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on Macroeconomics |
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Issue of 2014‒02‒02
149 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Lütticke, Ralph; Bayer, Christian; Pham, Lien; Tjaden, Volker |
| Abstract: | This paper examines the effects of changes in uncertainty of household income on the macroeconomy. Households face substantial idiosyncratic income risk that is up to two orders of magnitude larger than total factor productivity uncertainty, very persistent and varies substantially over the business cycle. We build a New Keynesian model with heterogeneous agents, where changes in precautionary savings due to time-varying uncertainty depress aggregate activity. With countercyclical markups through sticky prices, increased precautionary savings lower aggregate demand and generate significant output losses as the economy is demand-driven in the short-run. The decline in output is more severe, if the central bank is constrained by the zero lower bound. Our results imply that household income uncertainty may be an important factor in explaining the persistent decline of consumption during the Great Recession. -- |
| JEL: | E21 E32 E58 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79868&r=mac |
| By: | Markus Hoermann; Andreas Schabert |
| Abstract: | We augment a standard macroeconomic model to analyze the effects and limitations of balance sheet policies. We show that the central bank can stimulate real activity by changing the size or the composition of its balance sheet, when interest rate policy is ineffective. Specifically, the central bank can stabilize the economy by increasing money supply against eligible assets even when the policy rate is at the zero lower bound. By changing the composition of its balance sheet, it can affect interest rates and, for example, neutralize increases in firms' borrowing costs, which is not possible under a single instrument regime. We further analyze the limitations of balance sheet policies and show that they are particularly useful under liquidity demand shocks. |
| Keywords: | Unconventional monetary policy, collateralized lending, quantitative easing, liquidity premium, zero lower bound |
| JEL: | E32 E52 E58 |
| Date: | 2013–12–29 |
| URL: | http://d.repec.org/n?u=RePEc:kls:series:0068&r=mac |
| By: | Konstantin Kiesel; Maik Wolters |
| Abstract: | Monetary policy rule parameters estimated with conventional estimation techniques can be severely biased if the estimation sample includes periods of low interest rates. Nominal interest rates cannot be negative, so that censored regression methods like Tobit estimation have to be used to achieve unbiased estimates. We use IV-Tobit regression to estimate monetary policy responses for Japan, the US and the Euro area. The estimation results show that the bias of conventional estimation methods is sizeable for the inflation response parameter, while it is very small for the output gap response and the interest rate smoothing parameter. We demonstrate how IV-Tobit estimation can be used to study how policy responses change when the zero lower bound is approached. Further, we show how one can use the IV-Tobit approach to distinguish between desired policy responses, that the central bank would implement if there was no zero lower bound, and the actual ones and provide estimates of both |
| Keywords: | monetary reaction function, zero lower bound, IV-Tobit estimator, censored regressions, non-linearity |
| JEL: | E52 E58 E65 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1898&r=mac |
| By: | Matias Escudero; Martin Gonzalez-Rozada; Martin Sola |
| Abstract: | Using a dynamic stochastic general equilibrium model with financial frictions we study the effects of a rule that incorporates not only the interest rate but also the legal reserve requirements as instruments of the monetary policy. We evaluate the effectiveness of both instruments to accomplish the inflationary and/or financial stability objectives of the Central Bank of Uruguay. The main findings are that: (i) reserve requirements can be used to achieve the inflationary objectives of the Central Bank. However, reducing inflation using this instrument, it also produces a real appreciation of the Uruguayan peso; (ii) when the Central Bank uses the monetary policy rate as an instrument, the effect of the reserve requirements is to contribute to reduce the negative impact over consumption, investment and output of an eventual increase in this rate. Nevertheless, the quantitative results in terms of inflation reduction are rather poor; and (iii) the monetary policy rate becomes more effective to reduce inflation when the reserve requirement instrument is solely directed to achieve financial stability and the monetary policy rate used to achieve the inflationary target. Overall, the main policy conclusion of the paper is that having a non-conventional policy instrument, when well-targeted, can help effectively inflation control. Moving reserve requirements can also be instrumental in offsetting the impact of monetary policy on the real exchange rate. |
| Keywords: | dynamic stochastic general equilibrium models, financial frictions, monetary policy, reserve requirements, inflation targeting, non-conventional policy instruments |
| JEL: | E52 E58 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:udt:wpecon:wp201401&r=mac |
| By: | Groll, Dominik |
| Abstract: | The New Keynesian DSGE literature has come to the consensus that, from the perspective of business cycle stabilization, countries are worse off in terms of welfare by forming a monetary union. This consensus, however, is based on the assumption of monetary policy being optimal. Using a standard two-country model, this paper shows that under suboptimal monetary policy, countries may gain in welfare by forming a monetary union, highlighting an important inherent benefit of fixing the exchange rate. Whether countries benefit from a monetary union depends primarily on the degree of price stickiness and how monetary policy is conducted: If prices are rather sticky and if monetary policy is not very aggressive towards inflation, forming a monetary union is beneficial. In contrast, asymmetries in the degree of price stickiness between countries are not of any importance for a monetary union to be welfare-enhancing or not. -- |
| JEL: | F41 F33 E52 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79787&r=mac |
| By: | Leo Krippner |
| Abstract: | This article introduces an idea for summarizing of the stance of monetary policy with quantities derived from a class of yield curve models that respect the zero lower bound constraint for interest rates. The “economic stimulus measure” aggregates the current and estimated expected path of interest rates relative to the neutral interest rate from the yield curve model. Unlike shadow short rates, economic stimulus measures are consistent and comparable across conventional and unconventional monetary policy environments, and are less subject to variation with modelling choices, as I demonstrate with two and three factor models estimated with different data sets. Full empirical testing of the inter-relationships between ES measures and macroeconomic data remains a topic for future work. |
| Keywords: | Unconventional monetary policy; zero lower bound; shadow short rate; term structure model |
| JEL: | E43 E52 G12 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2014-06&r=mac |
| By: | Afanasyeva, Elena; Karasulu, Meral |
| Abstract: | We use a microfounded dynamic stochastic general equilibrium (DSGE) model with banks to study interactions between monetary and macroprudential policies in a small open economy. The model is calibrated/estimated for Korea. Cooperation of monetary and macroprudential policies is optimal under a financial shock. Prolonged periods of monetary accommodation lead to inflationary pressures, lower the effectiveness of macroprudential instrument (loan-to-value ratio) and contribute to further credit growth, increasing vulnerabilities. -- |
| JEL: | E58 E61 G28 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79884&r=mac |
| By: | Sacht, Stephen |
| Abstract: | In this we investigate the welfare effects of optimal monetary policy measurements within a high-frequency New-Keynesian model i.e. under variation of the period length. Our results indicate that the policy maker faces a higher welfare loss on a higher relative to a lower frequency of the agents' decision making. While overall inertia in the model increases, we show that the more the pass-through of output gap movements into inflation rate dynamics is dampened on a higher frequency, this amplifies the trade-off of the central bank in case of a cost-push shock. This is caused by the impact of so-called frequency-dependent persistence effects, which mimic the impact of the increase in the amount of market days on the dynamics of the model. This result is less severe in the optimal monetary policy regime under Commitment because of a time-invariant history dependence effect with respect to the period length. -- |
| Keywords: | Hybrid New-Keynesian model,high-frequency modelling,optimal monetary policy,frequency-dependent persistence |
| JEL: | C61 C63 E32 E52 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:201403&r=mac |
| By: | von Thadden, Leopold; Lipinska, Anna |
| Abstract: | This paper explores the fiscal devaluation hypothesis in a model of a monetary union characterised by national fiscal and supranational monetary policy. We show that a unilateral tax shift towards indirect taxes in one of the countries produces small but non-negligible long-run effects on output and consumption within and between the two countries only when international financial markets are perfectly integrated. In contrast to the existing literature, we find that short-run effects are not always amplified by nominal wage rigidities. We document also how short-run effects of the tax shift depend on the choice of the inflation index stabilised by the central bank and on whether the tax shift is anticipated. -- |
| JEL: | E61 E63 F42 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:80038&r=mac |
| By: | Matthias Neuenkirch; Pierre L. Siklos |
| Abstract: | Monetary policy decisions are typically taken after a committee has deliberated and voted on a proposal. However, there are well-known risks associated with committee-based decisions. In this paper we examine the record of the shadow Monetary Policy Council in Canada. Given the structure of the committee, how decision-making takes place, as well as the voting arrangements, the MPC does not face the same information cascades and group polarization risks faced by actual decision-makers in central bank monetary policy councils. We find a considerable diversity of opinion about the recommended future path of interest rates inside the MPC. Beginning with the explicit forward guidance provided by the Bank of Canada market determined forward rates diverge considerably from the recommendations implied by the MPC. There is little evidence that the Bank and the MPC coordinate their future views about the interest rate path. However, it is difficult to explain the basis on which median voter inside the MPC, as well as doves and hawks on the committee, change their views about future changes in policy rates. This implies that there remain challenges in understanding the evolution of future interest rate paths over time. |
| Keywords: | Bank of Canada, central bank communication, committee behaviour, monetary policy committees, shadow councils, Taylor rules |
| JEL: | E43 E52 E58 E61 E69 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:trr:wpaper:201403&r=mac |
| By: | Khundrakpam, Jeevan Kumar |
| Abstract: | The paper attempts to analyse asymmetric effects of monetary policy in India using quarterly data from 1996-97Q1 to 2011-12Q4. It finds that an unanticipated hike and an unanticipated cut in policy rate have a symmetric impact of on real GDP growth, but differentially impact the components of real aggregate demand. While the impact on real investment is symmetric, it is asymmetric on real private and government consumption in that while an unanticipated cut in policy rate leads to their increase, an unanticipated hike in policy rate has no impact on them. The impact on inflation is also symmetric. An anticipated policy rate change also has a negative impact on real GDP growth as well as on the components of real aggregate demand, except for real government consumption. However, there are ranges where anticipated policy rate changes become neutral to components of aggregate demand and, thus, on inflation, ranging from 6.25 per cent to 7.0 per cent. |
| Keywords: | Monetary Policy, Asymmetry, Inflation, Policy Rate |
| JEL: | C32 C51 E31 E52 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:53059&r=mac |
| By: | Merola, Rossana |
| Abstract: | After the recent banking crisis in 2008, financial market conditions have turned out to be a relevant factor for economic fluctuations. This paper provides a quantitative assessment of the impact of financial frictions on the U.S. business cycle. The analysis compares the original Smets and Wouters model (2003, 2007) with an alternative version augmented with the financial accelerator mechanism à la Bernanke, Gertler and Gilchrist (1996, a 1999). Both versions are estimated using Bayesian techniques over a sample extended to 2012. The analysis supports the role of financial channels, namely the financial accelerator mechanism, in transmitting dysfunctions from financial markets to the real economy. The Smets and Wouters model, augmented with the financial accelerator mechanism, is suitable to capture much of the historical developments in U.S. financial markets that led to the financial crisis. The model can account for the output contraction in 2008, as well as the widening in corporate spreads and supports the argument that financial conditions have amplified the U.S. business cycle and the intensity of the recession. |
| Keywords: | DSGE models; business cycle; financial frictions; Bayesian estimation |
| JEL: | C11 E32 E44 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpm:dynare:033&r=mac |
| By: | Neck, Reinhard; Blüschke, Dmitri |
| Abstract: | We use a dynamic game model of a two-country monetary union to study the impacts of an exogenous fall in aggregate demand, the resulting increase in public debt, and the consequences of a sovereign debt haircut for a member country or bloc of the union. In this union, the governments of participating countries pursue national goals when deciding on fiscal policies, while the common central bank s monetary policy aims at union-wide objective variables. The union considered is asymmetric, consisting of a core with lower initial public debt, and a periphery with higher initial public debt. The periphery may experience a debt relief ( haircut ) due to an evolving high sovereign debt. Calibrating the model to the Euro Area, we calculate numerical solutions of the dynamic game between the governments and the central bank using the OPTGAME algorithm. We show that a haircut as modeled in our study is disadvantageous for both the core and the periphery of the monetary union. Moreover, the cooperative solution is preferable to the noncooperative equilibrium solution (both without and with a haircut ), providing an argument for coordinated fiscal policies in a monetary union. -- |
| JEL: | E61 E62 E58 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79887&r=mac |
| By: | He, Hui; Huang, Kevin X. D.; Hung, Sheng-Ti |
| Abstract: | This paper first documents several important business cycle properties of health status and health expenditures in the US. We find that health expenditures are pro-cyclical while health status is counter-cyclical. We then develop a stochastic dynamic general equilibrium model with endogenous health accumulation. The model has four distinct features: 1) Both medical expenditures and leisure time are used to produce health stock; 2) Health enters into production function; 3) Depreciation rate of health stock negatively depends on working hours; 4) Health enters into utility function. We calibrate the model to US economy. The results show that the model can jointly rationalize the counter-cyclicality of health status and pro-cyclicality of medical expenditure. We also investigate the relative importance of each feature in affecting the business cycle properties of health status. We find that the joint presence of the time channel (feature 1) and the production channel (features 2 and 3) is crucial in replicating counter-cyclicality of health status. |
| Keywords: | business cycles; health status; health expenditure |
| JEL: | E22 E32 I12 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpm:dynare:031&r=mac |
| By: | Wollmershäuser, Timo; Hristov, Nikolay; Hülsewig, Oliver |
| Abstract: | This paper uses panel vector autoregressive models and simulations of an estimated DSGE model to explore the reaction of Euro area banks to the global financial crisis. We focus on their interest rate setting behavior in response to standard macroeconomic shocks. Our main empirical finding is that the pass through from changes in the money market rate to retail bank rates became significantly less complete during the crisis. Model simulations show that this result can be well explained by a significant increase in the frictions that the banks business is subject to. -- |
| JEL: | E40 E43 E52 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79976&r=mac |
| By: | Denis Beau; Christophe Cahn; Laurent Clerc; Benoît Mojon |
| Abstract: | In this paper, we analyse the interactions between monetary and macro-prudential policies and the circumstances under which such interactions call for their coordinated implementation. We start with a review of the interdependencies between monetary and macro-prudential policies. Then, we use a DSGE model incorporating financial frictions, heterogeneous agents and housing, which is estimated for the euro area over the period 1985 -2010, to identify the circumstances under which monetary and macro-prudential policies may have compounding, neutral or conflicting impacts on price stability. We compare inflation dynamics across four “policy regimes” depending on: (a) the monetary policy objectives – that is, whether the policy instrument, the short-term interest rate factors in financial stability considerations by leaning against credit growth; and (b) the existence, or not, of an authority in charge of a financial stability objective through the implementation of macroprudential policies that can “lean against credit” without affecting the short-term interest rate. Our main result is that under most circumstances, macro-prudential policies have either a limited or a stabilizing effect on inflation. |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:715&r=mac |
| By: | Franke, Reiner |
| Abstract: | The paper considers two rival models referring to the new macroeconomic consensus: a standard three-equations model of the New-Keynesian variety and dynamic adjustments of a business and an inflation climate in an `Old-Keynesian' tradition. Over the two subperiods of the Great Inflation and Great Moderation, both of them are estimated by the method of simulated moments. An innovative feature is here that it does not only include the autocovariances up to eight lags of quarterly output, inflation and the interest rate, but optionally also a measure of the raggedness of the three variables. In short, the performance of the Old-Keynesian model is very satisfactory and similar to, unless better than, the New-Keynesian model. In particular, the Old-Keynesian model is better suited to match the new moments without deteriorating the original second moments too much. -- |
| JEL: | C52 E32 E37 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79988&r=mac |
| By: | Andreas Nastansky; Alexander Mehnert; Hans Gerhard Strohe |
| Abstract: | In the paper, the interaction between public debt and inflation including mutual impulse response will be analysed. The European sovereign debt crisis brought once again the focus on the consequences of public debt in combination with an expansive monetary policy for the development of consumer prices. Public deficits can lead to inflation if the money supply is expansive. The high level of national debt, not only in the Euro-crisis countries, and the strong increase in total assets of the European Central Bank, as a result of the unconventional monetary policy, caused fears on inflating national debt. The transmission from public debt to inflation through money supply and long-term interest rate will be shown in the paper. Based on these theoretical thoughts, the variables public debt, consumer price index, money supply m3 and long-term interest rate will be analysed within a vector error correction model estimated by Johansen approach. In the empirical part of the article, quarterly data for Germany from 1991 by 2010 are to be examined. |
| Keywords: | Beveridge-Nelson Decomposition, Public Debt, Inflation, Money Supply, Vector Error Correction Model |
| JEL: | C32 E31 E51 H63 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:pot:statdp:51&r=mac |
| By: | Nordmeier, Daniela; Weber, Enzo |
