The objective of this study is to analyze the effects of financial innovation in the banking sector on the conduct of monetary policy in Kenya during 1998-2012. The country has witnessed a number of financial innovations during this period. The study focuses on whether these wave of financial innovations have impacted on the transmission mechanism of monetary policy, and if so how. The results show that the innovations have improved the monetary policy environment in Kenya as the proportion of the unbanked population has declined coupled with gradual reduction in currency outside banks. However, the period post 2007 when the country has experienced the fastest pace of financial innovation, is associated with instability in the money multiplier, income velocity of money and the money demand. However, recent trends point towards stabilization pointing to the need for further examination establish whether indeed the break in trend is of structural or transitory in nature. A structural break raises questions on the credibility of the current monetary targeting framework in use in Kenya, in view of which a more flexible framework should be adopted. Overall, the results show that financial innovation has had positive outcomes and seems to improve the interestrate channel of monetary policy transmission. |
| Keywords: | Monetary policy, excess liquidity, Kenya, financial innovation |
| JEL: | E00 E02 E5 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:52387&r=mac |
| By: | Leibfritz, Willi; Rottmann, Horst |
| Abstract: | Fiscal positions of African countries have improved significantly during the past decade. Higher economic growth, better terms of trade, improved donor support notably through debt relief and better control of expenditure contributed to this improvement. But at the same time government revenue and expenditure have become more volatile. The paper explores behaviour of government spending during business cycles. It finds that spending has on average been since 1980 broadly a-cyclical thus neither significantly aggravated nor mitigated cyclical fluctuations. But when comparing the two sub-periods before and after 2000 we find that before 2000 spending was on average (moderately) procyclical. While from 1980 to 2000 in almost two thirds of the 46 countries, which we examined, spending was procyclical this share declined to less than 40 percent after 2000 and in the majority of countries spending was a-cyclical or countercyclical. As more countries escaped from procyclicality Africa's resilience against external shocks improved. This also helped to better cope with the Great Recession of 2009. -- |
| Keywords: | developing countries,Africa,fiscal policy,business cycles |
| JEL: | O11 O23 H3 H5 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:hawdps:36&r=mac |
| By: | Philippe Aghion; Enisse Kharroubi |
| Abstract: | This paper investigates the effect of cyclical macroeconomic policy and financial sector characteristics on growth. Using cross-country, cross-industry OECD data, it yields two main findings. First, countercyclical fiscal and monetary policies foster growth disproportionately in more credit/liquidity-constrained industries. Second, while higher bank capital ratios may contribute to reducing the benefit of a countercyclical monetary policy, countercyclical credit enhances growth disproportionately in more credit/liquidity-constrained industries and this complements the growth effects of countercyclical monetary policy. Raising regulatory requirements for bank capital can therefore help achieve financial stability and preserve economic growth if complemented with more countercyclical macroeconomic and regulatory policy. |
| Keywords: | Growth, financial constraints, fiscal policy, monetary policy, financial regulation |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:434&r=mac |
| By: | Crowley, Patrick (College of Business, Texas A&M University, Corpus Christi); Garcia, Enrique (Universita Autonoma de Mexico); Quah , Chee-Heong (University of Malaysia) |
| Abstract: | While it is painfully clear that the ’ever closer’ monetary and financial union in the EU has run into serious trouble there has been very little study of the degree to which the countries have become similar or different in their economic growth dynamics. This paper therefore goes beyond the traditional convergence literature to look at their dynamic convergence and explore the path of their changing similarity in the frequency domain. The results show that while a core group of countries may be developing together, there appears to be at least seven identifiable groups of countries with different growth dynamics. Greece appears to be in a class on its own. Business cycles are important but longer-term trends and higher frequency fluctuations all have a role to play in facilitating adjustment. These results provide awkward implications for policy, particularly for those who thought that simply having a union would draw countries closer together (endogenous OCA criteria). |
| Keywords: | business cycles; growth cycles; frequency domain; wavelet analysis; cluster analysis; euro area; European Union; optimal currency area |
| JEL: | C49 E32 |
| Date: | 2013–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2013_033&r=mac |
| By: | Glenn Rudebusch (Federal Reserve Bank of San Francisco); Michael Bauer (Federal Reserve Bank of San Francisco) |
| Abstract: | When the policy rate is constrained by the zero lower bound (ZLB), a new set of tools is needed to answer crucial questions about monetary policy, regarding the impact of the ZLB, expected lift-off, and the appropriateness of the policy stance. We document the shortcomings of affine dynamic term structure models (DTSMs) at the ZLB, and the benefits of shadow rate DTSMs. Using these we are able to appropriately answer the questions of interest: First, over recent years U.S. monetary policy has become increasingly constrained by the zero bound. Second, we estimate that in December 2012 the expected duration of the period of near-zero policy rates was 33 months, in line with survey-based and private-sector forecasts. Third, incorporating macroeconomic information in ZLB models is beneficial, improving inference about future policy, and allowing us to derive model-based Taylor rules and the resulting policy prescriptions. We find that in December 2012 the stance of monetary policy was in line with the desired stance based on simple policy rules. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed013:691&r=mac |
| By: | Juessen, Falko (University of Wuppertal); Schabert, Andreas (University of Cologne) |
| Abstract: | This paper examines fiscal policy without commitment and the effects of conditional bailout loans. The government relies on distortionary taxation and decides between full debt repayment and costly default. It tends to overborrow due to myopia, which induces default to be a relevant policy option and provides a rationale to constrain sovereign borrowing. We consider a lump-sum financed fund that offers loans at a favorable price and conditional upon minimum primary surpluses. While the government prefers defaulting in the most adverse states, we find that it is willing to accept conditional loans in close-to-default states. These bailouts can lead to an increase in the mean debt price and a lower default probability that are associated with enhanced household welfare. Yet, these outcomes can be reversed when bailouts are too generous, while public debt never decreases in the long-run when bailout loans are available. |
| Keywords: | discretionary fiscal policy, overborrowing, sovereign default, bailout loans, conditionality |
| JEL: | E32 H21 H63 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7805&r=mac |
| By: | Barnett, Alina (Bank of England); Thomas, Ryland (Bank of England) |
| Abstract: | This paper investigates the role of credit demand and supply shocks in driving the weakness in UK banks’ lending and economic activity during both the recent financial crisis and the various UK financial crises since 1966. It uses a structural vector autoregression analysis to identify separate credit demand and supply shocks in addition to the standard macroeconomic shocks that are typically analysed in this framework. It finds that credit supply shocks can account for most of the weakness in bank lending since the onset of the crisis and between a third and a half of the fall in GDP relative to its historic trend. It also finds that credit supply shocks appear to behave more like aggregate supply shocks than aggregate demand shocks because they cause output and inflation to move in opposite directions. This may be because credit supply shocks affect potential supply in the economy or because they have a significant exchange rate effect. The results appear robust to different identifying assumptions. The main sensitivity appears to be when spreads are treated as a non-stationary variable and long-run restrictions are placed on the model. |
| Keywords: | Credit supply shocks; Financial and macro linkages; Bayesian SVARs; sign restrictions; long-run restrictions |
| JEL: | C11 C32 E51 E52 |
| Date: | 2013–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0482&r=mac |
| By: | Pilar Abad (University Rey Juan Carlos and University of Barcelona); Helena Chuliá (Faculty of Economics, University of Barcelona) |
| Abstract: | In this paper we investigate the response of bond markets to euro area and US monetary policy shocks. Specifically, we analyze the effect of unexpected changes in interest rates implemented by the European Central Bank (ECB) and the Federal Open Market Committee (FOMC) not only on the returns, but also on the volatility and the integration of European government bond markets. For all three characteristics our results show that the response to monetary policy surprises varies across groups of countries (EMU EU-15 central, EMU EU-15 peripheral, non-EMU EU-15 and non-EMU new EU). We also find that the effects of monetary policy announcements on the level of integration are more pronounced than those on returns and volatility. Finally, our results paint a complex picture of the effects of monetary policy news releases on the level of integration. The effect of ECB monetary policy surprises differs across old and new European Union members, while the effect of FOMC monetary policy surprises differs across EMU and non-EMU members. |
| Keywords: | Monetary policy announcements; Bond market integration; Interest rate surprises. JEL classification: E44; F36; G15. |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:201325&r=mac |
| By: | Emanuel, Gasteiger; Shoujian, Zhang |
| Abstract: | We study the impact of anticipated fiscal policy changes in a Ramsey economy where agents form long-horizon expectations using adaptive learning. We extend the existing framework by introducing distortionary taxes as well as elastic labour supply, which makes agents. decisions non-predetermined but more realistic. We detect that the dynamic responses to anticipated tax changes under learning have oscillatory behaviour that can be interpreted as self-fulfilling waves of optimism and pessimism emerging from systematic forecast errors. Moreover, we demonstrate that these waves can have important implications for the welfare consequences of .scal reforms. (JEL: E32, E62, D84) |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:edn:sirdps:477&r=mac |
| By: | Michael, Hatcher |
| Abstract: | This paper presents a DSGE model in which long run inflation risk matters for social welfare. Optimal indexation of long-term government debt is studied under two monetary policy regimes: inflation targeting (IT) and price-level targeting (PT). Under IT, full indexation is optimal because long run inflation risk is substantial due to base-level drift, making indexed bonds a much better store of value than nominal bonds. Under PT, where long run inflation risk is largely eliminated, optimal indexation is substantially lower because nominal bonds become a better store of value relative to indexed bonds. These results are robust to the PT target horizon, imperfect credibility of PT and model calibration, but the assumption that indexation is lagged is crucial. From a policy perspective, a key finding is that accounting for optimal indexation has important welfare implications for comparisons of IT and PT. |
| Keywords: | government debt, inflation risk, inflation targeting, price-level targeting, |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:edn:sirdps:483&r=mac |
| By: | Luis Felipe Céspedes; Andrés Velasco |
| Abstract: | We revisit the issue of fiscal procyclicality in commodity-rich nations –commodity republics in the nomenclature of this paper. Since commodity prices are plausibly a main driver of fiscal policy outcomes in these countries, we focus on the behavior of fiscal variables across the commodity cycle, in contrast to behavior across the output cycle, which has been the main focus of earlier research on fiscal procyclicality. We present evidence of reduced fiscal policy procyclicality in a number of countries. Our empirical results suggest that improvements in institutional quality have led to a more countercyclical fiscal policy stance in a number of countries. The presence of fiscal rules also seems to have made a difference: countries that use them displayed a larger shift toward fiscal counter-cyclicality between the two episodes. |
| JEL: | E62 F21 F32 F41 H12 H6 H63 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19748&r=mac |
| By: | David, Cobham |
| Abstract: | This paper examines the performance of monetary policy under the new framework established in 1997 up to the end of the Labour government in May 2010. Performance was relatively good in the years before the crisis, but much weaker from 2008. The new framework largely neglected open economy issues, while the Treasury’s EMU assessment in 2003 can be interpreted in different ways. inflation targeting in the UK and elsewhere may have contributed in some way to the eruption and depth of the financial crisis from 2008, but UK monetary policy responded in a bold and innovative way. Overall, the design and operation of monetary policy were much better than in earlier periods, but there remains scope for significant further evolution. |
| Keywords: | monetary policy, central bank independence, European Monetary Union, house prices, financial crisis, |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:edn:sirdps:458&r=mac |
| By: | Kirsanova, Tatiana; le Roux, Stephanus |
| Abstract: | This paper investigates the conduct of monetary and fiscal policy in the post-ERM period in the UK. Using a simple DSGE New Keynesian model of non-cooperative monetary and fiscal policy interactions under fiscal intra-period leadership, we demonstrate that the past policy in the UK is better explained by optimal policy under discretion than under commitment. We estimate policy objectives of both policy makers. We demonstrate that fiscal policy plays an important role in identifying the monetary policy regime. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:edn:sirdps:479&r=mac |
| By: | Franziska Bremus; Claudia M. Buch |
| Abstract: | We explore the impact of large banks and of financial openness for aggregate growth. Large banks matter because of granular effects: if markets are very concentrated in terms of the size distribution of banks, idiosyncratic shocks at the bank-level do not cancel out in the aggregate but can affect macroeconomic outcomes. Financial openness may affect GDP growth in and of itself, and it may also influence concentration in banking and thus the impact of bank-specific shocks for the aggregate economy. To test these relationships, we use different measures of de jure and de facto financial openness in a linked micro-macro panel dataset. Our research has three main findings: First, bank-level shocks significantly impact on GDP. Second, financial openness lowers GDP growth. Third, granular effects tend to be stronger in financially closed economies. |
| Keywords: | Bank market structure, financial openness, granular effects, growth |
| JEL: | G21 E32 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1346&r=mac |
| By: | Adeniji, Sesan; Evans, Olaniyi |
| Abstract: | With the aid of the St. Louis equation, this study applies panel data technique to real variables of some selected African countries with extended data from 1970 – 2012. The outcomes support both Keynesian and monetarist positive policy assertions. The monetary base and government expenditure are viable instruments to stabilize output. The study, as well, finds that utilizing the monetary base as a policy tool is more potent than using government expenditure. This is in line with the predictions of Milton Friedman and Schwartz (1963) and other advocates of the St. Louis equation. Therefore, in order to attain higher output growth, these economies should rely more on monetary policy as compared with fiscal policy. |
| Keywords: | Monetary Policy, Fiscal Policy, St. Louis Equation and Panel Data |
| JEL: | C01 E52 E62 |
| Date: | 2013–12–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:52420&r=mac |
| By: | Hatcher, Michael |
| Abstract: | This paper presents a general equilibrium model in which nominal government debt pays an inflation risk premium. The model predicts that the inflation risk premium will be higher in economies which are exposed to unanticipated inflation through nominal asset holdings. In particular, the inflation risk premium is higher when government debt is primarily nominal, steady-state inflation is low, and when cash and nominal debt account for a large fraction of consumers' retirement portfolios. These channels do not appear to have been highlighted in previous models or tested empirically. Numerical results suggest that the inflation risk premium is comparable in magnitude to standard representative agent models. These findings have implications for management of government debt, since the inflation risk premium makes it more costly for governments to borrow using nominal rather than indexed debt. Simulations of an extended model with Epstein-Zin preferences suggest that increasing the share of indexed debt would enable governments to permanently lower taxes by an amount that is quantitatively non-trivial. |
