nep-mac New Economics Papers
on Macroeconomics
Issue of 2014‒02‒21
48 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Monetary policy analysis in an inflation targeting framework in emerging economies: The case of India. By Bhattacharya, Rudrani; Patnaik,Ila
  2. Optimal Monetry Responses to Oil Discoveries By Samuel Wills
  3. Inflation targeting and Quantitative Tightening: Effects of Reserve Requirements in Peru By Armas, Adrián; Castillo, Paul; Vega, Marco
  4. Learning the Fiscal Monetary Interaction under Trend Infl?ation By Anna Florio; Alessandro Gobbi
  5. Zero-Interest Rate Policy and Unintended Consequences in Emerging Markets By Andreas Hoffmann
  6. Monetary aggregates to improve early output gap estimates in the euro area - an empirical assessment By Jens Boysen-Hogrefe
  7. Fat-Tailed Shocks and the Central Bank Reaction By Ortiz, Marco
  8. Exchange Rate Pass-Through Effect on Prices and Inflation Targeting: A Comparison of Emerging Market Economies By Alpaslan, Baris; Demirel, Baki
  9. How Persistent are Monetary Policy Effects at the Zero Lower Bound? By Neely, Christopher J.
  10. Assessing the link between Price and Financial Stability By Christophe Blot; Jérôme Creel; Paul Hubert; Fabien Labondance; Francesco Saraceno
  11. Can Intangible Capital Explain Cyclical Movements in the Labor Wedge? By Francois Gourio; Leena Rudanko
  12. Effects of Monetary Policy on the REIT Returns - Evidence from the United Kingdom By I.Fatnassi; S.Chawechi; Zied Ftiti; A.Ben Maatoug
  13. The Cyclical Behavior of Equilibrium Unemployment and Vacancies Across OECD Countries By Pedro S. Amaral; Murat Tasci
  14. Low Interest Rate Policy and the Use of Reserve Requirements in Emerging Markets By Andreas Hoffmann; Axel Loeffer
  15. Dynamic Spillovers of Oil Price Shocks and Policy Uncertainty By Nikolaos Antonakakis; Ioannis Chatziantoniou; George Filis
  16. State-dependence vs. Time-dependence: An Empirical Multi-Country Investigation of Price Sluggishness By Steffen Ahrens; Matthias Hartmann
  17. Topics in Fiscal Policy: Evidence from a Representative Survey of the German Population By Bernd Hayo; Florian Neumeier; Matthias Uhl
  18. On the Self-Fulfilling Prophecy of Changes in Sovereign Ratings By Ingmar Schumacher
  19. The relevance of fiscal rules for fiscal and yield developments By António Afonso; Ana Sofia Guimarães
  20. A New Approach to Explaining the Value of Colonial Paper Money: Evidence from New Jersey, 1709-1775 By Farley Grubb
  21. Euler equation with habits and measurement errors: estimates on Russian micro data By Irina Khvostova; Alexander Larin; Anna Novak
  22. Banks competition, managerial efficiency and the interest rate pass-through in India By Jugnu Ansari; Ashima Goyal
  23. Overaccumulation, Public Debt, and the Importance of Land By Homburg, Stefan
  24. Can Low Interest Rates be Harmful: An Assessment of the Bank Risk-Taking Channel in Asia By Ramayandi, Arief; Rawat, Umang; Tang, Hsiao Chink