| Abstract: | This paper studies the conditional patterns of unemployment dynamics in Germany. We employ a structural VAR model and identify a technology shock and two policy shocks by using standard restrictions. Interestingly, the worker reallocation process varies substantially with the identified shocks. The job finding rate plays a larger role after a technology shock and a monetary policy shock, while the separation rate appears as the dominant margin after a fiscal policy shock. Technology shocks are relatively important for variations in the transition rates, though they do not seem to trigger the high volatilities on the German labor market. Considering policy shocks, our results point towards fiscal innovations as a promising tool, but with several limitations. -- |
| JEL: | J63 E24 E32 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79958&r=mac |
| By: | McGrattan, Ellen R. (Federal Reserve Bank of Minneapolis); Prescott, Edward C. (Federal Reserve Bank of Minneapolis) |
| Abstract: | During the downturn of 2008–2009, output and hours fell significantly, but labor productivity rose. These facts have led many to conclude that there is a significant deviation between observations and current macrotheories that assume business cycles are driven, at least in part, by fluctuations in total factor productivities of firms. We show that once investment in intangible capital is included in the analysis, there is no inconsistency. Measured labor productivity rises if the fall in output is underestimated; this occurs when there are large unmeasured intangible investments. Microevidence suggests that these investments are large and cyclically important. |
| Keywords: | Intangible capital; Business cycles; Productivity |
| JEL: | E13 E32 |
| Date: | 2014–01–09 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:494&r=mac |
| By: | Kriwoluzky, Alexander; Kliem, Martin; Sarferaz, Samad |
| Abstract: | We estimate the low-frequency relationship between fiscal deficits and inflation and pay special attention to its potential time variation by estimating a time-varying VAR model for U.S. data from 1900 to 2011. We find the strongest relationship neither in times of crisis nor in times of high public deficits, but from the mid-1960s up to 1980. Our results suggest that the low-frequency relationship between fiscal deficits and inflation is strongly related to the conduct of monetary policy and its interaction with fiscal policy after World War II. -- |
| JEL: | E42 E58 E61 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:80000&r=mac |
| By: | Sacht, Stephen |
| Abstract: | In this paper we analyze a hybrid small-scale New-Keynesian model with an arbitrary frequency of the agents' synchronized decision making. We study the impact of various demand and supply shocks on the dynamics of the model variables. We show that the corresponding impulse-response functions of high-frequency versions of the model can qualitatively as well as quantitatively be fairly dissimilar from their quarterly counterparts. This can be explained by the decrease in the effectiveness of monetary policy responses to these shocks and the overall increase of inertia in the model variables. In particular, different kinds of frequency-dependent persistence effects occur, which dampen the pass-through of output gap movements into inflation rate dynamics as the period length decreases. The main conclusion is that DSGE modelling may be more sensitive to its choice of the agents' decision interval. -- |
| Keywords: | Hybrid New-Keynesian model,high-frequency modelling,monetary policy,frequency-dependent persistence |
| JEL: | C63 C68 E32 E52 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:201402&r=mac |
| By: | Xavier Gabaix; Matteo Maggiori |
| Abstract: | We provide a theory of the determination of exchange rates based on capital flows in imperfect financial markets. Capital flows drive exchange rates by altering the balance sheets of financiers that bear the risks resulting from international imbalances in the demand for financial assets. Such alterations to their balance sheets cause financiers to change their required compensation for holding currency risk, thus impacting both the level and volatility of exchange rates. Our theory of exchange rate determination in imperfect financial markets not only rationalizes the empirical disconnect between exchange rates and traditional macroeconomic fundamentals, but also has real consequences for output and risk sharing. Exchange rates are sensitive to imbalances in financial markets and seldom perform the shock absorption role that is central to traditional theoretical macroeconomic analysis. We derive conditions under which heterodox government financial policies, such as currency interventions and taxation of capital flows, can be welfare improving. Our framework is flexible; it accommodates a number of important modeling features within an imperfect financial market model, such as non-tradables, production, money, sticky prices or wages, various forms of international pricing-to-market, and unemployment. |
| JEL: | E2 E42 E44 F31 F32 F41 F42 G11 G15 G20 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19854&r=mac |
| By: | Winkler, Roland; Lewis, Vivien |
| Abstract: | Using VAR analysis on US data, we show that unanticipated fiscal expansions boost private consumption and business formation. Models with an extensive investment margin, i.e. endogenous firm and product entry, have difficulties explaining these two phenomena simultaneously. Considering different variants of an endogenous-entry business cycle model, we show that crowding-in of both consumption and entry can be generated only under very specific assumptions. In a static model with full depreciation, labor supply has to be extremely elastic. In a dynamic model, the fiscal stimulus must be sufficiently persistent such that future profits are high enough to generate entry. However, consumption falls for conventional parameter values. Lowering the wealth effect through the introduction of rule-of-thumb consumers or GHH preferences does not help to bring the model closer to the data. -- |
| JEL: | E32 E62 E21 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79947&r=mac |
| By: | Lisi Shi (University of Connecticut); Richard M. H. Suen (University of Connecticut) |
| Abstract: | This paper examines the e¤ects of asset bubbles in an overlapping generations model with endogenous labor supply. We show analytically that asset bubbles can lead to an expansion in steady-state capital, investment, employment and output under certain conditions. The analytical results are followed by a speci c numerical example. |
| Keywords: | Asset Bubbles, Overlapping Generations, Endogenous Labor |
| JEL: | E22 E44 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2014-02&r=mac |
| By: | Frömel, Maren |
| Abstract: | This paper deals with fiscal policy over the business cycle when international financial markets are imperfect. I document evidence that government expenditure tends to be more procyclical the higher is the borrowing cost for a sovereign. Decomposing government expenditure components shows that the cyclical correlations of government social transfers are the most important components driving cross-country differences in the behavior of government spending over the business cycle. I build a simple model of optimal fiscal policy in the presence of income inequality where government spending is financed by costly taxation and by external debt in form of a risk free bond. Government spending consists of a public good which provides direct utility, and of social transfers that can be targeted towards low income agents. When additional frictions are in the form of exogenous borrowing constraints, the government runs a procyclical tax and transfer policy in the neighbourhood of the constraint and a counteryclical policy when asset or debt holdings are not close to the constraint. The need to smooth both aggregate consumption and tax cost over the business cycle deliver the qualitative difference in transfer policy when the government cannot borrow enough. The procyclicality of transfers is stronger the tighter is the borrowing constraint in this model. In contrast, government spending on public goods is always procyclical. The results implied by the theoretical model are qualitatively consistent with the data and emphasize the need to decompose government expenditure to understand fiscal procyclicality. -- |
| JEL: | E62 F34 F41 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79820&r=mac |
| By: | Hafedh Bouakez; Michel Guillard; Jordan Roulleau-Pasdeloup |
| Abstract: | Public investment represents a non-negligible fraction of total public expenditures. Yet, theoretical studies of the effects of public spending when the economy is stuck in a liquidity trap invariably assume that government expenditures are entirely wasteful. In this paper, we consider a new-Keynesian economy in which a fraction of government spending increases the stock of public capital-which is an external input in the production technology-subject to a time-to-build constraint. In this environment, an increase in public spending has two conflicting effects on current and expected inflation: a positive effect due to higher aggregate demand and a negative effect reflecting future declines in real marginal cost. We solve the model analytically both in normal times and when the zero lower bound (ZLB) on nominal interest rates binds. We show that under relatively short time-to-build delays, the spending multiplier at the ZLB decreases with the fraction of public investment in a stimulus plan. Conversely, when several quarters are required to build new public capital, this relationship is reversed. In the limiting case where a fiscal stimulus is entirely allocated to investment in public infrastructure, the spending multiplier at the ZLB is 4 to 5 times larger than in normal times when the time to build is 12 quarters. |
| Keywords: | Public spending, Public investment, Time to build, Multiplier, Zero lower bound |
| JEL: | E4 E52 E62 H54 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:lacicr:1402&r=mac |
| By: | Martin Plödt; Claire Reicher |
| Abstract: | We formulate and estimate a simple fiscal policy reaction function for the euro area and individual euro area countries. Our reaction function allows for primary surpluses to feature three components: an anti-cyclical response of primary surpluses to the output gap, a response to the debt-GDP ratio, and an exogenous fiscal policy shifter. In line with the cyclical adjustment literature and in contrast with much of the previous time-series literature, we find a consistently strong anti-cyclical response of primary surpluses to the output gap for the euro area. We also find a consistently strong positive response of primary surpluses to the debt-GDP ratio. Our estimates are robust to different output gap measures and to different assumptions regarding the order of integration of observables. In addition, we provide statistical evidence in favor of our specification of a fiscal policy reaction function which features persistent fiscal policy shocks as opposed to an alternative specification found in the literature which features fiscal policy smoothing. Altogether, our results help to reconcile widely differing estimates from the literature, and we argue that our results may therefore provide guidance to forecasters and policymakers |
| Keywords: | fiscal reaction function, fiscal policy, fiscal rule, euro area, primary surplus |
| JEL: | E62 H61 H62 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1899&r=mac |
| By: | Robert E. Hall |
| Abstract: | In recessions, the stock market falls more than in proportion to corporate profit. The discount rate implicit in the stock market rises. All types of investment fall, including employers' investment in job creation. According to the leading view of unemployment—the Diamond-Mortensen-Pissarides model—when the incentive for job creation falls, the labor market slackens and unemployment rises. Employers recover their investments in job creation by collecting a share of the surplus from the employment relationship. The value of that flow falls when the discount rate rises. Thus high discount rates imply high unemployment. This paper does not explain why the discount rate rises so much in recessions. Rather, it shows that the rise in unemployment makes perfect economic sense in an economy where the stock market falls substantially in recessions because the discount rises. |
| JEL: | E24 E32 G12 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19871&r=mac |
| By: | Eleonora Cavallaro (Sapienza Universita' di Roma); Bernardo Maggi (Sapienza Universita' di Roma) |
| Abstract: | In this paper we model macroeconomic instability as the outcome of the dynamical interaction between debt accumulation and the “state of confidence” in a small open economy with a super-fixed exchange rate arrangement. Our analysis is set in a theoretical framework where balance-sheets effects govern external financing to firms and the state of confidence is largely pro-cyclical. We analyse the conditions for the dominance of unstable chains in the out-of-equilibrium dynamics which determine financial fragility, systemic instability and, as a consequence, macroeconomic stabilization puzzle. Indeed, the choice of a tight fiscal policy is likely to be destabilizing inasmuch as it exacerbates the liquidity crunch taking place in the course of a recession. At the same time, a reduction in interest rates may not be sufficient to switch off macroeconomic instability, and a direct stimulus to aggregate expenditure may be required to avoid an economic collapse. We conduct an “experimental” study with reference to Argentina during the currency board years in order to understand what the implications would have been for dynamical stability of “appropriate” monetary and fiscal policies oriented to macroeconomic stabilization. Our empirical results are based on the sensitivity analysis of a continuous-time econometric model and confirm the dangerousness of conventional austerity policies in times of recession. |
| Keywords: | Continuous Time Econometrics, Debt, Macroeconomic stability. |
| JEL: | C33 C62 C61 O11 O33 O34 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:sas:wpaper:20142&r=mac |
| By: | DE KONING, Kees |
| Abstract: | Savings are allocated over the acquisition of assets like homes, shares and bonds and government debt paper. For a home acquisition an individual household uses own equity provided by the buyer and outside equity provided by banks. Such outside equity can help to increase the volume of new housing starts, but it can also drive up the prices of all homes. The crisis of home asset prices started already in 1997 in the U.S., but accelerated in 2002 and reached its breaking points in 2005-2006 when 65% of the new outside equity was used to increase house prices rather than the volume of housing starts. From 1997 house prices were rising faster than the CPI index, while over the period 2000-2006 incomes just kept up with the CPI index. The value of savings out of the increased income levels were worth less and less in purchasing power as compared to the asset price movements. The savings depreciation factor was 34% over the latter period. Both the Houses of Congress and the Fed had a policy of benign neglect of the growing gap between asset values and incomes and savings developments. Banks did not take the savings depreciation factor into account and undervalued their real risks to their portfolios and substantially overvalued their profits for 2005 and 2006. The mortgage securitisation process transferred the risks in a substantial manner to European savers, which did not diminish the risks of the savings depreciation factor, but only changed the providers of the savings. This article focuses on the relationships between incomes, savings, and assets. It focuses on own and outside equity and makes a distinction between savings which help output and economic growth -economic savings- and those that don’t -financial ones |
| Keywords: | income depreciation factor, savings depreciation factor,financial crisis, individual households' equity crisis, benign neglect policies, quantitative easing, economic easing, bank reform, bank risk accounting, pension funds accounting |
| JEL: | E2 E21 E3 E4 E44 E5 E60 |
| Date: | 2014–01–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:53273&r=mac |
| By: | Ahmed, Waqas; Khan, Sajawal; Rehman, Muhammad |
| Abstract: | We analyze, in this paper, the optimality of pro-cyclical monetary policy in the presence of informal sector. Our findings suggest that monetary tightening only in case of severe shock with high leverage ratio and that conventional monetary policy favors both the formal and informal sectors irrespective of the severity of the shocks and hence the whole economy if the size of informal sector is significantly large. Furthermore, fixing exchange rate is better policy option if objective is to defend the employment or domestic consumption from falling when negative shock hits the economy. We can not found any disproportionate impact of policies on informal sector. This may be due to static nature of the model and it might be possible that dynamics of responses of the two sectors to shocks differ significantly. |
| Keywords: | Informal Sector, Credit Constraints, Exchange Rate, Monetary Policy |
| JEL: | E52 F0 F4 O17 O23 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:53169&r=mac |
| By: | Hertweck, Matthias Sebastian; Sigrist, Oliver |
| Abstract: | This paper quantifies the impact of the Hartz reforms on matching efficiency, using monthly SOEP gross worker flows (1983-2009). We show that, until the early 2000s, close to 60% of changes in the unemployment rate are due to changes in the inflow rate (job separation). On the contrary, since the implementation of the reforms in the mid-2000s, the importance of the outflow rate (job finding) has been steadily increasing. This indicates that matching efficiency has improved substantially in recent years. Results from an estimated matching function - pointing to efficiency gains of more than 20% - corroborate this finding. -- |
| JEL: | E24 E32 J64 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79942&r=mac |
| By: | Merkl, Christian; Balleer, Almut; Gehrke, Britta; Lechthaler, Wolfgang |
| Abstract: | This paper analyzes the effects of short-time work (i.e., government subsidized working time reductions) on unemployment and output fluctuations. The central question is whether short-time work saves jobs in recessions. In our baseline scenario the rule based component of short-time work (i.e., due to the existence of the institution) stabilizes unemployment fluctuations by 15% and output fluctuations by 7%. Given the small share of short-time work expenses in terms of GDP, the stabilization effects are large compared to other instruments such as the income tax system. By contrast, discretionary short-time work interventions (i.e., rule changes) do not have any statistically significant effect on unemployment. These effects are based on a SVAR estimation,which uses an elasticity of the German establishment panel for identification purposes. The model shows that non-effects of discretionary interventions (i.e., 100% deadweight) may be due to their low persistence. -- |
| JEL: | E32 E02 E24 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79718&r=mac |
| By: | Weber, Henning |
| Abstract: | Empirical data suggest that new fi rms tend to grow faster than incumbent firms in terms of their productivity. A sticky-price model with learning-by-doing in new firms fi ts this data and predicts that for plausible calibrations, the optimal long-run inflation rate is positive and between 0.5% and 1.5% per year. A positive long-run inflation rate helps the fast-growing new fi rms to align their real price with their idiosyncratic productivity growth. In contrast, the standard sticky-price model without learning-by-doing in new fi rms predicts an optimal long-run inflation rate near zero. In a two-sector model with learning-by-doing in new firms, the policy tradeo that arises between new and incumbent firms is considerably more severe than the policy tradeo that arises between economic sectors. -- |
| JEL: | E31 E52 E61 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79761&r=mac |
| By: | Tervala, Juha |
| Abstract: | I examine the transmission of expansionary U.S. monetary policy in case where developing countries-including China-peg their currencies to the dollar. I evaluate the value of the dollar peg as a fraction of consumption that households would be willing to pay for the dollar peg to remain as well off under the dollar peg as under a flexible exchange rate. The value of the dollar peg is positive for the dollar bloc because the U.S. can no longer improve its terms of trade at the dollar bloc's expense. This provides a rationale for fixing the exchange rate. If the expenditure switching effect is weak, the peg is harmful to the U.S., providing a rationale for criticism of China's exchange rate policy. |
| Keywords: | Dollar peg; dollar bloc; monetary policy; open economy macroeconomics; beggar-thy-neighbor |
