nep-mac New Economics Papers
on Macroeconomics
Issue of 2014‒01‒10
forty-two papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. An Economical Business-Cycle Model By Pascal Michaillat; Emmanuel Saez
  2. Mortgages and monetary policy By Garriga, Carlos; Kydland, Finn E.; Šustek, Roman
  3. The stimulative effect of forward guidance By Gavin, William T.; Keen, Benjamin D.; Richter, Alexander; Throckmorton, Nathaniel
  4. Institutional quality, the cyclicality of monetary policy and macroeconomic volatility By Duncan, Roberto
  5. Time-Varying Phillips Curves By Joseph S. Vavra
  6. Do savings promote or hamper economic growth? The Euro area example By DE KONING, Kees
  7. Rounding the Corners of the Policy Trilemma: Sources of Monetary Policy Autonomy By Michael W. Klein; Jay C. Shambaugh
  8. Modeling yields at the zero lower bound: are shadow rates the solution? By Christensen, Jens H.E.; Rudebusch, Glenn D.
  9. Small and orthodox fiscal multipliers at the zero lower bound By Braun, R. Anton; Korber, Lena Mareen; Waki, Yuichiro
  10. A probability-based stress test of Federal Reserve assets and income By Christensen, Jens H.E.; Lopez, Jose A.; Rudebusch, Glenn D.
  11. Monetary Policy in Korea through the lense of Taylor Rule in DSGE model By Tae Bong Kim
  12. Inflation, Credit, and Indexed Unit of Account By Hyung Sun Choi; Ohik Kwon; Manjong Lee
  13. Inflation targeting, flexible exchange rates, and macroeconomic performance since the Great Revolution By Andersen, Thomas Barnebeck; Malchow-Møller, Nikolaj; Nordvig, Jens
  14. Aging and Deflation from a Fiscal Perspective By Hideki Konishi; Kozo Ueda
  15. International Capital Flows and Domestic Financial Conditions: Lessons for Emerging Asia By Philip Lane
  16. Target Controllability and Time Consistency: Complement to the Tinbergen Rule By Huiping Yuan; Stephen M. Miller
  17. Declining Labor Force Attachment and Downward Trends in Unemployment and Participation By Barnichon, Regis; Figura, Andrew
  18. Financial Development, Econmic Growth and R&D Cyclical Movement By Fung, Ka Wai Terence; Lau, Chi Keung Marco
  19. Debt, inflation and growth robust estimation of long-run effects in dynamic panel data models By Chudik, Alexander; Mohaddes, Kamiar; Pesaran, M. Hashem; Raissi, Mehdi
  20. Chinese Political and Economic Governance System and the Imbalance between Consumption and Investment By Julan Du; Hongsheng Fang; Xiangrong Jin
  21. Some Thoughts On The Spanish Economy After Five Years Of Crisis By Eloísa Ortega; Juan Peñalosa
  22. Reconsidering EXIT By Charles I. Plosser
  23. Economic conditions and monetary policy By Charles I. Plosser
  24. The national economic outlook and monetary policy By Charles I. Plosser
  25. A limited central bank By Charles I. Plosser
  26. Growth and competitiveness as factors of Eurozone external imbalances : evidence and policy implications By Sanchez , Jose Luis Diaz; Varoudakis, Aristomene
  27. Trade, Unemployment, and Monetary Policy By Matteo Cacciatore
  28. O Crédito Imobiliário no Brasil e sua Relação com a Política Monetária By Mário Jorge Mendonça
  29. La Argentina y la tendencia descendente de la tasa de ganancia (1910-2011) By Maito, Esteban Ezequiel
  30. Constrained or Unconstrained Price for Debit Card Payment? By Manjong Lee
  31. Do Oil Price Increases Cause Higher Food Prices? By Christiane Baumeister; Lutz Kilian
  32. Systemic Risk, International Regulation, and the Limits of Coordination By Kara, Gazi
  33. Unemployment Insurance Experience Rating and Labor Market Dynamics By Ratner, David
  34. La tasa de ganancia en Chile 1986-2009 By Maito, Esteban Ezequiel
  35. Learning, Rare Disasters, and Asset Prices By Lu, Yang; Siemer, Michael
  36. Estimating Strategic Complementarity in a State-Dependent Pricing Model By Marco Bonomo; Arnildo da Silva Correa; Marcelo Cunha Medeiros
  37. Determinants of Short-term Lender Location and Interest Rates By Taylor J. Canann; Richard W. Evans
  38. The Economic Outlook and Long-Term Growth, New Jersey Economic Leadership Forum, New Jersey Bankers Association, January 11, 2013, Somerset, NJ By Charles I. Plosser
  39. Cash Management and Payment Choices: A Simulation Model with International Comparisons By Carlos Arango; Yassine Bouhdaoui; David Bounie; Martina Eschelbach; Lola Hernández
  40. The Multiplex Structure of Interbank Networks By Leonardo Bargigli; Giovanni Di Iasio; Luigi Infante; Fabrizio Lillo; Federico Pierobon
  41. CrowdEmploy: Crowdsourcing Case Studies By Anne Green; Maria de Hoyos; James Stewart
  42. Trade Openness, Financial Development Energy Use and Economic Growth in Australia:Evidence on Long Run Relation with Structural Breaks By Islam, Faridul; Shahbaz, Muhammad; Rahman, Mohammad Mafizur

  1. By: Pascal Michaillat; Emmanuel Saez
    Abstract: We construct a microfounded, dynamic version of the IS-LM-Phillips curve model by adding two elements to the money-in-the-utility-function model of Sidrauski (1967). First, real wealth enters the utility function. The resulting Euler equation describes consumption as a decreasing function of the interest rate in steady state–the IS curve. The demand for real money balances describes consumption as an increasing function of the interest rate in steady state–the LM curve. The intersection of the IS and LM curves defines the aggregate demand (AD) curve. Second, matching frictions in the labor market create unemployment. The aggregate supply (AS) curve describes output sold for a given market tightness. Tightness adjusts to equalize AD and AS curve for any price process. With a rigid price process, this steady-state equilibrium captures Keynesian intuitions. Demand and supply shocks affect tightness, unemployment, consumption, and output. Monetary policy affects aggregate demand and can be used for stabilization. Monetary policy is ineffective in a liquidity trap with zero nominal interest rate. In contrast, with a flexible price process, aggregate demand and monetary policy are irrelevant when the nominal interest rate is positive. In a liquidity trap, monetary policy is useful if it can increase inflation. We discuss equilibrium dynamics under a Phillips curve describing the slow adjustment of prices to their flexible level in the long run.