  25. Cycles, Syllogisms and Semantics: Examining the Idea of Spurious Cycles By Stephen Pollock
  26. Lessons for Asia from Europe’s History with Banking Integration By Elliott, Douglas J.
  27. Bayesian evaluation of DSGE models with financial frictions By Michal Brzoza-Brzezina; Marcin Kolasa
  28. Are emerging markets exposed to contagion from U.S.: Evidence from stock and sovereign bond markets By Irfan Akbar Kazi; Hakimzadi Wagan
  29. Contagion in EU Sovereign Yield Spreads By António Afonso; Ana Catarina Ramos Félix
  30. Measuring inflation under rationing: A virtual price approach By Christophe Starzec; François Gardes
  31. Guidelines for Exploiting Natural Resource Wealth By Frederick van der Ploeg
  32. Measuring financial stress and economic sensitivity in CEE countries By Maciej Krzak; Grzegorz Poniatowski; Katarzyna Wasik
  33. How Does Loan-To-Value Policy Strengthen Banks' Resilience to Property Price Shocks - Evidence from Hong Kong By Eric Wong; Andrew Tsang; Steven Kong
  34. The role of demographics in small business loan pricing By Neuberger, Doris; Räthke-Döppner, Solvig
  35. Fiscal Reform and Fiscal Sustainability: Evidence from Australia and Sweden By Tomomi Miyazaki
  36. Optimal Tax Progressivity: An Analytical Framework By Jonathan Heathcote; Kjetil Storesletten; Giovanni L. Violante
  37. Measuring contagion effects between crude oil and OECD stock markets By Khaled Guesmi; Salma Fattoum
  38. Trends Cycles and Seasons: Econometric Methods of Signal Extraction By Stephen Pollock
  39. Conditional Correlations and Volatility Spillovers between Oil Price and OECD Stock index: a Multivariate Analysis By Anna Creti; Khaled Guesmi; Ilyes Abid
  40. The Role of Health in Retirement By Alan L. Gustman; Thomas L. Steinmeier
  41. Exchange Rate Predictability in a Changing World By Byrne, Joseph P; Korobilis, Dimitris; Ribeiro, Pinho J
  42. The Elephant in the Ground: Managing oil and sovereign wealth By Ton van den Bremer; Frederick van der Ploeg; Samuel Wills
  43. The Demise of U.S. Economic Growth: Restatement, Rebuttal, and Reflections By Robert J. Gordon
  44. Transition to sustainability? Feasible scenarios towards a low-carbon economy By Bernardo, Giovanni; D'Alessandro, Simone
  45. Oil price and macroeconomy in India - An evolutionary cospectral coherence approach By Zied Ftiti; Aviral Tiwari; Ibrahim Fatnassi
  46. Volatility spillovers and macroeconomic announcements evidence from crude oil markets By Aymen Belgacem; Anna Creti; Khaled Guesmi; Amine Lahiani
  47. Does social security reform reduce gains from increasing the retirement age? By Karolina Goraus; Krzysztof Makarski; Joanna Tyrowicz
  48. New firm registration and the business cycle By Klapper, Leora; Love, Inessa; Randall, Douglas

  1. By: Bhattacharya, Rudrani (National Institute of Public Finance and Policy); Patnaik,Ila (National Institute of Public Finance and Policy)
    Abstract: Monetary policy in India has moved towards an increasingly flexible exchange rate regime without any explicit framework for an alternative nominal anchor. The failure of monetary policy to anchor inflationary expectations of agents, coupled with negative supply shocks has kept inflation above the acceptable range of 5-5.5 percent for last five years in India. In this paper we present a model for policy analysis for India that provides insights in the setting of an inflation targeting framework to anchor inflationary expectations. The model offers an understanding of the extent to which various shocks, including the post-global crisis fiscal stimulus, accommodative monetary policy and ensuing decline in global demand, explain growth and inflation in India.
    Keywords: Inflation ; Monetary policy ; India ; Emerging economies
    JEL: E17 E52 E58 F47 O23
    Date: 2014–02
  2. By: Samuel Wills
    Abstract: Monetary policy can play an important role in managing oil discoveries. Ideally governments will use fiscal policy to smooth consumption of oil income. In practice this often does not happen, as governments delay spending until oil revenues are received. This induces changes in the economy, both at discovery and when spending begins. In this paper we consider how monetary policy should respond.The paper makes three contributions. The first is to show that an oil discovery causes the real exchange rate to appreciate twice: when forward-looking households and then the government increase their consumption. This can cause a recession under standard monetary regimes, as firms anticipate the second appreciation. The second contribution is to micro-found the objective of monetary policy. The central bank should stabilise inflation, the output gap and the fiscal gap. It will also try to appreciate the non-oil terms of trade, to exploit the asymmetry from owning oilwealth. The third is to derive a closed form for optimal monetary policy, which willrespond in advance to expected changes in government demand. This will delay the second real appreciation until the government can take up the slack left by private demand. Optimal policy significantly improves welfare relative to standard monetary regimes, and is well approximated by a simple Taylor rule that responds to expected changes in the natural level of output.