| Keywords: | government debt, inflation risk premium, overlapping generations, |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:edn:sirdps:517&r=mac |
| By: | Pablo Pincheira |
| Abstract: | In this paper we explore the role that exchange rate interventions may play in determining inflation expectations in Chile. To that end, we consider a set of nine deciles of inflation expectations coming from the survey of professional forecasters carried out by the Central Bank of Chile. We consider two episodes of preannounced central bank interventions during the sample period 2007-2012. |
| Keywords: | Exchange rates, inflation expectations, inflation targeting, interventions |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:427&r=mac |
| By: | Cendejas Bueno, José Luis (Instituto de Investigaciones Económicas y Sociales Francisco de Vitoria); Muñoz, Félix (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.); Castañeda, Juan (Economics and International Studies Department, The University of Buckingham.) |
| Abstract: | La grave crisis económica y financiera que atraviesa España tiene, obviamente, numerosas causas. Una de ellas ha sido el brutal impacto que ha tenido la expansión de la masa monetaria tras la entrada de España en el euro sobre los precios de los activos y la estructura económica del país. Este artículo examina precisamente el origen, mecanismo de transmisión e impacto de esta expansión monetaria sobre la economía española. La principal conclusión que alcanzamos es que el “olvido del dinero” en la teoría macroeconómica y en el diseño e implementación de las llamadas reglas monetarias óptimas por parte de los bancos centrales durante la última expansión económica está en la base de la actual crisis. |
| Keywords: | expansión monetaria y ciclos económicos; reglas monetarias óptimas. |
| JEL: | E32 E42 E52 E58 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:uam:wpaper:201309&r=mac |
| By: | Brian S. Ferguson (Department of Economics and Finance, University of Guelph) |
| Abstract: | In Chapter 3 of the General Theory, Keynes sketches out what he calls the essence of the General Theory of Employment. He introduces the Keynesian expenditure-based model, his aggregate demand function and also his aggregate supply function, a concept which spawned much debate among Post-Keynesian economists but which was, for a long time, virtually ignored in mainstream macroeconomics. He sets out the Savings = Investment version of Say’s Law and outlines how an economy can settle into an equilibrium at less than full employment. |
| Keywords: | Keynes, General Theory, Keynesian Economics, Classical Economics, Aggregate Demand, Aggregate Supply, Unemployment Equilibrium, Say’s Law. |
| JEL: | B10 B12 B13 B22 B31 E12 N12 N14 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:gue:guelph:2013-08&r=mac |
| By: | Tobias R. Rühl; Michael Stein |
| Abstract: | Bid-ask spreads using intraday data reveal significant sensitivity to European Central Bank (ECB) macro announcements. Effects are strongest for announcements that comprise unexpected information or a change in interest rates, and spreads rise sharply during the minutes surrounding interest rate or other important macroeconomic announcements by the ECB. Both Euro area stocks (of German DAX 30 and French CAC 40) and non-Euro stocks (of FTSE 100) have been used for comparative reasons. All results are robust to changes in specification and when being controlled for normal daytime-dependent frictions or other macroeconomic announcements. |
| Keywords: | Market microstructure; transaction costs; bid-ask spreads; ECB; announcement effects |
| JEL: | G14 G18 E52 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0452&r=mac |
| By: | Orrego, Fabrizio (Banco Central de Reserva del Perú); Vega, Germán (Universidad de Piura) |
| Abstract: | We study the implications of the so-called Dutch disease in a small open economy that receives signifficant inflows of funds due to an extraordinary increase in the international price of minerals. We consider three sectors, the tradeable sector, the booming sector and the non-tradeable sector in an otherwise standard real-business-cycle model. We find that the booming sector, that benefits from high international prices, induces the Dutch disease, that is, the tradeable sector declines, the real exchange rate appreciates, wages increase and the non-tradeable sector improves. We then introduce fiscal policies that aim to alleviate the consequences of the Dutch disease. One particular rule that boosts the productivity of firms seems to offset the effects of the Dutch disease. |
| Keywords: | Small open economy, Dutch disease, scal policy |
| JEL: | F31 F41 E62 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:rbp:wpaper:2013-021&r=mac |
| By: | Blinov, Sergey |
| Abstract: | This paper is looking into the causes of the GDP decline in Russia during 2008-2009 and the slow-down of the GDP growth during 2012-2013. The impact of the money supply on the GDP is discussed. Analogies are drawn with the crises in the USA: the Great Depression during 1929-1933 and the 2008-2009 crisis. Possible measures necessary for growth in Russia are investigated. |
| Keywords: | денежная масса; Великая депрессия; рецессия; центральный банк |
| JEL: | E41 E51 G01 |
| Date: | 2013–12–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:52471&r=mac |
| By: | Athanasios Orphanides |
| Abstract: | Following the experience of the global financial crisis, central banks have been asked to undertake unprecedented responsibilities. Governments and the public appear to have high expectations that monetary policy can provide solutions to problems that do not necessarily fit in the realm of traditional monetary policy. This paper examines three broad public policy goals that may overburden monetary policy: full employment, fiscal sustainability and financial stability. While central banks have a crucial position in public policy, the appropriate policy mix also involves other institutions, and overreliance on monetary policy to achieve these goals is bound to disappoint. Central bank policies that facilitate postponement of needed policy actions by governments may also have longer-term adverse consequences that could outweigh more immediate benefits. Overburdening monetary policy may eventually diminish and compromise the independence and credibility of the central bank, thereby reducing its effectiveness in maintaining price stability and contributing to crisis management. |
| Keywords: | Global financial crisis, monetary policy, real-time output gap, fiscal dominance, financial stability, central bank independence |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:435&r=mac |
| By: | Evans, Olaniyi |
| Abstract: | This study examines the monetary model of exchange rate in Nigeria, using an Autoregressive Distributed Lag (ARDL) approach over the period 1998Q1 to 2012Q2. The estimation results show that there is long run relationship among variables of the monetary model of exchange rate for Nigeria. That is, the estimated coefficients of the money supply, income and interest rate differentials support the monetary exchange rate model. As well, the stability test of CUSUM shows that there exists a significant and stable monetary model of exchange rate determination for Nigeria. Therefore, this study recommends that market participants in the foreign exchange market may monitor and forecast future exchange rate movements using the money supplies, incomes and interest rates variables. |
| Keywords: | monetary model, exchange rate, Autoregressive Distributed Lag, money supply, income and interest rate differentials |
| JEL: | E4 E43 E47 E52 G1 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:52457&r=mac |
| By: | Bai, Yuting; Kirsanova, Tatiana |
| Abstract: | This paper studies discretionary non-cooperative monetary and fiscal policy stabilization in a New Keynesian model, where the fiscal policymaker uses a distortionary taxe as the policy instrument and operates with long periods between optimal time-consistent adjustments of the instrument. We demonstrate that longer fiscal cycles result in stronger complementarities between the optimal actions of the monetary and fiscal policymakers. When the fiscal cycle is not very long, the complementarities lead to expectation traps. However, with a sufficiently long fiscal cycle — one year in our model — no learnable time-consistent equilibrium exists. Constraining the fiscal policymaker in its actions may help to avoid these adverse effects. |
| Keywords: | Monetary and Fiscal Policy Interactions, Distortionary Taxes, Discretion, Infrequent Stabilization, LQ RE models, |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:edn:sirdps:448&r=mac |
| By: | Engler, Philipp; Ganelli, Giovanni; Tervala, Juha; Voigts, Simon |
| Abstract: | Between 1999 and the onset of the economic crisis in 2008 real exchange rates in Greece, Ireland, Italy, Portugal and Spain appreciated relative to the rest of the euro area. This divergence in competitiveness was reflected in the emergence of current account imbalances. Given that exchange rate devaluations are no longer available in a monetary union, one potential way to address such imbalances is through a fiscal devaluation. We use a DSGE model calibrated to the euro area to investigate the impact of a fiscal devaluation, modeled as a revenue-neutral shift from employers´ social contributions to the Value Added Tax. We find that a fiscal devaluation carried out in Southern European countries has a strong positive effect on output, but a mild effect on the trade balance of these countries. In addition, the negative effect on Central-Northern countries output is weak. -- |
| Keywords: | fiscal devaluation,fiscal policy,euro area,currency union,current account |
| JEL: | E32 E62 F32 F41 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fubsbe:201318&r=mac |
| By: | Dennis, Richard |
| Abstract: | We study a business cycle model in which a benevolent fiscal authority must determine the optimal provision of government services, while lacking credibility, lump-sum taxes, and the ability to bond finance deficits. Households and the fiscal authority have risk sensitive preferences. We find that outcomes are affected importantly by the household's risk sensitivity, but not by the fiscal authority's. Further, while household risk-sensitivity induces a strong precautionary saving motive, which raises capital and lowers the return on assets, its effects on fluctuations and the business cycle are generally small, although more pronounced for negative shocks. Holding the stochastic steady state constant, increases in household risk-sensitivity lower the risk-free rate and raise the return on equity, increasing the equity premium. Finally, although risk-sensitivity has little effect on the provision of government services, it does cause the fiscal authority to lower the income tax rate. An additional contribution of this paper is to present a method for computing Markov-perfect equilibria in models where private agents and the government are risk-sensitive decisionmakers. |
| Keywords: | Asset prices, business cycles, risk-sensitivity, Markov-Perfect, fiscal policy, |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:edn:sirdps:515&r=mac |
| By: | Vasilev, Aleksandar |
| Abstract: | Motivated by the high public employment, and the public wage premia observed in Europe, a Real-Business-Cycle model, calibrated to German data (1970-2007), is set up with a richer government spending side, and an endogenous private-public sector labor choice. To illustrate the e ects of scal policy, two regimes are compared and contrasted to one another - exogenous vs. optimal (Ramsey) policy case. The main ndings from the computational experiments performed in this paper are: (i) The optimal steady-state capital tax rate is zero; (ii) A higher labor tax rate is needed in the Ramsey case to compensate for the loss in capital tax revenue; (iii) Under the optimal policy regime, public sector employment is lower, but government employees receive higher wages; (iv) The benevolent Ramsey planner provides the optimal amount of the public good, substitutes labor for capital in the input mix for public services production, and private output; (v) Government wage bill is smaller, while public investment is three times higher than in the exogenous policy case. |
| Keywords: | optimal policy, government spending, public employment and wages, |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:edn:sirdps:518&r=mac |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:tcd:tcduee:tep0513&r=mac |
| By: | William Barnett (Department of Economics, The University of Kansas; Center for Financial Stability, New York City; IC2 Institute, University of Texas at Austin) |
| 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 economics. 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. |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:kan:wpaper:201312&r=mac |
| By: | Fabia A. de Carvalho; Marcos R. Castro; Silvio M. A. Costa |
| Abstract: | This paper investigates the transmission channel of macroprudential instruments in a closed-economy DSGE model with a rich set of financial frictions. Banks' decisions on risky retail loan concessions are based on borrowers' capacity to settle their debt with labor income. We also introduce frictions in banks' optimal choices of balance sheet composition to better reproduce banks' strategic reactions to changes in funding costs, in risk perception and in the regulatory environment. The model is able to reproduce not only price effects from macroprudential policies, but also quantity effects. The model is estimated with Brazilian data using Bayesian techniques. Unanticipated changes in reserve requirements have important quantitative effects, especially on banks' optimal asset allocation and on the choice of funding. This result holds true even for required reserves deposited at the central bank that are remunerated at the base rate. Changes in required core capital substantially impact the real economy and banks' balance sheet. When there is a lag between announcements and actual implementation of increased capital requirement ratios, agents immediately engage in anticipatory behavior. Banks immediately start to retain dividends so as to smooth the impact of higher required capital on their assets, more particularly on loans. The impact on the real economy also shifts to nearer horizons. Announcements that allow the new regulation on required capital to be anticipated also improve banks' risk positions, since banks achieve higher capital adequacy ratios right after the announcement and throughout the impact period. The effects of regulatory changes to risk weights on bank assets are not constrained to impact the segment whose risk was reassessed. We compare the model responses with those generated by models with collateral constraints traditionally used in the literature. The choice of collateral constraint is found to have important implications for the transmission of shocks to the economy |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:336&r=mac |
| By: | Eliphas Ndou; Nombulelo Gumata; Ncube, Mthuli; Eric Olson |
| Abstract: | This paper investigates the policy trade-off between inflation volatility and output volatility, also referred to as the Taylor curve. In so doing, the paper assesses whether the Taylor curve has shifted over time, how demand and supply shocks affect the volatilities of inflation and the output gap, and the optimality of monetary policy using the Taylor principle. We use multivariate GARCH estimation. The results show that the Taylor curve has shifted over the sample period and shifted inwards under the inflation-targeting regime relative to prior regimes. Furthermore, the results indicate that economic growth performance is superior in periods in which the Taylor curve relationship holds. The effects of demand and supply shocks on both conditional volatilities are transitory. In policy terms, the inward shift of the Taylor curve and evidence based on the Taylor principle suggests optimal monetary policy settings or conduct during the inflation-targeting regime relative to earlier regimes. |
| Date: | 2013–12–19 |
| URL: | http://d.repec.org/n?u=RePEc:adb:adbwps:992&r=mac |
| By: | Fung, Ka Wai Terence; Lau, Chi Keung Marco; Chan, Kwok Ho |
| Abstract: | Bansal and Yaron (2004) demonstrate, by calibration, that the Consumption-Based Capital Asset Pricing Model (CCAPM) can be rescued by assuming that consumption growth rate follows a stochastic volatility model. They show that the conditional equity premium is a linear function of conditional consumption and market return volatilities, which can be estimated handily by various Generalized Autoregressive Conditonal Heterskedasticity (GARCH) and Stochastic Volatility (SV) models.We find that conditional consumption and market volatilities are capable of explaining cross-sectional return differences. The Exponential GARCH (EGARCH) volatility can explain up to 55% variation of return and the EGARCH model augmented with (cay) ̂ -a cointegrating factor of consumption, labor income and asset wealth growth- greatly enhance model performance. We proceed to test another hypothesis: if Bansal and Yaron estimator is an unbiased estimator of true conditional equity premium, then the instrumental variables for estimating conditional equity premium should no longer be significant.We demonstrate that once the theoretical conditional risk premium is added to the model, it renders all instrumental variables redundant. Also, the model prediction is consistent with observed declining equity premium. |