    JEL: E12 E13 E24 E41 E52
    Date: 2014–01
  2. By: Garriga, Carlos (Federal Reserve Bank of St. Louis); Kydland, Finn E. (University of California–Santa Barbara); Šustek, Roman (Queen Mary, University of London)
    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.
    Keywords: Mortgages; debt servicing costs; monetary policy; transmission mechanism; housing investment.
    JEL: E32 E52 G21 R21
    Date: 2013–12–05
  3. By: Gavin, William T. (Federal Reserve Bank of St. Louis); Keen, Benjamin D. (University of Oklahoma); Richter, Alexander (Auburn University); Throckmorton, Nathaniel (Indiana University)
    Abstract: This article quantifies the stimulative effect of central bank forward guidance—the public announcement of the intended path for monetary policy in the future—when the nominal interest rate is stuck at its zero lower bound (ZLB). We use a global solution to a conventional nonlinear New Keynesian model to show how the forward guidance horizon impacts the stimulative effect. Forward guidance enters our model as news shocks to the monetary policy rule, which commits the central bank to a lower policy rate than its policy rule suggests. The success of forward guidance depends on whether households expect the economy to recover. When households expect a recovery, forward guidance about a future expansionary monetary policy shock lowers the expected nominal interest rate and increases current consumption. A longer forward guidance horizon strengthens this effect, but at a decreasing rate.
    Keywords: Monetary Policy; Forward Guidance; Zero Lower Bound; Global Solution Method
    JEL: E31 E42 E58 E61
    Date: 2013–12–24
  4. By: Duncan, Roberto (Federal Reserve Bank of Dallas)
    Abstract: In contrast to industrialized countries, emerging market economies are characterized by proor acyclical monetary policies and high output volatility. This paper argues that those facts can be related to a long-run feature of the economy - namely, its institutional quality (IQL). The paper presents evidence that supports the link between an index of IQL (law and order, government stability, investment profile, etc.), and (i) the cyclicality of monetary policy, and (ii) the volatilities of output and the nominal interest rate. In a DSGE model, foreign investors that choose a portfolio of direct investment and lending to domestic agents, face a probability of partial confiscation which works as a proxy that captures IQL. The economy is hit by external shocks to demand for home goods and productivity shocks while its central bank seeks to stabilize inflation and output. In the long run, a lower IQL tends to discourage external liabilities. If there is a positive external demand shock, we observe an increase in output and real appreciation. The latter operates through two opposite channels. First, it directly increases the opportunity cost of leisure generating incentives to expand labor supply. Second, it reduces the real value of the debt denominated in foreign currency which stimulates consumption but contracts the labor supply. If the IQL is low, the economy attracts fewer loans for domestic consumers and shows a lower debt-to-consumption ratio in the steady state. This implies that the reduction of the real value of the debt caused by the real appreciation is smaller. Given this low wealth effect, the real appreciation leads to an expansion of the labor supply. Wages drop and inflation diminishes. The central bank reacts by cutting its policy rate to stabilize inflation and generates a negative comovement between output and the nominal interest rate (procyclical policy). As a corollary, negative correlations between policy rates and output are not necessarily an indicator of destabilizing polices even in the presence of demand shocks.
    JEL: E40 E50 E60 F30 F40
    Date: 2014–01–03
  5. By: Joseph S. Vavra
    Abstract: A growing theoretical literature argues that aggregate price flexibility and the inflation-output tradeoff faced by central banks should rise with microeconomic price change dispersion. However, there is little empirical work testing this prediction. I fill this gap by estimating time-varying forward looking New-Keynesian Phillips Curves (NKPC). I reject a NKPC with constant inflation-output tradeoff in favor of a slope that increases with microeconomic volatility. In contrast, there is no evidence that the inflation-output tradeoff varies with aggregate volatility or the business cycle more generally. Furthermore, I show that greater volatility does not affect price flexibility purely through increases in frequency.
    JEL: E10 E30 E31 E50
    Date: 2014–01
  6. By: DE KONING, Kees
    Abstract: Individual households save out of income by postponing consumption. Such savings are used not only by companies to expand production or by some individual households to increase consumption through borrowings: the economic use of savings. For instance in the U.S. in 2005 and 2006 65.5% of the savings allocated to home mortgages were used to increase prices of existing homes over and above the CPI inflation levels. Such use of savings can be called the financial use of savings. Other examples of such financial use are government debt outstanding for longer than a year and share price increases after companies have received the proceeds from share listings. The difference between the financial and economic use of savings is that the first category does not help output and employment growth. There are periods over an economic cycle that the financial use of savings increase, for instance through house or share price inflation. There is no guiding hand to stop this process early enough to stop the subsequent savings destruction process. The latter process is further complicated by governments’ extensive use of debt financing during the re-balancing period. Government debt outstanding for over a year does not contribute to output or employment growth: it is again a financial use of savings. The long adjustment period since 2008, which is far from over for the Euro area countries, shows that fiscal and monetary policies have been very slow in getting unemployment levels down. The main reason is not that there is a lack of savings, but that on a temporary basis the savings allocation process needs to be re-balanced away from its financial and towards its economic use. Why and how this could be done is the subject of this study. The Euro area was chosen as an example as youth unemployment and overall unemployment rates are at historical highs, share prices are still far below 2008 levels and house prices with the exception of Germany and Austria have hit a seven year low.