| JEL: | E32 E52 F30 F41 F44 |
| Date: | 2014–01–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:53223&r=mac |
| By: | Nathaniel Throckmorton (Indiana University Bloomington); Benjamin Keen (University of Oklahoma); Alexander Richter (Auburn University); William Gavin (Federal Reserve Bank of St. louis) |
| Abstract: | This article presents global solutions to standard New Keynesian models to show how economic dynamics change when the nominal interest rate is constrained at its zero lower bound (ZLB). We focus on the canonical New Keynesian model without capital, but we also study the model with capital, with and without investment adjustment costs. Our solution method emphasizes accuracy to capture the expectational effects of hitting the ZLB and returning to a positive interest rate. We find that the response to a technology shock has perverse consequences when the ZLB binds, even when a discount factor shock drives the interest rate to zero. Although we do not model the large scale asset purchases used by the Fed since 2009, our results suggest that the economy may have trouble recovering if the interest rate remains at zero. Given the perverse dynamics at the ZLB, we evaluate how monetary policy affects the likelihood of encountering the ZLB. We find that the probability of hitting the ZLB depends importantly on the monetary policy rule. A policy rule based on a dual mandate, such as the one proposed by Taylor (1993), is more likely to cause ZLB events when the central bank places greater emphasis on the output gap. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed013:839&r=mac |
| By: | Aleksander Berentsen; Samuel Huber; Alessandro Marchesiani |
| Abstract: | In the 1990s, the empirical relation between money demand and interest rates began to fall apart. We analyze to what extent improved access to money markets can explain this break-down. For this purpose, we construct a microfounded monetary model with a money market, which provides insurance against liquidity shocks by offering short-term loans and by paying interest on money market deposits. We calibrate the model to U.S. data and find that improved access to money markets can explain the behavior of money demand very well. Furthermore, we show that, by allocating money more efficiently, better access to money markets decrease the welfare cost of inflation substantially. |
| Keywords: | Monetary economics |
| JEL: | E52 E58 E59 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:136&r=mac |
| By: | Frederick S. Mishkin |
| Abstract: | This paper explores where central banking is heading after the recent financial crisis. First it discusses the central bank consensus before the crisis and then outlines the key facts learned from the crisis that require changes in the way central banks conduct their business. Finally, it discusses four main areas in which central banks are altering their policy frameworks: 1) the interaction between monetary and financial stability policies, 2) nonconventional monetary policy, 3) risk management, and 4) fiscal dominance and monetary policy. |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:714&r=mac |
| By: | Bucher, Monika; Dietrich, Diemo; Hauck, Achim |
| Abstract: | Business cycles imply liquidity risks for banks. This paper explores how these risks influence bank lending over the cycle. With forward-looking banks, lending cycles, credit booms and busts, or suppressed and highly fragile bank systems can emerge, depending on the magnitude of liquidity risks. In this context, regulatory stability-enhancing measures have some unpleasant effects on bank lending. Imposing countercyclical capital adequacy ratio may amplify procyclicality or result in disintermediation, when liquidity risks are only moderate and financial stability is barely a threat. Adopting a regulatory margin call eliminates failures but stops lending for larger liquidity risks whereas a liquidity ratio might be a way to reduce risk-taking without fully hampering credit intermediation. -- |
| JEL: | G28 G21 E32 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79792&r=mac |
| By: | Philipp Engler; Giovanni Ganelli; Juha Tervala; Simon Voigts |
| Abstract: | Between 1999 and the onset of the economic crisis in 2008 real ex-change rates in Greece, Ireland, Italy, Portugal and Spain appreciated relative to the rest of the euro area. This divergence in competitiveness was reflected in the emergence of current account imbalances. Given that exchange rate devaluations are no longer available in a monetary union, one potential way to address such imbalances is through a fiscal devaluation. We use a DSGE model calibrated to the euro area to investigate the impact of a fiscal devaluation, modeled as a revenue-neutral shift from employers' social contributions to the Value Added Tax. We find that a fiscal devaluation carried out in `Southern European countries' has a strong positive eect on output, but a mild effect on the trade balance of these countries. In addition, the negative eect on `Central-Northern countries' output is weak. |
| Keywords: | Fiscal Devaluation, Fiscal Policy, euro area, currency union, current account |
| JEL: | E32 E62 F32 F41 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2014-011&r=mac |
| By: | Detmers, Gunda-Alexandra; Nautz, Dieter |
| Abstract: | The Reserve Bank of New Zealand guides interest rate expectations of financial markets by projections of future short-term rates that are updated only once a quarter. As a consequence, projections become stale when time evolves and new information enters the market. This paper investigates the dynamic impact of probably outdated interest rate projections on the expectations management of central banks. Confirming the stabilizing effect of fresh central bank announcements, we show that interest rate uncertainty increases with the time elapsing since the recent interest rate projection. In contrast, we find that stale projections may hamper central bank communication. In fact, interest rate uncertainty increases when the market perceives the projections to be outdated. -- |
| JEL: | E52 E58 G14 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79861&r=mac |
| By: | Balleer, Almut; Enders, Zeno |
| Abstract: | This paper examines the effects of expansionary technology shocks (shocks that increase labor productivity and factor inputs) as opposed to contractionary technology shocks (shocks that increase labor productivity, but decrease factor inputs). We estimate these two shocks jointly based on a minimum set of identifying restrictions in a structural VAR. We show that most of the business cycle variation of key macroeconomic variables such as output and consumption is driven by expansionary technology shocks. However, contractionary technology shocks are important to understand the variation in labor productivity and production inputs. In addition, these shocks trigger different reactions of certain variables, which can help explain why existing evidence on technology shocks does not deliver clear results. In a simple DSGE model with managerial technology, which is consistent with our identifying restrictions, we interpret contractionary technology shocks as process innovations and motivate the difference to expansionary technology shocks. -- |
| JEL: | E32 E24 E25 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:80046&r=mac |
| By: | Schnabl, Gunther; Wollmershäuser, Timo |
| Abstract: | Since the breakdown of the Bretton Woods System diverging current account positions in Europe have prevailed. While the Southern and Western European countries have tended to run current account deficits, the current accounts of the Central and Northern European countries, in particular Germany, have tended to be in surplus. The paper scrutinizes the role of diverging fiscal policy stances for current account imbalances in Europe since the early 1970s under alternative institutional monetary arrangements (floating exchange rates, European Monetary System, and European Monetary Union). It sheds light on the interaction of fiscal and monetary policies with respect to their impact on the current account and analyses the role of exchange rate changes and credit facilities as adjustment mechanisms for current account imbalances. Panel regressions reveal a robust impact of fiscal policy divergence on current account imbalances, which to a large extent is independent from the exchange rate regime, but which turns out to be contingent on the monetary policy stance. -- |
| JEL: | E62 E52 F32 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79899&r=mac |
| By: | Kaufmann, Daniel; Bäurle, Gregor |
| Abstract: | In this paper, we analyse nominal exchange rate and price dynamics after risk shocks with short-term interest rates constrained by the zero lower bound (ZLB). We show with a stylized theoretical model that temporary risk shocks may lead to permanent shifts of the exchange rate and the price level if a central bank anchors long-run inflation expectations. In line with this theoretical prediction, we find empirical evidence for Switzerland, that the responses of the exchange rate and the price level to a temporary risk shock are permanent. Our theoretical discussion shows that adopting a credible long-run price level target rather than a long-run inflation target avoids these permanent shifts of the exchange rate and the price level. -- |
| JEL: | C32 E31 E52 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79872&r=mac |
| By: | Tim Atkin (Reserve Bank of Australia); Mark Caputo (Reserve Bank of Australia); Tim Robinson (Reserve Bank of Australia); Hao Wang (Reserve Bank of Australia) |
| Abstract: | The early 21st century saw Australia experience its largest and longest terms of trade boom. This paper places this recent boom in a long-run historical context by comparing the current episode with earlier cycles. While similarities exist across most episodes, current macroeconomic policy frameworks and settings are quite different to those of the past. This mitigated the broader macroeconomic consequences of the upswing and as the terms of trade decline may do likewise. |
| Keywords: | commodity prices; terms of trade; macroeconomic policy |
| JEL: | E30 E60 N17 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2014-01&r=mac |
| By: | Rodrigo Caputo; Luis Oscar Herrera |
| Abstract: | In a standard New-Keynesian model for a small open economy, we derive the efficient CPI inflationbased Taylor rule. We conclude that the natural rate of interest, based on CPI inflation, must be directly linked to the foreign interest rate, as well as to domestic productivity shocks. In this way this rule ensures that the real ex-ante CPI interest rate moves in the face of domestic and foreign shocks so as to induce efficient movements in consumption. The empirical evidence, on the other hand, shows that inflation-targeting central banks respond to movements in the foreign interest rate (Fed funds rate), besides reacting to expected CPI inflation and to the domestic output gap. |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:694&r=mac |
| By: | de la Fonteijne, Marcel |
| Abstract: | In order to understand from where the profits or monetary profits of capitalists and firms emerge the author examined the phrase of Marx, 'Die Gesamtklasse der Kapitalisten kann nichts aus der Zirkulation herausziehen, was nicht vorher hineingeworfen war.' (The class of capitalists cannot extract from the circulation, what has not previously been thrown in.) Also Keen studied the monetary paradox and contrary to circuitists he came to the conclusion that capitalists can make monetary profit with a possibility to earn enough to repay their debt and with positive balances for all actors. The author will prove that Keen made a fundamental mistake and is using the Stock Flow Consistency Principle in an inconsistent way by combining it with behavior equations in a dynamic model. So the solution presented here is not only showing that the numbers are incorrect but the method itself. This resolves a contraction between Keen and circuitists and implies that, in a Wicksellian pure credit economy, it remains impossible to gain a monetary profit for all actors. More precisely that the total sum of monetary profit over all actors is zero. -- |
| Keywords: | monetary profit paradox,stock flow consistency,circuit theory,endogenous money,Wicksellian pure credit economy,social norms,cognitive costs,laboratory experiments |
| JEL: | C50 C60 E11 E12 E20 E25 E44 G00 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:20143&r=mac |
| By: | Carlos A. Vegh; Guillermo Vuletin |
| Abstract: | This paper studies the social implications of fiscal policy responses to crises in Latin America over the last 40 years and in the Eurozone during the aftermath of the global financial crisis. We focus on the behavior of four social indicators: the poverty rate, income inequality, unemployment rate, and domestic conflict. We find a causal link from counteryclical (procyclical) fiscal policy responses to reductions (increases) in all four social indicators. These results call into question recent claims on "expansionary fiscal austerity." |
| JEL: | E62 F41 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19828&r=mac |
| By: | Hubrich, Kirstin; Philipp, Hartmann; Kirstin, Hubrich; Manfred, Kremer; Tetlow, Robert J. |
| Abstract: | We integrate systemic financial instability in an empirical macroeconomic model for the euro area. We find that at times of widespread financial instability the macroeconomy functions fundamentally differently from tranquil times. We employ a richly specified Markov-Switching Vectorautoregression model to capture the dynamic relationships between a set of core macroeconomic variables and a novel indicator of systemic financial stress. Both the parameters that capture the transmission of shocks through the economy and the variances of the shocks change at times of high stress in the financial system. In particular, the negative output effects of sizeable increases in financial stress are much larger after such a regime change than during tranquil times. Macroprudential and monetary policy makers are well advised to take these nonlinearities into account. -- |
| JEL: | E44 C11 C32 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:80487&r=mac |
| By: | Jung, Sven |
| Abstract: | Using a representative establishment data set for Germany, we show that, in line with the existing literature for several countries, fi rms' adjustment costs for employment are characterized by a fixed and convex functional form. Furthermore, they are asymmetric with dismissal costs exceeding hiring costs. An analysis of firms' adjustment in the period 1996-2010 also indicates that adjustment behavior has changed over time. Comparing the employment adjustment in the two observed business cycles comprising the years 1996-2003 and 2004-2010, we fi nd that the adjustment speed was higher in the second business cycle indicating that adjustment costs have fallen in recent years. -- |
| JEL: | D22 E24 J23 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79696&r=mac |
| By: | Offick, Sven; Winkler, Roland C. |
| Abstract: | A recent theoretical literature highlights the role of endogenous firm entry as an internal amplification mechanism of business cycle fluctuations. The amplification mechanism works through the competition and the variety effect. This paper tests the significance of this amplification mechanism, quantifies its importance, and disentangles the competition and the variety effect. To this end, we estimate a medium-scale real business cycle model with firm entry for the U.S. economy. The parameter governing the competition and variety effect is estimated to be statistically significant. We find that firm entry substantially amplifies output by 8.5 percent. The competition effect accounts for most amplification, whereas the variety effect only plays a minor role. -- |
| Keywords: | Bayesian estimation,Business Cycles,Competition Effect,Entry,Mark-ups,Variety Effect |
| JEL: | E20 E32 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cauewp:201401&r=mac |
| By: | Manoel Bittencourt, Renee van Eyden and Monaheng Seleteng |
| Abstract: | In this paper we investigate the role of inflation rates in determining economic growth in fifteen sub-Saharan African countries, which are all members of the Southern African Development Community (SADC), between 1980 and 2009. The results, based on panel time-series data and analysis, suggest that in‡ation has had a detrimental effect to growth in the region. All in all, we highlight not only the fact that inflation has o¤set the prospective Mundell-Tobin effect and consequently reduced, the much needed, economic activity in the region, but also the importance of an institutional framework conducive to a stable macroeconomic environment as a precondition for development and prosperity in the community. |
| Keywords: | Inflation, Growth, SADC |
| JEL: | E31 O11 O42 O55 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:404&r=mac |
| By: | Noritaka Maebayashi (Graduate School of Economics, Osaka University); Takeo Hori (College of Economics, Aoyama Gakuin University); Koichi Futagami (Graduate School of Economics, Osaka University) |
| Abstract: | We construct an endogenous growth model with productive public capital and government debt, in which government debt is gradually adjusted to the target level. We examine how the governmentfs debt reductions affect the transitional dynamics and welfare of the economy. We show that fiscal consolidation has contractionary ef- fects on the economy in the short run, but has positive long-run effects on the growth of key macroeconomic variables. Fiscal consolidation based only on expenditure cuts improves social welfare and attains larger welfare gains than consolidation that com- bines a tax increase with expenditure cuts. Importantly, under fiscal consolidation based only on expenditure cuts, as the size and speed of the debt reduction increase, welfare improves even further. |
| Keywords: | Fiscal consolidation; Debt policy rule; Public capital; Welfare; Endogenous growth |
| JEL: | E62 H54 H63 |
| Date: | 2012–04 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1208r2&r=mac |
| By: | Manoel Bittencourt, Renee van Eyden and Monaheng Seleteng |
| Abstract: | In this paper we investigate the role of inflation rates in determining economic growth in fifteen sub-Saharan African countries, which are all members of the Southern African Development Community (SADC), between 1980 and 2009. The results, based on panel time-series data and analysis, suggest that in‡ation has had a detrimental effect to growth in the region. All in all, we highlight not only the fact that inflation has offset the prospective Mundell-Tobin effect and consequently reduced, the much needed, economic activity in the region, but also the importance of an institutional framework conducive to a stable macroeconomic environment as a precondition for development and prosperity in the community. |
| Keywords: | Inflation, Growth, SADC |
| JEL: | E31 O11 O42 O55 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:405&r=mac |
| By: | Georges Prat |
| Abstract: | This paper shows that, Rueff (1925, 1931) distinguished [a] a « permanent » unemployment due to excessive real wages relative to the labor productivity, [b] a “temporary” unemployment due to a decline in the economic activity resulting from a cyclic decrease of the price level, and [c] a « minimum » frictional unemployment prevailing in the normal functioning of the economy. Using empirical data, Rueff suggested that the unemployment of type [a] was largely dominant in England during the 1920’s (i.e. the socalled « law of Rueff »). The confrontation between this analysis and the subsequent analysis of unemployment in the literature reveals that : (i) the Phillips curve and its extension with the NAIRU appears as a non-legacy ; (ii) the wage curve is in accordance with the « law of Rueff » and provides an interesting complement to it; (iii) the equation proposed by Allais to explain the french unemployment rate includes the three types of unemployment pointed out by Rueff; (iv) although now abandoned, the fixed price temporary equilibria theory includes the unemployment of type [a] with both the classical regime and the keynesian regime of unemployment ; (v) the new keynesian microeconomy of the labor market shows that unemployment of type [a] can be explained by the behavior of rational agents without involving rigidities imposed by the Government ; this result generalizes the concept of unemployment of type [a] but is a refutation of the possibility accepted by Rueff to get a competitive equilibrium in a labor market without exogenous rigidities; (vi) the imperfect competition WS-PS model based on negotiation between employees and employers appears in accordance with the three kinds of unemployment [a], [b] et [c] so that it can be seen in this model a synthesis joining Rueff and Allais. |
| Keywords: | unemployment, wage rigidities, Jacques Rueff |
| JEL: | E24 J2 J30 N34 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2014-1&r=mac |
| By: | Michel Bordo; John Lando-Lane |
