nep-mac New Economics Papers
on Macroeconomics
Issue of 2014‒01‒24
sixty-six papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Recent developments in monetary policy implementation By Potter, Simon M.
  2. Debt Dynamics and Monetary Policy: A Note By Laséen, Stefan; Strid, Ingvar
  3. Reactions to Shocks and Monetary Policy Regimes: Inflation Targeting Versus Flexible Currency Board in Ghana, South Africa and the WAEMU By Fadia Al Hajj; Gilles Dufrénot,; Kimiko Sugimoto; Romain Wolf
  4. A Note on Differential Asymmetric Effects of Money Supply and Policy Rate Shocks in India By Khundrakpam, Jeevan Kumar
  5. Understanding the gains from wage flexibility: The exchange rate connection By Jordi Galí; Tommaso Monacelli
  6. Comparing U.S. and European Market Volatility Responses to Interest Rate Policy Announcements By Krieger , Kevin; Mauck, Nathan; Vasquez, Joseph
  7. Inflation, structural change and conflict in post-disinflation Brazil: a structuralist appraisal By André Roncaglia de Carvalho
  8. The perils of nominal targets By Armenter, Roc
  9. Contextualizing Systemic Risk By Lukas Scheffknecht
  10. マクロ計量分析におけるDSGEモデルの役割:「最小解釈」の導入と応用 By 加納, 隆
  11. Market Set-Up in Advance of Federal Reserve Policy Decisions By Dick van Dijk; Robin L. Lumsdaine; Michel van der Wel
  12. Competitiveness, Adjustment and Macroeconomic Risk Management in the Eurozone By Peter Spahn
  13. Does Output Predict Unemployment? A Look at Okun’s Law in Greece By Costas Karfakis; Konstantinos Katrakilidis; Eftychia Tsanana
  14. Recovery from Financial Crises: Evidence from 100 Episodes By Carmen M. Reinhart; Kenneth S. Rogoff
  15. Unbundling the Great European Recession (2009-2013): Unemployment, Consumption, Investment, Inflation and Current Account By Campiglio, Luigi Pierfranco
  16. A tale of two commitments: equilibrium default and temptation By Nakajima, Makoto
  17. Information acquisition and learning from prices over the business cycle By Taneli Mäkinen; Björn Ohl
  18. How Sticky Wages in Existing Jobs Can Affect Hiring By Mark Bils; Yongsung Chang; Sun-Bin Kim
  19. Recall and unemployment By Fujita, Shigeru; Moscarini, Giuseppe
  20. The Conservativeness of the Central Bank when Institutional Quality is Poor By Ferré Carracedo, Montserrat; García Fortuny, Judit; Manzano, Carolina
  21. The output effects of systematic and non-systematic fiscal policy changes in Greece By Athanasios O. Tagkalakis
  22. A crisis not wasted – Institutional and structural reforms behind Norway’s strong macroeconomic performance. By Steigum, Erling; Thøgersen, Øystein
  23. Why myths in neoclassical economics threaten the world economy: a post-Keynesian Manifesto By Geoff C. Harcourt; Peter Kriesler; John Nevilet
  24. Time-varying Business Cycles Synchronisation in Europe By Degiannakis, Stavros; Duffy, David; Filis, George
  25. The Financial and Macroeconomic Effects of the OMT Announcements By Carlo Altavilla; Domenico Giannone; Michele Lenza
  26. Shocks, gaps, and monetary policy, Korea-America Economic Association, January 4, 2014, Philadelphia, PA By Plosser, Charles I.
  27. Milton Friedman: Constructing an Anti-Keynes By Craig Freedman; Geoff C. Harcourt; Peter Kriesler; John Nevilet
  28. News shocks and business cycles: bridging the gap from different methodologies By Christoph Görtz; John D. Tsoukalas
  29. Why Has U.S. Policy Uncertainty Risen Since 1960? By Scott R. Baker; Nicholas Bloom; Brandice Canes-Wrone; Steven J. Davis; Jonathan A. Rodden
  30. Business Cycles, Unemployment and Entrepreneurial Entry: Evidence from Germany By Fritsch, Michael; Kritikos, Alexander S.; Pijnenburg, Katharina
  31. Romania, Poland. Two Countries, One Wish: Joining the Eurozone By Soproni, Luminita; Marcut, Mirela
  32. Welfare Reversals in a Monetary Union By Stéphane Auray; Aurélien Eyquem
  33. Buyer-Size Discounts and Inflation Dynamics By Mayumi Ojima; Junnosuke Shino; Kozo Ueda
  34. Are increase in NPAs of Indian Banks- Structural or Cyclical phenomenon? By Bisht, Poonam
  35. Simple banking: profitability and the yield curve By Piergiorgio Alessandri; Benjamin Nelson
  36. Lessons Learned from Tax vs. Expenditure Based Fiscal Consolidation in the European Transition Economies By Rajmund Mirdala
  37. Foreign Customer Accumulation and Export Dynamics By Volker Tjaden
  38. Towards a Genuine Economic and Monetary Union – Comments on a Roadmap By Ansgar Belke
  39. A small macro econometric model for Kazakhstan: a retrospective of alternative economic policies undertaken during the transition process By Gilles Dufrénot; Adelya Ospanova; Alain Sand-Zantman
  40. "Financial Crisis Resolution and Federal Reserve Governance: Economic Thought and Political Realities" By Bernard Shull
  41. Cenové bubliny na dluhopisových trzích USA a Japonska By Sirucek, Martin
  42. On the Self-Fulfilling Prophecy of Changes in Sovereign Ratings By Ingmar Schumacher
  43. Lange's 1938 Model: Dynamics and the "Optimum propensity to consume" By Michaël Assous; Roberto Lampa
  44. Youth Unemployment in Southern Europe By João Leão; Guida Nogueira
  45. International Portfolios: A Comparison of Solution Methods By Katrin Rabitsch; Serhiy Stepanchuk; Viktor Tsyrennikov
  46. A Theory of Income Taxation under Multidimensional Skill Heterogeneity By Casey Rothschild; Florian Scheuer
  47. The One-Child Policy and Household Savings in China By Keyu Jin; Nicolas Coeurdacier
  48. Fiscal Imbalances and Current Account Adjustments in the European Transition Economies By Rajmund Mirdala
  49. Austerity plans and tax evasion : theory and evidence from Greece By Francesco Pappadà; Yanos Zylberberg
  50. Employment Dynamics and Redistributive Policies under Workers' Social Norms By Dos Santos Ferreira, Rodolphe; Lloyd-Braga, Teresa; Modesto, Leonor
  51. The Distribution of Gross Domestic Product and Hours Worked in Canada and the United States Across Firm Size Classes By Leung, Danny Rispoli, Luke
  52. Regole europee, cuneo fiscale e trappola della produttivita'. La Legge di Stabilita' 2014-2016 programma la depressione By Paolo Pini
  53. The Economic Recovery and Economic Policy : a speech at the Economic Club of New York, New York, New York, November 20, 2012 By Bernanke, Ben S.
  54. The Boy Who Cried Bubble: Public Warnings against Riding Bubbles By Yasushi Asako; Kozo Ueda
  55. A Tourism Conditions Index By Chia-Lin Chang; Hui-Kuang Hsu; Michael McAleer
  56. Dynamic Impacts on Growth and Intergenerational Effects of Energy Transition in a Time of Fiscal Consolidation By Frederic Gonand
  57. A High-Stakes Shift: Turning the Tide From GDP to New Prosperity Indicators By Isabelle CASSIERS; Géraldine THIRY
  58. Asymmetric co-integration and causality effects between financial development and economic growth in South Africa By Phiri, Andrew
  59. Are emerging markets exposed to contagion from U.S.: Evidence from stock and sovereign bond markets By Irfan Akbar Kazi; Hakimzadi Wagan
  60. Gli economisti italiani e lo sviluppo industriale By Patrizio Bianchi
  61. Cash management and payment choices: A simulation model with international comparisons By Carlos Arango; Yassine Bouhdaoui; David Bounie; Martina Eschelbach; Lola Hernández
  62. The Relation between Inventory Investment and Price Dynamics in a Distributive Firm By Akiyuki Tonogi;
  63. Benchmarking time series based forecasting models for electricity balancing market prices By Gro Klaeboe; Anders Lund Eriksrud; Stein-Erik Fleten
  64. Exchange Rates and Fundamentals:Closing a Two-country Model By Takashi Kano;
  65. Nutrition and economic growth in South Africa: A momentum threshold autoregressive (MTAR) approach By Phiri, Andrew; Dube, Wisdom
  66. A Conceptual Framework for Commercial Property Price Indexes By Diewert, Erwin; Shimizu, Chihiro

  1. By: Potter, Simon M. (Federal Reserve Bank of New York)
    Abstract: Remarks before the Money Marketeers of New York University, New York City
    Keywords: the Desk; dual mandate; primary dealers; counterparties; IOER; reverse repos; interest on excess reserves; System Open Market Account (SOMA)
    JEL: E44 E52 E58
    Date: 2013–12–02
  2. By: Laséen, Stefan (Monetary Policy Department, Central Bank of Sweden); Strid, Ingvar (Monetary Policy Department, Central Bank of Sweden)
    Abstract: "Leaning against the wind" – a tighter monetary policy than necessary for stabilizing inflation around the inflation target and unemployment around a long-run sustainable rate – has been justified as a way of reducing household indebtedness. In a recent paper Lars Svensson claims that this policy is counterproductive, since a higher policy rate actually leads to an increase (and not a decrease) in real debt and the debt-to-GDP ratio. In this note we offer some comments and extensions to Svensson´s analysis. In particular, we take Svensson´s debt model to the data and show that it provides an incomplete account of short term debt dynamics. Further, the overall analysis of the effects of monetary policy on debt rests on the rather strong assumption that debt is independent of the policy rate, conditional on housing prices. The policy responses advocated by Svensson can therefore be questioned. More importantly, our exercises with a modified model of debt dynamics enables further understanding of how different assumptions affect the assessment of the effects of monetary policy on debt.