    Keywords: economic use of savings; financial use of savings; output and employment growth; quantitative easing; economic easing; traffic light system; inflation-linked bonds; pension funds; banking reform.
    JEL: E2 E21 E5 E58 E6 E62
    Date: 2013–12–27
  7. By: Michael W. Klein (Fletcher School, Tufts University, and NBER (E-mail:; Jay C. Shambaugh (George Washington University and NBER (E-mail:
    Abstract: A central result in international macroeconomics is that a government cannot simultaneously opt for open financial markets, fixed exchange rates, and monetary autonomy; rather, it is constrained to choosing no more than two of these three. In the wake of the Great Recession, however, there has been an effort to address macroeconomic challenges through intermediate measures, such as narrowly targeted capital controls or limited exchange rate flexibility. This paper addresses the question of whether these intermediate policies, which round the corners of the triangle representing the policy trilemma, afford a full measure of monetary policy autonomy. Our results confirm that extensive capital controls or floating exchange rates enable a country to have monetary autonomy, as suggested by the trilemma. Partial capital controls, however, do not generally enable a country to have greater monetary control than is the case with open capital accounts unless they are quite extensive. In contrast, a moderate amount of exchange rate flexibility does allow for some degree of monetary autonomy, especially in emerging and developing economies.
    Keywords: Exchange Rate Regimes, Trilemma, Monetary Policy, Capital Controls
    JEL: F3 F33 F42 E42 E58
    Date: 2013–12
  8. By: Christensen, Jens H.E. (Federal Reserve Bank of San Francisco); Rudebusch, Glenn D. (Federal Reserve Bank of San Francisco)
    Abstract: Recent U.S. Treasury yields have been constrained to some extent by the zero lower bound (ZLB) on nominal interest rates. In modeling these yields, we compare the performance of a standard affine Gaussian dynamic term structure model (DTSM), which ignores the ZLB, and a shadow-rate DTSM, which respects the ZLB. We find that the standard affine model is likely to exhibit declines in fit and forecast performance with very low interest rates. In contrast, the shadow-rate model mitigates ZLB problems significantly and we document superior performance for this model class in the most recent period.
    Keywords: term structure modeling; zero lower bound; monetary policy.
    JEL: E43 E52 E58 G12
    Date: 2013
  9. By: Braun, R. Anton (Federal Reserve Bank of Atlanta); Korber, Lena Mareen (Federal Reserve Bank of Atlanta); Waki, Yuichiro (Federal Reserve Bank of Atlanta)
    Abstract: Does fiscal policy have large and qualitatively different effects on the economy when the nominal interest rate is zero? An emerging consensus in the New Keynesian literature is that the answer is yes. New evidence provided here suggests that the answer is often no. For a broad range of empirically relevant parameterizations of the Rotemberg model of costly price adjustment, the government purchase multiplier is about one or less, and the response of hours to a tax cut is either negative or close to zero.
    Keywords: monetary policy; zero interest rate; fiscal multipliers
    JEL: E50 E60
    Date: 2013–12–01
  10. By: Christensen, Jens H.E. (Federal Reserve Bank of San Francisco); Lopez, Jose A. (Federal Reserve Bank of San Francisco); Rudebusch, Glenn D. (Federal Reserve Bank of San Francisco)
    Abstract: To support the economy, the Federal Reserve amassed a large portfolio of long-term bonds. We assess the Fed’s associated interest rate risk — including potential losses to its Treasury securities holdings and declines in remittances to the Treasury. Unlike past examinations of this interest rate risk, we attach probabilities to alternative interest rate scenarios. These probabilities are obtained from a dynamic term structure model that respects the zero lower bound on yields. The resulting probability-based stress test finds that the Fed’s losses are unlikely to be large and remittances are unlikely to exhibit more than a brief cessation.
    Keywords: term structure modeling; zero lower bound; monetary policy; quantitative easing
    JEL: E43 E52 E58 G12
    Date: 2013
  11. By: Tae Bong Kim (Korea Development Institute)
    Abstract: This paper shows assessments on the monetary policy of Korea based on an estimated model. During the sample period of the in ation targeting scheme, the monetary policy discretion, which is the monetary policy shock after the historical decomposition of the model, has been mostly in ationary while it was reducing the volatility of output growth and thus countercyclical. 3% target rate could have been achieved when the monetary policy shock's standard deviation was approximately half of its posterior estimate. Various degree of monetary policy stance has been simulated with the sample period. An aggressive monetary policy towards in ation stabilization would have generally led to the average level of in ation rate closer to its target rate but at the cost of higher volatilities of the output growth.
    Date: 2013
  12. By: Hyung Sun Choi (Department of Economics, Kyung Hee University, Seoul, Republic of Korea); Ohik Kwon (Department of Economics, Korea University, Seoul, Republic of Korea); Manjong Lee (Department of Economics, Korea University, Seoul, Republic of Korea)
    Abstract: A simple monetary model is constructed to study the implications of an indexed unit of account (Indexed-UoA). In an economy with an Indexed-UoA, credit trade friction attributed to inflation is resolved and there is no redistributional effect from unexpected inflation between debtors and creditors. However, in an economy without an Indexed-UoA, credit trades occur only if inflation is not too high and unexpected inflation renders debtors better off but creditors worse off. Adopting a medium of exchange as a unit of account is most apposite for a low-inflation economy, whereas introducing an alternative Indexed-UoA enhances welfare in an economy where inflation undermines credit trades.