| Abstract: | In this paper we investigate the relationship between loose monetary policy, low inflation, and easy bank credit with asset price booms. Using a panel of up to 18 OECD countries from 1920 to 2011 we estimate the impact that loose monetary policy, low inflation, and bank credit has on house, stock and commodity prices. We review the historical narratives on asset price booms and use a deterministic procedure to identify asset price booms for the countries in our sample. We show that “loose” monetary policy – that is having an interest rate below the target rate or having a growth rate of money above the target growth rate – does positively impact asset prices and this correspondence is heightened during periods when asset prices grew quickly and then subsequently suffered a significant correction. This result was robust across multiple asset prices and different specifications and was present even when we controlled for other alternative explanations such as low inflation or “easy” credit. |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:710&r=mac |
| By: | Claas, Oliver; Böhm, Volker |
| Abstract: | This paper analyzes the implications of bilateral bargaining over wages and employment between a producer and a union representing a finite number of identical workers in a monetary macroeconomic model of the AS AD type with government activity. Wages and aggregate employment levels are set according to an efficient (Nash) bargaining agreement while the commodity market is cleared in a competitive way. It is shown that, for each level of union power, measured by the share it obtains of the total production surplus, efficient bargaining implies no efficiency loss in production. However, due to the price feedback from the commodity market and to income-induced demand effects, all temporary equilibria with a positive labor share are not Nash bargaining-efficient with respect to the set of feasible temporary equilibrium allocations. The dynamic evolution of money balances, prices, and wages is analyzed being driven primarily by government budget deficits and expectations by consumers. It is shown that for each fixed level of union power, the features of the dynamics under perfect foresight are structurally identical to those of the same economy under competitive wage and price setting, i.e. for small levels of government demand, there exist two balanced paths generically, one of which with high employment and production is always unstable while the other one may be stable or unstable. -- |
| JEL: | C78 E24 E31 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79880&r=mac |
| By: | James M. Nason; Gregor W. Smith |
| Abstract: | Much research studies US inflation history with a trend-cycle model with unobserved components. A key feature of this model is that the trend may be viewed as the Fed’s evolving inflation target or long-horizon expected inflation. We provide a new way to measure the slowly evolving trend and the cycle (or inflation gap), based on forecasts from the Survey of Professional Forecasters. These forecasts may be treated either as rational expectations or as adjusting to those with sticky information. We find considerable evidence of inflation-gap persistence and some evidence of implicit sticky information. But statistical tests show we cannot reconcile these two widely used perspectives on US inflation and professional forecasts, the unobserved-components model and the sticky-information model. |
| Keywords: | US inflation, professional forecasts, sticky information, Beveridge-Nelson |
| JEL: | E31 E37 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2014-07&r=mac |
| By: | Fatih Guvenen; Greg Kaplan; Jae Song |
| Abstract: | How sensitive are the earnings of top earners to business cycles? And, how does the business cycle sensitivity of top earners vary by industry? We use a confidential dataset on earnings histories of US males from the Social Security Administration. On average, individuals in the top 1% of the earnings distribution are slightly more cyclical than the population average. But there are large differences across sectors: Top earners in Finance, Insurance, and Real Estate (FIRE) and Construction face substantial business cycle volatility, whereas those in Services (who make up 40% of individuals in the top 1 percent) have earnings that are less cyclical than the average worker. |
| JEL: | E2 G12 J31 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19864&r=mac |
| By: | Nicholas APERGIS; Arusha COORAY |
| Abstract: | The goal of the present paper is to investigate not only the dynamics of the Greek public debt, but also what are the appropriate measures required for achieving fiscal consolidation. The empirical estimation is carried out using a macroeconomic dataset spanning the period 1980-2008 and both the 3SLS methodological approach on a theoretical model and the structural VAR methodology to perform forecast tests and to calibrate the future paths of the public debt variable up to 2020. The results suggest that only an aggressive growth policy could permit the country to achieve debt sustainability. The results are expected to have important implications to policy makers for designing effective macroeconomic policy in terms of achieving sustainable levels of public debt. |
| Keywords: | primary balance, public debt, structural modeling, Greece |
| JEL: | E62 C51 C30 E27 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:hel:greese:79&r=mac |
| By: | Wolters, Maik; Hosseinkouchack, Mehdi |
| Abstract: | The slow recovery following the 2008/2009 recession has led to renewed interest in the question whether deep recessions lower real GDP permanently or whether we can expect a rebound to earlier trend levels. Using a recent quantile autoregression unit root test we check whether shocks to real GDP have permanent or temporary effects. In contrast to earlier studies this approach takes into account that the transmission of a shock might depend on the sign and the size of the shock. Large recessionary shocks might have a different effect than smaller recessionary or expansionary shocks. We do not only test the unit root hypothesis at the conditional mean of GDP, but also in the tails of the distribution where the lower tail corresponds to large recessions. The test has more power than conventional unit root tests. We find that positive and negative shocks including large recessionary shocks have permanent effects on output. Therefore, a rebound of GDP to its pre-crisis trend level is unlikely. Current output gap estimates based on deterministic trends are likely to be too negative and inflation forecasts based on these are likely to be too low. -- |
| JEL: | C22 E32 O40 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79881&r=mac |
| By: | Mariana Tomova; Andras Rezessy; Artur Lenkowski; Emmanuelle Maincent |
| Abstract: | The objective of this paper is to empirically analyse whether sound fiscal and macroeconomic policies are beneficial to the achievement of the socio-economic development objectives enshrined in the Treaty on the Functioning of the European Union, and in particular whether sound policies have an impact on the effectiveness of European Structural and Investment Funds (ESI funds) in helping Member States to progress towards these socio-economic development objectives. Our econometric results show that sound fiscal policies proxied by low levels of government debt and deficit and sound macroeconomic policies proxied by low levels of net foreign liabilities are beneficial to socio-economic development. Furthermore, we find evidence that ESI funds are effective in helping Member States to enhance socio-economic development and this effectiveness is higher when combined with sound national fiscal and macroeconomic policies. |
| JEL: | D62 E61 E62 H5 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecopap:0510&r=mac |
| By: | I.Fatnassi; S.Chawechi; Z.Ftiti; A.Ben Maatoug |
| Abstract: | In this paper, we analyse whether a monetary policy based on three main variables (inflation, money supply, and output gap) has a nonlinear impact on real estate investment trust (REIT) markets. In addition, we extend our analysis to examine whether these monetary policy components impact the possibility of boom and bust regimes occurring in the market. Empirically, we propose different Markov-switching model variants to determine the nonlinear time-varying impact of monetary policy on the REIT market. Our results show the monetary policy environment is supposed to affect, on one hand, the REIT returns and, on another hand, the possibility of boom and bust markets. We prove that expansionary monetary policy has an impact only in the case of boom market. However, an increase in the inflation rate decreases the probability in remaining in the bust regime. As consequence, we have already outlined several monetary transmission mechanisms that show house prices to have important effects on aggregate demand. Our results confirm that REIT markets are not efficient. |
| Keywords: | Monetary policy, REIT, Boom and Bust, Nonlinear,Markov-switching |
| Date: | 2014–01–06 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-22&r=mac |
| By: | Grossman, Valerie (Federal Reserve Bank of Dallas); Mack, Adrienne (Federal Reserve Bank of Dallas); Martinez-Garcia, Enrique (Federal Reserve Bank of Dallas) |
| Abstract: | The Database of Global Economic Indicators (DGEI) from the Federal Reserve Bank of Dallas is aimed at standardizing and disseminating world economic indicators for policy analysis and scholarly work on the role of globalization. The purpose of DGEI is to offer a broad perspective on how economic developments around the world influence the U.S. economy with a wide selection of indicators. DGEI is automated within an Excel-VBA and E-views framework for the processing and aggregation of multiple country time series. It includes a core sample of 40 countries with available indicators and broad coverage. Country groupings include rest of the world (ex. the U.S.) aggregates and subgroups of countries by development attainment and trade openness. The indicators currently tracked include real GDP, industrial production (IP), Purchasing Managers’ Index (PMI), merchandise exports and imports, headline CPI, CPI (ex. food and energy), PPI/WPI inflation, nominal and real exchange rates, and official/policy interest rates. All series are monthly, with the exception of real GDP which is reported at a quarterly frequency. Aggregation is based on trade shares with the U.S. The Globalization and Monetary Policy Institute publishes the aggregate indicators as well as additional country detail on its website with an accompanying slideshow on Global Economic Conditions. This note provides a technical description of the methodology implemented to construct the DGEI. |
| JEL: | C80 C82 E00 E66 |
| Date: | 2014–01–16 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:166&r=mac |
| By: | DE KONING, Drs Kees |
| Abstract: | The world’s financial crisis happened in 2008, but the U.S. individual households’ income and savings crisis happened before that: the latter one was already at crisis point in 2005 and 2006. The key of any analysis about the households’ income and savings crisis should start with the distinction between equity (=savings) accumulated out of an individual household’s own income and equity (=savings) provided by other households to the individual household as a supplement to an individual household’s own income and savings. In the case of the purchase of a home: is the outside equity helping to increase the volume of new housings starts or does it increase the price level of all homes above the CPI inflation level? In the latter case the outside equity reduces the value of the own equity. This is not because the asset has not increased in price on the open market, but because the savings out of income have a lower value to acquire such an asset. If incomes increase with CPI inflation and house prices increase at a faster rate, than for every new home one needs more equity, thereby reducing the value of the savings as compared to the previous period. If the costs of the outside savings go up due to a central bank’s increase in interest rates, especially when the home owner is on a variable interest rate mortgage, the value of the equity out of the owner’s own income drops further. This value reduction in own equity is a gradual process; in the U.S. it happened over de period 2000-2006. In 2005-2006 65.5% of all outside equity in U.S. homes was used to inflate house prices over the CPI rate. The individual households’ income and savings crisis had reached its breaking point. |
| Keywords: | financial crisis, economic crisis and individual households' income and savings crisis, owners own equity, outside equity, housing crisis, economic easing, assessment of house prices. |
| JEL: | E21 E24 E3 E52 |
| Date: | 2014–01–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:53122&r=mac |
| By: | Moessinger, Marc-Daniel; Feld, Lars P.; Kalb, Alexander; Osterloh, Steffen |
| Abstract: | We investigate the political determinants of risk premiums which sub-national governments in Switzerland have to pay for their sovereign bond emissions. For this purpose we make use of financial market data from 288 tradable cantonal bonds in the period from 1981 to 2007. Our main focus is on two different political influences. First, many of the Swiss cantons have adopted very strong fiscal rules. We find evidence that both the presence and the strength of these fiscal rules contribute significantly to lower cantonal bond spreads. Second, we study the impact of a credible no-bailout regime on the risk premia of potential guarantors. We make use of the Leukerbad court decision in July 2003 which relieved the cantons from backing municipalities in financial distress, thus leading to a fully credible no-bailout regime. Our results show that this break lead to a reduction of cantonal risk premia by about 25 basis points. Moreover, it cut the link between cantonal risk premia and the financial situation of the municipalities in its canton which existed before. This demonstrates that a not fully credible no-bailout commitment can entail high costs for the potential guarantor. -- |
| JEL: | E62 G12 H63 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79807&r=mac |
| By: | Daniel Monteiro |
| Abstract: | This paper analyses the flow of credit in the UK economy in the years before and after the 2008 financial and economic crisis, with particular emphasis on the corporate sector and the SME segment. It carries out a comparative flow-of-funds analysis highlighting the parallelisms and differences between the sterling and euro currency areas. It also reviews the characteristics of UK funding markets and, based on an analysis of available surveys and other evidence, discusses the extent to which credit supply and demand factors have been at play in driving the marked retrenchment in credit observed in the post-crisis period. The conclusions are complemented by econometric evidence from an estimated SVAR model identifying a long period of negative credit supply and demand shocks from 2008 to 2012. The paper also discusses how competition in the UK banking industry was impaired in the post-crisis period and how to harness the current UK institutional framework for kick-starting an SME securitisation market. Finally, a review is made of the main initiatives taken by the UK authorities to improve access to finance. Overall, the paper details the supporting evidence underlying the 2011, 2012 and 2013 country-specific recommendations addressed to the UK by the Council of the European Union to the effect that the UK authorities continue to take steps to foster access to finance. |
| JEL: | C32 E44 E51 E52 E58 G21 G28 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecopap:0509&r=mac |
| By: | Enrique Vásquez (Departamento de Economía, Universidad del Pacífico) |
| Abstract: | Síntesis El gobierno de Humala se instaló en el año 2011 con el objetivo de combatir la exclusión social. ¿Hasta qué punto ello se ha logrado? Según las cifras oficiales del INEI, 450,842 personas han dejado de ser pobres entre el 2011 y 2012, pero en términos monetarios. Esto quiere decir, que 22?652,053 personas perciben un ingreso personal por encima de los 284 soles mensuales, con lo cual surge la incógnita acerca de la resolución del tema de la exclusión: ¿serán estas cifras tangibles y ello, suficiente? Desde otra óptica, el enfoque de la pobreza multidimensional de Alkire & Foster (2008) afina el diagnóstico e incrementa los estándares de las políticas sociales al abordar las privaciones sufridas por los hogares. Para el año 2012, el gobierno sostiene que existen 7?880,757 pobres en el país, lo que corresponde a una tasa de pobreza de 25.8%; sin embargo, el enfoque multidimensional plantea la existencia de 11?160,015 pobres, lo que se traduce en una tasa de pobreza de 36.6%. Esta diferencia se explica principalmente por las divergencias que se halla en las tasas de pobreza en el ámbito rural con respecto al ámbito urbano y, en general, en la Sierra y Selva en comparación con la Costa. La pregunta es ¿cómo las políticas y programas sociales del gobierno de Humala han significado un cambio para los excluidos del Perú? Dos resultados son preocupantes al 2012: 1.6 millones de niños, niñas y adolescentes, así como 1.2 millones de personas mayores de 65 años son pobres multidimensionales para el Estado, por lo que, permanecen en una condición de exclusión. |
| Keywords: | Política, Políticas, Programa, Programas, Social, Sociales, Gobierno, Ollanta, Humala, Pobreza, Multidimensional, Desigualdad, Gestión, Gasto, Público, Conflicto, Conflictos, Inversión, Pública |
| JEL: | E60 E61 E62 E65 E66 E69 H0 H50 H51 H52 H53 H59 I0 I30 I31 I32 I38 I39 O10 O15 O20 O21 O22 O23 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:pai:wpaper:13-07&r=mac |
| By: | Atif Mian |
| Abstract: | How should monetary policy and macro-prudential regulation respond to the dangers of financial bubbles? I argue that bubbles - and their collapse - become a serious problem when there is inadequate risk-sharing. Neither monetary policy nor traditional macro-prudential regulation is designed to deal with this risk-sharing problem. Monetary policy has little hope of either accurately anticipating bubbles or dealing effectively with their consequences. Traditional approaches to macroprudential regulation are unlikely to succeed as they are based on the false premise that risk can always be quantified up front. I propose considering "ex-ante flexible contracting" as a longer-term response to the financial stability question. |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:713&r=mac |
| By: | Lemke, Wolfgang; Strohsal, Till |
| Abstract: | We assess whether euro area inflation expectations, as measured by break-even inflation rates (BEIRs), have remained anchored during the financial crisis. Since autumn 2008, the volatility of BEIRs has increased considerably. We treat observed BEIRs as a sum of `genuine BEIRs' and additional `noise' components, the latter picking up influences related to market illiquidity or demand-supply imbalances, but not reflecting genuine inflation expectations and inflation risk premia. We estimate a bivariate VAR with short-term and long-term BEIRs, allowing for measurement noise in both. Anchoring of inflation expectations is analyzed by means of the pass-through of shocks from shorter to longer-term expectations. We find that, according to the pass-through results, inflation expectations remained well-anchored during the crisis period. Moreover, measurement noise accounts for up to 30% of the increase in volatility of BEIRs. -- |
| JEL: | E31 E52 C32 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79794&r=mac |
| By: | Josheski, Dushko; Magdinceva-Sopova, Marija |
| Abstract: | In this paper it is described the school of neo-Keynesians (Akerlof and Stiglitz are in the group of ”Hard” New-Keynesians, that don’t accept New neo-classical synthesis, i.e. Dynamic Stochastic General equilibrium models-DSGE),that as a basic source of instability in the economies view the demand аnd supply side shocks, short run is important for them, wages and prices are rigid, expectations of the economic agents are rational, but also historical data are of great importance, and they introduced microeconomic foundations for their macroeconomic models. -- |
| Keywords: | New-Keynesians,nominal rigidities,microeconomic foundations |
| JEL: | E00 E12 |
| Date: | 2014–01–30 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:90909&r=mac |
| By: | Rengel, Malte; Herwartz, Helmut; Xu, Fang |
| Abstract: | Persistent variations in the log price-to-dividend ratio (PtDR) have triggered a lively discussion in the literature. This paper proposes a present value model incorporating this persistence through a time-varying steady state of the PtDR. Log-likelihood statistics confirm that the time-varying state model outperforms its counterpart with a constant steady state. It is shown that the steady state of the PtDR is jointly influenced by consumption risk, risking sharing, and the demographic structure. Among those consumption risk is the dominating factor in shaping the variations in the steady state of the PtDR throughout the entire last century. -- |