| Keywords: | Financial Economics, Macroeconomics and Monetary Economics, Equity Premium Puzzle, Fama-French Model |
| JEL: | E00 E3 E32 G01 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:52469&r=mac |
| By: | John B Taylor |
| Abstract: | This paper examines two explanations for the recent spate of complaints about cross-border monetary policy spillovers and calls for international monetary policy coordination, a development that contrasts sharply with the monetary system in the 1980s, 1990s and until recently. The first explanation holds that deviations from rules-based policy at several central banks created incentives for other central banks to deviate from such policies. The second explanation either does not see deviations from rules or finds such deviations benign; it characterises recent unusual monetary policies as appropriate, explains the complaints as an adjustment to optimal policies, and downplays concerns about interest rate differentials and capital controls. Going forward, the goal for central banks should be an expanded rulesbased system similar to that of the 1980s and 1990s, which would operate near an international cooperative equilibrium. International monetary policy coordination – at least formal discussions of rules-based policies and the issues reviewed here – would help central banks get such equilibrium. |
| Keywords: | Monetary policy spillovers, unconventional monetary policy, international policy coordination |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:437&r=mac |
| By: | Giorgio Motta; Raffaele Rossi |
| Abstract: | We study Ramsey monetary and fiscal policy in a small scale New Keynesian model where government spending has intrinsic value, public debt is state-noncontingent and the fiscal authority is constrained by using distortive taxation. We show that Ramsey policy is remarkably altered when consumption taxation is considered as a source of government revenues alongside or as an alternative to labour income taxes. First, we show that the optimal steady-state size of the public spending is, ceteris paribus, greater under consumption taxation than under labour income tax. We further show that adopting consumption taxation has enormous long run welfare gains and that these gains are increasing in the level of outstanding public debt. These welfare gains are not limited to the steady-state, but they are also present in the dynamic stochastic equilibrium. The reason is that the dynamic nature of consumption taxation enables the policy-maker to affect the stochastic discount factor via modifications of the marginal utility of consumption. This extra wedge impacts on the pricing decisions of firms, and hence on inflation stabilization, and greatly improves welfare in the stochastic equilibrium. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:lan:wpaper:44449031&r=mac |
| By: | Roder van Arkel (Research Institute, Social Trade Organisation, Utrecht, The Netherlands); Koen Vermeylen (University of Amsterdam) |
| Abstract: | Champions of sustainable growth often call for more durable production technologies with less capital depreciation. As investment in more durable capital is encouraged by lower interest rates, we investigate whether policy makers can steer the economy towards a path with low interest rates in order to stimulate more durable capital formation. We study this question from the viewpoint of two different macroeconomic paradigms, with three different modeling strategies, and get three fundamentally different and even contradicting answers. As none of these paradigms can claim to be superior to the other one, we argue that all modeling strategies may yield valuable insights, which leads to nuanced and careful policy advice. The paper is therefore an illustration of the importance of methodological pluralism in addressing macro-environmental questions where the interest rat e takes center stage. |
| Keywords: | interest rate; capital durability; depreciation rate; sustainability; methodological pluralism |
| JEL: | B4 E22 E43 O44 Q5 |
| Date: | 2013–12–16 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20130202&r=mac |
| By: | Morten L. Bech; Todd Keister |
| Abstract: | In addition to revamping existing rules for bank capital, Basel III introduces a new global framework for liquidity regulation. One part of this framework is the liquidity coverage ratio (LCR), which requires banks to hold sufficient high-quality liquid assets to survive a 30-day period of market stress. As monetary policy typically involves targeting the interest rate on loans of one of these assets — central bank reserves — it is important to understand how this regulation may impact the efficacy of central banks’ current operational frameworks. We introduce term funding and an LCR requirement into an otherwise standard model of monetary policy implementation. Our model shows that if banks face the possibility of an LCR shortfall, then the usual link between open market operations and the overnight interest rate changes and the short end of the yield curve becomes steeper. Our results suggest that central banks may want to adjust their operational frameworks as the new regulation is implemented. |
| Keywords: | Basel III, Liquidity regulation, LCR, Reserves, Corridor system, Monetary policy |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:432&r=mac |
| By: | Razzak, Weshah |
| Abstract: | I extend the Glick and Rogoff (1995) aggregate time-series, empirical, intertemporal model of country-investment (and the current account) to a sectoral-level, and estimate it for New Zealand. I fit the model to panel data of eleven industries from 1988-2009. The sectoral-level investment growth is a function of lagged investment level, sector-specific TFP shocks, country-specific TFP shocks, and global TFP shocks. The estimates seem robust to government spending shocks and Terms of Trade shocks. |
| Keywords: | Investments, sectoral-level, TFP shocks, panel data |
| JEL: | C2 C33 E2 |
| Date: | 2013–12–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:52461&r=mac |
| By: | Kevin x.d. Huang (Vanderbilt University); Hui He (Shanghai University of Finance and Economics); Sheng-ti Hung (University of Hawai''i at Manoa) |
| Abstract: | We develop a general equilibrium macroeconomic model with endogenous health accumulation, and we use the model's equilibrium condition to estimate the elasticity of substitution between medical care and leisure time in maintaining health, based on a cross-country panel dataset. Our econometric estimates imply that increasing health-enhancing leisure time may substantially reduce the nation's medical expenditure and help resolve its pressing fiscal uncertainty. Our study highlights the importance of several current nationwide campaigns aimed at improving national health status, from not only health but macroeconomic perspectives. Our study also provides a guidance to a growing macro-health literature in modeling health production. |
| Keywords: | general equilibrium, macro-health, health care, leisure time, elasticity of substitution, fiscal uncertainty |
| JEL: | E2 I1 |
| Date: | 2013–12–23 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:vuecon-sub-13-00020&r=mac |
| By: | Chris Stewart (Reserve Bank of Australia); Benn Robertson (Reserve Bank of Australia); Alexandra Heath (Reserve Bank of Australia) |
| Abstract: | This paper describes the Australian banking system, highlighting ways in which it differs from other major banking systems. It draws together themes from previous work conducted at the Reserve Bank of Australia (RBA), and outlines the role the banking system plays in the transmission of monetary policy and the transformation of risk. The paper also discusses some more recent trends, including the increased focus on deposit funding and potential changes in the determination of lending rates due to changes in the pricing of risk. These trends are, in turn, being influenced by changes in the preferences towards, and understanding of, different types of risk by investors, banks' management and regulators. |
| Keywords: | banking; composition of funding; financial crises; interest rates; supply of credit |
| JEL: | G01 G2 E4 E5 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2013-15&r=mac |
| By: | Andrés Álvarez; Marc Hofstetter |
| Abstract: | Based on the counting of Help-wanted advertisements in print newspapers, we present national vacancy indexes and vacancy rates for Colombia. These series will allow tackling a myriad of questions related to the functioning of the labor markets in emerging economies, where such datasets were not available until now. |
| Keywords: | Vacancies, Help-wanted index, unemployment, Beveridge curve, labor market, Colombia. Classification JEL:E24, E32, J63, J64 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:797&r=mac |
| By: | Andersen, Torben M (Aarhus University); Maibom Pedersen, Jonas (Aarhus University); Svarer, Michael (Aarhus University); Sørensen, Allan (Aarhus University) |
| Abstract: | Will the current employment crisis produce lost generations with permanently lower labour market attachment? Taking an explicit cohort perspective and based on Danish data we do not find strong persistence in employment rates at the cohort level. Younger workers tend to be more exposed to business cycle fluctuations than older workers, but importantly they recover more quickly from such set-backs than older workers for whom persistence is stronger. Moreover, no cohorts have been disproportionately affected by exposure to a sequence of adverse shocks. An explicit account of overlapping cohorts is shown to affect assessments of persistence in aggregate employment rates. |
| Keywords: | persistence, lost generations, employment |
| JEL: | J6 E32 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7817&r=mac |
| By: | Antoine Goujard |
| Abstract: | In many OECD countries, government debt reached levels over recent years that call for reduction over the medium to longer term to ensure public finance sustainability. This paper investigates the international transmission of fiscal consolidation shocks via trade flows. Using a measure of exogenous fiscal shocks in export markets, fiscal consolidation spillovers are found to slow domestic growth and decrease employment. When fiscal consolidation efforts are synchronised across partner countries, fiscal policies have large spillover effects on output. Spillovers of fiscal consolidations on growth are found to be initially larger between countries belonging to currency unions, though this larger impact vanishes over the medium term. Larger spillovers of fiscal consolidation coincide with stronger shifts in bilateral trade flows in currency unions in the short term, despite smaller adjustments in relative exchange rates. Spillovers of fiscal consolidation are also found to be more detrimental to domestic growth during economic downturns in export markets. Les répercussions internationales des consolidations fiscales Dans de nombreux pays de l’OCDE, la dette publique a récemment atteint des niveaux appelant sa réduction sur le moyen à long terme afin d’assurer la soutenabilité des finances publiques. Ce document étudie la transmission entre pays des chocs de politique fiscale par les flux commerciaux. Les politiques d’assainissement budgétaire dans les marchés d’exports apparaissent réduire la croissance domestique et l’emploi, lorsqu’une mesure exogène des politiques fiscales est utilisée. Si les efforts d’assainissement budgétaire sont synchronisés dans les pays partenaires, ceux-ci peuvent avoir des effets importants sur la croissance. Les répercussions des consolidations fiscales apparaissent initialement plus élevées entre les pays qui partagent la même monnaie, mais cet effet additionnel s’estompe sur le moyen terme. Les plus forts mouvements des flux commerciaux au sein des unions monétaires contribuent à ces effets externes plus importants à court terme bien que les ajustements des taux de changes réels soient plus faibles. Les consolidations fiscales dans les marchés d’exports apparaissent également avoir des répercussions plus importantes sur la croissance domestique lorsque les marchés d’exports sont en récession. |
| Keywords: | fiscal policy, fiscal consolidation, trade spillovers, international spillovers, effets externes, politique fiscale, intégration commerciale, assainissement budgétaire |
| JEL: | E23 E32 E62 F42 |
| Date: | 2013–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1099-en&r=mac |
| By: | Federico Cingano (OECD/ELS, Paris, Bank of Italy); Francesco Manaresi (Bank of Italy); Enrico Sette (Bank of Italy) |
| Abstract: | This paper shows evidence on the real effects of the bank lending channel exploiting the dramatic 2007 liquidity drought in interbank markets as a source of variation in banks' credit supply. For a large sample of Italian firms we combine information on firm-bank credit relationships, firms and banks balance sheet data, and estimate both the direct effect of the liquidity drought on the investment rate and the sensitivity to bank credit of investment (as well as of other firms outcomes) in 2007-10. We find that: (i) pre-crisis exposure to the interbank markets does predict banks subsequent credit supply (ii) banks exposure also has a significant direct impact on firms investment rate, accounting for more than 40% of the negative trend in investment observed in the sample; (iii) firms' investments are highly sensitive to bank credit: a 10 percentage point fall in credit growth reduces the investment rate by 8-14 points over four years, depending on the definition of the credit variable; (iv) credit shocks have a significant impact on broader economic activity, lowering firms' value added, employment and intermediate inputs purchases; we also find evidence of its propagation through a contraction in the supply of trade credit by firms. |
| Keywords: | Bank Lending Channel, Corporate investments, Corporate liquidit,, Financial crisis |
| JEL: | E22 E44 G01 G21 G32 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wmofir:91&r=mac |
| By: | David Turner; Francesca Spinelli |
| Abstract: | In the wake of the financial crisis there has been renewed focus on the importance of a country’s net external debt position in determining domestic interest rates and, relatedly, its vulnerability to a crisis. This paper extends the panel estimation of OECD countries described in Turner and Spinelli (2012) to investigate the effect of external debt and its interaction with government debt on the interest-rate-growth differential. The inclusion of net external debt is found to be significant in both economic and statistical terms, and of particular importance for euro area countries in the post-crisis period. The results imply that the interest-rate effect of marginal increases in external debt or government debt is non-linear and dependent on the initial levels of debt, with the interest rate effect rising sharply in the post-crisis period for euro area countries which have a combination of both high external debt and high government debt. The policy implications for those countries under financial market pressure, especially within the euro area, are that reducing external deficits and debt are at least as important as reducing government deficits and debt. In any case, the effect of higher net external debt on interest rates provides a feedback effect which may prevent countries running sustained large current account imbalances over a long period. However, evidence of an asymmetry in the effect (between the effect of net external debt and net external assets) suggests that the pressure for adjustment will apply more strongly to deficit countries. It also implies that increased polarisation of external debt positions will raise the overall level of global interest rates. L'effet de la dette publique, de la dette extérieure et de leur interaction sur les taux d'intérêt dans la zone OCDE À la suite de la crise financière, il y a eu un nouvel intérêt porté à l’importance de la position nette extérieure d’un pays dans la détermination des taux d’intérêt domestique, et par conséquent, sa vulnérabilité à une crise. Ce papier étend l’estimation de panel des pays de l’OCDE décrit dans Turner et Spinelli (2012) afin d’étudier l’effet de la dette extérieure et de son interaction avec la dette publique sur l’écart entre le taux d’intérêt et le taux de croissance. La prise en compte de la position nette extérieure apparait significative à la fois en termes économiques et statistiques, et notamment pour les pays de la zone euro dans la période postérieure à la crise. Les résultats soulignent que l’effet de la dette extérieure ou publique sur le taux d’intérêt est non linéaire et dépend des niveaux initiaux de dette ; en particulier l’effet sur le taux d’intérêt augmente beaucoup après la crise pour les pays de la zone euro du fait de la présence simultanée d’une dette extérieure et publique élevée. La conséquence en terme de politique économique pour ces pays sous pression des marchés financiers, spécialement dans la zone euro, est que la réduction des déficits et dettes extérieurs est au moins aussi importante que la réduction des déficits et dettes publics. Dans tous les cas, l’effet d’une dette extérieure nette élevée sur les taux d’intérêt se conjugue à un effet rétroactif qui peut empêcher un pays d’avoir des déséquilibres récurrents de balance courante sur une longue période. Cependant, l’existence d’une asymétrie de l’effet (entre l’effet d’une dette ou d’un surplus extérieur) suggère que la pression à l’ajustement va s’exercer plus fortement sur des pays avec des déficits. Cela implique également que la polarisation accrue sur les positions nettes extérieures va augmenter le niveau global des taux d’intérêt. |