    Keywords: House prices; Mortgage Debt; Monetary policy; Bayesian Estimation; Structural VAR
    JEL: C32 E21 E31 E32 E44 E52 R21 R31
    Date: 2013–12–01
  3. By: Fadia Al Hajj; Gilles Dufrénot,; Kimiko Sugimoto; Romain Wolf
    Abstract: The aim of this paper is to examine the monetary policy actions through which the central banks in the Sub-Saharan African countries have searched to eliminate the negative impacts of the shocks facing their economies. We compare two types of monetary policy regimes: a currency board regime (in the CFA zone countries) and an inflation targeting policy regime (in Ghana and South Africa). We compare the properties of both policies when the central banks respond to three negative shocks hitting the economies: a recessionary demand shock, a supply shock increasing inflation and a negative fiscal shock. We propose an FPAS model (forecasting and monetary policy analysis system) that extends the usual FPAS models used in the literature to evaluate the impact of several policies in response to different types of exogenous shocks. We find that both policies are inappropriate to help the economies exiting from the effects of negative demand shocks (the adjustment relies mainly on fiscal policy), both are essential when negative shocks to primary balance occur (fiscal policy aggravates the negative effects of the shocks), while inflation targeting dominates the currency board regime as a strategy to cope with positive shocks to inflation.
    Keywords: inflation target, currency board, African countries
    JEL: E52 F41 Q33
    Date: 2013–11–15
  4. By: Khundrakpam, Jeevan Kumar
    Abstract: The paper attempts to analyse the asymmetric effects of money supply and policy rate shocks in India using quarterly data from 1996-97Q1 to 2011-12Q4. It finds that both the shocks impact real output growth and inflation in the short-run, but have a differential impact among components of aggregate demand. An unanticipated hike/cut in policy rate has a symmetric impact of reducing/increasing GDP growth arising due to a corresponding symmetric impact on investment growth only. In contrast, an unanticipated increase/decrease in money supply has an asymmetric impact– only an unanticipated increase in money supply increases private consumption growth and GDP growth, while there is no impact on the other components aggregate demand. An unanticipated hike/reduction in policy rate leads to a symmetric decline/rise in inflation. An unanticipated change in money supply leads to higher inflation, but a similar decrease in it has no significant impact on inflation.
    Keywords: Monetary Policy, Asymmetry, Inflation, Policy Rate
    JEL: C32 C51 E31 E51
    Date: 2013–11
  5. By: Jordi Galí; Tommaso Monacelli
    Abstract: We study the gains from increased wage flexibility and their dependence on exchange rate policy, using a small open economy model with staggered price and wage setting. Two results stand out: (i) the impact of wage adjustments on employment is smaller the more the central bank seeks to stabilize the exchange rate, and (ii) an increase in wage flexibility often reduces welfare, and more likely so in economies under an exchange rate peg or an exchange rate-focused monetary policy. Our findings call into question the common view that wage flexibility is particularly desirable in a currency union.
    Keywords: sticky wages, nominal rigidities, New Keynesian model, stabilization policies, exchange rate policy, currency unions, monetary policy rules.
    JEL: E32 E52 F41
    Date: 2013–12
  6. By: Krieger , Kevin; Mauck, Nathan; Vasquez, Joseph
    Abstract: We examine the response of U.S. (VIX) and German (VDAX) implied volatility indices to the announcement of interest rate policy decisions by the Federal Open Market Committee (FOMC) and the European Central Bank (ECB). We confirm prior findings that VIX declines on FOMC meetings days. We present new findings that indicate that VDAX declines on FOMC meeting days, but is not related to ECB meeting days. VIX is unrelated to ECB meeting days. Taken collectively, our results indicate a prominent position for the FOMC in determining uncertainty levels both domestically and abroad relative to no relation between uncertainty levels and the ECB. JEL
    Keywords: FOMC, ECB, VIX, VDAX, Monetary policy, Volatility spillover
    JEL: E44 E52 E58 F3 G20 G21 G28
    Date: 2014–01–14
  7. By: André Roncaglia de Carvalho
    Abstract: The paper analyzes some of the structural causes of inflationary persistence in Brazil in the post-Real plan period, in contrast to the Brazilian Central Bank’s view on the causes of inflation, particularly in what concerns its inertial component. It begins with a historical perspective on the convergence of stabilization theory to the so-called “macroeconomic consensus” and the understanding of inflation by this approach. We make the case that inflation can be better understood in its root causes only if the terms of distributional conflict and inter-sectoral dynamics are considered, which include the structural changes undergone by the Brazilian economy after the Real plan. Two primary pressures are therefore analyzed, namely: (i) the increase in the tertiary sector´s share of total value added in aggregate output combined with (ii) an intensive policy of income distribution. The interplay of supply and demand forces in a widely-indexed economic environment paints a more detailed picture of the current challenges faced by the ongoing monetary policy regime in Brazil than the one found in new Keynesian models.
    Keywords: inflation inertia; structural change; conflicting claims; Real plan; Brazil
    JEL: E02 E31 B50
    Date: 2013–12–20
  8. By: Armenter, Roc (Federal Reserve Bank of Philadelphia)
    Abstract: A monetary authority can be committed to pursuing an inflation, price-level, or nominal output target yet systematically fail to achieve the specified goals. Constrained by the zero lower bound on the policy rate, the monetary authority is unable to implement its objectives when private-sector expectations stray away from the target in the first place. Low-inflation expectations become self-fulfilling, leading to multiple Markov equilibria. Private-sector expectations are anchored on a unique Markov equilibrium if the monetary authority is given a strong stabilization goal for the policy rate. However, policy-rate stabilization may not improve welfare as the resulting policy is severely distorted.
    Keywords: Nominal targets; Monetary authority; Markov equilibria
    Date: 2013–12–10
  9. By: Lukas Scheffknecht
    Abstract: I analyze the rapidly growing literature about systemic risk in financial markets and find an important commonality. Systemic risk is regarded to be an endogenous outcome of interactions by rational agents on imperfect markets. Market imperfections give rise to systemic externalities which cause an excessive level of systemic risk. This creates a scope for welfare-increasing government interventions. Current policy debates usually refer to them as ’macroprudential regulation’. I argue that efforts undertaken in this direction - most notably the incipient implementation of Basel III- are insufficient. The problem of endogenous financial instability and excessive systemic risk remains an unresolved issue which carries unpleasant implications for central bankers. In particular, monetary policy is in danger of persistently getting burdened with the difficult task to simultaneously ensure macroeconomic and financial stability.
    Keywords: Systemic Risk, Systemic Externalities, Macroprudential Regulation, Basel III
    JEL: E44 E52 G01 G18
    Date: 2013–12
  10. By: 加納, 隆
    Abstract: 本稿では、動学的確率的一般均衡モデルのマクロ計量経済分析における役割を、Geweke (2010)による強解釈と弱解釈および最小解釈の3分類に従って批判的に略説する。最小解釈の応用例として、Kano and Nason (2013)による消費の習慣形成の金融政策ショック伝播メカニズムとしての役割に関する実証分析を紹介する。最後に将来研究への展望を議論する。, This paper critically reviews roles of dynamics stochastic general equilibrium (DSGE) models in macroeconometrics, introducing econometric categorizations of DSGE models made by Geweke (2010): strong, weak, and minimal econometric interpretations. As an application of the minimal interpretation, this paper introduces the Bayesian Monte Carlo exercise conducted by Kano and Nason (2013) for investigating business cycle implications of consumption habits as a propagation mechanism of monetary policy shocks.
    Keywords: 動学的確率的一般均衡モデル, マクロ計量モデル, ベイズ統計学, ニューケインジアンモデル, 消費の習慣形成
    JEL: E10 E20 E32
    Date: 2013–12
  11. By: Dick van Dijk; Robin L. Lumsdaine; Michel van der Wel
    Abstract: This paper considers the uncertainty associated with upcoming Federal Open Market Committee (FOMC) announcements and the extent to which the market begins to set up for such announcements well before they actually occur. We demonstrate that markets set up well in advance of known announcement days; as a result, there is often less uncertainty in the period immediately preceding an FOMC announcement, despite greater volume of activity, as the market has already incorporated anticipated signals. We consider the relative importance of both macro announcements and central bank officials’ speeches and congressional testimony in shaping market expectations. We find substantial evidence of anticipatory effects; these results are particularly relevant as the Fed develops its communication strategy to achieve an orderly exit from its program of quantitative easing.