    Keywords: Natural resources, oil, optimal monetary policy, small open economy, anticipated windfall
    JEL: E52 E62 F41 O13 Q30 Q33
    Date: 2014
  3. By: Armas, Adrián (Banco Central de Reserva del Perú); Castillo, Paul (Banco Central de Reserva del Perú); Vega, Marco (Banco Central de Reserva del Perú)
    Abstract: This paper provides an overview of the Reserve Requirements measures undertaken by the Central Bank of Peru. We provide a rationale for the use of these instruments as well as empirical evidence on their effectiveness. In general, the results show that a reserve requirement tightening has the desired effects on interest rates and credit levels both at banks and smaller financial institutions (cajas municipales).
    Keywords: Non-conventional monetary policy, Inflation Targeting, Reserve requirements.
    JEL: E51 E52 E58 G21
    Date: 2014–02
  4. By: Anna Florio (Dipartimento di Ingeneria Gestionale, Politecnico di Milano); Alessandro Gobbi (Department of Economics and Finance, Universita Cattolica del Sacro Cuore)
    Abstract: What are the effects of a higher inflation target on the determinacy properties under alternative monetary/fiscal policy mixes in New Keynesian models? Would it be more difficult for the central bank to stabilize inflation expectations if the inflation target is raised? What role for central bank transparency? We find that trend inflation does not affect determinacy as long as monetary policy is passive. Conversely, an active central bank should fight inflation more strongly with higher trend inflation, in order to guarantee the determinacy of the AM/PF equilibrium. Furthermore, this equilibrium, if determinate, is always E-stable under transparency. In the AF/PM case the equilibrium is always determinate and E-stable under both transparency and opacity. We find the degree of price stickiness to be a crucial structural parameter. In particular, in a low price rigidity country, say the United States, adhering to the Taylor principle is a sufficient condition for equilibrium determinacy under the AM/PF regime, irrespective of the level of trend inflation. Still, the central bank must be transparent to stabilize expectations. On the contrary, in a high price rigidity economy, say Europe, to have determinacy under AM/PF mix, the inflation target cannot be larger than 2% but the central bank needs not to be transparent to stabilize expectations. Furthermore, high rigidity makes non-Ricardian policies less E-stable.
    Keywords: Trend Inflation, Learning, Fiscal Policy, Monetary Policy, Transparency
    JEL: E5
    Date: 2014–02
  5. By: Andreas Hoffmann
    Abstract: Since 2009, central banks in the major advanced economies have held interest rates at very low levels to stabilize financial markets and support the recovery of their economies. Based on a Mises-Hayek-BIS view on credit booms and Mises’ law of unintended consequences, this paper suggests that the prolonged period of very low interest rates in the large advanced economies (unintentionally) spurs volatile capital flows and fuels asset market bubbles in fast-growing emerging markets. The resulting inflationary pressure and risks of capital flow reversals gives rise to a new wave of interventionism as policymakers in emerging markets increasingly reintroduce financially repressive measures to isolate the economies from foreign capital inflows.
    Keywords: Monetary Policy, Emerging Markets, Financial Repression
    JEL: B53 E32 E44 F41 F43
    Date: 2014–02
  6. By: Jens Boysen-Hogrefe
    Abstract: Output gap estimates at the current edge are subject to severe revisions. This study analyzes whether monetary aggregates can be used to improve the reliability of early output gap estimates as proposed by several theoretical models. A real-time experiment shows that real M1 can improve output gap estimates for euro area data. For many periods the cyclical component of real M1 shows good results, while a forecasting strategy based on projecting GDP series seems to be more robust and provides superior results during the Great Recession. Broader monetary aggregates provide no superior information for output gap estimates
    Keywords: Output gap; real-time data; M1; M3; euro area; money cycle
    JEL: E32 E37 E41 E58
    Date: 2014–02
  7. By: Ortiz, Marco (Banco Central de Reserva del Perú; London School of Economics)
    Abstract: In this paper we extend the model of Kato and Nishiyama (2005) by introducing fat-tailed shocks in a simple new Keynesian framework where the central bank explicitly considers the zero lower-bound constraint on interest rates. We find that shocks with `excess kurtosis' make monetary policy relatively more aggressive far away from the zero lower bound region though, this difference reverts as the economy gets closer to the constrained region. From a quantitative point of view, our findings suggest that variance-preserving shifts in kurtosis, in the shape of Laplace distributed shocks, do not produce significant effects on the optimal reaction of the central bank.