| Keywords: | fiscal sustainability, government debt, external debt, interest rates, interest-rate-growth differential, écarts de taux d’intérêt, dette extérieure, taux d’intérêt, viabilité budgétaire |
| JEL: | E43 E62 H63 H68 |
| Date: | 2013–12–11 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1103-en&r=mac |
| By: | Devereux, Michael B; Senay, Ozge; Sutherland, Alan |
| 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, |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:edn:sirdps:507&r=mac |
| By: | Chouard, V.; Fuentes Castro, D.; Irac, D.; Lemoine, M. |
| Abstract: | In this paper, we show that the recent financial crisis has significantly affected the potential total factor productivity (TFP) of the four largest euro area economies, as well as that of the rest of the euro area. We used a reduced-form equation of TFP, based on an approach recently developed by Cahn and Saint-Guilhem (2010). Our empirical findings show that the permanent impact on potential TFP varies across countries from -3.9 points to -1.3 points in Q2 2012. When these losses are incorporated, TFP gaps develop closely in line with capacity utilisation rates (CUR). Moreover, in the case of France, including CUR in our TFP model improves the quasi real-time reliability of TFP gap estimates. |
| Keywords: | production function, total factor productivity, financial crisis, capacity utilisation. |
| JEL: | E22 E23 E32 O4 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:468&r=mac |
| By: | Antoine Mandel (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Simone Landini (Socioeconomic Research Institute of Piedmont - Socioeconomic Research Institute of Piedmont); Mauro Gallegati (Università Politecnica delle Marche - UNIVPM); Herbert Gintis (Santa Fe Institute - Santa Fe Institute, Central European University - CEU - Central European University) |
| Abstract: | Within a standard framework à la Arrow-Debreu, we investigate the dynamics emerging from the interactions of heterogeneous households and firms that are adaptive price setters and financially constrained. We show that depending on the stringency of the financial constraints the model can settle in two very different regimes: one characterized by equilibrium, the other by disequilibrium and financial fragility. We then investigate how the structure of the production network affects the emergence of aggregate volatility from micro-level price and financial shocks, hence providing a dynamical counterpart to recent results of Acemoglu and al (2012). |
| Keywords: | Agent-based modeling; financial fragility; price dynamics; general equilibrium; production networks |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00917892&r=mac |
| By: | Dong He; Robert N McCauley |
| Abstract: | We review extant work on the transmission of monetary policy, both conventional and unconventional, of the major advanced economies to East Asia through monetary policy reactions, integrated bond markets and induced currency appreciation. We present new results on the growth of foreign currency credit, especially US dollar credit, as a transmission mechanism. Restrained growth of dollar credit in Korea contrasts with very rapid growth on the Chinese mainland and in Hong Kong SAR. |
| Keywords: | global liquidity, Taylor rule, monetary policy, bond markets, exchange rates, foreign currency debt, dollarisation, macroprudential policy, capital controls |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:431&r=mac |
| By: | Sonja Jovicic (Schumpeter School, University of Wuppertal); Ronald Schettkat (Schumpeter School, University of Wuppertal) |
| Abstract: | The rational expectations hypothesis (REH) is based on two assumptions. The first is that, economic agents learn through experience how to avoid systematic errors. The second is that these errors are identified with reference to a model. Imperfect information may lead economic agents to misperceive changes in nominal economic variables as real but they learn from their mistake, change their behavior and will not make the same mistake again. Therefore, relations estimated from historical data may not hold after economic agents learned about the effects of, say, expansionary macroeconomic policies (the Lucas critique). Repeating the policy will affect nominal variables (prices) but not the real economy (policy ineffectiveness hypothesis). Policy ineffectiveness is derived from models based on neoclassical micro-foundations, claimed to be the basis for rigorous science. In this paper we investigate the learning process rigorously. When pulled into employment by misperceived expansionary macroeconomic policy, what do workers actually learn? Do they actually experience the long-run solution of the neoclassical model? After the introduction we discuss learning in the context of rational expectations. We then analyze the workers’ experience and the learning process, strictly applying neoclassical micro-foundations. We focus on two inconsistencies. First, unless unearned income is indexed, inflation will unambiguously cause labor supply to expand. Second, employers will respond to the macroeconomic impulse –misperceived or not-- with capacity expansion rather than pure price reactions. We conclude that the predictions of the REH do not hold if neoclassical micro foundations are rigorously applied. |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:bwu:schdps:sdp13010&r=mac |
| By: | Yuliy Sannikov (Princeton University); Markus Brunnermeier (Princeton University) |
| Abstract: | This paper provides a theory of money, whose value depends on the functioning of the intermediary sector, and a unified framework for analyzing the interaction between price and financial stability. Households that happen to be productive in this period finance their capital purchases with credit from intermediaries. Less productive household save by holding deposits with intermediaries (inside money) or outside money. Intermediation involves risk-taking, and intermediaries' ability to lend is compromised when they suffer losses. After an adverse productivity shock, credit and inside money shrink, and the value of (outside) money increases, causing deflation that hurts borrowers. An accommodating monetary policy in downturns can mitigate these destabilizing adverse feedback eects. Lowering short-term interest rates increases the value of long-term bonds, recapitalizes the intermediaries by redistributes wealth. While this policy helps the economy ex-post, ex-ante it can lead to excessive risk-taking by the intermediary sector. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed013:620&r=mac |
| By: | Holmberg, Karolina (Monetary Policy Department, Central Bank of Sweden) |
| Abstract: | Using Swedish bank lending data, investment data and accounting data, I examine how the financial crisis affected corporate investment through its effect on credit availability. Sensitivity to a credit supply shock is measured as credit reserves, defined as unused credit on lines of credit. I find that firms with low credit reserves reduced investment significantly more than other firms. However, it is not possible to determine that this relationship was caused by a shift in the supply of credit. Overall, I find no statistically strong evidence that the decline in investment was exacerbated by a contraction in credit supply. |
| Keywords: | Corporate investment; Crisis; Financial Markets and the Macroeconomy; Lines of Credit |
| JEL: | E22 E44 G01 G31 G32 |
| Date: | 2013–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0281&r=mac |
| By: | Brian S. Ferguson (Department of Economics and Finance, University of Guelph) |
| Abstract: | Chapter 2 is one of the most important chapters in the General Theory. Not only does it set out Keynes’ disagreements with key elements of the classical model, it lays out his own model of the working of the labour market, which underlies the analysis in the remainder of the General Theory. The issue of how labour’s response to a change in its real wage differs depending on whether the change is driven by a change in the nominal wage or in the price of consumer goods plays a key part in the way Keynes’ theoretical model is developed here. This chapter introduces Keynes’ concept of involuntary unemployment and sets out his argument about the causal relation between the real wage and the level of unemployment, and about the consequent cyclicality of the real wage. Chapter 2 also includes Keynes’ discussion of Say’s Law. |
| Keywords: | Keynes, General Theory, Keynesian Economics, Classical Economics, Involuntary Unemployment, Real Wages, Labour Market Adjustment, Say’s Law. |
| JEL: | B10 B12 B13 B22 B31 E12 N12 N14 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:gue:guelph:2013-07&r=mac |
| By: | Cléaud, G.; Lemoine, M.; Pionnier, P.-A. |
| Abstract: | The importance of the stimulus packages that were injected in most advanced economies from the start of the financial crisis and the speed at which budgets are now being consolidated in Europe has revived the long-lasting debate on the size of fiscal multipliers. In this study, we focus on government expenditures on goods and services. Our conclusion following Blanchard and Perotti (2002) for the identification of government spending shocks is that the multiplier is significant and not far from 1 on impact and becomes statistically insignificant after about 3 years in France. We provide numerous robustness checks concerning the definition of expenditures, assumptions about data stationarity, the role of expectations and the choice of the sample. Moreover, using a time-varying SVAR model, our main findings are (1) that the multiplier did not evolve significantly at any horizon since the beginning of the 1980s and (2) that the variance of shocks hitting the economy evolves a lot more than the model autoregressive parameters. Even in alternative specifications where the Bayesian priors are pushed towards time-variation, the main evolution that we uncover is a (non-significant) decrease of the medium term expenditure multiplier, partly linked to a more aggressive monetary policy since the 1990s. We do not find evidence of an increase of the multiplier during every recession in France, contrary to the finding of Auerbach and Gorodnichenko (2012) for the United States. At least, business cycle conditions do not seem to be the main driver of the evolution of the expenditure multiplier in the last 30 years in France. |
| Keywords: | Government expenditure multiplier, Evolution, TV-SVAR. |
| JEL: | E62 C54 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:469&r=mac |
| By: | Dennis, Richard; Kirsanova, Tatiana |
| Abstract: | Discretionary policymakers cannot manage private-sector expectations and cannot coordinate the actions of future policymakers. As a consequence, expectations traps and coordination failures can occur and multiple equilibria can arise. To utilize the explanatory power of models with multiple equilibria it is first necessary to understand how an economy arrives to a particular equilibrium. In this paper we employ notions of learnability and self-enforceability to motivate and identify equilibria of particular interest. Central among these criteria are whether the equilibrium is learnable by private agents and jointly learnable by private agents and the policymaker. We use two New Keynesian policy models to identify the strategic interactions that give rise to multiple equilibria and to illustrate our methods for identifying equilibria of interest. Importantly, unless the Pareto-preferred equilibrium is learnable by private agents, we find little reason to expect coordination on that equilibrium. |
| Keywords: | Discretionary policymaking, multiple equilibria, coordination, equilibrium selection, |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:edn:sirdps:449&r=mac |
| By: | Franziska Bremus |
| Abstract: | Patterns in cross-border banking have changed since the global financial crisis. This may affect domestic bank market structures and macroeconomic stability in the longer term. In this study, I theoretically and empirically analyze how different modes of cross-border banking impact bank concentration. I use a two- country general equilibrium model with heterogeneous banks developed by De Blas and Russ (2010) to grasp the effect of cross-border lending and foreign direct investment in the banking sector on bank market structures. The model suggests that both cross-border lending and bank FDI mitigate concentration. Empirical evidence from a linked micro-macro panel dataset of 18 OECD countries supports the theoretical predictions: higher volumes of bank FDI and of cross-border lending coincide with lower Herfindahl-indexes in bank credit markets. |
| Keywords: | Cross-border lending, bank foreign direct investment, bank market concentration, net interest margins |
| JEL: | E44 F41 G21 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1344&r=mac |
| By: | Céspedes, Nikita (Banco Central de Reserva del Perú; PUCP); Kuklik, Michael (Long Island University) |
| Abstract: | The optimal capital income tax rate is 36 percent as reported by Conesa, Kitao, and Krueger (2009). This result is mainly driven by the market incompleteness as well as the endogenous labor supply in a life-cycle framework. We show that this model fails to account for the basic life-cycle features of the labor supply observed in the U.S. data. In this paper, we introduce into this model non-linear wages and inter-vivos transfers into this model in order to account for the life-cycle features of labor supply. The former makes hours of work highly persistent and helps to account for labor choices at the extensive margin over the life cycle. The latter allows us to account for labor choices early in life. The suggested model delivers an optimal capital income tax rate of 7.4 percent, which is significantly lower than what Conesa, Kitao, and Krueger (2009) found. |
| Keywords: | Labor supply, optimal taxation, capital taxation, non-linear wage, inter-vivos transfer |
| JEL: | E13 H21 H24 H25 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:rbp:wpaper:2013-020&r=mac |
| By: | Dennis, Richard |
| Abstract: | This paper studies the behavior of a central bank that seeks to conduct policy optimally while having imperfect credibility and harboring doubts about its model. Taking the Smets-Wouters model as the central bank.s approximating model, the paper's main findings are as follows. First, a central bank.s credibility can have large consequences for how policy responds to shocks. Second, central banks that have low credibility can bene.t from a desire for robustness because this desire motivates the central bank to follow through on policy announcements that would otherwise not be time-consistent. Third, even relatively small departures from perfect credibility can produce important declines in policy performance. Finally, as a technical contribution, the paper develops a numerical procedure to solve the decision-problem facing an imperfectly credible policymaker that seeks robustness. |
| Keywords: | Imperfect Credibility, Robust Policymaking, Time-consistency, |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:edn:sirdps:514&r=mac |
| By: | Ivan Savin (Faculty of Economics and Business Administration, Friedrich Schiller University Jena, and Chair for Econometrics and Statistics, Graduate School of Economics and Management, Ural Federal University); Dmitri Blueschke (University of Klagenfurt) |
| Abstract: | Policy makers constantly face optimal control problems: what controls allow to achieve certain targets in, e.g., GDP growth or inflation? Conventionally this is done by applying certain linear-quadratic optimization algorithms to dynamic econometric models. Several algorithms extend this baseline framework to nonlinear stochastic problems. However, those algorithms are limited in a variety of ways including, most importantly, restriction to local best solutions only and the symmetry of objective function. In Blueschke et al. (2013a) a new flexible optimization method based on Differential Evolution is suggested. It allows to lift these limitations and achieve better approximations of the policy targets, but is designed to deterministic problems only. This study extends the methodology by dealing with stochastic problems in two different ways: applying extreme event analysis and by minimizing the median objective value. Thus, this research is aimed to broaden the range of decision support information used by policy makers in choosing optimal strategy under much more realistic conditions. |
| Keywords: | Differential evolution, stochasticoptimization, optimal control |
| JEL: | C54 C61 E27 E61 E63 |
| Date: | 2013–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2013-051&r=mac |
| By: | Anghel, Brindusa (FEDEA, Madrid); de la Rica, Sara (University of the Basque Country); Lacuesta, Aitor (Bank of Spain) |