    JEL: E43 E44 E58 G18
    Date: 2014–01
  12. By: Peter Spahn
    Abstract: Gaps in competitiveness, rooted in economic as well as in political factors, characterise postwar European economic history. The eurozone experience showed the emergence of large current account imbalances. The peculiar mixture of financial markets integration and national cycles in wages and prices gave rise to severe macroeconomic instability. The Swan Diagram is used to analyse alternative adjustment policies. Although there are signs of convergence in wage costs, the overall picture of EMU remains somewhat gloomy, requiring the decision between full political union or a renewed gold standard.
    Keywords: Currency union, euro crisis, current account imbalances, wage policy, Swan diagram
    JEL: E50 E58 E63 F32 F34
    Date: 2013–12
  13. By: Costas Karfakis (Department of Economics, University of Macedonia); Konstantinos Katrakilidis (Department of Economics, Aristotle University); Eftychia Tsanana (Department of Economics, Aristotle University)
    Abstract: This paper examines the unemployment-output relationship in Greece, using a dynamic version of Okun’s Law. The Granger causality tests indicate that real output is important to understanding future movements in unemployment. The Okun’s ratio is 3-to-1, implying that one percent increase in unemployment has been associated to a three percent decrease in real output during the last thirteen years. In addition, the response of unemployment to real output is found to be stronger when there is a contraction rather than an expansion of real activity. This empirical fact is consistent with the developments of the Beveridge curve, which illustrate that a significant portion of actual unemployment is structural in nature. Therefore, a fall in unemployment will require not only a pick-up in aggregate demand but also structural reforms in the Greek labour market, which will make the economy competitive and reduce long-term unemployment.
    Keywords: Okun’s Law, real output, unemployment, business cycles, Beveridge curve, VAR model, Granger causality.
    JEL: E24 E32 E37
    Date: 2013–12
  14. By: Carmen M. Reinhart; Kenneth S. Rogoff
    Abstract: We examine the evolution of real per capita GDP around 100 systemic banking crises. Part of the costs of these crises owes to the protracted nature of recovery. On average, it takes about eight years to reach the pre-crisis level of income; the median is about 6 ½ years. Five to six years after the onset of crisis, only Germany and the US (out of 12 systemic cases) have reached their 2007-2008 peaks in real income. Forty-five percent of the episodes recorded double dips. Postwar business cycles are not the relevant comparator for the recent crises in advanced economies.
    JEL: E32 E44 F44 G01 N10 N20
    Date: 2014–01
  15. By: Campiglio, Luigi Pierfranco
    Abstract: The aim of the paper is to unbundle the main economic variables involved in the European Crisis and clarify their reciprocal relationship. The variable considered are: unemployment, inflation, consumptions, investments and current accounts. We use annual, quarterly and monthly data, until 2012, mid-2013 or an estimate of 2013 for the main European countries. The main results are the following: a) we show an emerging European economic divide, b) we detect a quasi-Okun relationship between investment and unemployment, c) we show the revival of the Phillips curve, especially in Germany, d) we test for the relationship between unemployment and the Government deficit, e) we show the existence of a relationship between unemployment and current account, f) we show how countries with high unemployment rate could bear the burden, g) we unbundle the unemployment-current account relationship, showing first the relationship between unemployment and final consumption, h) and then between final consumption, imports and corrent account, i) we show why a stable and growing inflation differential is not sustainable, but argue that internal devalution is not an effective policy, pushing inflation rates to a worrisome lower level and even outright deflation, l) we argue and show how to implement a more effective policy looking to the inflation differentials of specific products, looking to the case of Italy, m) we analyze the trade relationship between Germany and China, arguing that since the onset of the EMU and the successive membership of China to the WTO a European structural break occurred, with some European countries relying much more on exports rather than domestic demand. A more general issue of sustainability and replicability of the Germany’s export led growth model is raised.
    Keywords: Great Recession, Europe, Germany, Unemployment, Inflation, Consumption, Investment, Current Account.
    JEL: E24 E29 E31 E32 H62
    Date: 2014–01
  16. By: Nakajima, Makoto (Federal Reserve Bank of Philadelphia)
    Abstract: I construct the life-cycle model with equilibrium default and preferences featuring temptation and self-control. The model provides quantitatively similar answers to positive questions such as the causes of the observed rise in debt and bankruptcies and macroeconomic implications of the 2005 bankruptcy reform, as the standard model without temptation. However, the temptation model provides contrasting welfare implications, because of overborrowing when the borrowing constraint is relaxed. Specifically, the 2005 bankruptcy reform has an overall negative welfare effect, according to the temptation model, while the effect is positive in the no-temptation model. As for the optimal default punishment, welfare of the agents without temptation is maximized when defaulting results in severe punishment, which provides a strong commitment to repaying and thus a lower default premium. On the other hand, welfare of agents with temptation is maximized when weak punishment leads to a tight borrowing constraint, which provides a commitment against overborrowing.
    Keywords: Consumer bankruptcy; Debt; Default; borrowing constraint; Temptation and self-control; Hyperbolic-discounting; Heterogeneous agents; Incomplete markets
    JEL: D91 E21 E44 G18 K35
    Date: 2013–12–11
  17. By: Taneli Mäkinen (Bank of Italy); Björn Ohl (Narodowy Bank Polski)
    Abstract: We study firms’ incentives to acquire costly information in booms and recessions to understand the role of endogenous information in explaining business cycles. We find that when the economy has been in a recession in the previous period, and firms enter the current period with a pessimistic belief, the incentive to acquire information is stronger than when the economy has been in a boom and firms share an optimistic belief. The cyclicality of the aggregate learning outcome is moderated by the price system, which transmits information from informed to uninformed firms, thus dampening information demand. Though learning from equilibrium prices acts to stabilize fluctuations by discouraging information acquisition, it can be welfare-enhancing to make information prohibitively costly to obtain.
    Keywords: information acquisition, rational expectations equilibrium, asymmetric information, strategic substitutability
    JEL: D51 D83 E32
    Date: 2014–01
  18. By: Mark Bils; Yongsung Chang; Sun-Bin Kim
    Abstract: We consider a matching model of employment with wages that are flexible for new hires, but sticky within matches. We depart from standard treatments of sticky wages by allowing effort to respond to the wage being too high or low. Shimer (2004) and others have illustrated that employment in the Mortensen-Pissarides model does not depend on the degree of wage flexibility in existing matches. But this is not true in our model. If wages of matched workers are stuck too high in a recession, then firms will require more effort, lowering the value of additional labor and reducing new hiring.
    JEL: E24 E32 J22 J23
    Date: 2014–01
  19. By: Fujita, Shigeru (Federal Reserve Bank of Philadelphia); Moscarini, Giuseppe (Yale University)
    Abstract: Using data from the Survey of Income and Program Participation (SIPP) covering 1990-2011, we document that a surprisingly large number of workers return to their previous employer after a jobless spell and experience more favorable labor market outcomes than job switchers. Over 40% of all workers separating into unemployment regain employment at their previous employer; over a fifth of them are permanently separated workers who did not have any expectation of recall, unlike those on temporary layoff. Recalls are associated with much shorter unemployment duration and better wage changes. Negative duration dependence of unemployment nearly disappears once recalls are excluded. We also find that the probability of finding a new job is more procyclical and volatile than the probability of a recall. Incorporating this fact into an empirical matching function significantly alters its estimated elasticity and the time-series behavior of matching efficiency, especially during the Great Recession. We develop a canonical search-and-matching model with a recall option where new matches are mediated by a matching function, while recalls are free and triggered by both aggregate and job-specific shocks. The recall option is lost when the unemployed worker accepts a new job. A quantitative version of the model captures well our cross-sectional and cyclical facts through selection of recalled matches.
    Keywords: Recalls; Unemployment; Duration dependence; Matching function
    JEL: E24 E32 J64
    Date: 2013–11–01
  20. By: Ferré Carracedo, Montserrat; García Fortuny, Judit; Manzano, Carolina
    Abstract: We propose an extension of Alesina and Tabellini 's model (1987) to include corruption, which is understood as the presence of weak institutions collecting revenue through formal tax channels. This paper analyses how conservative should an independent central bank be when the institutional quality is poor. When there are no political distortions, we show that the central bank has to be more conservative than the government, except with complete corruption. In this particular case, the central bank should be as conservative as the government. Further, we obtain that the relationship between the optimal relative degree of conservativeness of the central bank and the degree of corruption is affected by supply shocks. Concretely, when these shocks are not important, the central bank should be less conservative if the degree of corruption increases. However, this result may not hold when the shocks are relevant. JEL classi fication: D6, D73, E52, E58, E62, E63. Keywords: Central Bank Conservativeness; Corruption; Fiscal Policy; Monetary Policy; Seigniorage.