    Keywords: indexed unit of account, deferred payment, inflation, welfare
    JEL: E31 E42 E50
    Date: 2013
  13. By: Andersen, Thomas Barnebeck (Department of Business and Economics); Malchow-Møller, Nikolaj (Department of Business and Economics); Nordvig, Jens (Nomura Securities)
    Abstract: Has inflation targeting (IT) conferred benefits in terms of economic growth on countries that followed this particular monetary policy strategy during the crisis period 2007-12? Analyzing the sample of all OECD countries, we answer this question in the affirmative: Countries with an IT monetary regime with flexible exchange rates weathered the crisis much better than countries with other regimes. This includes in particular countries with fixed exchange rate regimes, but also countries with flexible exchange rates without IT. The result holds in the full sample; it holds when we exclude the so-called peripheral Eurozone countries (Greece, Italy, Ireland, Portugal, and Spain); and it holds when we exclude all Eurozone countries. It is, in other words, a robust empirical finding. We demonstrate that part of the explanation for this difference in growth performance is found in differences in export performance during the initial years of the crisis, which in turn is explained by real exchange rate depreciations. However, this cannot explain the entire difference in performance between countries with flexible and fixed exchange rates in the aftermath of the Great Recession. IT seems also to confer other benefits on the countries above and beyond the effect from currency depreciation.
    Keywords: Inflation targeting; flexible exchange rates; economic growth; OEDC; Great Recession
    JEL: E42 E58 O43
    Date: 2013–12–21
  14. By: Hideki Konishi (School of Political Science and Economics, Waseda University (; Kozo Ueda (School of Political Science and Economics, Waseda University (
    Abstract: Negative correlations between inflation and demographic aging have been observed across developed nations recently. To understand the phenomenon from a political economy perspective, we embed the fiscal theory of the price level into an overlapping-generations model. We suppose that short-lived governments successively choose income tax rates and bond issues, considering political influence from existing generations and the expected policy responses of future governments. Our analysis reveals that the effects of aging depend on its causes; aging is deflationary when caused by an unexpected increase in longevity, but is inflationary when caused by a decline in the birth rate. Our analysis also sheds new light on the traditional debate about the burden of national debt. Because of price adjustment, the accumulation of government debt imposes no burden on future generations.
    Keywords: Deflation, Fiscal theory of the price level, Population aging, Redistribution across
    JEL: D72 E30 E62 E63 H60
    Date: 2013–12
  15. By: Philip Lane (Trinity College Dublin)
    Abstract: This paper provides an empirical review of the dynamics of international capital áows, with a focus on emerging Asia. Next, it outlines the various channels by which international capital flows affect domestic financial conditions in the host economies. Finally, it explores the implications for the design of policy frameworks that can deliver macro-financial stability.
    Keywords: international capital flows, financial stability, emerging Asia
    JEL: E42 E58 F32 F36
    Date: 2013–12
  16. By: Huiping Yuan (Xiamen University); Stephen M. Miller (University of Nevada, Las Vegas and University of Connecticut)
    Abstract: The Tinbergen Rule states that achieving the desired targets requires an equal number of instruments. This paper shows that time inconsistency does not exist in the case of an equal number of instruments and targets. Target uncontrollability and time inconsistency, however, emerge as problems in the case of fewer instruments than targets. In this case, we obtain a necessary and sufficient condition for joint asymptotic controllability of target values, which complements the Tinbergen rule. The condition is identical under commitment and under discretion. If the condition does not hold, the steady-state values of target variables regress to their respective target values. The paper solves both problems by determining the central bank’s target values of inflation and output as well as the relative weight between stabilizing inflation and output. Intuitively, a proper target value trade-off solves target uncontrollability, whereas a proper relative weight achieves optimal target variability trade-off and solves time inconsistency. As a result, target values are controllable, establishing monetary policy credibility. Discretionary policy under the designed loss function, which replicates optimal policy under the social loss function, proves time-consistent. In addition, we identify two situations where the delegated weight equals the social weight, providing additional insight into time inconsistency.
    Keywords: Target controllability, Time inconsistency, Optimal policy, Discretionary policy, Trade-off
    JEL: E52 E58
    Date: 2013–12
  17. By: Barnichon, Regis (Board of Governors of the Federal Reserve System (U.S.)); Figura, Andrew (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: The U.S. labor market witnessed two apparently unrelated secular movements in the last 30 years: a decline in unemployment between the early 1980s and the early 2000s, and a decline in participation since the early 2000s. Using CPS micro data and a stock-flow accounting framework, we show that a substantial, and hitherto unnoticed, factor behind both trends is a decline in the share of nonparticipants who are at the margin of participation. A lower share of marginal nonparticipants implies a lower unemployment rate, because marginal nonparticipants enter the labor force mostly through unemployment, while other nonparticipants enter the labor force mostly through employment.
    Keywords: Unemployment rate; labor force participation rate; individuals marginally attached to the labor force
    JEL: E24
    Date: 2013–10–01
  18. By: Fung, Ka Wai Terence; Lau, Chi Keung Marco
    Abstract: This paper builds up an endogenous growth model à la Aghion and Howitt (1992) and Boucekkine et al (2005). We assume that R&D firms use only investment good as input, instead of final good as hypothesized in the above two models. We show that investment price will be a negative function of aggregate quality index; and thus decline over time. In this model, subsidy on R&D has growth-enhancing effect. Moreover, this model predicts unambiguously that R&D is procyclical.
    Keywords: Endogeneous growth model, real business cycle, research and development
    JEL: E30 O3 O4 O40
    Date: 2013
  19. By: Chudik, Alexander (Federal Reserve Bank of Dallas); Mohaddes, Kamiar (Federal Reserve Bank of Dallas); Pesaran, M. Hashem (Federal Reserve Bank of Dallas); Raissi, Mehdi (Federal Reserve Bank of Dallas)
    Abstract: This paper investigates the long-run effects of public debt and inflation on economic growth. Our contribution is both theoretical and empirical. On the theoretical side, we develop a cross-sectionally augmented distributed lag (CS-DL) approach to the estimation of long-run effects in dynamic heterogeneous panel data models with cross-sectionally dependent errors. The relative merits of the CS-DL approach and other existing approaches in the literature are discussed and illustrated with small sample evidence obtained by means of Monte Carlo simulations. On the empirical side, using data on a sample of 40 countries over the 1965-2010 period, we find significant negative long-run effects of public debt and inflation on growth. Our results indicate that, if the debt to GDP ratio is raised and this increase turns out to be permanent, then it will have negative effects on economic growth in the long run. But if the increase is temporary then there are no long-run growth effects so long as debt to GDP is brought back to its normal level. We do not find a universally applicable threshold effect in the relationship between public debt and growth. We only find statistically significant threshold effects in the case of countries with rising debt to GDP ratios.