    JEL: E52 E58 C63
    Date: 2014–02
  8. By: Alpaslan, Baris; Demirel, Baki
    Abstract: Most emerging market economies in the 1990s witnessed a wide variety of crises. Following those crises, emerging market economies have given up monetary policies using exchange rates as a nominal anchor and inflation targeting has become a new policy of such countries. The overshooting effect of exchange rates in these markets and therefore arising problems are an important cause of this political change. The aim of this paper is to evaluate exchange rate pass-through effects on prices in Asian Pacific, Latin American and Turkish economies which implemented inflation targeting, but have different dollarization and inflation episodes. Panel VAR approach was used in the analysis. Our findings show that exchange rate pass-through effect in Asian Pacific countries is lower than that of Latin America and Turkey.
    Keywords: Pass-through Effect, Inflation Targeting, Emerging Market Economies.
    JEL: E42 E52 E58
    Date: 2014–02–16
  9. By: Neely, Christopher J. (Federal Reserve Bank of St. Louis)
    Abstract: Event studies show that Fed unconventional announcements of forward guidance and large scale asset purchases had large and desired effects on asset prices but do not tell us how long such effects last. Wright (2012) used a structural vector autoregression (SVAR) to argue that unconventional policies have very transient effects on asset prices, with half-lives of 3 months. This would suggest that unconventional policies can have only marginal effects on macroeconomic variables. The present paper shows, however, that the SVAR is unstable, forecasts very poorly and therefore delivers spurious inference about the duration of the unconventional monetary shocks. In addition, implied in-sample return predictability from the SVAR greatly exceeds that which is consistent with rational asset pricing and reasonable risk aversion. Restricted models that respect plausible predictability in asset returns are more stable and imply that the unconventional monetary policy shocks were fairly persistent but that our uncertainty about their effects increases with forecast horizon. Estimates of the dynamic effects of shocks should respect the limited predictability in asset prices.
    JEL: C30 E43 E47 E52
    Date: 2014–02–09
  10. By: Christophe Blot (OFCE); Jérôme Creel (OFCE); Paul Hubert; Fabien Labondance (Atelier de recherche sur la politique économique et la gestion des entreprises (ARPEGE)); Francesco Saraceno (OFCE)
    Abstract: This paper aims at investigating first the (possibly time-varying) empirical relationship between the level and conditional variances of price and financial stability, and second, the effects of macro and policy variables on this relationship in the United States and the Eurozone. Three empirical methods are used to examine the relevance of A.J. Schwartz’s “conventional wisdom” that price stability would yield financial stability. Using simple correlations, VAR and Dynamic Conditional Correlations, we reject the hypothesis that price stability is positively correlated to financial stability. We then discuss the empirical appropriateness of the “leaning against the wind” monetary policy approach.
    Keywords: Price stability; Financial stability; DCC-GARCH; VAR
    JEL: C32 E31 E44 E52
    Date: 2014–02
  11. By: Francois Gourio; Leena Rudanko
    Abstract: Intangible capital is an important factor of production in modern economies that is generally neglected in business cycle analyses. We demonstrate that intangible capital can have a substantial impact on business cycle dynamics, especially if the intangible is complementary with production capacity. We focus on customer capital: the capital embodied in the relationships a firm has with its customers. Introducing customer capital into a standard real business cycle model generates a volatile and countercyclical labor wedge, due to a mismeasured marginal product of labor. We also provide new evidence on cyclical variation in selling effort to discipline the exercise.