    Keywords: Economia del benestar, Corrupció, Bancs centrals, Política monetària, Política fiscal, 336 - Finances. Banca. Moneda. Borsa,
    Date: 2013
  21. By: Athanasios O. Tagkalakis (Bank of Greece)
    Abstract: This paper investigates the effects of systematic (or rules-based) and non-systematic (exogenous) fiscal policy changes on output growth in Greece, focusing also on the composition of fiscal policy. Exogenous fiscal policy changes are associated with Keynesian responses (with the exception of net transfers and VAT). Although systematic government spending cuts aiming at improving fiscal performance tend to have a Keynesian effect on output growth in the short term, they ultimately result in a non-Keynesian response, raising output growth. Systematic direct tax hikes, aiming at correcting fiscal imbalances, can have positive medium to long term growth effects.
    Keywords: Fiscal rules; output growth; exogenous; systematic policy responses
    JEL: E6 H6 H3
    Date: 2013–11
  22. By: Steigum, Erling (BI Norwegian Business School); Thøgersen, Øystein (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: This paper draws the line between the Norwegian boom-bust cycle and crises in the late 1980s and early 1990s, the succeeding institutional and structural reforms and the strong macroeconomic performance and stability of the last two decades. The systemic banking crisis and speculative attack on the Norwegian krone in the early 1990s were the last in a series of blows to Norway’s macroeconomic policy regime. In addition to the recession after 1988, the underlying growth potential of the Mainland economy was also weak, despite financial deregulation and the gains in competitiveness. The large oil price fall in the mid-1980s had demonstrated the risk of uncertain oil revenues as an important source of income to the government. The political awareness of an economic crisis paved the way for a series of structural reforms and changes in the macroeconomic policy regime. Some of these reforms were implemented quickly, such as a tax reform, an energy market reform and a new incomes policy framework. In 2001 a new framework for monetary and fiscal policy was put in place, involving a flexible exchange rate and inflation targeting, as well as a new fiscal policy rule designed to facilitate consumption smoothing and a build-up of a sovereign wealth fund. We discuss possible reasons why Norway’s political system has been able to learn from previous policy failures and reach the necessary consensus, and determination, to implement institutional and structural reforms in economic policy.
    Keywords: Norwegian boom-bust cycle; banking crises; attack on the Norwegian krone
    JEL: E60 G10 H60
    Date: 2013–12–17
  23. By: Geoff C. Harcourt (School of Economics, Australian School of Business, the University of New South WalesAuthor-Name: Craig Freedman); Peter Kriesler (School of Economics, Australian School of Business, the University of New South WalesAuthor-Name: Craig Freedman); John Nevilet (School of Economics, Australian School of Business, the University of New South Wales)
    Abstract: There is a myth underlying neoclassical economic analysis of a ‘Western’ economy, which is that in anything but the relatively short run, defined as the length of a business cycle, the economy reaches an equilibrium position determined entirely by supply side factors and unaffected by measures taken to increase aggregate demand during a slump This myth is not based on any factual analysis, it is simply assumed. It threatens the wellbeing of the world economy because it allows those who hold it to deny there is any need to change the deregulated state of the international financial sector, that caused the global crisis which started in 2007 and the effects of which have persisted ever since. The fundamental myth has a number of corollaries, which are worth calling associated myths. One of the most important is that the composition of spending to increase aggregate demand during a slump is irrelevant, so that it does not matter if the spending is directed towards consumer goods or to increasing physical and human capital. Another is that monetary policy has a more desirable impact on the economy than does fiscal policy. The paper focusses on neo-classical growth theory; comparative static implications are not considered. Finally, the policy implications are discussed.
    Keywords: Financial crisis, Macroeconomic policy, deregulation, neo-classical growth theory
    JEL: E6 E32 O4
    Date: 2013–12
  24. By: Degiannakis, Stavros; Duffy, David; Filis, George
    Abstract: The paper investigates the time-varying correlation between the EU12-wide business cycle and the initial EU12 member-countries based on scalar-BEKK and multivariate Riskmetrics model frameworks for the period 1980-2009. The paper provides evidence that changes in the business cycle synchronisation correspond to institutional changes that have taken place at a European level. Business cycle synchronisation has moved in a direction positive for the operation of a single currency suggesting that the common monetary policy is less costly in terms of lost flexibility at the national level. Thus, any questions regarding the optimality and sustainability of the common currency area in Europe should not be attributed to the lack of cyclical synchronisation.
    Keywords: Scalar-BEKK, Multivariate Riskmetrics, time varying correlation, EU business cycle, business cycle synchronisation.
    JEL: C32 E32 F44 O52
    Date: 2013–10–15
  25. By: Carlo Altavilla (European Central Bank and CSEF); Domenico Giannone (Université Libre de Bruxelles and ECARES); Michele Lenza (European Central Bank, Université Libre de Bruxelles and ECARES)
    Abstract: This paper evaluates the effects of the 2012 announcements of the ECB’s Outright Monetary Transactions (OMT) programme. Using high frequency data, we find that the OMT announcements decreased the Italian and Spanish two years government bond yields by about two percentage points, while leaving unchanged the bond yields of the same maturity in Germany and France. The results are robust to controlling for all other relevant macroeconomic and financial news released at the time of the announcements. These outcomes are used to calibrate scenarios in a multi-country model describing the macro-financial linkages in France, Germany, Italy and Spain. The scenario analysis suggests that the reduction in bond yields due to the OMT announcements will be associated to a significant increase in real activity, credit and prices in Italy and Spain.
    Keywords: Outright monetary transactions, event study, news, multi-country vector autoregressive model
    JEL: E47 E58 C54
    Date: 2014–01–14
  26. By: Plosser, Charles I. (Federal Reserve Bank of Philadelphia)
    Abstract: Presented by Charles I. Plosser, President and Chief Executive Officer, Federal Reserve Bank of Philadelphia KAEA-Maekyung Forum, Korea-America Economic Association, January 4, 2014, Philadelphia, PA President Charles Plosser discusses how some key features of the recent recession and recovery have influenced his views on monetary policymaking. He again advocates that we should think in terms of robust policies that yield good economic outcomes across a variety of models and frameworks.
    Keywords: Shocks; Gaps; Economic models
    Date: 2014–01–04
  27. By: Craig Freedman (Department of Economics, Macquirie University); Geoff C. Harcourt (School of Economics, Australian School of Business, the University of New South WalesAuthor-Name: Craig Freedman); Peter Kriesler (School of Economics, Australian School of Business, the University of New South WalesAuthor-Name: Craig Freedman); John Nevilet (School of Economics, Australian School of Business, the University of New South Wales)
    Abstract: The paper considers Keynes’s major contributions before "The General Theory", namely "A Tract on Monetary Reform" and "A Treatise on Money", and shows that they were close to the views which Friedman would later develop. However, "The General Theory of Employment, Interest and Money" represented a major challenge to the orthodoxy of the time, and it was to this that Friedman radically objected. We identify the main areas in which Keynes departed from the mainstream theory of the time, and show how Friedman attempted to undermine each of Keynes’s major contributions and the extent to which he was successful. Friedman regarded Keynes’s contributions as detrimental to, and a definitive step backward for, the economics profession.
    Keywords: Friedman, Keynes, History of macroeconomics, Macroeconomic policy
    JEL: B22 B31 E6
    Date: 2013–12
  28. By: Christoph Görtz; John D. Tsoukalas
    Abstract: An important disconnect in the news driven view of the business cycle formalized by Beaudry and Portier (2004), is the lack of agreement between different—VAR and DSGE—methodologies over the empirical plausibility of this view. We argue that this disconnect can be largely resolved once we augment a standard DSGE model with a financial channel that provides amplification to news shocks. Both methodologies suggest news shocks to the future growth prospects of the economy to be significant drivers of U.S. business cycles in the post-Greenspan era (1990-2011), explaining as much as 50% of the forecast error variance in hours worked in cyclical frequencies.
    Keywords: News shocks, Business cycles, DSGE, VAR, Bayesian estimation.
    JEL: E2 E3
    Date: 2013–11
  29. By: Scott R. Baker; Nicholas Bloom; Brandice Canes-Wrone; Steven J. Davis; Jonathan A. Rodden
    Abstract: There appears to be a strong upward drift in policy-related economic uncertainty after 1960. We consider two classes of explanations for this rise. The first stresses growth in government spending, taxes, and regulation. A second stresses increased political polarization and its implications for the policy-making process and policy choices. While the evidence is inconclusive, it suggests that both factors play a role in driving the secular increase in policy uncertainty over the last half century.
    JEL: D7 E02 E6 H11
    Date: 2014–01
  30. By: Fritsch, Michael (University of Jena); Kritikos, Alexander S. (University of Potsdam, DIW Berlin); Pijnenburg, Katharina (DIW Berlin)
    Abstract: We investigate whether people are more willing to become self-employed during boom periods or during recessions and to what extent business cycles or unemployment levels influence entries into entrepreneurship. Our analysis for Germany reveals that there is a positive relationship between unemployment rates and start-up activities. Moreover, new business formation is higher during recessions than in boom periods. This implies that new business formation is counter-cyclical. When disentangling periods of low and high unemployment we find that the effect of unemployment on new business formation is only statistically significant if the level of unemployment is below the trend, indicating a "low unemployment retain effect".