| Abstract: | This article analyzes changes in the occupational employment share in Spain for the period 1997-2012 and the way particular sociodemographic adapt to those changes. There seems to be clear evidence of employment polarization between 1997 and 2012 that accelerates over the recession. Changes in the composition of the labour supply cannot explain the increase in the share of occupations at the low end of the wage distribution. Sector reallocation might have partially contributed to explain the polarization process in Spain during the years of expansion (1997-2007) but it is a minor factor during the recession. The polarization of occupations within sectors observed especially during the recession appear to be related to a decline in routine tasks which is compensated by an increase in occupations with non-routine service contents, which are found both in the low and high end of the wage distribution. Instead, jobs intensive in abstract contents do not appear to increase their share in total employment during these 15 years. The paper finds that this process has affected males more strongly than females because of their higher concentration in occupations more intensive in routine tasks. Among males, for workers under 30 years we find a decrease in the share of occupations with more routine tasks which turns into increases in others with more abstract content and particularly with more non-routine service content. Instead, male workers over 30 years seem to remain in declining occupations to a greater extent. Females of different ages are not affected by the abovementioned changes. |
| Keywords: | routinization, job tasks, employment polarization, business cycle |
| JEL: | E24 J24 J62 O33 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7816&r=mac |
| By: | David Law (The Treasury) |
| Abstract: | This paper examines the implications for national savings of three retirement income policy options, designed to improve the fiscal sustainability of New Zealand Superannuation (NZS). A simple model is developed that employs population and longevity projections allowing estimation of the contributions that many overlapping age cohorts might make to national savings in response to policy change. Government contributions to national savings, resulting primarily from reduced NZS payments, are also considered. Results suggest that even seemingly modest changes to retirement income policies could lead to substantial cumulative changes in national savings by 2061. |
| Keywords: | National Savings; Household Saving; Fiscal Saving; Retirement Income; New Zealand Superannuation; New Zealand |
| JEL: | E21 D10 D91 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:nzt:nztwps:13/28&r=mac |
| By: | Milanovic, Branko |
| Abstract: | Thomas Piketty's "Capital in the 21st century" may be one of the most important recent economics books. It jointly treats theory of growth, functional distribution of income, and interpersonal income inequality. It envisages a future of relatively slow growth with the rising share of capital incomes, and widening income inequality. This tendency could be checked only by worldwide taxation of capital. |
| Keywords: | Income distribution, economic growth, taxation |
| JEL: | D31 D33 E2 E25 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:52384&r=mac |
| By: | Andrea Raffo (Board of Governors of the Federal Reserv); Andrea Ferrero (Federal Reserve Bank of New York); Gauti Eggertsson (Brown University) |
| Abstract: | Structural reforms that increase competition in product and labor markets may have large effects on the long-run level of output. We find that, in a medium scale DSGE model, a 10 percent reduction in product and labor markups increases output by nearly 7 percent after 5 years. The short-run transmission of these reforms, however, depends critically on the presence of the zero lower bound (ZLB). When monetary policy is at the ZLB, structural reforms may have perverse effects, as they increase deflationary pressures and delay the normalization of policy rates. Hence, contrary to conventional wisdom, we argue that labor market reforms should precede product market reforms. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed013:637&r=mac |
| By: | Kenneth N Kuttner; Ilhyock Shim |
| 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 housing-related 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 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:433&r=mac |
| By: | John Creedy; Norman Gemmell (The Treasury; Victoria University of Wellington) |
| Abstract: | This paper examines the extent to which projected aggregate tax revenue changes, in association with population ageing over the next 50 years, can be expected to finance expected increases in social welfare expenditures. It uses projections from two separate models, dealing with social expenditures and income tax and GST revenue. The results suggest that the modest increase required in the overall average tax rate over the next 50 years can be achieved automatically by adjusting income tax thresholds using an index of prices rather than wages. Based on evidence about the New Zealand tax system over the last 50 years, comparisons of average and marginal tax rates suggest that such an increase may be feasible and affordable. The paper discusses the range of considerations involved in deciding if this automatic increase in the aggregate average tax rate, via real fiscal drag of personal income taxes, is desirable compared with alternative fiscal policy changes. |
| Keywords: | Social welfare expenditures; income tax; GST; real fiscal drag; ageing population |
| JEL: | E62 H68 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:nzt:nztwps:13/22&r=mac |
| By: | Kristin Forbes; Marcel Fratzscher; Roland Straub |
| Abstract: | Are capital controls and macroprudential measures successful in achieving their objectives? Assessing their effectiveness is complicated by selection bias and endogeneity; countries which change their capital-flow management measures (CFMs) often share specific characteristics and are responding to changes in variables that the CFMs are intended to influence. This paper addresses these challenges by using a propensity-score matching methodology. We also create a new database with detailed information on weekly changes in controls on capital inflows, capital outflows, and macroprudential measures from 2009 to 2011 for 60 countries. Results show that macroprudential measures can significantly reduce some measures of financial fragility. Most CFMs do not significantly affect other key targets, however, such as exchange rates, capital flows, interest-rate differentials, inflation, equity indices, and different volatilities. One exception is that removing controls on capital outflows may reduce real exchange rate appreciation. Therefore, certain CFMs can be effective in accomplishing specific goals-but most popular measures are not "good for" accomplishing their stated aims. |
| Keywords: | capital controls, macroprudential measures, propensity-score matching, selection bias, capital flows, emerging markets |
| JEL: | F3 F4 F5 G0 G1 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1343&r=mac |
| By: | Eric Young (University of Virginia); Alessandro Rebucci (Inter-American Development Bank); Christopher Otrok (University of Missouri/St Louis Fed) |
| Abstract: | In the aftermath of the global financial crisis, a new policy paradigm has emerged in which old-fashioned policies such as capital controls and other government distortions have become part of the standard policy toolkit (the so-called macro-prudential policies). On the wave of this seemingly unanimous policy consensus, a new strand of theoretical literature contends that capital controls are welfare enhancing and can be justified rigorously because of second-best considerations. Within the same theoretical framework adopted in this fast-growing literature, we show that a credible commitment to support the exchange rate in crisis times always welfare-dominates prudential capital controls as it can achieve the unconstrained allocation. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed013:641&r=mac |
| By: | Leo Krippner |
| Abstract: | Faster extended Kalman filter estimations of zero lower bound models of the term structure are possible if the analytic properties of the Jacobian matrix for the measurement equation are exploited. I show that such results are straighforward to incorporate, at least in Monte-Carlo-based implementations, and that will facilitate fast and robust estimations of zero lower bound term structure models with the iterated extended Kalman filter. |
| Keywords: | Black framework, zero lower bound, shadow short rate, term structure model |
| JEL: | C18 E43 G12 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2013-77&r=mac |
| By: | Blake, Andrew P.; Kirsanova, Tatiana; Yates, Tony |
| Abstract: | This paper revisits the argument that the stabilisation bias that arises under discretionary monetary policy can be reduced if policy is delegated to a policymaker with redesigned objectives. We study four delegation schemes: price level targeting, interest rate smoothing, speed limits and straight conservatism. These can all increase social welfare in models with a unique discretionary equilibrium. We investigate how these schemes perform in a model with capital accumulation where uniqueness does not necessarily apply. We discuss how multiplicity arises and demonstrate that no delegation scheme is able to eliminate all potential bad equilibria. Price level targeting has two interesting features. It can create a new equilibrium that is welfare dominated, but it can also alter equilibrium stability properties and make coordination on the best equilibrium more likely. |
| Keywords: | Time Consistency, Discretion, Multiple Equilibria, Policy Delegation, |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:edn:sirdps:481&r=mac |
| By: | Andreas Karpf (Centre d'Economie de la Sorbonne - Paris School of Economics) |
| Abstract: | This article investigates whether the formation of individual inflation expectations is biased towards a consensus and is thus subject to some kind of herding behavior. Basing on the traditional Carlson-Parkin approach to quantify qualitative survey expectations and its extension by Kaiser and Spitz (2002) in an ordered probit context, a method to gain individual level inflation expectations is proposed using a Markov chain Monte Carlo Hierarchical Bayesian estimation method. This method is applied to micro survey data about inflation expectations of households from the monthly French household survey “Enquête mensuelle de conjoncture auprès des ménages - ECAMME ” (January 2004 to December 2012). Finally a modified version of the non-parametric test for herding behavior by Bernardt et al. (2006) is conducted on the cohort-level expectation estimates, showing that the expectation formation is not subject to a bias towards the consensus expectation. In contrast, it exhibits a strong anti-herding tendency which is consistent with the findings of other studies (Rülke and Tillmann, 2011). |
| Keywords: | Herd behavior, inflation, rational expectations. |
| JEL: | E31 E37 D12 D82 D84 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:13054r&r=mac |
| By: | Reinhold Heinlein; Hans-Martin Krolzig |
| Abstract: | We study the exchange rate effects of monetary policy in a balanced macroeconometric two-country model for the US and UK. In contrast to the empirical literature on the 'delayed overshooting puzzle', which consistently treats the domestic and foreign countries unequally in themodelling process, we consider the full model feedback, allowing for a thorough analysis of the system dynamics. The consequential inevitable problem of model dimensionality is tackled in this paper by invoking the approach by Aoki (1981) commonly used in economic theory. Assuming country symmetry in the long-run allows to decouple the two-country macro dynamics of country averages and country differences such that the cointegration analysis can be applied to much smaller systems. Secondly the econometric modelling is general-to-specific, a graph-theoretic approach for the contemporaneous effects combined with an automatic general-to-specific model selection. The resulting parsimonious structural vector equilibrium correction model ensures highly significant impulse responses, revealing a delayed overshooting of the exchange rate in the case of a Bank of England monetary shock but suggests an instantaneous response to a Fed shock. Altogether the response is more pronounced in the former case. |
| Keywords: | Two-country model; Cointegration; Structural VAR; Gets Model Selection; Monetary Policy; Exchange Rates |
| JEL: | C22 C32 C50 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1321&r=mac |
| By: | Julio Blanco (New York University); Isaac Baley (New York University) |
| Abstract: | Is monetary policy less effective in increasing real output during uncertain times? We argue that firm uncertainty adds flexibility to the aggregate price level and thus the effects of monetary policy are reduced in times of high uncertainty. To construct the argument we develop a price-setting model where firms have imperfect information about their nominal cost and must forecast it to set their prices. Our measure of uncertainty is firms' forecast variance and it is the result of an endogenous learning process. In normal times, the information friction delays the response of prices to a monetary shock and produces large and persistent real effects on output. In highly uncertain times, however, these real effects are reduced. The reason is that highly uncertain firms become more responsive to new information -which comes with noise- and adjust their prices more often. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed013:663&r=mac |
| By: | Brian S. Ferguson (Department of Economics and Finance, University of Guelph) |
| Abstract: | In Chapter 4 of the General Theory, Keynes discusses the units of measurement he will be using in the remainder of the book, in particular his reason for measuring in nominal rather than real terms, objection to aggregate measures of real output and physical capital stock, and his concept of wage units, which is a source of difficulty in following bits of the later exposition. Chapter 5 introduces expectations and discusses the role of short run expectations in determining the behavior of firms and of economic aggregates. |
| Keywords: | Keynes, General Theory, Keynesian Economics, Classical Economics, Wage Units, Labour Units, Short Run Expectations, Long Run Expectations, Economic Dynamics |
| JEL: | B10 B12 B13 B22 B31 E12 N12 N14 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:gue:guelph:2013-09&r=mac |
| By: | Jetter, Michael (Universidad EAFIT) |
| Abstract: | There exists a persistent disagreement in the literature over the effect of business cycles on economic growth. This paper offers a solution to this disagreement, suggesting that volatility carries a positive direct effect, but also a negative indirect effect, operating through the insurance mechanism of government size. Theoretically, the net growth effect of volatility is then ambiguous. The paper reveals the underlying endogeneity of government size in a balanced panel of 95 countries from 1961 - 2010. In practice, the negative indirect channel dominates in democracies, but with less power to choose public services in autocratic regimes the positive direct effect takes over. Consequently, volatile growth rates are detrimental to growth in democracies, but beneficial to growth in autocracies. The empirical results suggest that a one standard deviation increase of volatility lowers growth by up to 0.57 percentage points in a democracy, but raises growth by 1.74 percentage points in a total autocracy. These findings point to a crucial intermediating role of governments in the relationship between volatility and growth. Both the size of the public sector and the regime form assume key roles. |
| Keywords: | economic growth, volatility, business cycles, government size, regime form |
| JEL: | E32 H11 O43 P16 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7826&r=mac |
| By: | Duprey , T. |
| Abstract: | This paper is a first attempt to connect the heterogeneity in bank efficiency with lending fluctuations and allocation efficiency : there is a trade-off between the two in the presence of heterogeneity in bank monitoring efficiency. The mechanism at hand is twofold. (a) First the rent extracted by the most efficient bank distorts incentives of entrepreneurs to undertake efforts. (b) Second banks specialising on contracts that do not include monitoring feature less cyclical fluctuations of aggregate lending. This has clear implications: (i) the presence of banking heterogeneity decreases firms’ average productivity as it increases adverse selection by entrepreneurs as well as favours rent extractions by banks; (ii) an individual bank featuring a lower cyclicality signals a lower efficiency in its monitoring abilities; (iii) a heterogeneous banking system featuring a lower cyclicality of aggregate lending might not be desirable as it may come along with allocative and incentives distortions. |
| Keywords: | firms’ bankruptcy, economic crisis, survival, duration model. |
| JEL: | G21 E30 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:464&r=mac |
| By: | Florackis, Chris; Kontonikas, Alexandros; Kostakis, Alexandros |
| Abstract: | We develop an empirical framework that links micro-liquidity, macro-liquidity and stock prices. We provide evidence of a strong link between macro-liquidity shocks and the returns of UK stock portfolios constructed on the basis of micro-liquidity measures between 1999-2012. Specifically, macro-liquidity shocks, which are extracted on the meeting days of the Bank of England Monetary Policy Committee relative to market expectations embedded in 3-month LIBOR futures prices, are transmitted in a differential manner to the cross-section of liquidity-sorted portfolios, with liquid stocks playing the most active role. We also find that there is a significant increase in shares’ trading activity and a rather small increase in their trading cost on MPC meeting days. Finally, our results emphatically document that during the recent financial crisis the shocks-returns relationship has reversed its sign. Interest rate cuts during the crisis were perceived by market participants as a signal of deteriorating economic prospects and reinforced “flight to safety” trading. |