| JEL: | E44 G01 G12 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79860&r=mac |
| By: | Seymen, Atilim; Misch, Florian |
| Abstract: | The paper investigates the effects of temporary consumption tax cuts using firm-level data. As part of its countercyclical measures implemented during the recent global economic crisis, Tur-key temporarily lowered consumption taxes on selected durables. Our empirical strategy ex-ploits variation in firm exposure to the tax cut which allows us to control for unobserved indus-try- and region-specific shocks to address potential endogeneity. Using data on the change of sales of firms that benefited from this measure and of those that did not over different periods, we find positive and robust effects of consumption tax cuts on the change of firm sales which is consistent with theoretical predictions. -- |
| JEL: | E32 E62 H20 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79923&r=mac |
| By: | Schüler, Yves S.; Fink, Fabian |
| Abstract: | We provide empirical evidence that US financial stress shocks (US-FSSs) are an important driver for economic dynamics and fluctuations in emerging market economies (EMEs). Applying a structural vector autoregression, we analyze the international transmission of US-FSSs to eight EMEs using monthly data from 1999 to 2012. US-FSSs are identified as unexpected changes in the financial conditions index of the Federal Reserve Bank of Chicago. Findings indicate that a typical EME experiences similar negative effects as the US economy in response to US-FSSs. Our results emphasize that the transmission through international financial interconnections is dominant, while contagion through trade is inessential. Further, with regard to fluctuations in real economic activity, US-FSSs are as important as all other external factors jointly. In general, US-FSSs represent a crucial driver for volatility in the emerging world; also at business cycle frequencies. -- |
| JEL: | E44 F30 G10 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79692&r=mac |
| By: | Scheubel, Beatrice; Körding, Julia |
| Abstract: | As reliance on excessively short-term wholesale funding has been one of the major causes for the 2007-2009 financial crisis, recent advances in global liquidity regulation try to curb the excessive reliance on short-term wholesale funding without being clear on how such an approach will affect the overall equilibrium on money markets. In particular, liquidity regulation may interfere with the central bank's influence on short-term money market rates. This paper tries to fill the gap in understanding the interaction between the money market, the central bank, and the regulator. Importantly, it shows that the existence of a central bank can be welfare-improving when the market equilibrium is driven by collateral constraints and asymmetric information. Regulation can be welfare-improving in the presence of an externality and also in case of collateral constraints, but reduces activity on the unsecured market. This implies that in case of collateral constraints the regulator can lead to a complete crowding out of the unsecured market which leads to an increased central bank intermediation need. -- |
| JEL: | E42 H12 L51 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79754&r=mac |
| By: | Guillermo Calvo; Fabrizio Coricelli; Pablo Otonello |
| Abstract: | This paper discusses three policy tools to mitigate jobless recoveries during financial crises: inflation, real currency depreciation, and credit-recovery policies. Using a sample of financial crises in Emerging Market economies, we document that large inflationary spikes appear to help unemployment to get back to pre-crisis levels. However, the counterpart of inflation is sizably lower real wages. Hence, inflation does not prevent wage earners as a whole from getting hit by financial crises. Interestingly, neither the change in the real exchange rate nor the change in output composition (tradables/nontradables), from output peak to recovery point, displays a statistically significant relationship with inflation or jobless recovery. This suggests that currency depreciation can help reduce unemployment only insofar as it is associated with inflation, and that jobless recovery is likely due to nominal wage rigidity. The paper also shows that measures to reactivate credit flows could be beneficial to wage earners as a whole, as measured by the real wage bill. |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:711&r=mac |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-10&r=mac |
| By: | Arnab Bhattacharjee (Heriot-Watt University); Chris Higson (London Business School); Sean Holly (University of Cambridge) |
| Abstract: | ‘Operating leverage’describes the extent to which a …Firm’s operating costs are fi…xed in the short term. Operating leverage ampli…es the earnings impact of a change in revenues; an effect which is further amplified by fi…nancial leverage and by non-proportionality in the tax system. Since the costs of adjusting capacity are likely to vary depending on the nature of the inputs, we expect to see sectoral differences in operating leverage around the business cycle and, indeed, differential adjustment costs underlie the distinction between cyclical and non-cyclical fi…rms that is popular with fi…nancial market practitioners. We fi…nd using a large data set on quoted UK companies between 1966 and 2010 that there are significant differences among sectors in the way it which operating leverage adjusts. |
| Keywords: | Operating Margin, panel data, …fixed and ‡flexible costs, Business Cycles |
| JEL: | E32 D4 G30 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:hwe:seecdp:1402&r=mac |
| By: | Knüppel, Malte; Schultefrankenfeld, Guido |
| Abstract: | The interest rate assumptions for macroeconomic forecasts differ considerably among central banks. Common approaches are given by the assumption of constant interest rates, interest rates expected by market participants, or the central bank's own interest rate expectations. From a theoretical point of view, the latter should yield the highest forecast accuracy. The lowest accuracy can be expected from forecasts conditioned on constant interest rates. However, when investigating the predictive accuracy of the forecasts for interest rates, inflation and output growth made by the Bank of England and the Banco do Brasil, we hardly find any significant differences between the forecasts based on different interest assumptions. We conclude that the choice of the interest rate assumption, while being a major concern from a theoretical point of view, appears to be at best of minor relevance empirically. -- |
| JEL: | C12 C53 E58 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:80042&r=mac |
| By: | Reicher, Christopher Phillip |
| Abstract: | In this paper I discuss the estimation of the process governing the structural shocks (or wedges) to a DSGE model, arguing that a well-specified model would satisfy certain sets of moment conditions. Based on tests for overidentifying restrictions, I compare three specifications of the Taylor rule within a simple New Keynesian model. I find that a rule which allows for the Fed to respond to four lags of inflation shows less evidence of misspecification than one where the Fed responds only to contemporaneous inflation. Raising the coe cient on the output gap to 1 instead of 0.5 gives more ambiguous results. -- |
| JEL: | C12 C22 E52 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79955&r=mac |
| By: | Wellschmied, Felix Maximilian; Bachmann, Rüdiger; Bayer, Christian; Seth, Stefan |
| Abstract: | We study the relationship between cyclical job and worker flows at the plant level using a new data set spanning from 1976-2006. We find that procyclical labor demand explains relatively little of procyclical worker flows. Instead, all plants in the employment growth distribution increase their worker turnover during booms. We also find that cyclical changes in the employment growth distribution are mostly driven by plants moving from inactivity to a growing labor force during booms. Consequently, increased labor turnover at growing plants is the main quantitative driver behind increased labor turnover during booms. We argue that on the job search models are able to capture non-parallel shifts in the employment growth distribution and procyclical conditional worker flows for a range of the growth distribution. Yet, they fail to rationalize procyclical accession rates for all shrinking and procylical separation rates for all growing plants. -- |
| JEL: | E32 J23 J63 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79874&r=mac |
| By: | Winkelmann, Lars; Bibinger, Markus; Linzert, Tobias |
| Abstract: | We propose a new monetary policy surprise measure based on cojumps in tick-data of a short and long term interest rate. We extend a recently proposed test for cojumps to distinguish policy announcements that shift the short and long end of the yield curve in the same direction (level shift) and policy announcements that shift both ends in opposite directions (rotation). Through level shifts and rotations we identify the source of a policy surprise in a standard Taylor-rule context. Empirical evidence on 133 ECB policy announcements from 2001 to 2012 suggest that markets perceptions about ECB policy preferences has been remarkably stable. -- |
| JEL: | E58 C14 C58 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79721&r=mac |
| By: | Pirschel, Inske; Ahrens, Steffen; Snower, Dennis |
| Abstract: | This paper provides an alternative theory of price adjustment resting on consumer loss aversion in the price dimension. In line with prospect theory the perceived losses from price increases are weighted stronger in the consumer s utility function than the perceived gains resulting from price decreases of equal magnitude. Prices are evaluated relative to a certain reference price which is endogenous, sluggish and depends to the consumer s recent rational price expectations. Two key modeling implications arise: First, demand responses are more elastic for price increases than for price decreases and thus firms face a downward-sloping demand curve that is kinked at the consumer s reference price. Second, changes in the consumer s recent rational price expectations and hence in the consumer s reference price can alter demand through what we call the reference-price-updating effect. We incorporate this into an otherwise standard dynamic neoclassical model of monopolistic competition and analyze price and quantity reactions to various demand shocks. We find that although firms may change their prices flexibly, depending on the size of the shock the prices adjust more or less pronounced than in the standard monopoly model and that prices can even be rigid. Additionally, we find that the price adjustment is asymmetric with respect to shock size and sign and the current state of the business cycle, i.e. pricing is state-dependent. -- |
| JEL: | D03 D21 E31 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79793&r=mac |
| By: | Theobald, Thomas |
| Abstract: | This paper uses several macroeconomic and financial indicators within a Markov Switching (MS) framework to predict the turning points of the business cycle. The presented model is applied to monthly German real-time data covering the recession and the recovery after the financial crisis. We show how to take advantage of combining single MSARX forecasts with the adjusting of the number of regimes on the real-time path, which both lead to higher forecast accuracy through the non-linearity of the underlying data-generating process. Adjusting the number of regimes implies distinguishing between recessions which are either normal or extraordinary, i.e. specifically determining as early as possible the point in time from which the recession in the aftermath of the financial crisis structurally exceeded previous ones. In fact it turns out that the Markov Switching model can signal quite early whether a conventional recession will occur or whether an economic downturn will be more pronounced. -- |
| JEL: | C24 C53 E37 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79911&r=mac |
| By: | Asako, Yasushi (Federal Reserve Bank of Dallas); Ueda, Kozo (Federal Reserve Bank of Dallas) |
| 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. |
| JEL: | C72 D82 D84 E58 G12 G18 |
| Date: | 2014–01–16 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:167&r=mac |
| By: | Watzka, Sebastian |
| Abstract: | The Spanish economy is currently plagued by a deep recession with very high unemployment. We ask how much of the unemployment increase in Spain can be traced back to the debt deleveraging needs of Spanish households. We use provincial household debt and sectoral unemployment data and follow Mian and Sufi (2012) to isolate the effect of household debt on Spanish unemployment. We find that the level of household sector debt in Spanish provinces in 2007 is a highly significant determinant of the subsequent increase in provincial unemployment from 2007 to 2010. Our estimates indicate that approximately 1/3 of the increase in overall Spanish unemployment over that period can be traced back to high household debt levels. -- |
| JEL: | E21 J20 O52 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79853&r=mac |
| By: | Eliphas Ndou and Siobhan Redford |
| Abstract: | This paper follows work by Choi, Kim and O’Sullivan (2011), but deviates from their analysis by looking at the relative price variability (RPV) of selected components of the consumer price index (CPI) rather than an aggregate measure. The purpose of this work is to analyse which components are more variable and to see if there has been a change in the RPV (i.e., mean and distribution) since the adoption of inflation targeting (IT) in South Africa. A semi-parametric methodology has been used, and the RPV of components pre-IT and during the IT era were considered to see if the relationship of RPV components produces results similar to those presented for aggregate headline CPI for South Africa in Choi et al. (2011). The results suggest that in most cases, the components of the CPI have experienced decreased mean inflation rates and narrower distributions during the IT period with the changes in the mean and distribution of RPV decreasing and narrowing in most cases. Furthermore, the nature of the relationship of the RPV of the components with inflation seems to fit a quadratic specification well, with a minimum relative price variability at a positive rate of inflation. These results are found to be fairly robust during the period tested. |
| Keywords: | deviation, inflation targeting (IT), relative price variability (RPV) |
| JEL: | E31 E52 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:412&r=mac |
| By: | Sacht, Stephen; Franke, Reiner; Jang, Tae-Seok |
| Abstract: | The paper considers an elementary New-Keynesian three equation model and compares its Bayesian estimation to the results from the method of moments (MM), which seeks to match a finite set of the model-generated second moments of in ation, output and the interest rate to their empirical counterparts. It is found that in the Great Ination (GI) period - though not in the Great Moderation (GM) - the two estimations imply a significantly different covariance structure. Regarding the parameters, special emphasis is placed on the degree of backward-looking behaviour in the Phillips curve. While, in line with much of the literature, it plays a minor role in the Bayesian estimations, MM yields values of the price indexation parameter close to or even at its maximal value of unity. For both GI and GM, these results are worth noticing since in (strong or, respectively, weak) contrast to the Bayesian parameters, the covariance matching thus achieved is entirely satisfactory. -- |
| JEL: | C52 E32 E37 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79694&r=mac |
| By: | Chen, Siyan; Desiderio, Saul |
| Abstract: | In this paper we give a clear-cut explanation to the sluggish wage adjustments which are commonly experienced also in face of involuntary unemployment. We prove that unemployment may be the physiological outcome of rational decisions by competing workers who may find it optimal to ask higher wages than the full-employment ones. The key element driving the result is the slope (or elasticity) of labor demand schedule: in case of rigid labor demand, in fact, workers’ wage requests are kept high because of reduced unemployment opportunity costs. This contrasts with other approaches to the analysis of unemployment, where only the level of labor demand is considered. Impatience of working and effort required by the job are also showed to influence the degree of wage stickiness. |
| Keywords: | Sticky wages, involuntary unemployment, labor demand elasticity, game theory |
| JEL: | C72 E24 J23 J64 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:53260&r=mac |
| By: | Luis F. Céspedes; Javier García-Cicco; Diego Saravia |
| Abstract: | In this paper we analyze the effects of the Term Liquidity Program (FLAP) implemented by the Central Bank of Chile in response to the financial crisis of 2008-9. We find that the announcement related to this policy significantly reduced nominal yields in the policy horizon of two years. These results suggest that the credibility goal of this unconventional policy (i.e. to convey the message that the monetary policy rate was to remain at its lower bound for a prolonged period of time) was achieved. We also analyze how the usage of that facility by banks affected the credit they supply. We find that banks that borrowed from this facility increase commercial and consumer loans, relative to those that did not, but mortgage credit was not significantly affected. In other words, this additional source of short-term borrowing was used mainly to finance short-term lending. |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:712&r=mac |
| By: | Enders, Zeno; Kleemann, Michael; Müller, Gernot |
| Abstract: | Expectations matter for economic activity. To the extent that they are fundamentally unwarranted, they represent "undue optimism or pessimism" (Pigou, 1927). In this paper, we identify empirically the effect of undue optimism/pessism ("optimism shocks") on economic activity. In a first step, we compute an expectation error regarding current economic activity: the difference of the Ifo index of economic activity and its consensus forecast, compiled simultaneously and independently. The resulting "Ifo innovations" may represent either fundamental innovations or optimism shocks. In a second step, we impose long-run restrictions on a VAR model to disentangle the effects of both shocks. We find that optimism shocks - in line with theory - reduce Ifo innovations, but raise economic activity. They account for up to 30% of short-run fluctuations in industrial production. -- |
| JEL: | E32 E30 E32 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:80009&r=mac |
| By: | Jung, Alexander; El-Shagi, Makram; Giesen, Sebastian |
| Abstract: | This paper assesses the relative performance of central bank staff forecasts and of private forecasters for inflation and output. We show that the Federal Reserve (Fed), and less so the European Central Bank (ECB), has a significant information advantage concerning inflation and output forecasts. Using recently developed tests for conditional predictive ability and forecast stability for the US, we find that the driving forces behind the narrowing of the information advantage of Greenbook forecasts have coincided with the Great Moderation. -- |
| JEL: | C53 E37 E52 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79925&r=mac |
| By: | Joseph E. Gagnon (Peterson Institute for International Economics); Brian Sack (D. E. Shaw Group) |
| Abstract: | The amount of assets held by the Federal Reserve has dramatically increased since 2009. It recently crossed $4 trillion and will likely peak at about $4.5 trillion. This increase is the result of the Fed's large-scale asset purchase programs, which were intended to support economic growth. However, these purchases have created unprecedented amounts of liquidity in the financial system. Gagnon and Sack doubt that the Fed can smoothly conduct monetary policy along the lines of the previous operating framework in this environment of high liquidity. Instead of reducing bank reserves to achieve a target level for the federal funds rate, they propose a new operating framework that would allow the Fed to maintain an elevated balance sheet along with abundant liquidity in the financial system. They argue that the Fed should set the rate at which it will offer overnight reverse repurchase agreements as its policy instrument, with the interest rate paid on bank reserves set at the same level. The federal funds rate would become just one of the various overnight interest rates determined by the market in the normal transmission of monetary policy. |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:iie:pbrief:pb14-4&r=mac |
| By: | John H. Makin (American Enterprise Institute) |
| Keywords: | the Federal Reserve,quantitative easing,Janet Yellen,fiscal stimulus,Economic outlook |
| JEL: | A E |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:aei:rpaper:40099&r=mac |