    Keywords: self-employment, business cycle, unemployment, start-up
    JEL: L26 E32
    Date: 2013–12
  31. By: Soproni, Luminita; Marcut, Mirela
    Abstract: The paper aims to present the efforts of the two Member States of the European Union regarding the criteria for accession in the „select club” of the Eurozone, in the current economic environment, which is characterized by uncertainty and profound turbulences. The study has pointed out that, even though the economic policies of the Romanian and Polish governments have generally implied similar measures in order to comply with the convergence criteria, the visions of the two governments are different. In short, Romania’s exaggerated optimism, fuelled by the electoral “needs”, (the only country in a hurry to enter the Eurozone), and not backed by the economic reality, is in a stark contrast with Poland’s reserved attitude (taking into consideration the fact that the Poland has the highest rate of economic growth in Europe), which expresses the wish to join the Eurozone only after the national economy’s problems as well as the Eurozone’s troubles have been resolved.
    Keywords: Romania, Poland, convergence criteria, Eurozone, Economic and Monetary Union, economic crisis
    JEL: E01 E5 E58 F43 F5
    Date: 2013
  32. By: Stéphane Auray (EQUIPPE - ECONOMIE QUANTITATIVE, INTEGRATION, POLITIQUES PUBLIQUES ET ECONOMETRIE - Université Lille I - Sciences et technologies, CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique); Aurélien Eyquem (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure (ENS) - Lyon - PRES Université de Lyon)
    Abstract: We show that welfare can be lower under complete financial markets than under autarky in a monetary union with home bias, sticky prices and asymmetric shocks. Such a monetary union is a second-best environment in which the structure of financial markets affects risk-sharing but also shapes the dynamics of inflation rates and the welfare costs from nominal rigidities. Welfare reversals arise for a variety of empirically plausible degrees of price stickiness when the Marshall-Lerner condition is met. These results carry over a model with active fiscal policies, and hold within a medium-scale model, although to a weaker extent.
    Keywords: Monetary Union; Financial Markets Incompleteness; Sticky Prices; Fiscal and Monetary Policy
    Date: 2014–01–08
  33. By: Mayumi Ojima; Junnosuke Shino; Kozo Ueda
    Abstract: This paper considers the macroeconomic effects of retailers’ market concentration and buyer-size discounts on inflation dynamics. During Japan’s “lost decades,” large retailers enhanced their market power, leading to increased exploitation of buyer-size discounts in procuring goods. We incorporate this effect into an otherwise standard New- Keynesian model. Calibrating to the Japanese economy during the lost decades, we find that despite a reduction in procurement cost, strengthened buyer-size discounts did not cause deflation; rather, they caused inflation of 0.1% annually. This arose from an increase in the real wage due to the expansion of production.
    Date: 2014–01
  34. By: Bisht, Poonam
    Abstract: The Paper is an attempt to understand the impact of increased NPAs of Indian Banks on Cyclical or Structural trend of Business Cycle from 2000-2013 for which this study conducts correlation between GDP growth & IIP growth of increased NPAs of Indian Banks.
    Keywords: NPAs, Business cycle, Cyclical, Structural, GDP and IIP
    JEL: E30
    Date: 2013–11–12
  35. By: Piergiorgio Alessandri (Bank of Italy); Benjamin Nelson (Bank of England)
    Abstract: How does bank profitability vary with interest rates? We present a model of a monopolistically competitive bank subject to repricing frictions, and test the model’s predictions using a unique panel data set on UK banks. We find evidence that large banks retain a residual exposure to interest rates, even after accounting for hedging activity operating through the trading book. In the long run, both level and slope of the yield curve contribute positively to profitability. In the short run, however, increases in market rates compress interest margins, consistent with the presence of non negligible loan pricing frictions.
    Keywords: banking profitability, net interest margin, interest rates
    JEL: E4 G21
    Date: 2014–01
  36. By: Rajmund Mirdala
    Abstract: European Union member countries are currently exposed to negative implications of the economic and debt crisis. Questions associated with disputable implications of fiscal incentives seem to be contrary to the crucial need of the effective fiscal consolidation that is necessary to reduce excessive fiscal deficits and high sovereign debts. While challenges addressed to the fiscal policy and its anti-cyclical potential rose steadily but not desperately since the beginning of the economic crisis, the call for fiscal consolidation became urgent almost immediately and this need significantly strengthen after the debt crisis contagion flooded Europe. In the paper we provide an overview of main trends in public budgets and sovereign debts in ten European transition economies during last two decades. We identify episodes of successful and unsuccessful (cold showers versus gradual) fiscal (expenditure versus revenue based) consolidations by analyzing effects of improvements in cyclically adjusted primary balance on the sovereign debt ratio reduction. We also estimate VAR model to analyze effects of fiscal shocks (based on one standard deviation in total expenditure, direct and indirect taxes) to real output. It is expected that responses of real output to different types of (consolidating) fiscal shocks may vary and thus provide more precise ideas about a feasibility (i.e. side effects on the macroeconomic performance) of expenditure versus revenue based fiscal consolidation episodes. Economic effects of fiscal consolidating adjustments are evaluated for two periods (pre-crisis and extended) to reveal crisis effects on fiscal consolidation efforts.
    Keywords: fiscal policy adjustments, fiscal consolidation, cyclically adjusted primary balance, government expenditures, tax revenues, unrestricted VAR, Cholesky decomposition, SVAR, structural shocks, impulse-response function
    JEL: C32 E62 H20 H50 H60
    Date: 2013–09–15
  37. By: Volker Tjaden
    Abstract: I present a dynamic fixed cost model of export participation extended by a capital theoretic concept of the customer stock. Plants that want to start exporting have to invest into a market specific factor which serves as input into a decreasing returns to scale technology generating sales demand. Customer capital, like phyical capital, depreciates over time and its accumulation is subject to adjustment costs. It allows the model to reproduce the empirical fact that new exporters show above average revenue growth rates and a declining exit hazard in the years after entry. I structurally estimate the model on a rich panel data set of German manufacturing plants between 1995 and 2008. During the observed time span, plants in the sample saw a strong increase in export activity which provides a suitable case study for the predictive power of the model. Unlike a pure fixed cost version, the model correctly forecasts a steep rise in exports after 2003. It is also able to reconcile a strong export reaction to trade liberalizations with a low elasticity of aggregate exports to exchange rate movements. Customer capital accumulation therefore offers a potential resolution to the elasticity puzzle in international economics.
    Keywords: customers as capital, firm entry, firm heterogeneity, export dynamics, sunk costs, international business cycles
    JEL: E32 F14 F17 F40 F41 F44
    Date: 2013–08
  38. By: Ansgar Belke
    Abstract: The Van Rompuy Report and also additional proposals made by the European Commission outlined steps for a ‘genuine Economic and Monetary Union’. This article explains, assesses and comments on the proposals made. Moreover, it outlines what could be recommendations in order to achieve a ‘genuine Economic and Monetary Union’. For this purpose, details of the Interim Report are systematically evaluated. We also deal with different governance visions emerging from the ongoing euro area crisis and starts from different views of the ‘North and the South’ of the euro area on this issue. This contribution argues that there is an alternative option to the notion of cooperative fiscal federalism involving fiscal union, bailouts and debt mutualisation: competition-based fiscal federalism accompanied by a properly defined banking union. In order to be a successful one, any deal will have to come up with a successful recipe of how to (re-)create trust between European citizens and their elected governments.
    Keywords: banking union; debt mutualisation; EU governance; Euro budget; Eurozone; genuine Economic and Monetary Union; North–South divide; shock absorber
    JEL: F15 G28 E42 E61
    Date: 2013–07
  39. By: Gilles Dufrénot (DEFI - Centre de recherche en développement économique et finance internationale - Faculté des Sciences Economiques - Université de la Méditerranée - Aix-Marseille II, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique, Centre de recherche de la Banque de France - Banque de France); Adelya Ospanova (Aix-Marseille Université - Aix-Marseille Université); Alain Sand-Zantman (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure (ENS) - Lyon - PRES Université de Lyon)
    Abstract: This paper presents a quarterly macro econometric model of the Kazakhstan. The main goal is to provide a stylized representation of the Kazakh economy in order to simulate the consequences of several economic policies viewed by the authorities as essential during the period of transition to a market economy. The policy simulation potential of the model is illustrated by five types of simulations : interest rate shocks, foreign direct investment shocks, world oil price shocks, foreign demand shocks and nominal wages shocks. These sets of simulations show the importance of foreign direct investments in terms of theirs global positive effect, as well as the demand effect of an increase in the wages. We also find that effect of the tight monetary policy in not ambiguous ; we argue that in some cases it is not the most efficient policy instrument to sustain the economy.