    JEL: E13 E32
    Date: 2014–02
  12. By: I.Fatnassi; S.Chawechi; Zied 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
  13. By: Pedro S. Amaral (Federal Reserve Bank of Cleveland); Murat Tasci (Federal Reserve Bank of Cleveland)
    Abstract: We show that the inability of a standardly-calibrated labor search-and-matching model to account for labor market volatility extends beyond the U.S. to a set of OECD countries. That is, the volatility puzzle is ubiquitous. We argue cross-country data is helpful in scrutinizing between potential solutions to this puzzle. To illustrate this, we show that the solution proposed in Hagedorn and Manovskii (2008) continues to deliver counterfactually low volatility in countries where labor productivity persistence and/or steady-state job-finding rates are sufficiently low. Moreover, the model's ability to generate high enough volatility depends on vacancy-filling rate levels that seem counterfactual outside the U.S.
    Keywords: Labor Market, Vacancies, Unemployment, OECD countries.
    JEL: E24 E32 J63 J64
    Date: 2014–02
  14. By: Andreas Hoffmann; Axel Loeffer
    Abstract: The paper sheds light on the link between the interest rate policy in large advanced economies with international funding and reserve currencies (the United States and the Euro Area) and the use of reserve requirements in emerging markets. Using reserve requirement data for 28 emerging markets from 1998 to 2012 we provide evidence that emerging market central banks tend to raise reserve requirements when interest rates in international funding markets decline or financial infl ows accelerate to preserve fnancial stability. In contrast, when global liquidity risk rises and funding from the large advanced economies dries up emerging markets lower reserve requirements to stabilize the banking system that is in need of liquidity.
    Keywords: Reserve Requirements, Interest Rates, Emerging Markets
    JEL: E52 E58
    Date: 2014–02
  15. By: Nikolaos Antonakakis (; Ioannis Chatziantoniou (Department of Economics and Finance, University of Portsmouth); George Filis (Department of Accounting, Finance and Economics, Bournemouth University)
    Abstract: This study examines the dynamic relationship between changes in oil prices and the economic policy uncertainty index for a sample of both net oil-exporting and net oil-importing countries over the period 1997:01-2013:06. To achieve that, we extend the Diebold and Yilmaz (2009, 2012) dynamic spillover index using structural decomposition. The results reveal that economic policy uncertainty (oil price shocks) responds negatively to aggregate demand oil price shocks (economic policy uncertainty shocks). Furthermore, during the Great Recession of 2007-2009, total spillovers increase considerably, reaching unprecedented heights. Moreover, in net terms, economic policy uncertainty becomes the dominant transmitter of shocks between 1997 and 2009, while in the post-2009 period there is a significant role for supply-side and oil specific demand shocks, as net transmitters of spillover effects. These results are important for policy makers, as well as, investors interested in the oil market.
    Keywords: Policy uncertainty, Oil price shock, Spillover index, Structural Vector Autoregression, Variance Decomposition, Impulse Response Function
    JEL: C32 C51 E31 E60 Q41 Q43 Q48
    Date: 2014–02
  16. By: Steffen Ahrens; Matthias Hartmann
    Abstract: In this paper we empirically investigate the time- and state-dependent behavior of aggregate price setting. We implement a testing procedure by means of a nonparametric representation of the structural form New Keynesian Phillips curve. By means of the so-called functional coefficient regression we allow for potential dependence of the Calvo (1983) parameter on inflation and inflation uncertainty. Thus, we can test for state-dependence of the Calvo parameter in a straightforward way. To address residual heteroscedasticity in the inference process regarding functional dependence, we make use of the factor-based bootstrap. We confirm that the Calvo scheme is a rather restrictive model of aggregate price setting. Moreover, it is documented that a number of shortcomings of empirical NKPC model representations in explaining inflation data may be addressed by means of a state-dependent pricing rule. In particular, problems of insignificant or even implausibly negative estimates of the relation between inflation and marginal costs are considerably reduced in the framework of our more general NKPC specification
    Keywords: state- vs. time-dependence, Phillips curve, functional coefficients
    JEL: E31 E58 C14
    Date: 2014–02
  17. By: Bernd Hayo (University of Marburg); Florian Neumeier (University of Marburg); Matthias Uhl (University of Marburg)
    Abstract: This paper provides background information and basic descriptive statistics for a representative survey of the German population conducted on our behalf by GfK in the first quarter of 2013. The survey addresses important topics in fiscal policy, including: 1) public preferences on the composition of fiscal expenditure; 2) public preferences on public debt; 3) the effect of tax changes on consumption and savings; and 4) the effect of tax changes on labour market activities.