| By: | Jessie Handbury (University of Pennsylvania); Tsutomu Watanabe (University of Tokyo); David E. Weinstein (Columbia University and NBER) |
| Abstract: | Official price indexes, such as the CPI, are imperfect indicators of inflation calculated using ad hoc price formulae different from the theoretically well-founded inflation indexes favored by economists. This paper provides the first estimate of how accurately the CPI informs us about “true” inflation. We use the largest price and quantity dataset ever employed in economics to build a Törnqvist inflation index for Japan between 1989 and 2010. Our comparison of this true inflation index with the CPI indicates that the CPI bias is not constant but depends on the level of inflation. We show the informativeness of the CPI rises with inflation. When measured inflation is low (less than 2.4% per year) the CPI is a poor predictor of true inflation even over 12-month periods. Outside this range, the CPI is a much better measure of inflation. We find that the U.S. PCE Deflator methodology is superior to the Japanese CPI methodology but still exhibits substantial measurement error and biases rendering it a problematic predictor of inflation in low inflation regimes as well. |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:upd:utppwp:013&r=mac |
| By: | Christophe Starzec (Centre d'Economie de la Sorbonne - Paris School of Economics); François Gardes (Centre d'Economie de la Sorbonne - Paris School of Economics) |
| Abstract: | The presence of rationing or more generally of the situations of constrained demand can make the traditional methods of measuring inflation questionable and give an erroneous image of the reality. In this paper, we use the virtual price approach (Neary, Roberts, 1980) to estimate the real inflation level in a centrally planned economy (CPE) with administrated prices. In the first part of the paper, we discuss various methods used in CPE's to evaluate the real level of inflation by the market disequilibrium indicators or proxies which take into account rationing and incomplete information. In the second part of the paper, we apply the virtual price approach to compute the real inflationist gap between demand and supply under rationing in Poland's centrally planned economy with administrated prices in 1965-1980 period. We estimate for this period the model of consumer behaviour under rationing and recover the virtual prices reflecting the real cost of purchasing rationed goods following Neary, Roberts' (1980) and Barten's (1994) methodology. The results show a very large difference between official and virtual price of food considered as the most rationed good (up to 500%). The natural experiment of shift from the centrally planned economy to the market economy (or from rationing to market equilibrium) observed in Poland during the “shock therapy” (1990) confirms the scale of estimated by the model gap between the official (administrated) and market prices. |
| Keywords: | Consumer demand, rationing, inflation, virtual prices. |
| JEL: | D12 D45 E31 P36 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:14001&r=mac |
| By: | Holz , Carsten A. (BOFIT); Mehrotra, Aaron (BOFIT) |
| Abstract: | This study finds that the growth in labour costs in China is not passed through fully to final prices in China, neither in the tradable goods sector nor in the economy as a whole. This probably reflects the strong pressure on profit margins from a highly competitive environment, especially in manufactured goods. The potential implications of labour cost increases in China for global inflation pressures are also discussed. |
| Keywords: | labour costs; inflation; China; global economic slack; globalisation |
| JEL: | E31 F42 J30 |
| Date: | 2014–01–20 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2014_003&r=mac |
| By: | Ádám Banai (Magyar Nemzeti Bank (the central bank of Hungary)); Zsuzsanna Hosszú (Magyar Nemzeti Bank (the central bank of Hungary)); Gyöngyi Körmendi (Magyar Nemzeti Bank (the central bank of Hungary)); Sándor Sóvágó (Tinbergen Institute (MPhil student)); Róbert Szegedi (Magyar Nemzeti Bank (the central bank of Hungary)) |
| Abstract: | Our study presents the top-down stress testing framework currently used by the Magyar Nemzeti Bank. We run separate solvency and liquidity stress tests to analyse the ability of the banking system to absorb shocks and we present their results in our Report on Financial Stability. In the former, we focus mostly on credit risk but also take into account losses due to market risks. Our study explains in detail the method we apply to quantify the impact of a negative two-year macroeconomic shock on the capital adequacy ratio. We explain the models we use for calculating profit before loan losses, PDs and LGD. We also demonstrate how we measure the impact of an intensive 30-day liquidity shock on the banking system. Finally, we use the stress test completed in the spring of 2013 to explain in detail how the results should be interpreted and what conclusions we can draw from them. |
| Keywords: | stress test, liquidity risk, credit risk |
| JEL: | E44 E47 G21 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:mnb:opaper:2014/109&r=mac |
| By: | Posch, Olaf; Schrimpf, Andreas |
| Abstract: | This paper shows that the consumption-based asset pricing model (C-CAPM) with low-probability disaster risk rationalizes large pricing errors, i.e., Euler equation errors. This result is remarkable, since Lettau and Ludvigson (2009) show that leading asset pricing models cannot explain sizeable pricing errors in the C-CAPM. We also show (analytically and in a Monte Carlo study) that implausible estimates of risk aversion and time preference are not puzzling in this framework and emerge as a result of rational pricing errors. While this bias essentially removes the pricing error in the traditional endowment economy, a production economy with stochastically changing investment opportunities generates large and persistent empirical pricing errors. -- |
| JEL: | E21 G12 O41 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79987&r=mac |
| By: | Anusha Chari; Peter Blair Henry |
| Abstract: | Paths into the Asian Crisis of 1997-98 and the recent global financial crisis were similar, but the roads out could not be more different. Common wisdom has it that on impact Asia endured fiscal austerity imposed by the IMF whereas the IMF recommended stimulus in the case of the advanced nations at the epicenter of the crisis in 2008-09. While the IMF did recommend different policies to begin with, the fiscal adjustment in Asia was far more modest than is commonly known and the switch from stimulus to austerity in Europe was quite abrupt. The difference in fiscal stance helps explain the difference in the post-crisis paths of output and employment in the two regions. |
| JEL: | E62 E65 F4 F43 O11 O57 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19840&r=mac |
| By: | Hürtgen, Patrick; Rühmkorf, Ronald |
| Abstract: | This paper studies the impact of the state-dependent risk of a government default on the correlation of the scal balance and current account. We use a small open economy model where nonlinear risk premia arise endogenously when the government operates close to its scal limit, i.e. the maximum capacity of a country to repay its debt. The presence of the possible sovereign default leads to dynamics of sovereign debt which cause taxes to rise and increase the dispersion of resulting tax levels. In line with data for industrialized countries household saving increases at high debt-to-GDP levels and the correlation of the scal balance and current account decreases. We calibrate the model to Greece and simulate the debt crisis as a result of negative TFP shocks and nd that the model dynamics t to the data. -- |
| JEL: | E62 F32 H31 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79834&r=mac |
| By: | Pablo Pincheira |
| Abstract: | In this paper we explore the role that exchange rate interventions may play in determining inflation expectations in Chile. To that end, we consider a set of nine deciles of inflation expectations coming from the survey of professional forecasters carried out by the Central Bank of Chile. We consider two episodes of preannounced central bank interventions during the sample period 2007–2012. Our results indicate, on the one hand, that the intervention program carried out in 2008 had a significant, but relatively short-lived, impact on the distribution of inflation expectations at long horizons. On the other hand, the intervention carried out in 2011 shows no relevant impact on the distribution of inflation expectations in Chile. A daily analysis using break-even inflation rate as a proxy for inflation expectations is roughly consistent with these results. Our analysis also suggests that the interventions did have an impact on daily exchange rate returns, especially on the day after the announcements of the intervention programs. |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:693&r=mac |
| By: | Simona Delle Chiaie (Banque de France); Bernardo Maggi (Sapienza Universita' di Roma) |
| Abstract: | In this paper we analyze the yield difference between two on- and off-the-run similar notes to gauge the liquidity premium. We investigate this issue by relating such a differential to several liquidity indicators that we build and examine -to our knowledge for the first time- throughout the entire life of the Italian Government securities. We provide evidence on the differences between the US and the Italian security markets, calculate accurately the joint and the total probability for liquidity shocks and provide a methodology to cope with the resilience of a liquidity shock and its implications in terms of issuance policies |
| Keywords: | Treasury bonds market, liquidity, on/off-the-run cycle, liquidity shock probability, resilience. |
| JEL: | G12 E44 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:sas:wpaper:20143&r=mac |
| By: | Schreiber, Sven |
| Abstract: | The detection of business-cycle turning points is usually performed with non-linear discrete-regime models such as binary dependent variable (e.g., probit or logit) or Markov-switching methods. The probit model has the drawback that the continuous underlying target variable is discretized, with a considerable loss of information. The Markov-switching approach in general presupposes a non-linear data-generating process, and the numerical likelihood maximization becomes increasingly dif cult when more covariates are used. To avoid these problems we suggest to rst use standard linear systems (subset VARs with zero restrictions) to forecast the relevant underlying variable(s), and in a second step to derive the probability of a suitably de ned turning point from the forecast probability density function. This approach will never fail numerically. We also discuss and show how this approach can be used in real time in the presence of publication lags and to capture features of the data revision process, and we apply the method to German data; the event of the recent Great Recession is rst signalled in June 2008, several months before the of cial published data con rms it (but due to publication and recognition lags it is found after it already began in reality). -- |
| JEL: | C53 E37 E32 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79709&r=mac |
| By: | Bec, Frédérique; Bessec, Marie |
| Abstract: | This paper explores the existence of a bounce-back effect in inventory investment using the European Commission opinion survey on stocks of finished products in manufacturing and retail trade sectors for France, Germany and a European aggregate, from 1985q1 to 2011q4. Our empirical findings support the existence of a high recovery episode for inventory investment, during the quarters immediately following the recessions: it occurs later and lasts longer in manufacturing than in retail trade sector. Since a third phase of rapid recovery has not been found in final sales data so far, the rebound in inventories could in turn explain the GDP growth bounce-back pointed out in previous empirical studies. This calls for a careful modeling of the inventory investment behavior in any sensible theoretical explanation of aggregate business cycles. |
| Keywords: | Threshold auto-regression; bounce-back effects; business cycles; inventory investment; |
| JEL: | C22 E32 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:dau:papers:123456789/11777&r=mac |
| By: | Mirdala, Rajmund |
| Abstract: | Responsiveness of exchange rates to external price shocks as well as their ability to serve as a traditional vehicle for a transmission of these shocks to domestic prices is affected by exchange rate arrangement adopted by monetary authorities. As a result, exchange rate volatility determines the overall dynamics of pass-through effects and associated absorption capability of exchange rate. Ability of exchange rates to transmit external (price) shocks to the national economy represents one of the most discussed areas relating to the current stage of the monetary integration in the European single market. The problem is even more crucial when examining crisis related redistributive effects. In the paper we analyze exchange rate pass-through to domestic prices in the European transition economies. We estimate VAR model to investigate (1) responsiveness of exchange rate to the exogenous price shock to examine the dynamics (volatility) in the exchange rate leading path followed by the unexpected oil price shock and (2) effect of the unexpected exchange rate shift to domestic price indexes to examine its distribution along the internal pricing chain. To provide more rigorous insight into the problem of exchange rate pass-through to the domestic prices in countries with different exchange rate arrangements we estimate models for two subsequent periods 2000-2007 and 2000-2012. Our results suggest that there are different patterns of exchange rate pass-through to domestic prices according to the baseline period as well as the exchange rate regime diversity. |
| Keywords: | exchange rate pass-through, inflation, VAR, Cholesky decomposition, impulse-response function |
| JEL: | C32 E31 F41 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:53209&r=mac |
| By: | Enkelmann, Sören; Berlemann, Michael; Kuhlenkasper, Torben |
| Abstract: | Empirical studies analyzing the determinants of U.S. presidential popularity have delivered quite inconclusive results concerning the role of economic variables by assuming linear relationships. We employ penalized spline smoothing in the context of semi-parametric additive mixed models and allow for flexible functional forms and thus possible non-linear effects for the economic determinants. By controlling for the well-known politically motivated covariables, we find strong evidence for non-linear and negative effects of unemployment, inflation, and government consumption on presidential approval. Additionally, we present new results in favor of non-parametric trivariate interaction effects between the macroeconomic covariables. -- |
| JEL: | H11 C14 E02 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79836&r=mac |
| By: | Buchheim, Lukas; Watzinger, Martin |
| Abstract: | In 2009, Germany invested 15.4 Billion Euro in infrastructure to avert the looming recession. In this study, we evaluate whether the German stimulus program was successful in limiting the impact of the crisis on the job market. We exploit exogenous cross-sectional variation to identify the casual effect of stimulus investment on the change in unemployment on the county level. By law, 65 percent of the stimulus funds were earmarked for the renovation of existing school buildings. Thus a large part of all investment was predetermined by the number and size of schools in a county which are plausibly exogenous to local economic conditions. Thus a large part of all investment was predetermined by the number and size of schools in a county which are plausibly exogenous to local economic conditions during the crisis. This opens up the possibility to use the number of schools and students as instrumental variables for stimulus investment. Our IV-estimates indicate that the stimulus program was successful in reducing the number of unemployed: On average, one job was created for every 44,000 Euro spent. This result is in line with estimates for the effectiveness of the US stimulus program. We validate our IV strategy with extensive falsification exercises and various robustness checks. -- |
| JEL: | E24 E62 H50 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79826&r=mac |
| By: | Dovern, Jonas; Fritsche, Ulrich; Loungani, Prakash; Tamirisa, Natalia |
| Abstract: | We examine the behavior of forecasts for real GDP growth using a large panel of individual forecasts from 30 advanced and emerging economies during 1989-2010. Our main findings are as follows. First, our evidence does not support the validity of the sticky information model (Mankiw and Reis, 2002) for describing the dynamics of professional growth forecasts. Instead, the empirical evidence is more in line with implications of "noisy" information models (Woodford, 2002; Sims, 2003). Second, we find that information rigidities are more pronounced in emerging economies than advanced economies. Third, there is evidence of nonlinearities in forecast smoothing. It is less pronounced in the tails of the distribution of individual forecast revisions than in the central part of the distribution. -- |
| Keywords: | forecast,economic,information,expectations |
| JEL: | E27 E37 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79936&r=mac |
| By: | Ahmed, Waqas; Rehman, Muhammad; Malik, Jahanzeb |
| Abstract: | In this paper we use the Bayesian methodology to estimate the structural and shocks‟ parameters of the DSGE model in Ahmad et al. (2012). This model includes formal and informal firms both at intermediate and final goods production levels. Households derive utility from leisure, real money balances and consumption. Each household is treated as a unit of labor which is a composite of formal (skilled) and informal (unskilled) labor. The formal (skilled) labor is further divided into types “r” and households have monopoly over each type “r” labor which depends upon degree of education. We go a step further by converting the existing annually calibrated model to quarterly frequency. As a result our impulse response functions have more relevant and realistic policy implications. From the results we do find the shock absorbing role of the informal sector, however, with short term existence. The model estimation diagnostics also confirm robustness and reasonability of the estimation results. |
| Keywords: | Bayesian Estimation, DSGE Model, Shock Process. |
| JEL: | E17 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:53168&r=mac |
| By: | El-Shagi, Makram; Kelly, Logan; Kelly, Logan |
| Abstract: | While there has been some debate over the usefulness of monetary aggregates, there has been surprisingly little discussion of the actual implications for liquidity. In this paper, we provide an approximation of the liquidity development in six Euro area countries from 2003 to 2012. We show that properly measured monetary aggregates contain significant information about liquidity risk. -- |
| JEL: | C43 E40 G01 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79935&r=mac |
| By: | Sieger, Philip |
| Abstract: | In this paper I analyze the relationship between unemployment and criminal activity. Using a unique panel data set on German counties covering the years 2003 to 2009, I estimate the effect of unemployment on crime rates for different kind of offenses. I extensively control for potential confounders as economic and demographic factors as well as time and county fixed effects. To circumvent the endogeneity of the unemployment rate in the structural equation of interest I interact two sources of variation which are exogenous to the change in crime within each county to construct an instrumental variable for unemployment. In addition to mean regression I also estimate quantile regressions in order to shed more light on the complex relationship between unemployment and criminal activity. The results based on mean regression show insignificant effects in the most general specification, while the results based on quantile regression are mixed. -- |
| JEL: | C21 E24 C33 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79929&r=mac |
| By: | Groneck, Max; Ludwig, Alexander; Zimper, Alexander |
| Abstract: | On average, young people underestimate whereas old people overestimate their chances to survive into the future. We employ a subjective survival belief model proposed by Ludwig and Zimper (2013), which can replicate these patterns. The model is compared with hyperbolic discounting within a standard life-cycle setting of consumption and savings. We show theoretically that the first order conditions of our ambiguous survival belief model closely resemble the generalized Euler-equation from the hyperbolic discounting model with an additional adjustment factor. In the numerical section it is shown that the subjective survival belief model simultaneously leads to undersaving at younger ages and high asset holdings and little dissaving of the elderly. The model can thus replicate two important empirical facts of the life-cycle literature at once which is not possible with a hyperbolic discounting model. -- |