    Keywords: Transition economies; Kazakhstan; Macroeconomic stabilization; Central Asian CIS countries
    Date: 2014–01–09
  40. By: Bernard Shull
    Abstract: The Federal Reserve has been criticized for not forestalling the financial crisis of 2007-09, and for its unconventional monetary policies that have followed. Its critics have raised questions as to whom, if anyone, reins in the Federal Reserve if and when its policies are misguided or abusive. This paper traces the principal changes in governance of the Federal Reserve over its history. These changes have, for the most part, developed in the wake of economic upheavals, when Fed policy has been challenged. The aim is to identify relevant issues regarding governance and to establish a basis for change, if needed. It describes the governance mechanism established by the Federal Reserve Act in 1913, traces the passing of this mechanism in the 1920s and 1930s, and assays congressional efforts to expand oversight in the 1970s. It also considers the changes in Fed policies induced by the financial crisis of 2007-09 and the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. It concludes that the original internal governance mechanism, a system of checks and balances that aimed to protect all the important interest groups in the country, faded in the 1920s and was never adequately replaced. In light of the Federal Reserve's continued growth in power and influence, this deficiency constitutes a threat not only to "stakeholders" but also to the independence of the Federal Reserve itself.
    Keywords: Central Banks; Federal Reserve; Governance
    JEL: E58 N2
    Date: 2014–01
  41. By: Sirucek, Martin
    Abstract: The present article is focused on analysis of US and Japan government bonds´ market and revealing possible price bubbles while considering the effect of Quantitative Easing and other chosen macroeconomic factors. The aim is set if on these selected market exists price bubble or we can speak only on price deviation. The second aim is analyse if the government debt is tenable or not.
    Keywords: Bispham analysis, price bubble, quantitative easing, government debt, Treasury bond, yield to maturity
    JEL: E44 G15 G18
    Date: 2013–09
  42. By: Ingmar Schumacher
    Abstract: We empirically investigate the dynamic interactions between sovereign ratings and the macroeconomic environment using a Panel VAR on annual data for European countries from 1996 to 2013. Our results provide evidence for a significcant two-way interaction between the macroeconomic environment and changes in sovereigns' ratings. Thus, rating changes are able to exacerbate a country's boom-bust cycle.
    Keywords: sovereign ratings, Panel VAR, self-fulfilling prophecy
    JEL: E6 C33
    Date: 2014–01–06
  43. By: Michaël Assous (GREDEG CNRS; University of Paris 1); Roberto Lampa (CONICET (National Scientific and Technical Research Council); University of Buenos Aires, Argentina)
    Abstract: Oskar Lange’s 1938 article “The Rate of Interest and the Optimum Propensity to Consume”, is usually associated with the original IS-LM approach of the late 1930s. However, Lange’s article was not only an attempt to illuminate Keynes’s main innovations but the first part of a wide project that included the development of a theory of economic evolution. This paper aims at showing that Lange’s article can help illuminating critical aspects of this project: in particular, Lange’s idea that a synthesis between Kaldor’s and Kalecki’s theories and that of Schumpeter, might have been possible and that it represented (in intentions) a “modern” and consistent reconstruction of the Marxist theory of the business cycle. Section 1 clarifies Lange’s early reflection on dynamics. Section 2 centers on Lange’s 1938 static model and indicates the effects of a change of saving on investment. Section 3 suggests a dynamic reconstruction from which are addressed important arguments raised by Lange in a series of papers written between 1934 and 1942.
    Keywords: Lange, Kalecki, Marxian theory of the business cycle, marginal propensity to save, non-linearity
    JEL: B22 B24 E32 E12
    Date: 2014–01
  44. By: João Leão (Office for Strategy and Studies (GEE), Portuguese Ministry of Economy; ISCTE- University Institute of Lisbon); Guida Nogueira (Office for Strategy and Studies (GEE), Portuguese Ministry of Economy)
    Abstract: The youth unemployment rate in Europe increased to very high levels after the great recession of 2008, reaching 23% in European Union and 45% in southern European countries. We examine the causes of the high youth unemployment rate which is consistently bigger than the overall unemployment rate. The empirical evidence shows that the youth unemployment rate depends crucially of the level of the overall unemployment rate and on the variation of the unemployment rate.
    Keywords: Keywords: Southern Europe, unemployment, youth unemployment.
    JEL: E24 J64 J13
    Date: 2013–12
  45. By: Katrin Rabitsch (Department of Economics, Vienna University of Economics and Business); Serhiy Stepanchuk (École Polytechnique Fédérale de Lausanne); Viktor Tsyrennikov (Cornell University)
    Abstract: We compare the performance of the perturbation-based (local) portfolio solution method of Devereux and Sutherland (2010a, 2011) with a global solution method. We find that the local method performs very well when the model is designed to capture stylized macroeconomic facts and countries/agents are symmetric, i.e. when the latter have similar size, face similar risks and trade assets with similar risk properties. It performs less satisfactory when the agents engaged in financial trade are asymmetric. The global solution method performs substantially better when the model is parameterized to match the observed equity premium, a key stylized finance fact.
    Keywords: Country Portfolios, Solution Methods
    JEL: E44 F41 G11 G15
    Date: 2014–01
  46. By: Casey Rothschild; Florian Scheuer
    Abstract: We develop a unifying framework for optimal income taxation in multi-sector economies with general patterns of externalities. Agents in this model are characterized by an N-dimensional skill vector corresponding to intrinsic abilities in N potentially externality-causing activities. The private return to each activity depends on individual skill and an aggregate activity-specific return, which is a fully general function of the economy-wide distribution of activity-specific efforts. We show that the N-dimensional heterogeneity can be collapsed to a one-dimensional, endogenous statistic sufficient for screening. The optimal tax schedule features a multiplicative income-specific correction to an otherwise standard tax formula. Because externalities change the relative returns to different activities, corrective taxes induce changes in the across-activity allocation of effort. These relative return effects cause the optimal correction to diverge, in general, from the Pigouvian tax that would align private and social returns. We characterize this divergence and its implications for the shape of the tax schedule both generally and in a number of applications, including externality-free economies, increasing and decreasing returns to scale, zero-sum activities such as bargaining or rent extraction, and positive or negative spillovers.
    JEL: D5 D6 D8 E2 H2 J3
    Date: 2014–01
  47. By: Keyu Jin (London School of Economics); Nicolas Coeurdacier (SciencesPo Paris)
    Abstract: This paper analyzes the impact of the 'one child policy' in China on its household saving behavior. First, it develops a life-cycle model with endogenous fertility, intergenerational transfers and human capital accumulation. We show a macroeconomic and a microeconomic channel of a fall in fertility on raising aggregate household saving: at the macroeconomic level, the population composition shifts initially towards the middle-aged—the high savers of the economy. At the microeconomic level, (1) expenditures of children fall—despite higher education investment in each child—as quantity substitutes for quality; (2) middle-aged save additionally for retirement in anticipation of reduced transfers from their only child. Second, our quantitative model implies policy-induced changes in aggregate savings and age-saving profiles broadly consistent with estimates from Chinese household-level data. Third, an empirical study using the birth of twins as a source of exogenous increase in fertility is shown to support the micro-economic channels we highlight. Overall, our estimation suggests that the policy is able to account for 30% to 50% of the rise in household savings rate since its implementation in 1980.
    Date: 2013
  48. By: Rajmund Mirdala
    Abstract: Origins and implications of twin deficits occurrence in a large scale of countries seems to be a center of rigorous empirical as well as theoretical investigation for decades. The reality of persisting fiscal and current account deficits became obvious in many advanced as well as advancing, emerging and low-income countries seemingly without a direct association with the phase of business cycle or trends in key fundamental indicators. European transition economies experienced current account deficits during the most of the pre-crisis period. Despite generally improved economic environment and high rates of economic growth it seems that countries with weaker nominal anchor experienced periods of persisting fiscal imbalances during the most of the pre-crisis period. Crises period affected both fiscal stance of government budgets and current account pre-crisis levels and trends in all countries from the group. As a result, leading path of both indicators significantly changed. In the paper we analyze effects of fiscal policies on current accounts in the European transition economies. Our main objective is to investigate causal relationship between fiscal policy discretionary changes and associated current account adjustments. We identify episodes of large current account and fiscal policy changes to provide an in-depth insight into frequency as well as parallel occurrence of deteriorations (improvements) in current accounts and fiscal stance of government budgets. From employed VAR model we estimate responses of current accounts in each individual country to the cyclically adjusted primary balance shocks.
    Keywords: fiscal imbalances, current account adjustments, economic crisis, vector autoregression, impulse-response function
    JEL: C32 E62 F32 F41 H60
    Date: 2013–11–15
  49. By: Francesco Pappadà; Yanos Zylberberg
    Abstract: The austerity plans implemented in Greece in 2010 have yielded lower than expected increases in tax receipts. We argue that this has been the result of the arbitrage that firms face when choosing to declare their activity. A tax hike has a direct effect on the degree of tax evasion, and an indirect one through credit markets. A tax increase tightens the credit constraints of firms and depresses even further their incentives to be transparent. Using a dataset of about 30'000 Greek firms per year over the period 2002-2011, we provide evidence that firms adjust their declared profitability, and this adjustment depends on the tax burden and their need for credit. We then calibrate our model and show that leakages due to tax evasion are quite high : a 21% increase in tax rates only delivers a 7% increase in tax receipts. The response of transparency generates an additional investment slack which is the result of a contracting demand for credit by small and medium size firms induced by tax evasion.