| Keywords: | Liquidity Shocks, Monetary Policy, Market Micro-Structure, Stock Returns, |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:edn:sirdps:485&r=mac |
| By: | Moore, John; Best, James A |
| Abstract: | This paper presents a model of a self-fulfilling price cycle in an asset market. Price oscillates deterministically even though the underlying environment is stationary. The mechanism that we uncover is driven by endogenous variation in the investment horizons of the different market participants, informed and uninformed. On even days, the price is high; on odd days it is low. On even days, informed traders are willing to jettison their good assets, knowing that they can buy them back the next day, when the price is low. The anticipated drop in price more than offsets any potential loss in dividend. Because of these asset sales, the informed build up their cash holdings. Understanding that the market is flooded with good assets, the uninformed traders are willing to pay a high price. But their investment horizon is longer than that of the informed traders: their intention is to hold the assets they purchase, not to resell. On odd days, the price is low because the uninformed recognise that the informed are using their cash holdings to cherry-pick good assets from the market. Now the uninformed, like the informed, are investing short-term. Rather than buy-and-hold as they do with assets purchased on even days, on odd days the uninformed are buying to sell. Notice that, at the root of the model, there lies a credit constraint. Although the informed are flush with cash on odd days, they are not deep pockets. On each cherry that they pick out of the market, they earn a high return: buying cheap, selling dear. However they don't have enough cash to strip the market of cherries and thereby bid the price up. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:edn:sirdps:495&r=mac |
| By: | Berthold, Norbert; Gründler, Klaus |
| Abstract: | This paper explores the determinants of stagflation. Three measures are proposed that gauge both the occurrence and the strength of stagflation. We investigate the empirical determinants of these measures, accounting for a range of theoretical hypotheses that have been discussed since the mid-1970s. The results confirm the ambiguity in the influence of oil, although we find clear evidence that adverse supply-shocks enhance the probability and the magnitude of stagflation. However, while stagflation was oil-induced during the 1970s and 1980s, its occurrence in recent decades is strongly affected by monetary policy and labor productivity, indicating a paradigm shift in policy implications. The inevitable policy dilemma, suggested by the empirical persistence of stagflation, may thus be vincible. Yet, while stagflation was more severe during the 1970s and the 1980s, the likelihood of its recurrence turns out to be higher than often thought. -- |
| Keywords: | Stagflation |
| JEL: | E30 O40 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wuewwb:117r&r=mac |
| By: | Menzie D Chinn |
| Abstract: | I discuss how the unconventional monetary policy measures implemented over the past several years – quantitative and credit easing, and forward guidance – can be analysed in the context of conventional models of asset prices, with particular reference to exchange rates. I then discuss alternative approaches to interpreting the effects of such policies, and review the empirical evidence. Finally, I examine the ramifications for thinking about the impact on exchange rates and asset prices of emerging market economies. I conclude that although the implementation of unconventional monetary policy measures may introduce more volatility into global markets, in general it will support global rebalancing by encouraging the revaluation of emerging market currencies. |
| Keywords: | Balance sheet, money supply, portfolio balance, forward guidance, yield curve, spreads, signaling, capital flows, rebalancing |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:436&r=mac |
| By: | Stéphane Auray (CREST-ENSAI); David L. Fuller (Concordia University); damba Lkhagvasuren (Concordia University) |
| Abstract: | In the US unemployment insurance (UI) system, only a fraction of those eligible for benefits actually collect them. We estimate this fraction using CPS data and detailed state-level eligibility criteria. It averaged 77% from 1989 - 2012 and is negatively correlated with the unemployment rate. These empirical facts are explained in an equilibrium search model where firms finance UI benefits and are heterogeneous with respect to their specific tax rate, which is experience rated. In equilibrium, low tax firms effectively offer workers an alternative UI scheme featuring a faster job arrival rate and a higher wage offer. Some eligible workers prefer the “market" scheme and thus do not collect UI. The model captures the negative correlation between the take-up and unemployment rate. If all eligible unemployed collect, benefit expenditures increase by 16% and welfare increases. Average search effort decreases, but the unemployment rate and duration decrease as vacancy creation increases |
| Keywords: | Unemployment insurance, Take-up, Matching frictions, Search |
| JEL: | E61 J32 J64 J65 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:crs:wpaper:2013-12&r=mac |
| By: | Chatterji, S.; Ghosal, S. |
| Abstract: | Bank crises, by interrupting liquidity provision, have been viewed as resulting in welfare losses. In a model of banking with moral hazard, we show that second best bank contracts that improve on autarky ex ante require costly crises to occur with positive probability at the interim stage. When bank payoffs are partially appropriable, either directly via imposition of fines or indirectly by the use of bank equity as a collateral, we argue that an appropriately designed ex-ante regime of policy intervention involving conditional monitoring can prevent bank crises. |
| Keywords: | bank runs, contagion, moral hazard, liquidity, random, contracts, monitoring, |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:edn:sirdps:521&r=mac |
| By: | Daisuke Ikeda; Toan Phan |
| Abstract: | We introduce asymmetry in financial frictions into a two-country growth model with overlapping generations, by assuming that the South faces more severe financial frictions than the North. We show that this asymmetry causes capital to flow upstream from South to North, thus explaining the so called global imbalances. More importantly, we show that capital inflows from the South enable a rational bubble to emerge in the North, despite that a Northern bubble could never emerge if the North were a closed economy. Furthermore, the bubble is inefficient as it crowds out global investment in Northern capital, and the bubble reduces steady state welfare in both North and South. Our model formalizes the idea that a “savings glut†flowing from financially underdeveloped emerging economies into the U.S. fueled the boom of a subprime mortgage bubble in the 2000s. |
| Keywords: | inefficient rational bubble; financial friction; global imbalances. |
| JEL: | F32 F41 F44 |
| Date: | 2013–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:41&r=mac |
| By: | Canova, F.; Ferroni, F.; Matthes, C. |
| Abstract: | We propose two methods to choose the variables to be used in the estimation of the structural parameters of a singular DSGE model. The first selects the vector of observables that optimizes parameter identification; the second the vector that minimizes the informational discrepancy between the singular and non-singular model. An application to a standard model is discussed and the estimation properties of different setups compared. Practical suggestions for applied researchers are provided. |
| Keywords: | ABCD representation, Identification, Density ratio, DSGE models. |
| JEL: | C10 E27 E32 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:461&r=mac |
| By: | Matthes, Jürgen |
| Abstract: | Die Gesundung der griechischen Wirtschaft ist eine Langfristaufgabe für sicherlich eine Dekade. In dieser Hinsicht birgt die Tatsache, dass das Gros der griechischen Schulden in der Hand der Eurostaaten (und des IWF) liegt, nicht nur erhebliche Risiken, sondern eröffnet auch Gestaltungsmöglichkeiten. Durch Zinssenkungen- und - stundungen sowie Laufzeitverlängerungen für die Euro-Hilfskredite kann versucht werden, Griechenlands langen Weg zurück zu Wachstum und finanzieller Eigenständigkeit zu ebnen. Die Zins- und Tilgungserleichterungen durch die Eurostaaten, so wird zuweilen behauptet, seien bereits de facto ein Schuldenschnitt zum Schaden der europäischen Steuerzahler. Diese These ist jedoch fragwürdig, denn die Eurostaaten beabsichtigen mit den Hilfskrediten keinen Gewinn zu machen, und Verluste sind durch Zinsaufschläge und andere Vorkehrungen bislang vermieden worden. Auch die Tragfähigkeit der griechischen Staatsschulden lässt sich differenziert betrachten. So ist die Zinsbelastung des griechischen Staatshaushalts im Verhältnis zur Wirtschaftsleistung trotz der hohen Staatsschulden relativ gering, was die Schulden aus dieser Sicht vorläufig tragfähig erscheinen lässt. Zudem dürfte der staatliche Schuldenstand bald nach und nach sinken. Doch ein hinreichender Schuldenrückgang wird nur gelingen, wenn die griechische Regierung konsequent die fiskalischen Haushaltsziele einhält. In Jahr 2013 wird dies wohl erstmals gelingen, indem Griechenland sogar einen leichten Primärüberschuss erzielt. Die Hilfsprogrammziele müssen auch in Zukunft erreicht werden, und eine klare Bekenntnis zum weiteren Reformkurs ist nötig. Nur so kann Griechenland die nötige Glaubwürdigkeit zurückgewinnen, um mittelfristig wieder finanziell auf eigenen Füßen zu stehen und in der langen Frist seine Schulden zu begleichen. -- |
| Keywords: | Europäische Union,Europäische Währungsunion,Staatsverschuldung |
| JEL: | O52 E62 F55 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwkpps:212013&r=mac |
| By: | Nedergaard, Peter |
| Abstract: | How can one study the ideational influence of ordoliberalism on European integration processes? This is the overarching question answered in this paper where I propose a refined methodology, taking into account that the influence of ordoliberalism can vary over time and, more importantly, that its influence has to be measured on the backdrop of a detailed specification of the characteristics of ordoliberalism itself compared to the strongest ideational alternatives. I have carefully identified these alternatives as interventionism (competition policy), laissez-faire liberalism (competition policy), and Keynesianism (economic and monetary policy). I show the usability of my framework; however, I also point to the fact that more analyses are needed, especially where traces of ordoliberal influence does not seem likely to find. |
| Keywords: | political economy, Europe, ordoliberalism, competition policy, economic policy |
| JEL: | B59 E61 G18 P16 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:52331&r=mac |
| By: | Brian S. Ferguson (Department of Economics and Finance, University of Guelph) |
| Abstract: | Chapter Six and its Appendix deal in some detail with the way Keynes is defining income, savings and investment in the General Theory while the appendix to Chapter 6 goes into detail on user cost. His concept of user cost at one point sparked a certain amount of controversy among Keynesians but has since virtually been forgotten. It is of interest to us because user cost is the place where Keynes sees firms taking account of the future consequences of their current production decisions. The General Theory is a theory of the short run, but firms’ cost curves, which are key to many short run decisions, contain a forward looking element. Chapter 7 returns to the concepts of saving and investment, relates Keynes’ definitions to those used by others (including his own from the Treatise) and relates aggregate investment, which refers to additions to physical capital stock, to the way the term is often used at the micro level, in the sense of investment in financial assets. |
| Keywords: | Keynes, General Theory, Keynesian Economics, Savings, Investment, User Cost, Prime Costs, Keynes’ Abominable Footnote, Keynes’ Slip of the Pen. |
| JEL: | B10 B12 B13 B22 B31 E12 N12 N14 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:gue:guelph:2013-10&r=mac |
| By: | Filipe R. Campante; David H. Yanagizawa-Drott |
| Abstract: | We study the economic effects of religious practices in the context of the observance of Ramadan fasting, one of the central tenets of Islam. To establish causality, we exploit variation in the length of the fasting period due to the rotating Islamic calendar. We report two key, quantitatively meaningful results: 1) longer Ramadan fasting has a negative effect on output growth in Muslim countries, and 2) it increases subjective well-being among Muslims. We then examine labor market outcomes, and find that these results cannot be primarily explained by a direct reduction in labor productivity due to fasting. Instead, the evidence indicates that Ramadan affects Muslims' relative preferences regarding work and religiosity, suggesting that the mechanism operates at least partly by changing beliefs and values that influence labor supply and occupational choices beyond the month of Ramadan itself. Together, our results indicate that religious practices can affect labor supply choices in ways that have negative implications for economic performance, but that nevertheless increase subjective well-being among followers. |
| JEL: | E20 J20 O40 O43 Z12 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19768&r=mac |
| By: | Wolfgang Lechthaler; Mariya Mileva |
| Abstract: | We develop a dynamic general equilibrium trade model with comparative advantage, heterogeneous firms, heterogeneous workers and endogenous firm entry to study wage inequality during the adjustment after trade liberalization. We find that trade liberalization increases wage inequality both in the short run and in the long run. In the short run, wage inequality is mainly driven by an increase in inter-sectoral wage inequality, while in the medium to long run, wage inequality is driven by an increase in the skill premium. Incorporating worker training in the model considerably reduces the effects of trade liberalization on wage inequality. The effects on wage inequality are much more adverse when trade liberalization is unilateral instead of bilateral or restricted to specific sectors instead of including all sectors |
| Keywords: | trade liberalization; wage inequality; adjustment dynamics |
| JEL: | E24 F11 F16 J62 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1886&r=mac |
| By: | Marco Terrones (International Monetary Fund); Enrique Mendoza (University of Pennsylvania) |
| Abstract: | What are the stylized facts that characterize the dynamics of credit booms and the associated fluctuations in macro-economic aggregates? This paper answers this question by applying a method proposed in our earlier work for measuring and identifying credit booms to data for 61 emerging and industrial countries over the 1960-2010 period. We identify 70 credit boom events, half of them in each group of countries. Event analysis shows a systematic relationship between credit booms and a boom-bust cycle in production and absorption, asset prices, real exchange rates, capital inflows, and external deficits. Credit booms are synchronized internationally and show three striking similarities in industrial and emerging economies: (1) credit booms are similar in duration and magnitude, normalized by the cyclical variability of credit; (2) banking crises, currency crises or Sudden Stops often follow credit booms, and they do so at similar frequencies in industrial and emerging economies; and (3) credit booms often follow surges in capital inflows, TFP gains, and financial reforms, and are far more common with managed than flexible exchange rates. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed013:649&r=mac |
| By: | Georgy Idrisov (Gaidar Institute for Economic Policy); Sergey Sinelnikov-Murylev (Gaidar Institute for Economic Policy) |
| Abstract: | This article examines the relationship between government budgetary policy and the pursuit of accelerated economic growth. The authors review the academic debate over long-term economic growth and associated short-term fluctuations and conclude that Russian budgetary intended to smooth fluctuations in economic activity are of limited effect and that there are no opportunities for increasing public expenditure in the medium and long-term. For these reasons, the structure of expenditures must be changed and budgetary institutions must be transformed with a view to creating the preconditions for economic growth in the long-term. |
| Keywords: | economic growth, budgetary policy, government expenditure. |
| JEL: | O23 O4 H5 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:gai:wpaper:0076&r=mac |
| By: | Ncube, Mthuli; Brixiova Zuzana |
| Abstract: | This paper examines macroeconomic trends, drivers and impact of remittances in Africa. First, it documents the increasing share of remittances relative to other foreign capital flows to Africa, distribution of remittance inflows across countries, and some key properties. This is followed by some analysis of the macroeconomic drivers of remittances in recipient countries, such as the level of income, inflation and nominal exchange rate depreciation. Specifically, remittances are positively impacted by higher income, but deterred by an unstable macroeconomic environment, pointing to the investment motive in remitting to Africa. The paper also examines the role of remittances in funding Africa’s external balances. Finally, drawing on the case of Egypt, the paper shows the positive impact that rising remittances can have on public debt sustainability. |