    JEL: C23 E62 F34 H60
    Date: 2013–11–01
  20. By: Julan Du (The Chinese University of Hong Kong and Hong Kong Institute for Monetary Research); Hongsheng Fang (Zhejiang University); Xiangrong Jin (Zhejiang University)
    Abstract: The Chinese government has been pursuing economic growth under the guidance of "growth is a hard principle". In the context of the Chinese political and economic governance system, local governments have employed the overtaking strategy (placing primary emphasis on the development of capital and technology-intensive industries) and the real estate development strategy to push for economic growth and fiscal revenue growth. This has led to a repressed labor share and an elevated capital and government share in primary and secondary income distribution structure. Using the empirical strategy of Acemoglu et al. (2003), we confirm that the development strategies have shaped an imbalanced consumption-investment structure through primary and secondary income distribution as well as other channels. It suggests that the Chinese government will be able to accomplish China's transition from an investment-led growth model to a consumption-based growth model only if it modifies its political and economic governance system and removes the distortions in development strategies.
    Keywords: Overtaking Strategy, Real Estate Development Strategy, Biased Income Distribution Structure, Consumption-Investment Imbalances
    JEL: E62 E65 H20 H77
    Date: 2013–11
  21. By: Eloísa Ortega (Banco de España); Juan Peñalosa (Banco de España)
    Abstract: This paper briefl y describes some features of the situation of the Spanish economy after five years of crisis, a task which is easier now that this period can be analysed from a certain perspective. The crisis prompted a substantial readjustment of the main Spanish macroeconomic aggregates, affecting the level and composition of GDP, employment and the balance sheet position of the institutional sectors. During this period some of the imbalances that built up during the upturn have been corrected and several key variables are currently at around the average European levels. All told, the legacy of the crisis, in terms of the magnitude of unemployment and of the still high levels of indebtedness, makes for a complex outlook and suggests that the recovery will be gradual and not free of uncertainty. This uncertainty mainly affects the functioning of the economy’s adjustment mechanisms, particularly those working through the channels of competitiveness and of private sector balance sheets. Despite the depth of the crisis in Spain, the progress made in the reforms on various fronts is, on balance, signifi cant. From the perspective provided by the analysis of the crisis in this paper, supply-side policies will have to play a major role in the current phase of the cycle to enable the recovery to proceed fi rmly.
    Keywords: Spanish economy, economic crisis, adjustment, rebalancing, internal devaluation,competitiveness, balance sheet position, indebtedness, reforms
    JEL: E60 E65 F32 G01 H12
    Date: 2013–12
  22. By: Charles I. Plosser
    Abstract: Presented by Charles I. Plosser, President and Chief Executive Officer, Federal Reserve Bank of Philadelphia, Monetary Policy in a Global Setting: China and the United States, Federal Reserve Bank of San Francisco, Federal Reserve Bank of St. Louis, and the National Institute for Fiscal Studies at Tsinghua University, April 16, 2013, Beijing, China
    Keywords: Financial crises ; Monetary policy ; Economic conditions
    Date: 2013–04–16
  23. By: Charles I. Plosser
    Abstract: Presented at the Economic Development Company and Economic Development Finance Corporation of Lancaster County Annual Meeting, March 6, 2013, Lancaster, PA
    Keywords: Monetary policy ; Economic conditions
    Date: 2013–03–06
  24. By: Charles I. Plosser
    Abstract: Presented by Charles I. Plosser, President and Chief Executive Officer, Federal Reserve Bank of Philadelphia to the Greater Johnstown Cambria County Chamber of Commerce, Johnstown, PA ; President Charles I. Plosser provides his economic outlook and views on monetary policy. He discusses the recent decision of the Federal Open Market Committee (FOMC) to delay tapering the asset purchase program. Because the FOMC failed to adjust the pace of asset purchases at the FOMC’s September meeting, he believes the FOMC undermines the credibility of its own forward guidance.
    Keywords: Monetary policy ; Economic forecasting ; Regulatory reform
    Date: 2013–10–08
  25. By: Charles I. Plosser
    Abstract: Cato Institute's 31st Annual Monetary Conference — Was The Fed a Good Idea? November 14, 2013, Washington, D.C.> President Charles I. Plosser proposes setting limits on the Federal Reserve so that it can better fulfill what he believes is its essential role. He considers restrictions on the types of assets the Fed can buy to limit its interference with markets. He also touches on the Fed's governance and accountability and ways to implement policies that limit discretion and improve outcomes.
    Keywords: Federal Reserve System ; Monetary policy
    Date: 2013–11–13
  26. By: Sanchez , Jose Luis Diaz; Varoudakis, Aristomene
    Abstract: The paper assesses the contribution of key factors associated with external imbalances in the Eurozone through the estimation of a panel-data vector autoregressive model over 1975-2011. Growth fluctuations, initially associated with demand booms triggered by unusually low interest rates and later with demand contractions resulting from the crisis and policy adjustments, have been key drivers of current account fluctuations. Changes in competitiveness, measured by real exchange rates or unit labor costs, have played a less important role. Demand shocks have contributed more to current account balance dynamics in the Eurozone periphery than in the core, whereas competitiveness has been a less prominent factor in the periphery but relatively more important in the core. Changes in competitiveness are positively associated with changes in growth. Preventing imbalances from building up in a context of growing financial integration and easy finance warrants enhanced mutual surveillance of fiscal imbalances, but also better regulation of credit markets to prevent excess leverage and concentration of lending in investments prone to speculative bubbles. Coordination of fiscal policy across the Eurozone would facilitate the management of external imbalances without placing an often unwarranted burden on fiscal tightening in countries with sound fiscal positions affected by credit booms. The policies of internal devaluation implemented in the periphery, aimed at promoting external competitiveness, may have had only limited effectiveness in restoring the external balance to equilibrium.