    Keywords: tax evasion; austerity plans; credit frictions
    JEL: E44 O17 H26
    Date: 2014–01
  50. By: Dos Santos Ferreira, Rodolphe (University of Strasbourg 3); Lloyd-Braga, Teresa (Católica Lisbon); Modesto, Leonor (Universidade Catolica Portuguesa, Lisbon)
    Abstract: We study employment dynamics using an OLG model with unemployment benefits and universal old-age survival pensions, both financed by taxing employed workers. The novelty is that we explicitly introduce workers' social norms that shape both the individual participation decision of workers and wage bargaining. We find that social norms increase the likelihood of multiplicity of equilibria and somewhat facilitate the emergence of indeterminacy and flip bifurcations, constituting therefore a source of business cycles driven by self-fulfilling volatile expectations, i.e. sunspots. We also find that, in the presence of strong social norms, standard policy recommendations that advocate a decrease in unemployment benefits in order to boost employment are no longer valid. Indeed, our simulation results show that the opposite will happen for empirically plausible levels of the unemployment rate.
    Keywords: flip bifurcations, local indeterminacy, steady state multiplicity, sunspots, workers' social norms, unemployment benefits
    JEL: E32 H23 H31 J65
    Date: 2014–01
  51. By: Leung, Danny Rispoli, Luke
    Abstract: This paper compares the relative importance of small and large firms in the business sectors of Canada and the United States from 2002 to 2008 using estimates of the contribution of small and large firms to the gross domestic product (GDP) of each country. It then makes use of estimates of labour input for comparison purposes. In this paper, small firms are defined as those with fewer than 500 employees and large firms as those with 500 or more employees.
    Keywords: Business performance and ownership, Economic accounts, Gross domestic product, Productivity accounts
    Date: 2014–01–08
  52. By: Paolo Pini
    Abstract: La Legge di Stabilita' 2014-2016 elaborata dal Governo italiano ed approvata dal Parlamento e' volta al rispetto dei vincoli previsti dai Trattati europei, e non alla crescita del reddito e dell'occupazione. Cio' nonostante, la Commissione Europea non ha ritenuto di dare "semaforo verde", in quanto il rientro dal debito non e' garantito nel breve e medio periodo. La proposta governativa non viene giudicata soddisfacente dai tecnocrati europei perche' non coerente con le politiche di rigore e di austerita' espansiva, ma neppure soddisfa le parti sociali che chiedono interventi non simbolici per la riduzione del cuneo fiscale, e quindi per la crescita e l'occupazione. Ma siamo certi che impegnare tutte le risorse disponibili per la riduzione del cuneo sia la politica più adatta per far uscire il paese dalla crisi in presenza di una trappola della produttivita' che caratterizza il nostro paese da venti anni? English abstract: The Italian Budgetary Plan 2014-2016 prepared by the Italian Government and approved by the Parliament is finalized to fulfil the constraints of the European Treaties, rather than income and employment growth goals. The European Commission, however, decided not to give the "green light", because fiscal consolidation is not guaranteed both in short and medium term. The Italian government proposal is considered unsatisfactory by European technocrats, as inconsistent with the budgetary rigour and "expansive austerity" policy. The proposal does not even satisfy the social partners, employer associations and trade unions, who ask for not symbolic actions for reducing the tax wedge, thus for supporting growth and employment. Are we sure though that the commitment of all available resources in the direction of tax wedge reduction is the best policy for driving Italy out of the crisis, as the country has been trapped in productivity stagnation for twenty years?
    Keywords: Italian Budgetary Plan 2014-2016; European Economic Policy; Productivity; Tax Wedge
    JEL: E61 H6 O47
    Date: 2014–01–16
  53. By: Bernanke, Ben S. (Board of Governors of the Federal Reserve System (U.S.))
    Date: 2012–11–20
  54. By: Yasushi Asako; Kozo Ueda
    Abstract: Attempts by governments to stop bubbles by issuing warnings seem unsuccessful. This paper examines the effects of public warnings using a simple model of riding bubbles. We show that public warnings against a bubble can stop it if investors believe that a warning is issued in a definite range of periods commencing around the starting period of the bubble. If a warning involves the possibility of being issued too early, regardless of the starting period of the bubble, it cannot stop the bubble immediately. Bubble duration can be shortened by a premature public warning, but lengthened if it is late. Our model suggests that governments need to lower the probability of spurious warnings.
    Keywords: Riding bubbles, crashes, public warnings, asymmetric information
    JEL: C72 D82 D84 E58 G12 G18
    Date: 2014–01
  55. By: Chia-Lin Chang; Hui-Kuang Hsu; Michael McAleer (University of Canterbury)
    Abstract: This paper uses monthly data from April 2005 to August 2013 for Taiwan to propose a novel tourism indicator, namely the Tourism Conditions Index (TCI). TCI accounts for the spillover weights based on the Granger causality test and estimates of the multivariate BEKK model for four TCI indicators to predict specific tourism and economic environmental indicators for Taiwan. The foundation of the TCI is the Financial Conditions Index (FCI), which is derived from the Monetary Conditions Index (MCI). The empirical findings show that TCI weighted by spillovers reveal greater significance in forecasting the Composite Index (CI), an economic environmental indicator, than the Tourism Industry Index (TII), which is an existing indicator for the tourism industry that is listed on the Taiwan Stock Exchange (TWSE). Moreover, previous values of the alternative TCI and TII are shown to contain useful information in predicting both tourism and economic environmental factors. Overall, the new Tourism Conditions Index is straightforward to use and also provides useful insights in predicting tourism arrivals and the current economic environment.
    Keywords: Monetary Conditions Index (MCI), Financial Conditions Index (FCI), Tourism Conditions Index (TCI), BEKK, Spillovers, Granger causality
    JEL: B41 E44 E47 G32
    Date: 2014–01–10
  56. By: Frederic Gonand
    Abstract: Social planners in most western countries will be facing two long-lasting challenges in the next years: energy transition and fiscal consolidation. One problem is that governments might consider that implementing an energy transition could get in the way of achieving a fiscal consolidation. If so, interrupting the energy transition in a time of fiscal consolidation would involve significant aggregate impacts on activity and intergenerational redistributive effects. This article tries to assess them empirically. It relies on an overlapping-generations framework in a general equilibrium setting, with a detailed energy module. The model is parameterized on data provided by OECD/IEA for France. Different results emerge. Renouncing to the energy transition would slightly foster the level of GDP during the next 10 to 15 years - depending on the dynamics of the prices of fossil fuels on world markets - but weigh on it more significantly afterwards (up to -1% in 2050). If the prices of fossil fuels keep increasing in the future, implementing an energy transition could have broadly the same favourable effects on the GDP level in the long run as those of a fiscal consolidation diminishing significantly public spending instead of raising taxes. In the long-run, the GDP would be maximized by implementing an energy transition and simultaneously lessening the public deficit by lowering some public expenditure, a policy that would entail an overall gain of around 1,6% of GDP in 2050. Stopping the energy transition would also bring about intergenerational issues. It would be detrimental to the intertemporal wellbeing of almost all cohorts alive in 2010. A fiscal policy with lower public expenditures and frozen tax rates may be still more favourable to young and future generations than implementing an energy transition. However, renouncing to an energy transition would annihilate most of these pro-youth effects.
    Keywords: Energy transition, intergenerational redistribution, overlapping generations, fiscal consolidation, general equilibrium
    JEL: D58 D63 E62 L7 Q28 Q43
    Date: 2014
  57. By: Isabelle CASSIERS (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) and Institut d'analyse du changement dans l'histoire et les sociétés contemporaines (IACCHOS), and FNRS); Géraldine THIRY (Collège d’études mondiales, Fondation Maison des Science de l’Homme, Paris)
    Abstract: For more than half a century, Gross Domestic Product (GDP) has been viewed as the dominant indicator of economic and social progress. Its visibility and increasingly widespread use have contributed to the incorrect identification of economic growth (that is, increased GDP) with improved well-being for all. GDP’s supremacy as an indicator is being challenged, however: around the world, its limits are being questioned and solutions proposed for overcoming them. Given the broadly accepted idea that indicators affect reality, changing them is a high-stakes issue. Potentially, re-fashioning progress indicators may change our representations of the world, redefine our ends, and reinvent the means by which we pursue them. Such a change is part of a complex transformation currently taking place in our economic, social, political ideological systems. The four sections of this paper put forward the argument that the debate over new progress indicators is symptomatic of an historical turning point, and for this reason deserves careful attention. The first section reviews the specific context in which national accounting was established as an economic policy tool rooted in post-war social compromises. The second section discusses the three major justifications for the search for alternative indicators: social goals which economic growth captures inaccurately or not at all; the gap between economic growth and subjective assessments of "life satisfaction"; and, finally, the complex and urgent issue of the environment. The third section presents a concise overview of existing indicators that claim to supplement or replace GDP, dividing them among the three categories of justification described above and demonstrating the inextricable link between methodological and normative questions. From this follows the fourth and final section, which addresses the core questions raised by GDP and the problem of replacing it, and examines the hypothesis that our societies are at an historical turning point in which new compromises are emerging, in ways not yet entirely discernable to social actors.