| Date: | 2013–12–19 |
| URL: | http://d.repec.org/n?u=RePEc:adb:adbwps:996&r=mac |
| By: | Strulik, Holger |
| Abstract: | This paper integrates imperfect self-control into the standard model of endogenous growth. Individuals are conceptualized as dual-selves consisting of a long-run planner and a short-run doer. The long-run self can partly control the short-run self´s strife for immediate gratification. It is shown that the solution is structurally equivalent to the one of the standard endogenous growth model as long as self-control is sufficiently strong. Within a certain range of self-control an investment subsidy can be useful in order to reduce consumption and to increase investment, growth, and welfare of the long-run self. A consumption tax, perhaps surprisingly, is counterproductive. It induces individuals with limited self-control to consume even more. -- |
| Keywords: | temptation,self-control,consumption,investment,endogenous growth |
| JEL: | D91 E21 O40 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cegedp:181&r=mac |
| By: | Markus Eberhardt (School of Economics, University of Nottingham, UK, Centre for the Study of African Economies, Department of Economics, University of Oxford, UK); Andrea Filippo Presbitero (International Monetary Fund, Universit… Politecnica delle Marche - MoFiR) |
| Abstract: | We study the long-run relationship between public debt and growth in a large panel of countries. Our analysis takes particular note of theoretical arguments and data considerations in modelling the debt-growth relationship as heterogeneous across countries. We investigate the issue of nonlinearities ('debt thresholds') in both the cross-country and within-country dimensions, employing novel methods and diagnostics from the time-series literature adapted for use in the panel. We find some support for a nonlinear relationship between debt and long-run growth across countries, but no evidence for a common debt threshold within countries over time. |
| Keywords: | common factor model, economic growth, nonlinearity, public debt |
| JEL: | C23 E62 F34 O11 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wmofir:92&r=mac |
| By: | Paul H. Kupiec (American Enterprise Institute); Claire Rosenfeld; Yan Lee |
| Abstract: | New bank regulations include macroprudential policies to control bank loan growth. We find bank funding costs and supervisory monitoring intensity to be the most important determinants of loan growth followed by loan portfolio performance and bank profitability. Bank capital and liquidity ratios have limited impacts, suggesting that macroprudential regulations are unlikely to be effective.� |
| Keywords: | AEI Economic Policy Working Paper Series |
| JEL: | A G |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:aei:rpaper:39737&r=mac |
| By: | Herr, Hansjörg; Zeynep, Sonat M. |
| Abstract: | After the 2001 crisis, Turkey continued to pursue a radical market-oriented reform strategy that followed the philosophy of the Washington Consensus. By the early 2000s the government had already liberalised the capital account, privatised many banks and enterprises, and kick-started the processes of financialisation. The government had also withdrawn from redistribution and social justice policies. Gross domestic product (GDP) growth in the post-2001 period was relatively high, but it was a “jobless” growth caused by substantial productivity increases generated largely by intensifying the work process rather than by technological advancements. Today, Turkey is still characterised as a country with very high income inequality. The economic growth in the post-2001 period benefited the society very unequally. This type of growth regime harbours great economic risks and is socially unjust. The development of Turkey is vulnerable thanks to the high current account deficit, high currency mismatch particularly in the enterprise sector, high income inequality, high unemployment, and an unsatisfactory development of the industrial sector despite some limited successes. We recommend a new development regime with selective capital controls, a balanced current account, an active industrial policy by the government, stronger unions and employer associations combined with coordinated wage bargaining on the sectoral level, and, last but not least, redistributive policies aiming to achieve a more equal income distribution. -- |
| JEL: | E02 O11 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:88606&r=mac |
| By: | Caroline Klein; Isabell Koske |
| Abstract: | This paper aims at identifying which countries and regions in the world might face structural overcapacities or capacity shortfalls in the automobile industry in the near future. It discusses the main forces that are likely to shape car demand over the next several years, including GDP growth, oil prices and competitiveness. It also presents projections for car sales and production in 56 OECD and non-OECD countries, distinguishing between temporary developments related to the cycle and more persistent patterns. The paper shows that most countries might need to build capacity in the medium run, with major differences across regions though. A comparison of projected production levels in 2020 (between 125 and 130 million cars worldwide) with actual capacity in 2012 indicates that additional production capacity of around 35 to 40 million cars needs to be built over the next eight years. The countries with the biggest projected need to expand capacity over the projection period are India and China. While car demand may be sufficient to clear excess capacities in Europe as a whole in the medium run, overcapacity may persist in a few countries, in particular Italy and France. Reducing overcapacity in these countries might be difficult without substantial improvements in competitiveness. Besoin de capacités dans l'industrie automobile à court et moyen terme Ce document vise à identifier les pays dans lesquels des surplus ou des besoins de capacité dans le secteur automobile pourraient se matérialiser dans un avenir proche. Il discute les principales forces qui sont susceptibles d’influencer la demande de voitures au cours des prochaines années, notamment la croissance du PIB, les prix du pétrole et la compétitivité. Il présente également des projections pour les ventes et la production automobiles dans 56 pays de l'OCDE et non-OCDE, en distinguant les évolutions temporaires liées au cycle et les tendances plus persistantes. L'étude montre que la plupart des pays de l'OCDE pourraient avoir besoin de renforcer leurs capacités à moyen terme, avec toutefois d’importantes différences entre les régions. Une comparaison des niveaux de production projetés en 2020 (entre 125 et 130 millions de voitures dans le monde) avec la capacité observée en 2012 indique que les capacités de production devraient être accrues d'environ 35 à 40 millions au cours des huit prochaines années. Les pays ayant les plus grands besoins d’expansion sur la période de projection sont l'Inde et la Chine. Alors qu’à moyen terme la demande automobile pourrait suffire à absorber les capacités excédentaires de l’Europe dans son ensemble, des problèmes de surcapacité pourraient persister dans quelques pays, en particulier en Italie et en France. Réduire les surcapacités dans ces pays pourrait être difficile sans amélioration substantielle de la compétitivité. |
| Keywords: | automobile industry, overcapacity, medium-run projections, car sales, projections de moyen terme, ventes de voitures, industrie automobile, surcapacité |
| JEL: | E21 L62 |
| Date: | 2013–11–26 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1097-en&r=mac |
| By: | Ward-Warmedinger, Melanie E. (European Central Bank); Macchiarelli, Corrado (London School of Economics) |
| Abstract: | This paper presents information on labour market mobility in 23 EU countries, using Eurostat's Labour Force Survey (LFS) data over the period 1998-2008. More specifically, it discusses alternative measures of labour market churning; including the ease with which individuals can move between employment, unemployment and inactivity over time. The results suggest that the probability of remaining in the same labour market status between two consecutive periods is high for all countries. Nonetheless, transitions from unemployment and inactivity back into the labour market are relatively weak in the euro area and central eastern European EU (CEE EU) countries compared to Denmark and, particularly, Sweden. Moreover, comparisons of transition probabilities over time suggest that – until the onset of the financial crisis – the probability of remaining in unemployment over two consecutive periods decreased in Sweden, the euro area, and, to a lesser extent, Denmark, while it increased in the average CEE EU countries. At the same time, however, successful labour market entries (from outside the labour market) increased in the average CEE EU countries, Denmark and Sweden. On the basis of an index for labour markets turnover used in the paper (Shorrocks, 1987), labour markets in Spain, Luxemburg, the Netherlands, Denmark and Sweden are the most mobile on average, with these results mainly reflecting higher mobility of people below the age of 29, highly educated and female workers. We also find that mobility of all worker groups has generally increased over time in the euro area, Denmark and Sweden. Finally, we ask whether some of the observed changes in mobility can be broadly restraint to some "macro" explanatory factors, including part time and temporary employment, unemployment and structure indicators. The results provide a mixed picture, suggesting that the sense of mobility strongly varies across countries. |
| Keywords: | transition probabilities, labour market mobility, LFS micro data, EU countries |
| JEL: | J21 J60 J82 E24 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7814&r=mac |
| By: | Emanuele Brancati (University of Rome Tor Vergata) |
| Abstract: | This paper takes advantage of the Italian experience during the Lehman crisis to test the effects of a banking shock on the real decisions of client firms. Italy is an ideal laboratory because of the structure of its industrial system, mainly composed by small firms, that make large use of (short-term) bank debt and have no access to alternative sources of finance. Moreover, the financial crisis represented an unexpected event that was largely exogenous to the financial position of both Italian banks and firms. This provides a quasi-natural experiment to study the effect of supply shocks on the real economy. The analysis is performed exploiting the information on the lender-borrower relationship from a newly available survey on a representative sample of small and medium enterprises. The magnitude of the shock is modeled with bank pre-crisis exposures to Dollar-denominated assets and liabilities, then interacted with time-varying market measures on the riskiness of the U.S. system (CDS spreads). After controlling for demand conditions I find robust evidence that banks' exposures to Dollar-denominated items affect the investment rate, the amount of borrowing, and the probability of financial constraints of their client firms. The mechanism of transmission is characterized by a flight to quality, with a redistribution of loans away from riskier borrowers. Furthermore, the effects are stronger for firms that borrow from undercapitalized and illiquid banks or financial institutions that depend more upon bank-based sources of finance. |
| Keywords: | Financial crises, banks, lending, investment, flight to quality, financial constraints |
| JEL: | E22 G01 G21 |
| Date: | 2013–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:302&r=mac |
| By: | Francis X. Diebold (Department of Economics, University of Pennsylvania); Kamil Yilmaz (Department of Economics, Koc University) |
| Abstract: | Using a connectedness-measurement technology fundamentally grounded in modern network theory, we measure real output connectedness for a set of six developed countries, 1962-2010. We show that global connectedness is sizable and time-varying over the business cycle, and we study the nature of the time variation relative to the ongoing discussion about the changing nature of the global business cycle. We also show that connectedness corresponding to transmissions to others from the United States and Japan is disproportionately important. |
| Keywords: | Synchronization, coupling, de-coupling, network, G-7, real activity, industrial production, globalization |
| JEL: | E01 F42 F44 |
| Date: | 2013–12–17 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:13-070&r=mac |
| By: | Walmsley, Terrie; Peter Minor |
| Abstract: | The GTAP standard model has proved a useful analysis tool and data source for over 20 years. The GTAP model has been updated overtime, but it maintains the structure of a single regional household, with income distributed into three components: government, private and savings-investment expenditures. There has been a need for a more detailed accounting system, especially as it relates to estimating the potential impacts of policies and global shocks on poverty, sustainable and inclusive growth. This paper presents an extension to the GTAP model and its accounting framework to implement distinct and multiple households, split factors of production, foreign aid and remittances, government and household transfer. The model and associated accounting links a household’s expenditure to factor incomes (through ownership shares) and taxes. Government expenditure is linked to taxes and foreign aid. The MyGTAP model provides the user more flexibility in: the treatment of government and household savings and spending; the selection of a linear expenditure systems (LES) or a constant difference of elasticities (CDE) demand function\s. The model is incorporated into a RunGTAP application which supports many of RunGTAP’s popular programs such as alter-tax, GTAPview and others. The introduction of a split regional household (which does not require splitting data for every region) supports economic analysis based on detailed households, government, factor income, remittances, foreign aid and income transfers. The code can be modified to include multiple regions with unique household structures. This paper documents the model and accounting framework for the use of data output from the MyGTAP data splitting program. It is intended to be used in tandem with a complimentary paper and programs found in:"MyGTAP Data Program: A Program for Customizing and Extending the GTAP Database", GTAP Working Paper No. 79, by Minor, Peter and Terrie Wamsley 2013. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:gta:workpp:4320&r=mac |
| By: | Dreger, Christian; Wang, Tongsan; Zhang, Yanqun |
| Abstract: | The Chinese growth miracle was based on exports and investment in recent years. While strong output growth has been maintained even during the financial crisis, the imbalances within the country increased. To return to a more sustainable path of development, policies are directed to improve the role of private consumption. However, the institutional framework is an impediment to the transformation, as it weakens the incentives of households to consume. Besides a low degree of social security and highly regulated financial markets, we stress the relevance of the hukou system as the main driver for modest consumption, especially in recent years. After controlling for different income levels, the average propensity to consume is significantly lower for migrants, as their access to public services is limited. The downward pressure on consumption will increase in the future. The urbanization strategy of the government will likely raise the number of migrants with limited hukou rights, if it is not accompanied by respective reforms. Therefore, the transformation towards consumption driven growth is endangered without further reforms. -- |
| Keywords: | Chinese private consumption,urbanization strategy,hukou system |
| JEL: | E21 O15 R23 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:euvwdp:343&r=mac |
| By: | Jesús Fernández-Villaverde; Pablo Guerrón-Quintana; Juan Rubio-Ramirez |
| Abstract: | We propose a novel method to estimate dynamic equilibrium models with stochastic volatility. First, we characterize the properties of the solution to this class of models. Second, we take advantage of the results about the structure of the solution to build a sequential Monte Carlo algorithm to evaluate the likelihood function of the model. The approach, which exploits the profusion of shocks in stochastic volatility models, is versatile and computationally tractable even in large-scale models, such as those often employed by policy-making institutions. As an application, we use our algorithm and Bayesian methods to estimate a business cycle model of the U.S. economy with both stochastic volatility and parameter drifting in monetary policy. Our application shows the importance of stochastic volatility in accounting for the dynamics of the data. |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:fda:fdaddt:2013-23&r=mac |
| By: | Jeremy Lise; Costas Meghir (UCL Department of Economics); Jean-Marc Robin (Département d'économie) |