    Keywords: Currencies and Exchange Rates,Economic Theory&Research,Debt Markets,Emerging Markets,Macroeconomic Management
    Date: 2013–12–01
  27. By: Matteo Cacciatore (HEC Montreal)
    Abstract: We study the effects of trade integration for the conduct of monetary policy in a two-country model with heterogeneous firms, endogenous producer entry, and labor market frictions. The model reproduces important empirical regularities related to international trade, namely synchronization of business cycles across trading partners and reallocation of market shares across producers. Three key results emerge. First, when trade linkages are weak, the optimal policy is inward-looking but requires significant departures from price stability both in the long run and over the business cycle. Second, as trade integration reallocates market share toward more productive firms, the need of positive inflation to correct long-run distortions is reduced. Third, increased business cycle synchronization implies that country-specific shocks have more global consequences. Welfare gains from cooperation are small relative to optimal non-cooperative policy, but sizable relative to historical Federal Reserve behavior. The constrained efficient allocation generated by optimal cooperative policy can still be achieved by appropriately designed inward-looking policy rules. However, sub-optimal (historical) policy implies inefficient fluctuations in cross-country demands that result in large welfare costs when trade linkages are strong.
    Date: 2013
  28. By: Mário Jorge Mendonça
    Abstract: Este estudo tem como objetivo analisar os determinantes da demanda por crédito imobiliário no Brasil, assim como verificar o efeito dinâmico que um choque de política monetária tem sobre este. Com base no modelo com mudança de regime tipo Markov switching, estima-se tal função de demanda usando-se dados mensais agregados de janeiro de 2003 a setembro de 2012. Os resultados acenam para o fato de que a demanda por hipoteca tem estado sujeita a ciclos de retração e expansão desde 2003. O ciclo de expansão tem início ao final de 2005 e é marcado pela alternância de dois regimes distintos. O regime que se concentra entre o fim de 2005 até o início de 2009 foi impulsionado por fatores pró-mercado decorrentes das mudanças na legislação, do crescimento da economia, do aumento da renda real etc. A partir de 2009, a situação se altera, passando a prevalecer um regime onde a expansão do crédito é mais motivada por ações de medidas anticíclicas adotadas pelo governo federal com intuito de mitigar os efeitos da crise de 2007-2008. A fase recessiva do ciclo de crédito é ligada a um único regime que vai desde o início do período estudado até 2005 e retorna por volta de março de 2012, quando a série de concessões de crédito parece entrar em desaceleração. Aplica-se ainda o modelo vetor estrutural autorregressivo (structural vector autoregression – SVAR) para avaliar o efeito de um choque de política monetária sobre a demanda por hipoteca. De acordo com os resultados, um choque contracionista produz o efeito negativo sobre importantes variáveis ligadas ao setor imobiliário. Observa-se queda acentuada e contínua da demanda por financiamento, do preço dos imóveis e do produto da construção civil, assim como aumento da inadimplência. Switching model, we estimate the demand for mortgage using aggregate monthly data from January 2003 to September 2012. The results show that this variable has been subject to cycles of contraction and expansion since 2003. The boom starts at the end of 2005 is marked by the alternation of two distinct regimes. The first one that concentrates between late 2005 until early 2009 seems to be driven by factors pro-market resulting from changes in legislation, economic growth, rising in real income, etc. The situation changes at the beginning of 2009 when the condition of the demand for mortgage is mainly motivated by countercyclical measures adopted by the federal government with the aim of mitigating the effects of the world economic crisis of 2007-2008. The recessive phase of the credit cycle is linked to a single regime that extends until 2005 returning around March 2012 when the series of credit seems to slow down. We also applied the structural VAR model with the purpose of evaluating the effect of a monetary policy shock on the demand mortgage. According to the results, a contractionary shock produces a negative effect on real estate. We note a continuous and sharp decline in mortgage demand, price home, industrial output construction as well as a rising on defaults.
    Date: 2013–12
  29. By: Maito, Esteban Ezequiel
    Abstract: This work presents an estimation of the profit rate evolution in Argentina for the period 1910-2011, on the basis of five long time series: real machine fixed capital productivity (1874-2011), real and nominal fixed capital productivity (1910-2011), and real and nominal profit rate on fixed capital (1910-2011). All these series show a tendency to fall, according to Marx´s approach, due to relative increase on investment expenses in relation to labor force´s, which represent the profit source. Like estimations for other countries, the first part of the seventies and later years were signed by a great fall in the profit rate, which later recovery couldn´t reach the previous levels. The tendency of the profit rate to fall take place beyond any change on income distribution, which effects over profitability are more related with short and medium place cycles.
    Keywords: Profit rate – Argentina – Output/Capital ratio – Income distribution – Accumulation
    JEL: E01 E32 O11 O54 P16
    Date: 2013–12
  30. By: Manjong Lee (Department of Economics, Korea University, Seoul, Republic of Korea)
    Abstract: Retailers in the Netherlands and the U.K. can charge different prices for a commodity depending on whether cash or a debit card is used as payment, whereas retailers in the U.S. generally cannot. These two types of economies with and without a uniform pricing constraint for cash and debit card payments are compared in a microfounded monetary model. We place particular emphasis on the distinctive features of cash and debit cards as payment methods: the cost of a cash transaction for the seller is typically lower than that of a debit card, whereas the cost of cash holdings for the buyer is higher than that of a debit card. Our results suggest that a uniform pricing constraint makes cash-holding costs decline but consumption dispersion between the poor and the rich increase. Numerical examples show that the beneficial effect of the constraint dominates its negative effect.