| JEL: | D91 E21 D83 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79878&r=mac |
| By: | Erika Arraño; Claudia Maisto |
| Abstract: | The publication of the national accounts by institutional sector (CNSI) in quarterly frequency, entailed making available to the public a set of statistics that include financial accounts (net acquisition of financial assets and liabilities) and balance sheet by institutional sector, detailed by financial instruments. This allows intersecting monetary and financial statistics, prompting a conceptual reconciliation between the two statistics published by the Central Bank of Chile. In this respect, the instruments making up each monetary aggregate are identified and compared with those that can be derived from the CNSI for equivalent definitions. For this purpose, from–whom-towhom matrices are used as a basic tool for analysis, which make explicit the relationship between issuers and holders of the instruments. |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchee:103&r=mac |
| By: | Henseke, Golo; Tivig, Thusnelda |
| Abstract: | Demografischer Wandel und die strukturellen Veränderungen auf dem Arbeitsmarkt tragen gemeinsam zur Alterung des Beschäftigtenbestands bei. Während der demografische Wandel eine gesellschaftliche Entwicklung ist, variieren Arbeitsmarkttrends über Berufe. Basierend auf Beschäftigtendaten der Bundesagentur für Arbeit zeichnen wir ein detailliertes Bild der Alterung in Berufsklassen über die letzten 20 Jahre nach. Dazu zerlegen wir den Anstieg des Durchschnittsalters der Beschäftigten in eine demografische und eine ökonomische Komponente und bringen die Befunde anschließend in einen Zusammenhang mit der Beschäftigtendynamik und der Gehaltsverteilung. Die Ergebnisse zeigen, dass der demografische Wandel in den letzten zwei Jahrzehnten klar zur Alterung der Beschäftigten beitrug, allerdings mit Unterschieden zwischen Berufen und Perioden. Ökonomisch bedingte Alterung setzte hauptsächlich erst nach 2000 ein und war besonders deutlich in Berufen in der Mitte der Gehaltsverteilung ausgeprägt. -- |
| JEL: | J21 J11 E24 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:80001&r=mac |
| By: | Sorin Solomon; Natasa Golo |
| Abstract: | Masanao Aoki developed a new methodology for a basic problem of economics: deducing rigorously the macroeconomic dynamics as emerging from the interactions of many individual agents. This includes deduction of the fractal / intermittent fluctuations of macroeconomic quantities from the granularity of the mezo-economic collective objects (large individual wealth, highly productive geographical locations, emergent technologies, emergent economic sectors) in which the micro-economic agents self-organize. In particular, we present some theoretical predictions, which also met extensive validation from empirical data in a wide range of systems: - The fractal Levy exponent of the stock market index fluctuations equals the Pareto exponent of the investors wealth distribution. The origin of the macroeconomic dynamics is therefore found in the granularity induced by the wealth / capital of the wealthiest investors. - Economic cycles consist of a Schumpeter 'creative destruction' pattern whereby the maxima are cusp-shaped while the minima are smooth. In between the cusps, the cycle consists of the sum of 2 'crossing exponentials': one decaying and the other increasing. This unification within the same theoretical framework of short term market fluctuations and long term economic cycles offers the perspective of a genuine conceptual synthesis between micro- and macroeconomics. Joining another giant of contemporary science - Phil Anderson - Aoki emphasized the role of rare, large fluctuations in the emergence of macroeconomic phenomena out of microscopic interactions and in particular their non self-averaging, in the language of statistical physics. In this light, we present a simple stochastic multi-sector growth model. |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1401.7496&r=mac |
| By: | Wälde, Klaus; Launov, Andrey; Posch, Olaf |
| Abstract: | It is common practice to estimate the volatility-growth link by specifying a standard growth equation such that the variance of the error term appears as an explanatory variable in this growth equation. The variance in turn is modelled by a second equation. Hardly any of existing applications of this framework includes exogenous controls in this second variance equation. Our theoretical ndings suggest that the absence of relevant explanatory variables in the variance equation leads to a biased and inconsistent estimate of the volatility-growth link. Our simulations show that this effect is large. Once the appropriate controls are included in the variance equation consistency is re- stored. In short, we suggest that the variance equation must include relevant control variables to estimate the volatility-growth link. -- |
| JEL: | E32 O47 O41 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79835&r=mac |
| By: | Marcus Cobb; Maribel Jara |
| Abstract: | Seasonally adjusted series provide a more direct appreciation of the underlying movements of economic variables and, therefore, contribute to the analysis of the economic environment. This document presents the theoretical and empirical framework used by the Central Bank of Chile to perform the seasonal adjustment of macroeconomic series. |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchee:98&r=mac |
| By: | Olivier Coibion; Yuriy Gorodnichenko; Marianna Kudlyak; John Mondragon |
| Abstract: | One suggested hypothesis for the dramatic rise in household borrowing that preceded the financial crisis is that low-income households increased their demand for credit to finance higher consumption expenditures in order to “keep up” with higher-income households. Using household level data on debt accumulation during 2001-2012, we show that low-income households in high-inequality regions accumulated less debt relative to income than their counterparts in lower-inequality regions, which negates the hypothesis. We argue instead that these patterns are consistent with supply-side interpretations of debt accumulation patterns during the 2000s. We present a model in which banks use applicants’ incomes, combined with local income inequality, to infer the underlying type of the applicant, so that banks ultimately channel more credit toward lower-income applicants in low-inequality regions than high-inequality regions. We confirm the predictions of the model using data on individual mortgage applications in high- and low-inequality regions over this time period. |
| JEL: | D14 E21 E51 G21 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19850&r=mac |
| By: | Belke, Ansgar; Beckmann, Joscha; Verheyen, Florian |
| Abstract: | This study analyzes the exchange rate pass-through into German import prices based on disaggregated data taken on a monthly basis between 1995 and 2012. Our main contribution is twofold: firstly, we employ various time-series techniques to analyze data for different product categories, and also cointegration techniques to carefully distinguish between short-run and long-run pass-through coefficients. Secondly, in a panel data approach we estimate time-varying pass-through coefficients and explain their development with regard to various macroeconomic factors. Our results show that long-run pass-through is only partly observable and incomplete, while short-run pass-through shows a more unique character, although heterogeneity across product groups does exist. We are also able to identify several macroeconomic factors which determine changes in the degree of pass-through, which is especially relevant for policymakers. -- |
| JEL: | F41 F14 E31 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79855&r=mac |
| By: | Paolo Pini |
| Abstract: | La crisi europea origina anche da una crescita delle disuguaglianze e dalle deregolamentazioni nei mercati finanziari, dei beni e del lavoro, che invece di curare il malato ne aggravano la malattia. "Austerità espansiva" e "riforme strutturali" sono i due pilastri di un Europa che ha perso la sua dimensione sociale e non persegue piu' crescita del reddito e dell'occupazione. Le "raccomandazioni" dell'Europa invece di contrastare gli effetti della crisi, producono un peggioramento delle condizioni economiche interne per ogni paese che le adotta. Quelle dedicate al funzionamento del mercato del lavoro in particolare producono una riduzione dei salari reali e del ruolo della contrattazione. L'idea cardine e' quella di allineare la dinamica dei salari nominali alla produttivita', mediante la contrattazione aziendale e individuale, riducendo il ruolo della contrattazione nazionale di settore ed eliminando ogni automatismo di recupero del potere d'acquisto del salario rispetto all'inflazione. English version The European crisis arises from the growth of inequalities and deregulations in financial, goods and labour markets, that do not treat the patient, but worsen the disease. "Expansionary Austerity" and "structural reforms" are the two pillars in the Europe which has lost its social dimension and does not pursue income and employment growth. The European Recommendations do not contrast the crisis, but worsen the domestic economic conditions in every country where they are adopted. In particular, those recommendations devoted to the functioning of the labour market produce real wage decreases and reduce the role of bargaining. The cornerstone is the idea of alignment the nominal wage dynamics to real productivity, stressing the role of firm and individual bargaining, decreasing the room for national contracts at the sectorial level and eliminating any automatism linking wage to inflation to maintain its purchasing power. |
| Keywords: | Expansionary fiscal consolidation; European Economic Policy; Wages; Productivity; Bargaining |
| JEL: | E61 J08 J38 O47 |
| Date: | 2014–01–24 |
| URL: | http://d.repec.org/n?u=RePEc:udf:wpaper:20140303&r=mac |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-17&r=mac |
| By: | Cynthia A. Sanborn (Departamento de Economía, Universidad del Pacífico) |
| Abstract: | ¿El Perú se escapará esta vez de “la maldición de los recursos naturales”? ¿Podrá usar los abundantes recursos que genera la minería hoy, para cerrar las brechas sociales y reorientar su economía para mañana? ¿Podrá limitar los impactos ambientales y sociales negativos, que las industrias extractivas pueden generar? Son algunas de las preguntas que orientan este documento. Según los autores, algunas características de la situación actual hacen pensar que estamos en una época distinta, a las bonanzas y oportunidades perdidas del pasado, aunque esto no necesariamente garantice que el resultado histórico será distinto. Entre estas características, se encuentra el contexto internacional, con la diversificación de demanda por nuestros minerales y el gran peso de China. También están la globalización de estándares de transparencia y responsabilidad social y ambiental, y la creación de nuevas entidades y políticas públicas en el esfuerzo de implementar estos estándares en el Perú. Otro cambio fundamental es que estamos en democracia, con cada vez más actores que reclaman su derecho en participar en el debate, en la toma de decisiones públicas, y en la distribución de los beneficios generados por la explotación de nuestros recursos naturales. Este documento ofrece una visión general de la situación de la minería y el desarrollo en el Perú contemporáneo. Incluye secciones sobre el marco legal y tributario, los mecanismos de transparencia y rendición de cuentas, y la evolución de la participación ciudadana y la consulta previa. Termina con recomendaciones para una futura agenda de investigación. |
| Keywords: | Extracción, Recursos, Naturales, Desarrollo, Económico, Inclusión, Social |
| JEL: | D30 D31 D62 D63 D70 D73 D74 D82 D84 E22 E23 E24 H1 H7 I31 O1 O13 O15 O43 O44 Q30 Q32 Q33 Q34 Q38 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:pai:wpaper:13-14&r=mac |
| By: | João Sousa Andrade (GEMF / Faculty opf Economics, University of Coimbra) |
| Abstract: | Por razões de natureza política, sem fundamentação económica, a atual crise que se vive em Portugal é apontada como tendo por causa exclusiva a crise financeira internacional. Aos argumentos de responsabilização externa juntam-se, por vezes, os argumentos, também de natureza política, de responsabilização do “governo anterior”. Pretendo com este texto chamar a atenção que o desencadear da atual crise portuguesa foi potenciado pelo aparecimento da crise financeira internacional, mas que os genes da nossa crise residiam na nossa economia e resultaram duma sucessão de más políticas. Sem uma reavaliação das políticas passadas, que nos foram afastando das economias europeias e nos conduziram à atual situação não estaremos em condições de encarar o futuro. |
| Keywords: | Crescimento Económico, produto potencial, taxa de juro, taxa de câmbio real. |
| JEL: | E44 F43 H1 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:gmf:wpaper:2014-02.&r=mac |
| By: | Berg, Tim Oliver; Henzel, Steffen |
| Abstract: | Forecast models with large cross-sections are often subject to overparameterization leading to unstable parameter estimates and hence inaccurate forecasts. Recent articles suggest that a large Bayesian vector autoregression (BVAR) with sufficient prior information dominates competing approaches. In this paper we evaluate the forecast performance of large BVAR in comparison to its most natural competitors, i.e. averaging of small-scale BVARs and factor augmented BVARs with and without shrinkage. We derive point and density forecasts for euro area real GDP growth and HICP inflation conditional on an information set which is appropriate for all approaches and find no consistent outperformance of the large BVAR. While it produces good point forecasts, the performance is poor when density forecasts are used to evaluate predictive ability. Moreover, the ranking of the different approaches depends inter alia on the target variable, the forecast horizon, the state of the business cycle, and on the size of the dataset. Overall, we find that a factor augmented BVAR with shrinkage is competitive in all setups. -- |
| JEL: | C11 C52 E37 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79783&r=mac |
| By: | Mencinger, Jernej; Aristovnik, Aleksander; Verbic, Miroslav |
| Abstract: | The paper attempts to empirically explore the transmission mechanism regarding the short-term impact of public debt and growth. We examine and evaluate the direct effect of higher indebtedness on economic growth for countries in the EU which are in the epicentre of the current sovereign debt crisis. In comparison to similar empirical studies, our research will add to the existing literature by extending the sample of countries and providing the latest empirical evidence for a non-linear and concave (i.e. inverted U-shape) relationship. The empirical analysis primarily includes a panel dataset of 25 sovereign member states of the EU. Our sample of EU countries is divided into subgroups distinguishing between so-called ‘old’ member states, covering the period 1980–2010, and ‘new’ member states, covering the period 1995–2010. In order to account for the impact of the level of the debt-to-GDP ratio on the real growth rate of GDP, we employ a panel estimation on a generalized economic growth model augmented with a debt variable, while also considering some methodological issues like the problems of heterogeneity and endogeneity. The results across all models indicate a statistically significant non-linear impact of public debt ratios on annual GDP per capita growth rates. Further, the calculated debt-to-GDP turning point, where the positive effect of accumulated public debt inverts into a negative effect, is roughly between 80% and 94% for the ‘old’ member states. Yet for the ‘new’ member states the debt-to-GDP turning point is lower, namely between 53% and 54%. Therefore, we may conclude that the threshold value for the ‘new’ member states is lower than for the ‘old’ member states. In general, the research may contribute to a better understanding of the problem of high public debt and its effect on economic activity in the EU. |
| Keywords: | fiscal policy, public debt, economic growth, panel analysis, turning points, EU |
| JEL: | C33 E62 H63 O40 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:53243&r=mac |
| By: | Buchen, Teresa |
| Abstract: | Forming expectations about the future path of the economy and the own business prospects is not costless for a fi rm. Instead, acquiring and processing the relevant macroeconomic information requires valuable resources. One important source of information that provides a coding service is the mass media. This paper investigates empirically whether the news media have an independent influence on the expectation formation process of fi rms that goes beyond the actual economic developments. Using the Ifo survey data that explicitly measure business expectations, and data that cover the intensity and the tone of media coverage, we come to three conclusions. First, a fi rm is more likely to update its business expectations when the volume of macroeconomic news rises. Second, the news media act as an amplifi er of actual economic developments. Third, business expectations react stronger to negative than to positive news. -- |
| JEL: | D84 E32 D89 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:80005&r=mac |
| By: | jae sim; Raphael Schoenle (Brandeis University); Egon Zakrajsek (Federal Reserve Board); Simon Gilchrist (Boston University) |
| Abstract: | In this paper, we investigate the effect of financial conditions on price-setting behavior during the 2008-2009 financial crisis. Using confidential, individual producer prices from the Bureau of Labor Statistics, we match these prices to Compustat firm-level data and compare pricing behavior across firms with weak balance sheets relative to firms with strong balance sheets. We find strong evidence that at the peak of the crisis firms with relatively weak balance sheets increased prices while firms with strong balance sheets lowered their prices. We explore the implications of financial distortions on price-setting within the context of a New Keynesian framework that allows for customer markets. In this model, firms have an incentive to set a low price to invest in market share. When financial distortions are severe, firms forgo these investment opportunities and maintain high prices. The model with financial distortions implies a substantial attenuation of price dynamics relative to the baseline model without financial distortions in response to contractionary demand shocks. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed013:826&r=mac |
| By: | Greg Kaplan (Department of Economics, Princeton University); Guido Menzio (Department of Economics, University of Pennsylvania) |
| Abstract: | This paper is a study of the shape and structure of the distribution of prices at which an identical good is sold in a given market and time period. We find that the typical price distribution is symmetric and leptokurtic, with a standard deviation between 19% and 36%. Only 10% of the variance of prices is due to variation in the expensiveness of the stores at which a good is sold, while the remaining 90% is due, in approximately equal parts, to differences in the average price of a good across equally expensive stores and to differences in the price of a good across transactions at the same store. We show that the distribution of prices that households pay for the same bundle of goods is approximately Normal, with a standard deviation between 9% and 14%. Half of this dispersion is due to differences in the expensiveness of the stores where households shop, while the other half is mostly due to differences in households’ choices of which goods to purchase at which stores. We find that households with fewer employed members pay lower prices, and do so by visiting a larger number of stores, rather than by shopping more frequently. |
| Keywords: | Price dispersion, product market search, amenities, employment |
| JEL: | D2 D4 E3 L1 |
| Date: | 2014–01–27 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:14-002&r=mac |
| By: | Jüßen, Falko; Bayer, Christian |
| Abstract: | We reassess the empirical effects of income and employment on self-reported well-being. Our analysis makes use of a two-step estimation procedure that allows applying instrumental variable regressions with ordinal observable data. As suggested by the theory of incomplete markets, we differentiate between the effects of persistent and transitory income shocks. In line with this theory, we find that persistent shocks have a significant impact on happiness while transitory shocks do not. This has consequences also for inference about the happiness effect of employment. We find that employment per se is rather associated with a decline in happiness. -- |
| JEL: | E21 D12 D60 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79915&r=mac |
| By: | Zimmer, Jochen; Weichenrieder, Alfons |