    Keywords: Beyond GDP, indicators, Sociology of quantification, New Public Management, Redefining prosperity
    JEL: I31 E01 O44 P46
    Date: 2014–01–16
  58. By: Phiri, Andrew
    Abstract: This paper investigates asymmetric co-integration and causality effects between financial development and economic growth for South African data spanning over the period of 1992 to 2013. To this end, we make use of the momentum threshold autoregressive (MTAR) approach which allows for threshold error correction (TEC) modelling and granger causality analysis between the variables. In carrying out our empirical analysis, we employ six measures of the financial development variables against gross domestic per capita, that is, three measures which proxy banking activity and another three proxies for stock market development. The empirical results generally indicate an abrupt asymmetric co-integration relationship between banking activity and economic growth, on one hand, and a smooth co-integration relationship between stock market activity and economic growth, on the other hand. Moreover, causality analysis generally reveals that while banking activity tends to granger causes economic growth, stock market activity is, however, caused by economic growth increase.
    Keywords: Financial development; Economic growth; Threshold co-integration; Asymmetric causality; Emerging economy; South Africa
    JEL: C32 E51 E58 G21 G23 G28
    Date: 2014–01–20
  59. By: Irfan Akbar Kazi; Hakimzadi Wagan
    Abstract: The aim of this article is to examine: how the dynamics of correlations between five emerging countries (Argentina, Chili, Hungary, Russia and Poland), two emerging regions (Latin America (LAC) and Europe (EU)) and U.S. evolved from January 2004 to September 2011. The main contribution of this study is to explore whether the plunging stock market in U.S., in the aftermath of global financial crisis (2008-2009), exert contagion effects on emerging equity and sovereign bond markets. To this end we rely on Asymmetric Dynamic Conditional Correlation (ADCC) model developed by Cappiello et al. (2006), which accounts for asymmetries in conditional variances and correlations to negative returns. We show that there is mean shift in the estimated DCC immediately after the Lehman Brothers failure in September 2008. We refer this finding as contagion from U.S. stock market to emerging equity and sovereign bond markets especially in emerging LAC region.
    Keywords: Global financial crisis, contagion, emerging equity markets, sovereign risk.
    JEL: C32 E44 F30 G01 G12
    Date: 2014–01–06
  60. By: Patrizio Bianchi
    Abstract: Una ricostruzione del dibattito sullo sviluppo dell'industria nell'Italia postunitaria ci riporta ad uno scontro durissimo fra economisti, che pur nella diversa derivazione ed impegno accademico, hanno assunto tutti ruoli e responsabilita' politiche nel loro tempo. Comparando le dinamica dei contesti politici ed istituzionali in cui si forma e consolida il Regno d'Italia, dall'Unita' fino alla Seconda guerra mondiale, verificheremo come si e' posto il tema dello sviluppo industriale, o meglio del ruolo dell'industria come traino della crescita di un paese ritenuto in ritardo di sviluppo.
    Keywords: Economia italiana; Sviluppo industriale; Economia industriale
    JEL: E61 L1 L52
    Date: 2014–01–17
  61. 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 performance of the model.
    Keywords: Cash management; Payment Choices
    JEL: C61 E41 E47
    Date: 2014–01
  62. By: Akiyuki Tonogi (Institute of Innovation Research, Hitotsubashi University);
    Abstract: In this paper, we examine the role of inventory in the price-setting behavior of a distributive firm. Empirically, we show the 5 empirical facts relating to pricing behavior and selling quantity of a certain consumer goods based on daily scanner data to examine the relation between store properties and pricing behavior. These results denote that price stickiness varies by the retailers’ characteristics. We consider that the hidden mechanism of price stickiness comes from the retailer’s policy for inventory investment. A partial equilibrium model of the retailer’s optimization behavior with inventory is constructed so as to replicate the five empirical facts. The results of the numerical experiments in the constructed model suggest that price change frequency depends on the retailer’s order cost, storage cost, and menu cost, not on the price elasticity of demand.
    Keywords: Inventory; Price Stickiness; Numerical Experiment; (S, s) Policy
    JEL: D22 E27 E31
    Date: 2013–08
  63. By: Gro Klaeboe (Norwegian University of Science and Technology); Anders Lund Eriksrud (Norwegian University of Science and Technology); Stein-Erik Fleten (Norwegian University of Science and Technology)
    Abstract: In the trade-off between bidding in the day-ahead electricity market and the real time balancing market, producers need good forecasts for balancing market prices to make informed decisions. A range of earlier published models for forecasting of balancing market prices, including a few extensions, is benchmarked. The models are benchmarked both for one hour-ahead and day-ahead forecast, and both point and interval forecasts are compared. None of the benchmarked models produce infor- mative day-ahead point forecasts, suggesting that information available before the closing of the day-ahead market is eciently re ected in the day-ahead market price rather than the balancing market price. Evalua- tion of the interval forecasts reveals that models without balancing state information overestimate variance, making them unsuitable for scenario generation.
    Keywords: Federal Reserve, Forecast Evaluation, Survey of Professional Forecasts, Business Cycle, Mahalanobis Distance
    JEL: C5 E2 E3
    Date: 2013–10
  64. By: Takashi Kano (Faculty of Economics, Hitotsubashi University);
    Abstract: In an influential paper, Engel and West (2005) claim that the near random-walk behavior of nom- inal exchange rates is an equilibrium outcome of a variant of present-value models when economic fundamentals follow exogenous first-order integrated processes and the discount factor approaches one. Subsequent empirical studies further confirm this proposition by estimating a discount factor that is close to one under distinct identification schemes. In this paper, I argue that the unit market discount factor implies the counterfactual joint equilibrium dynamics of random-walk ex- change rates and economic fundamentals within a canonical, two-country, incomplete market model. Bayesian posterior simulation exercises of a two-country model based on post-Bretton Woods data from Canada and the United States reveal difficulties in reconciling the equilibrium random-walk proposition within the two-country model; in particular, the market discount factor is identified as being much lower than one.
    Keywords: Exchange rates; Present-value model; Economic fundamentals; Random walk; Two- country model; Incomplete markets; Cointegrated TFPs; Debt elastic risk premium.
    JEL: E31 E37 F41
    Date: 2013–09
  65. By: Phiri, Andrew; Dube, Wisdom
    Abstract: Purpose: This purpose of our paper is to examine asymmetric co-integration effects between nutrition and economic growth for annual South African data from the period 1961-2013. Design/methodology/approach: We deviate from the conventional assumption of linear co-integration and pragmatically incorporate asymmetric effects in the framework through a fusion of the momentum threshold autoregressive and threshold error correction (MTAR-TEC) model approaches, which essentially combines the adjustment asymmetry model of Enders and Silkos (2001); with causality analysis as introduced by Granger (1969); all encompassed by/within the threshold autoregressive (TAR) framework, a la Hansen (2000). Findings: The findings obtained from our study uncover a number of interesting phenomena for the South Africa economy. Firstly, in coherence with previous studies conducted for developing economies, we establish a positive relationship between nutrition and economic growth with an estimated income elasticity of nutritional intake of 0.15. Secondly, we find bi-direction causality between nutrition and economic growth with a stronger causal effect running from nutrition to economic growth. Lastly, we find that in the face of equilibrium shocks to the variables, policymakers are slow to responding to deviations of the variables from their co-integrated long run steady state equilibrium. Originality/value: In our study, we make a novel contribution to the literature by exploring asymmetric modelling in the correlation between nutrition intake and economic growth for the exclusive case of South Africa.
    Keywords: Nutrition; Economic growth; Threshold co-integration; Asymmetric causality; South Africa
    JEL: C12 C13 E20 I15
    Date: 2014–01–14
  66. By: Diewert, Erwin; Shimizu, Chihiro
    Abstract: The paper studies the problems associated with the construction of price indexes for commercial properties that could be used in the System of National Accounts. Property price indexes are required for the stocks of commercial properties in the Balance Sheets of the country and related price indexes for the land and structure components of a commercial property are required in the Income Accounts of the country if the Multifactor Productivity of the Commercial Property Industry is calculated as part of the System of National accounts. The paper suggests a variant of the capitalization of the Net Operating Income approach to the construction of property price indexes and uses the one hoss shay or light bulb model of depreciation as a model of depreciation for the structure component of a commercial property.
    Keywords: Commercial property price indexes, Net Operating Income, discounted cash flow, System of National Accounts, Balance Sheets, methods of depreciation, land and structure prices
    JEL: C2 C23 C43 D12 E31
    Date: 2013–12

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