| Abstract: | We develop an empirical search-matching model with productivity shocks so as to analyze policy interventions in a labor market with heterogeneous agents. To achieve this we develop an equilibrium model of wage determination and employment, which is consistent with key empirical facts. As such our model extends the current literature on equilibrium wage determination with matching and provides a bridge between some of the most prominent macro models and microeconometric research. The model incorporates long-term contracts, on-the-job search and counter-offers, and a vacancy creation and destruction process linked to productivity shocks. Importantly, the model allows for the possibility of assortative matching between workers and jobs, a feature that had been ruled out by assumption in the empirical equilibrium search literature to date. We use the model to estimate the potential gain from an optimal unemployment insurance scheme, as well as the redistributive effects of such a policy |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/6ggbvnr6munghes9od0s108ro&r=mac |
| By: | David Yermack |
| Abstract: | Motivated by Bitcoin’s rapid appreciation in recent weeks, I examine its historical trading behavior to see whether it behaves like a traditional sovereign currency. Bitcoin has exchange rate volatility an order of magnitude higher than the volatilities of widely used currencies, undermining Bitcoin’s usefulness as a unit of account or a store of value. Bitcoin’s daily exchange rates exhibit virtually zero correlation with bona fide currencies, making Bitcoin useless for risk management purposes and exceedingly difficult for its owners to hedge. Bitcoin also lacks access to a banking system with deposit insurance, and it is not used to denominate consumer credit or loan contracts. Bitcoin appears to behave more like a speculative investment than like a currency. |
| JEL: | E42 G23 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19747&r=mac |
| By: | Ardjan Gazheli; Miklós Antal; Ben Drake; Tim Jackson; Sigrid Stagl; Jeroen van den Bergh; Manuel Wäckerle |
| Abstract: | This short paper considers all possible stakeholders in different stages of a sustainability transition and matches their behavioral features and diversity to policies. This will involve an assessment of potential or expected responses of stakeholders to a range of policy instruments. Following the Multi-Level Perspective framework to conceptualize sustainability transitions, we classify the various transition policies at niche, regime and landscape levels. Next, we offer a complementary classification of policies based on a distinction between social preferences and bounded rationality. The paper identifies many barriers to making a sustainability transition and how to respond to them. In addition, lessons are drawn from the case of Denmark. The detailed framework and associated literature for the analysis was discussed in Milestone 31 of the WWWforEurope project (Gazheli et al., 2012). |
| Keywords: | Behavioural economics, beyond GDP, ecological innovation, economic strategy, entrepreneurship, European economic policy, European governance, good governance, industrial innovation, industrial policy, innovation, innovation policy, multi-level governance, policy options, political economy of policy reform, social innovation, socio-ecological transition |
| JEL: | D1 D2 D7 D8 E6 H2 L2 L5 O2 Q5 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:feu:wfewop:y:2013:m:12:d:0:i:48&r=mac |
| By: | Nakamura , Yasushi (BOFIT) |
| Abstract: | This study uses newly available data in a quantitative examination of the relationship between Soviet special foreign trade earnings (SFEs) and changes in the money supply. During the Soviet era, SFEs were effectively taxes on imports and exports. They generated as much as 7–15% of state budget revenues in the 1970s and 1980s. The results show that changes in net foreign assets and the money supply accounted for around 10% of SFEs. The remaining 90% of SFEs involve redistribution of existing domestic funds within a constellation of government agencies and state-owned enterprises. The lack of data precluded further exploration of this redistribution. |
| Keywords: | Soviet; foreign trade; money; state budget; flow of funds |
| JEL: | E66 N14 P33 P34 |
| Date: | 2013–12–16 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2013_030&r=mac |
| By: | Irac, D.; Lopez, J. |
| Abstract: | This paper proposes a classification of the old member countries of the euro area in a structural data rich environment and run a convergence analysis using the same framework. First, we use a clustering approach and identify two structurally distinct groups of countries that are not modified between 1995 and 2007: the South Countries Group (SCG) – composed of Greece, Italy, Portugal and Spain – and the Other Countries Group (OCG). Second, we propose a convergence metrics and reach three key findings: (i) increase over time of the between-group dispersion; (ii) diverging demographics and innovation performance into the OCG, and (iii) an unfortunate convergence towards high labour market duality in the SCG. |
| Keywords: | Cluster Analysis, European Monetary Union, Structural Policies. |
| JEL: | C38 E02 F33 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:470&r=mac |
| By: | Guglielmo Maria Caporale; Luis A. Gil-Alana; Yuliya Lovcha |
| Abstract: | This paper investigates the empirical relevance of different unemployment theories in three major economies, namely the UK, the US and Japan, by estimating the degree of dependence in the unemployment series. Both univariate and multivariate long memory methods are used. The results vary depending on whether the former or the latter approach is followed. Specifically, when taking a univariate approach, the unit root null cannot be rejected in case of the UK and Japanese unemployment series, and some degree of mean reversion (d |
| Keywords: | Unemployment rate, Multivariate long memory, Fractional integration |
| JEL: | C22 C32 E24 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1345&r=mac |
| By: | Clara Capelli (Department of Economics and Management, University of Pavia); Gianni Vaggi (Department of Economics and Management, University of Pavia) |
| Abstract: | Measuring the standards of living is a fundamental concern in economics and particularly in the eld of development. Gross Domestic Product (GDP) is the most widely accepted measure for a country's economic size and performance, but in recent years the Gross National Income (GNI) has gained greater importance as a better measure for the monetary resources actually available to those who live in a country. However, this paper shows that - especially in developing countries - GNI is not the best indicator for people's living standards, as it does not record the so-called unilateral transfers (foreign aid and workers' remittances among others) and, therefore, the secondary distribution of income that takes place worldwide. In the last decades unilateral transfers - and most importantly workers' remittances - have been among the largest types of income ows entering developing countries thanks to the remarkable increase in the mobility of people. This has had a signicant impact on these populations' purchasing power that cannot be neglected. Hence, the Gross National Disposable Income (GNDI), which includes both net factor income (captured by the GNI) and unilateral transfers, is to be considered a better tool to assess the resources at a population's disposal for consumption and saving. Yet, GNDI is rarely available in the major international reports and datasets and often confused in GNI in common practice. This paper tries to contribute to closing this void and includes a table in which GNDI is calculated for all countries listed in the World Bank dataset. |
| Keywords: | National Income, Balance of Payments, Remittances |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:pav:demwpp:demwp0062&r=mac |
| By: | Allmendinger, Jutta; Hipp, Lena; Stuth, Stefan |
| Abstract: | To assess the influence of nonstandard employment for the labor market participation of different demographic groups, we provide detailed descriptions of the development of atypical employment in comparison to standard employment, unemployment, and economic inactivity between 1996 and 2011. In our analyses, we distinguish between fixedterm employment, solo self-employment, substantial part-time work (between 20 and 35 hours/week), and marginal part-time work (less than 20 hours/week). By simultaneously considering standard employment, atypical employment, and non-employment, we are able to assess the consequences of flexible labor markets for the economic integration of different population groups, such as women, the elderly, young people, or the low-skilled. -- |
| Keywords: | Labor Market,Nonstandard Employment,Atypical Employment,Part-time,Temporary Jobs,Solo self-employment,International Comparison,Europe |
| JEL: | J21 J23 J82 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wzbpre:p2013003&r=mac |
| By: | Bertola, Giuseppe (EDHEC Business School); Koeniger, Winfried (University of St. Gallen) |
| Abstract: | We consider an economy where individuals privately choose effort and trade competitively priced securities that pay off with effort-determined probability. We show that if insurance against a negative shock is sufficiently incomplete, then standard functional form restrictions ensure that individual objective functions are optimized by an effort and insurance combination that is unique and satisfies first- and second-order conditions. Modeling insurance incompleteness in terms of costly production of private insurance services, we characterize the constrained inefficiency arising in general equilibrium from competitive pricing of nonexclusive financial contracts. |
| Keywords: | hidden action, principal agent, first-order approach, constrained efficiency |
| JEL: | E21 D81 D82 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7806&r=mac |
| By: | Peter E.J. Steffen (Universität Hamburg (University of Hamburg)) |
| Abstract: | Micro data are used to separate the wage income of employed workers into components of basic labor and human capital. Further on the wage components of the self employed are determined taking into account their higher qualification and longer working hours. The fractions of these wage components are used to obtain the total income shares of basic labor, human and physical capital from yearly GDP calculations. This procedure provides a yearly information on the development of the factor shares for individual countries, a tool for understanding development and growth. German census data of the years 1976, 1985, 1995, and 2006 are selected in order to demonstrate the method. As result the factor shares for these years are obtained. The average shares are in agreement with the well known results of Mankiw, Romer and Weil [8] if only employed workers are considered. If self-employed labor is also taken into account, the share ratios of physical and human capital and labor change to sK : sH : sL = 0:21 : 0:25 : 0:54. This result diers considerably from the generally expected share ratios for developed countries of 1/3 : 1/3 : 1/3. Further on, the development in time is investigated. A considerable variation is observed in the last period: 1995 - 2006. It is contradictory to a constant behavior as expected from Kaldor's stylized facts. The source could be traced to considerable changes in the qualification structure of the German work force. |
| Keywords: | human capital, Mikrozensus, annual factor income shares, factor share development |
| JEL: | D33 E25 J24 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:hep:macppr:201309&r=mac |
| By: | Grieve, Roy H |
| Abstract: | It has been alleged that J M Keynes, quoting in the General Theory a passage from J S Mill's Principles, misunderstood the passage in question and was therefore wrong to cite Mill as an upholder of the 'classical' proposition that 'supply creates its own demand'. We believe that, although Keynes was admittedly in error with respect to, so-to-say, the 'letter' of Mill's exposition, he did not mislead readers as to the 'substance' of Mill's conception. The purpose of this paper is to demonstrate that J S Mill did indeed stand for a 'classical' position, vulnerable to Keynes's critique as developed in the General Theory. [This is a revised version of an earlier working paper: 'Keynes, Mill and Say's Law', Strathclyde Papers in Economics, 2000/11] |
| Keywords: | Keynes and the 'classics', John Stuart Mill, Say's Law, |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:edn:sirdps:527&r=mac |
| By: | Donald A. R., George; Les, Oxley |
| Abstract: | This paper analyses RE macromodels from the methodological perspective. It proposes a particular property, robustness, which should be considered a necessary feature of scienti cally valid models in economics, but which is absent from many RE macromodels. To restore this property many macroeconomists resort to detailed and implausible assumptions, which take their models a long way from simple Rational Expectations. The paper draws attention to the problems inherent in the technique of local linearisation and concludes by proposing the use of nonlinear models, analysed globally. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:edn:sirdps:472&r=mac |
| By: | Joseph Mullins (NYU); Gaston Navarro (New York University); Julio Blanco (New York University) |
| Abstract: | The 2007-2009 financial crisis generated a striking short-lived increase in the employment separation rate and a persistent decrease in its finding probability, which resulted in an increase in unemployment and a slow recovery. In this paper we propose a novel mechanism that can account for these patterns. The key innovation relies on the interaction between firms' number of workers and its willingness to default: firms with more debt per worker are less likely to repay and consequently face higher credit spreads. Therefore, at the aggregate level, credit conditions worsen with higher unemployment, which further reduces firms' incentives to hire resulting in a loop between the financial and the labor market. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed013:694&r=mac |
| By: | Campos-Vazquez, Raymundo M.; Chavez, Emmanuel; Esquivel, Gerardo |
| Abstract: | This paper analyzes the relationship between mean income and the income of the rich. Our methodology closely follows that of Dollar and Kraay (2002), but instead of looking at the bottom of the distribution, we analyze the top. We use panel data from the World Top Incomes database, which collects top income data from several countries using tax returns as the raw source. We define the “rich” as earners in the top 10 percent, 1 percent, 0.1 percent, and 0.01 percent of the income distribution. We find that economic growth is good for the rich in the sense that the mean income of the top decile of the distribution grows in the same proportion as that of the whole population. However, we also find that the income of earners in the top percentile of the distribution and above grows in an even larger proportion than average income: that is, economic growth is really good for the really rich. We also find that during economic downturns, the average income of top earners responds proportionally less to changes in mean income than during economic expansions. Our results are robust to different sample specifications. |
| Keywords: | Growth, Income distribution; Inequality; Top Income; Rich. |
| JEL: | D31 D63 E01 I30 O40 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:52488&r=mac |
| By: | Mark Wright (UCLA); Christine Richmond (International Monetary Fund); Daniel Dias (University of Illinois at Urbana-Champaign and CEMAPRE) |
| Abstract: | Since 1989, creditor countries have provided debt relief to developing countries worth more than 100 billion US dollars. Prominent lobby groups are campaigning for a further 400 billion US dollars in debt relief to be provided in the near future. How much could developing country’s gain from debt relief? How costly is it to provide debt relief? Would debt relief increase social welfare? And if so, to which countries should it be most urgently directed? In this paper, we develop a framework for measuring the marginal welfare gain from debt relief and indicate when this marginal measure can be used to estimate the total welfare benefit of debt relief. We then apply this framework to data on the debts of 72 developing countries to form an estimate of the global social welfare benefits of debt forgiveness. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed013:646&r=mac |
| By: | Toru Kitagawa (Institute for Fiscal Studies and University College London); Chris Muris |
| Abstract: | In the practice of program evaluation, choosing the covariates and the functional form of the propensity score is an important choice for estimating treatment effects. This paper proposes data-driven model selection and model averaging procedures that address this issue for the propensity score weighting estimation of the average treatment effects for treated (ATT). Building on the focussed information criterion (FIC), the proposed selection and averaging procedures aim to minimize the estimated mean squared error (MSE) of the ATT estimator in a local asymptotic framework. We formulate model averaging as a statistical decision problem in a limit experiment, and derive an averaging scheme that is Bayes optimal with respect to a given prior for the localisation parameters in the local asymptotic framework. In our Monte Carlo studies, the averaging estimator outperforms the post-covariate-selection estimator in terms of MSE, and shows a substantial reduction in MSE compared to conventional ATT estimators. We apply the procedures to evaluate the effect ot the labour market program described in LaLonde (1986). |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:ifs:cemmap:61/13&r=mac |