| Abstract: | Using fiscal reaction functions for a panel of actual euro-area countries the paper investigates whether euro membership has reduced the responsiveness of countries to increases in the level of inherited debt compared to the period prior to succession to the euro. While we find some evidence for such a loss in prudence, the results are not robust to changes in the specification, as for example an exclusion of Greece from the panel. This suggests that the current debt problems may result to a large extent from pre-existing debt levels prior to entry or from a larger need for fiscal prudence in a common currency, while an adverse change in the fiscal reaction functions for most countries does not apply. -- |
| JEL: | H62 E62 H69 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:80045&r=mac |
| By: | Yang Lu; Ernesto Pastén |
| Abstract: | An informational role of policy arises in economies where large fluctuations are triggered by selffulfilling expectation switches between efficient "optimism" and inefficient "pessimism," a feature that is common in many dynamic economies with coordination failures. Policy affects the information about underlying fundamentals contained in aggregate outcomes, and thus affects the timing of switches and expectations of future switches. As an illustration, we study optimal taxation on labor income in an economy with coordination failures, such that wages and output are ultimately determined by agents’ “optimism” or “pessimism”. Taxes could implement a stabilization policy, but such a policy is ineffective after an expectation switch. Instead, policy should anticipate switches with small permanent tax cuts to extend "optimism" and severe transitory tax cuts to break "pessimism." These tax cuts should be reverted once a switch is triggered, when policy must focus on its short run objectives. |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:706&r=mac |
| By: | Carlos Arango; Yassine Bouhdaouiz; 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 e cient 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 signicant 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 signicant share of low-value card transactions. We discuss how the dierences in payment markets across countries may explain the performance of the model. |
| Keywords: | Cash management, Payment Choices. Classification JEL: C61, E41, E47 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:804&r=mac |
| By: | Lamla, Michael; Dräger, Lena |
| Abstract: | We investigate the updating behavior of individual consumers regarding their short- and long-run inflation expectations. Utilizing the University of Michigan Survey of Consumer's rotating panel microstructure, we can identify whether individuals adjust their inflation expectations over a period of six months. We find evidence that the updating frequency has been underestimated. Furthermore, looking at the possible determinants of an update we find support for imperfect information models. Moreover, individual expectations are found to be more accurate after an update and forecast accuracy is affected by inflation volatility measures and news regarding inflation. Finally, the updating frequency is found to significantly move spreads in bond markets. -- |
| JEL: | D84 E31 E50 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79908&r=mac |
| By: | Bardt, Hubertus; Chrischilles, Esther |
| Abstract: | Die Energiewende stellt die Stromerzeugungsstrukturen vor neue Herausforderungen. Insbesondere muss die bisherige Förderung erneuerbarer Energien grundlegend reformiert werden, um die emissionsfreien Technologien möglichst schnell in den Markt integrieren zu können. Ohne eine solche Reform droht der Wettbewerb auf dem Strommarkt zunehmend zurückgedrängt zu werden. Ohne Wettbewerb werden aber die Innovationen und Effizienzsteigerungen nicht möglich sein, die für eine erfolgreiche Energiewende notwendig sind. Neben der Förderung erneuerbarer Energien muss auch der bisherige Strommarkt weiterentwickelt werden. Dabei ist zentral, dass es eine Bepreisung von Versorgungssicherheit gibt, mit der die notwendigen Backup-Kapazitäten co-finanziert werden können. Das Modell eines integrierten Optionsmarktes baut auf den bestehenden Strukturen eines Energy-Only-Marktes auf und bietet den Rahmen für eine schrittweise und evolutorische Weiterentwicklung. Gleichzeitig wird damit ein Ordnungsrahmen vorgeschlagen, der erneuerbare und fossile Kraftwerke in gleicher Weise umfassen soll. Für erneuerbare Technologien wird eine temporäre Förderung mit der Versteigerung eines Zuschlags zum Marktergebnis vorgeschlagen. -- |
| Keywords: | Erneuerbare Energien,Fossile Energien,Strommarkt |
| JEL: | E61 Q48 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwkpps:12014&r=mac |
| By: | Georg Dettmann (Department of Economics (University of Verona)) |
| Abstract: | The widening of global current account balances has been an important subject of academic debate in recent years. Several authors have pointed out that there has been a direct link between the world financial crisis in 2007/ 09 and the so called euro crisis since 2010. Structural imbalances, similar to the ones that caused the global financial crisis, might have also been the underlying cause for the events that finally triggered the euro crisis. The current state of literature focuses on the current account side of the problem rather than onto the financial accounts. The purpose of this paper is to show that the capital flows that were created by the particular structure of the EMU were not sustainable. Therefore we will conduct a simplified three country model that shows the capital flows into the EMU and inside the EMU. We find that the core EMU countries served as intermediaries for external investors. We show how this caused the imbalances in the according financial accounts and that a rebalancing of internal current accounts will not be sufficient to stop the Target2 balances from diverging. The EMU ended in an equilibrium in which a system that seemed to have come to a halt after the beginning of the euro crisis is still going on, and there is no mechanism for the core countries to stop the unbalanced capital flows. We will start by elaborating how the same trade shock that hit the US in a symmetrical way, hit the single EMU member statesí Balance-of-Payments asymmetrically. The current reforms only aim on the current account side of the problem and leave out the distortions in the financial accounts. A rebalancing of current accounts will not be sufficient, as long as the bilateral linkages with external trade partners are not balanced with the according financial accounts. |
| Keywords: | Euro Crisis, Intra-EMU Imbalances, Sovereign Debt Crisis, Current Account Imbalances, Target2, Balance-of-Payment Crisis |
| JEL: | E42 E58 F32 F34 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:ver:wpaper:01/2014&r=mac |
| By: | Menz, Jan-Oliver; Poppitz, Philipp |
| Abstract: | Inflation expectations are often found to depend on socioeconomic and demographic characteristics of households, such as age, income and education, however, the reasons for this systematic heterogeneity are not yet fully understood. Since accounting for these expectation differentials could help improve the communication strategies of central banks, we test the impact of three sources of the demographic effect on inflation expectations using data for Germany. Overall, our findings suggest that household-specific inflation rates and group-specific news consumption accounts for the higher forecast errors of younger and older households, households with lower income and unemployed survey respondents, while households inflation perceptions only play a minor role. -- |
| JEL: | C53 D84 E37 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:80006&r=mac |
| By: | Sergey, Ivashchenko |
| Abstract: | This article suggests the new approach to an approximation of nonlinear DSGE models moments. This approach is fast and accurate enough to use it for an estimation of nonlinear DSGE models. The small financial DSGE model is repeatedly estimated by several modifications of suggested approach. Approximations of moments are close to the results of large sample Monte Carlo estimation. Quality of parameters estimation with suggested approach is close to the Central Difference Kalman Filter (the CDKF) based. At the same time suggested approach is much faster. |
| Keywords: | DSGE; DSGE-VAR; GMM; nonlinear estimation |
| JEL: | C13 C32 E32 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpm:dynare:032&r=mac |
| By: | Hakobyan, Lilit (Department of Economics, Umeå School of Business and Economics) |
| Abstract: | This paper investigates whether and under which conditions democracy renders economic performance more efficient. Efficiency, measured by the ratio of (mean)/ (standard deviation) of output growth, becomes an important indicator of the relative goodness of economic performance when countries face a trade-off between development scenarios with high-mean and low-volatility of output growth. This seems to be a case when economies approach the efficient frontier. However, when countries are far away from the frontier economic efficiency may be improved by simultaneously increasing the mean and decreasing the volatility of growth. This study differs from others on the topic in three basic ways: (i) asymmetric (G)ARCH models are employed to simultaneously estimate the mean and volatility of output growth conditional on the factors of interest; (ii) variations in within-country effects of democratisation on the mean, variance and efficiency of economic growth conditional on cross-country variations of income inequality are analysed; (iii) the asymmetry of deviations from the mean is investigated. The results suggest (do not suggest) that in countries with no (with) military dictatorship history democratisation moves economies towards the efficient frontier. The positive effect of democratisation on the efficiency of economic performance seems to be systematically stronger in countries with lower (higher) income inequality in the countries with (without) consolidated civil governments. |
| Keywords: | Mean and volatility of output growth; efficient frontier; political system competitiveness; income inequality; weak institutions; asymmetric GARCH model |
| JEL: | E02 E32 O43 P16 |
| Date: | 2014–01–23 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:0872&r=mac |
| By: | Gartner, Hermann; Brenzel, Hanna; Schnabel, Claus |
| Abstract: | Using a representative establishment dataset, this paper analyzes the incidence of wage posting and wage bargaining in the matching process. We show that both modes of wage determination coexist in the German labor market, with about two-thirds of hirings being characterized by wage posting. Wage posting dominates in the public sector, in larger firms, in firms covered by collective agreements, and in part-time and fixed-term contracts. Job-seekers who are unemployed, out of the labor force or just finished their apprenticeship are also less likely to get a chance of negotiating. Wage bargaining is more likely for more-educated applicants and in jobs with special requirements as well as in tight regional labor markets. -- |
| JEL: | E24 J30 J63 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79907&r=mac |
| By: | Leroi Raputsoane and Ruthira Naraidoo |
| Abstract: | This study assesses debt sustainability in South Africa allowing for possible nonlinearities in the form of threshold behaviour by fiscal authorities. A long historical data series on the debt-to-GDP ratio and models with fixed and time-varying thresholds allowing the level of debt to vary relative to its recent history and the occurrence of financial crises are used in the analysis. First, the results reveal that fiscal consolidation occurs at a much lower debt-to-GDP ratio of 46 percent in the period 1946 to 2010 compared to 65 percent in the period 1865 to 1945. Secondly, the results provide evidence of a statistically insignificant fiscal consolidation below these threshold levels. Thirdly, the results reveal that fiscal consolidation occur at a higher debt-to-GDP ratio during financial crises periods. |
| Keywords: | Debt sustainability, thresholds, financial crises |
| JEL: | C22 C51 E62 H63 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:403&r=mac |
| By: | Christoph Heinzel |
| Abstract: | The statistical relationship among future changes in consumption can be used to derive, under certain assumptions on investor preferences, an unambiguous effect on the term structure of discount rates. Thus, an increase in concordance in uncertain consumption growth has a negative impact on the term structure if, and only if, the representative investor is risk-averse and prudent (Gollier, Pricing the Planet's Future, Princeton University Press, 2013). Using multivariate s-concave stochastic orderings, this paper generalizes this relationship to multivariate higher-order risk preferences. The result under concordance is included for bivariate (1,1)-increasing concave orders. Similar generalizations arise for the good-specific discount rates and their relationships in a stochastic multi-good economy. In an approximate representation of the interest rate for the univariate case, the term-structure effects are controlled by the Ross coefficients of risk aversion. The effect on the term structure decreases with initial consumption for a given stochastic deterioration in the future consumption increments. |
| Keywords: | term structure of discount rates, multivariate stochastic orders, multivariate higher-order risk aversion, good-specific discount rates, precautionary effect |
| JEL: | H43 E43 D81 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:rae:wpaper:201401&r=mac |
| By: | Schreiber, Sven |
| Abstract: | For the timely detection of business-cycle turning points we suggest to use mediumsized linear systems (subset VARs with automated zero restrictions) to forecast the relevant underlying variables, and to derive the probability of the turning point from the forecast density as the probability mass below (or above) a given threshold value. We show how this approach can be used in real time in the presence of data publication lags and how it can capture the part of the data revision process that is systematic. Then we apply the method to US and German monthly data. In an out-of-sample exercise (for 2007-2012/13) the turning points can be signalled before the official data publication confirms them (but not before they happened in reality). -- |
| Keywords: | density forecasts,business-cycle turning points,real-time data,nowcasting,great recession |
| JEL: | C53 E37 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fubsbe:20142&r=mac |
| By: | Koehne, Sebastian; Kuhn, Moritz |
| Abstract: | We study optimal capital taxation in a dynamic Mirrleesian model with time-nonseparable preferences. The model covers the widely used cases of habit formation and durable consumption. Time-nonseparable preferences change labor supply incentives across time and thereby generate novel motives to distort capital accumulation decisions. We decompose intertemporal wedges (implicit capital taxes) into three components and provide conditions under which intertemporal wedges are positive. We derive a recursive formulation of constrained efficient allocations and evaluate the quantitative importance of habit formation for intertemporal wedges. In our baseline parameterization, habit formation reduces average intertemporal wedges by about 40 percent compared to the time-separable case. -- |
| JEL: | D82 E21 H21 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79951&r=mac |
| By: | Fazlioglu S. (GSBE) |
| Abstract: | This study aims at providing an empirical analysis of long-term determinants of sovereign debt yield spreads under European EMU (Economic and Monetary Union) through pairwise approach within panel framework. Panel gravity models are increasingly used in the cross-market correlation literature while to our knowledge, this is the first empirical study employing the method in the bond market literature. Accordingly, sovereign yield spreads are positively related to differential government debt ratio while negatively related to relative economic growth performance, differential liquidity of the individual debt markets as well as governance quality. Moreover, non-linear dynamic panel estimates indicate that markets seem to ignore fundamentals after the emerge of EMU while the very same risk factors are revalued by the markets after the 2008/2009 financial crisis. Furthermore, markets price fiscal indebtedness more among the EMU members than among the non-EMU members. Finally, the results of the dynamic panel model are robust to different estimation techniques such as GMM as well as sample selection. |
| Keywords: | Single Equation Models; Single Variables: Models with Panel Data; Longitudinal Data; Spatial Time Series; Interest Rates: Determination, Term Structure, and Effects; National Debt; Debt Management; Sovereign Debt; |
| JEL: | H63 E43 C23 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:unm:umagsb:2013007&r=mac |
| By: | Czudaj, Robert; Hanck, Christoph |
| Abstract: | This paper argues that typical applications of panel unit root tests should take possible nonstationarity in the volatility process of the innovations of the panel time series into account. Nonstationarity volatility arises for instance when there are structural breaks in the innovation variances. A prominent example is the reduction in GDP growth variances enjoyed by many industrialized countries, known as the `Great Moderation.' It also proposes a new testing approach for panel unit roots that is, unlike many previously suggested tests, robust to such volatility processes. The panel test is based on Simes' [Biometrika 1986, "An Improved Bonferroni Procedure for Multiple Tests of Signi cance"] classical multiple test, which combines evidence from time series unit root tests of the series in the panel. As time series unit root tests, we employ recently proposed tests of Cavaliere and Taylor [Journal of Time Series Analysis 2008b, "Time-Transformed Unit Root Tests for Models with Non-Stationary Volatility"]. The panel test is robust to general patterns of cross-sectional dependence and yet is straightforward to implement, only requiring valid p-values of time series unit root tests, and no resampling. Monte Carlo experiments show that other panel unit root tests suffer from sometimes severe size distortions in the presence of nonstationary volatility, and that this defect can be remedied using the test proposed here. We use the methods developed here to test for unit roots in OECD panels of gross domestic products and inflation rates, yielding inference robust to the `Great Moderation.' We find little evidence of trend stationarity, and mixed evidence regarding inflation stationarity. -- |
| JEL: | C12 C23 E31 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc13:79734&r=mac |
| By: | Esmeralda Ramalho (Department of Economics and CEFAGE-UE, Universidade de Évora); Joquim Ramalho (Department of Economics and CEFAGE-UE, Universidade de Évora) |
| Abstract: | Hedonic methods are a prominent approach in the construction of quality-adjusted price indexes. This paper shows that the process of computing such indexes is substantially simplified if arithmetic (geometric) price indexes are computed based on exponential (log-linear) hedonic functions estimated by the Poisson pseudo maximum likelihood (ordinary least squares) method. A Monte Carlo simulation study based on housing data illustrates the convenience of the links identified and the very attractive properties of the Poisson estimator in the hedonic framework. |
| Keywords: | Hedonic price indexes; Quality adjustment; Retransformation; House prices; Exponential regression; Poisson pseudo maximum likelihood. |
| JEL: | C43 C51 E31 R31 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:cfe:wpcefa:2014_01&r=mac |
| By: | Anna Creti; Khaled Guesmi; Ilyes Abid |
| Abstract: | This paper aims to explore the links between Brent crude oil index and stock markets index in OECD countries. We estimate time-varying conditional correlation relationships among these variables by employing a Multivariate Fractionally Integrated Asymmetric, Power ARCH model with dynamic corrected conditional correlations of Engle (1982) M-FIAPARCH-c-DCCE with a Student-t distribution. This process detects eventual volatility spillovers, asymmetries and persistence, which are typically observed in stock markets and oil prices. Our sample consists of monthly frequency stock indexes and oil price, covering 17 OECD countries for the period January, 1990- September, 2012. We find that at the beginning of our sample, oil has offered diversification opportunities with respect to the stock market, but this trend has been reversed in the last decade. We regroup the countries sample in 5 groups which present quite similar patterns of dynamic correlation between oil and their stock market and corroborate our geographical clustering by multivariate correlations among stock markets. |
| Keywords: | Multivariate Fractional Cointegration, Oil Prices, stock markets, M-FIAPARCH-c-DCCE. |
| JEL: | C10 E44 G15 |
| Date: | 2014–01–06 |
| URL: | http://d.repec.org/n?u=RePEc:ipg:wpaper:2014-24&r=mac |