    Keywords: cash, debit card, constrained price, unconstrained price
    JEL: D61 E42 E64
    Date: 2013
  31. By: Christiane Baumeister; Lutz Kilian
    Abstract: U.S. retail food price increases in recent years may seem large in nominal terms, but after adjusting for inflation have been quite modest even after the change in U.S. biofuel policies in 2006. In contrast, increases in the real prices of corn, soybeans, wheat and rice received by U.S. farmers have been more substantial and can be linked in part to increases in the real price of oil. That link, however, appears largely driven by common macroeconomic determinants of the prices of oil and agricultural commodities, rather than the pass-through from higher oil prices. We show that there is no evidence that corn ethanol mandates have created a tight link between oil and agricultural markets. Rather, increases in food commodity prices not associated with changes in global real activity appear to reflect a wide range of idiosyncratic shocks ranging from changes in biofuel policies to poor harvests. Increases in agricultural commodity prices, in turn, contribute little to U.S. retail food price increases, because of the small cost share of agricultural products in food prices. There is no evidence that oil price shocks have caused more than a negligible increase in retail food prices in recent years. Nor is there evidence for the prevailing wisdom that oil-price-driven increases in the cost of food processing, packaging, transportation and distribution are responsible for higher retail food prices. Finally, there is no evidence that oil-market-specific events or, for that matter, U.S. biofuel policies help explain the evolution of the real price of rice, which is perhaps the single most important food commodity for many developing countries.
    Keywords: Inflation and prices; International topics
    JEL: Q42 Q11 Q43 E31
    Date: 2013
  32. By: Kara, Gazi (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: This paper examines the incentives of national regulators to coordinate regulatory policies in the presence of systemic risk in global financial markets. In a two-country and three-period model, correlated asset fire sales by banks generate systemic risk across national financial markets. Relaxing regulatory standards in one country increases both the cost and the severity of crises for both countries in this framework. In the absence of coordination, independent regulators choose inefficiently low levels of macro-prudential regulation. A central regulator internalizes the systemic risk and thereby can improve the welfare of coordinating countries. Symmetric countries always benefit from coordination. Asymmetric countries choose different levels of macro-prudential regulation when they act independently. Common central regulation will voluntarily emerge only between sufficiently similar countries.
    Keywords: Systemic risk; macroprudential regulation; international policy coordination
    Date: 2013–09–16
  33. By: Ratner, David (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: Unemployment insurance experience rating imposes higher payroll tax rates on firms that have laid off more workers in the past. To analyze the effects of UI tax policy on labor market dynamics, this paper develops a search model of unemployment with heterogeneous firms and realistic UI financing. The model predicts that higher experience rating reduces both job creation and job destruction. Using firm-level data from the Quarterly Census of Employment and Wages, the model is tested by comparing job creation and job destruction across states and industries with different UI tax schedules. The empirical analysis shows a strong negative relationship between job flows and experience rating. Consistent with the empirical results, comparative steady state tax experiments show that a 5% increase in experience rating reduces job flows by an average of 1.4%. While the unemployment rate falls on average by .21 percentage points, the effect on tax revenues is ambiguous. The model has implications for UI financing reform currently being considered at the state and national level. Two alternative reforms that close half of the UI financing gap are considered: the reform that increases experience rating is shown to improve labor market outcomes. In a version of the model with aggregate shocks, higher experience rating dampens the response of layoffs and unemployment over the business cycle. Experience rating also induces nonlinear responses of unemployment to proportionally larger shocks as well as asymmetry in response to booms and busts.
    Keywords: Unemployment insurance; experience rating
    Date: 2014–01–07
  34. By: Maito, Esteban Ezequiel
    Abstract: This article presents the results of an investigation about the profit rate of the Chilean economy, for the period 1986-2009, and its relations with other economic categories, from the Marxist political economy approach. The author constructs the series for the basic categories of the valorization process (constant capital, variable capital and surplus) on the basis of Chilean national accounts. The tendency of the profit rate to fall that appears in the period, is violently interrupted by a notable rise since 2004. This growth of profitability levels is clearly related to the international prices of mining merchandises, which even allow to avoid a real productivity per worker stagnation in the Chilean economy
    Keywords: profit rate – Chile - accumulation - copper prices - turnover speed
    JEL: E01 E3 E30 O11 P16
    Date: 2013–06
  35. By: Lu, Yang (Board of Governors of the Federal Reserve System (U.S.)); Siemer, Michael (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: In this paper, we examine how learning about disaster risk affects asset pricing in an endowment economy. We extend the literature on rare disasters by allowing for two sources of uncertainty: (1) the lack of historical data results in unknown parameters for the disaster process, and (2) the disaster takes time to unfold and is not directly observable. The model generates time variation in the risk premium through Bayesian updating of agents' beliefs regarding the likelihood and severity of disaster realization. The model accounts for the level and volatility of U.S. equity returns and generates predictability in returns.
    Keywords: Rare disasters; Bayesian learning; equity premium puzzle; time-varying risk premia; return predictability
    JEL: D83 E21 G12
    Date: 2013–11–01
  36. By: Marco Bonomo; Arnildo da Silva Correa; Marcelo Cunha Medeiros
    Abstract: The macroeconomic effects of shocks in models of nominal rigidity depend crucially on the degree of strategic complementarity among price setters. However, the empirical evidence on its magnitude is indirect and ambiguous: the one based on macroeconomic data suggest strong strategic complementarities in price-setting, which seems to be contradicted by some recent studies based on micro data. In this paper we estimate directly the degree of strategic complementarity based on individual price data underlying the CPI-FGV from Brazil during the 1996-2006 period, benefiting from large amount of macroeconomic variation in Brazilian sample. Our identification strategy is to infer the degree of strategic complementarity from the relation between the frictionless optimal price and its macroeconomic determinants. We assume that firms follow an asymmetric Ss pricing rule, which allows us to relate the price discrepancy (and the conditional probability of adjustment) to the change in the frictionless optimal price since the last adjustment date. As a consequence, assumptions for non-observable shocks lead to a relation between the probability of adjustments and the conditional mean changes in the frictionless optimal price since the last adjustment. This relation allows us to directly estimate the degree of strategic complementarity from the occurrence of price adjustments. The results, which are based on individual price changes and not on macro effects, indicate a substantial degree of strategic complementarity, contributing to reconcile micro and macro based evidence
    Date: 2013–12
  37. By: Taylor J. Canann (Department of Economics, Brigham Young University); Richard W. Evans (Department of Economics, Brigham Young University)
    Abstract: This study tests the degree to which payday and title lenders differentiate their store location and interest rates based on the socioeconomic characteristics of the areas in which they operate. We use store-level lender data, geographically matched IRS income data, and Census Bureau demographic data to answer these questions. In the case of lender location, we find that payday and title lenders tend to locate in areas with lower median age, a larger population of not married households, more restaurants, and more pawn shops. We also find a nonlinear relationship between lender location and individual incomes in the surrounding area. Regarding lender interest rates, we find that competition among lenders reduces average interest rates and that riskiness of borrowers, as measured by defaults, increases average interest rates. We also find that payday and title lenders have higher interest rates in areas with lower educational attainment, smaller proportions of Black residents, and fewer married households. This evidence seems to contradict the argument that payday and title lenders prey on minorities.
    Keywords: Consumer lending, interest rates, payday lending, lender location
    JEL: C35 D22 E43 G23
    Date: 2013–12
  38. By: Charles I. Plosser
    Abstract: The Economic Outlook and Long-Term Growth> New Jersey Economic Leadership Forum, New Jersey Bankers Association, January 11, 2013, Somerset, New Jersey
    Keywords: Economic forecasting ; Productivity
    Date: 2013–01–11
  39. By: Carlos Arango; Yassine Bouhdaoui; David Bounie; Martina Eschelbach; Lola Hernández
    Abstract: Despite various payment innovations, today, cash is still heavily used to pay for low-value purchases. This paper develops a simulation model to test whether standard implications of the theory on cash management and payment choices can explain the use of payment instruments by transaction size. In particular, using diary survey data from Canada, France, Germany and the Netherlands, we test the assumption that cash is still the most efficient payment instrument, and the idea that people hold cash for precautionary reasons when facing uncertainty about their future purchases. The results of the simulations show that these two factors are significant determinants of the high shares of low-value cash payments in Canada, France and Germany. Yet, they are not so crucial in the Netherlands, which exhibits a significant share of low-value card transactions. We discuss how the differences in payment markets across countries may explain the differences in the performance of the model.
    Keywords: Bank notes; Financial services; International topics
    JEL: C61 E41 E47
    Date: 2013
  40. By: Leonardo Bargigli (DISEI, Università degli Studi di Firenze); Giovanni Di Iasio (Bank of Italy); Luigi Infante; Fabrizio Lillo; Federico Pierobon (Bank of Italy - Banking and Finance Supervision Department)
    Abstract: The interbank market has a natural multiplex network representation. We employ a unique database of supervisory reports of Italian banks to the Banca d'Italia that includes all bilateral exposures broken down by maturity and by the secured and unsecured nature of the contract. We find that layers have different topological properties and persistence over time. The presence of a link in a layer is not a good predictor of the presence of the same link in other layers. Maximum entropy models reveal different unexpected substructures, such as network motifs, in different layers. Using the total interbank network or focusing on a specific layer as representative of the other layers provides a poor representation of interlinkages in the interbank market and could lead to biased estimation of systemic risk.
    Keywords: interbank market, network theory, systemic risk
    JEL: E51 G21 C49
    Date: 2013
  41. By: Anne Green (University of Warwick, Institute for Employment Research); Maria de Hoyos (University of Warwick, Institute for Employment Research); James Stewart (Institute for Prospective Technological Studies, Joint Research Centre, European Commission)
    Abstract: In the current economic context where a key policy emphasis is on employment, this project aims to inform policy of new forms of work and ways to enhance employability mediated by ICT. New applications of ICTs are continually changing the practices and possibilities of work: the way that tasks are executed, how they are organised; labour markets – how human capital is contracted, exploited and developed; and the ways and places that people are able and choose to work and develop their working lives. This report explores four areas of ICT-mediated work, crowdsourced labour, crowdfunding, online volunteering and internet-mediated work exchange (timebanks), that have until now been little explored. Over the last 10 years, however, they have established themselves and are growing in importance and impact. Very little research has been available that gives insights into how and why these services have been set up, how they are used, and the impact they have on people's lives. This report presents six in-depth case studies in the fields of crowdfunding, crowdsourcing for work and online work exchange systems for the exchange or recruitment of unpaid work. These cases are based on qualitative research, including long interviews with users and managers of the services, exploring why people use them, use practices, the skills required and acquired, problems and challenges.
    Keywords: Employability, Information Society, Work, Employment, Social Inclusion, Entrepreneurship, Finance, Volunteering, Skills, Internet, Time Banks.
    Date: 2013–12
  42. By: Islam, Faridul; Shahbaz, Muhammad; Rahman, Mohammad Mafizur
    Abstract: The paper implements the autoregressive distributed lag (ARDL) bounds testing, supplemented by the Johansen-Juselius (JJ) approaches to cointegration to explore a long run relation among energy use, economic growth, financial development, capital, and trade openness in Australia. We also apply the vector error correction model (VECM) to understand the short run dynamics. The study period, 1965 – 2009, is hallmarked by major shocks across the globe which can potentially cause structural break in the series. To recognize this possibility, we implement the Zivot-Andrews (1992) and the Clemente et al. (1998) tests. The results confirm the long run relationship among the series. The Granger causality test shows bidirectional causality between energy consumption and economic growth; financial development and energy consumption; trade openness and economic growth; economic growth and financial development; energy consumption and trade openness; and financial development and trade openness. The findings offer fresh perspectives and insight for crafting energy policy for sustained economic growth.
    Keywords: Energy, Financial Development, Trade, Structural Break, ARDL, Australia
    JEL: E00
    Date: 2013–12–19

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