    Keywords: Survey evidence Fiscal policy Public debt Public preferences Consumption Labour supply
    JEL: E21 E62 H30 J22
    Date: 2014
  18. 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
  19. By: António Afonso; Ana Sofia Guimarães
    Abstract: Numerical fiscal rules mitigate the bias of pro-cyclicality, as an alternative to discretionary measures conducted by policy makers. We assess whether fiscal rules impact budget balances and sovereign yields, and we perform a simulation exercise to compute debt developments of EU countries, assuming that they had implemented a numerical expenditure rule in 1990. Our panel analysis covers 27 EU countries between 1990 and 2011. We find that fiscal rules contribute to the reduction of budget deficits, specifically expenditure rules, which significantly impact primary expenditure and conclude that countries with rules experienced lower sovereign bond yields. The simulations show that when the same rule is applied to different countries, it produces very different results, particularly on account of the initial level of primary expenditure.
    Keywords: numerical fiscal rules, expenditure rules, budget balance, sovereign yields.
    JEL: C33 E62 G15 H62
    Date: 2014–01
  20. By: Farley Grubb
    Abstract: A new approach to explaining the value of colonial paper money that relies on their distinctive character as bills of credit is presented. The market value of these bills is decomposed into their real asset present value and their liquidity premium value. This approach is applied to the newly reconstructed monetary data for colonial New Jersey. New Jersey’s bills were structured as zero-interest bearer bonds. They had defined future redemption payoff dates in specie equivalents. The New Jersey government redeemed their bills on time as legislatively promised under a fiscally credible redemption tax structure. The real asset present value of New Jersey bills accounted for at least 80 percent, whereas the value of these bills as “money” accounted for at most 10 to 20 percent, of their market value. Colonial paper money was not primarily a fiat currency. New Jersey’s paper money did not depreciate. It traded below face value due to time-discounting; not depreciation. A positive liquidity premium implies that New Jersey’s paper money actually traded at an appreciated value over its real asset present value. That liquidity premium was positively associated with the quantity of paper money per capita in circulation and the method of monetary injection.
    JEL: E31 E42 E51 N11 N21 N41
    Date: 2014–02
  21. By: Irina Khvostova (National Research University Higher School of Economics); Alexander Larin (National Research University Higher School of Economics); Anna Novak (National Research University Higher School of Economics)
    Abstract: This paper presents estimates for the consumption Euler equation for Russia. The estimation is based on micro-level panel data and accounts for the preference heterogeneity, measurement errors, and the impact of macroeconomic shocks. The presence of multiplicative habits is checked with the LM-test in a GMM framework. We obtain estimates of the elasticity of intertemporal substitution and of the subjective discount factor, which are consistent with the theoretical model and can be used for calibration, as well as for a Bayesian estimation of DSGE models for the Russian economy. We also show that the effects of habit formation are not significant. The hypotheses on habits (external, internal, and both external and internal) are not supported by the data
    Keywords: household consumption, Euler equation, habit formation, elasticity of intertemporal substitution, RLMS-HSE
    JEL: E21 C23
    Date: 2014
  22. By: Jugnu Ansari (Indira Gandhi Institute of Development Research); Ashima Goyal (Indira Gandhi Institute of Development Research)
    Abstract: If banks solve an inter-temporal problem under adverse selection and moral hazard, then bank specific factors, regulatory and supervisory features, market structure, and macroeconomic factors affect banks loan interest rates and their spread over deposit interest rates. To examine post financial-reform interest rate pass through for Indian banks after controlling for all these factors, we estimate the determinants of commercial banks loan pricing decisions, using dynamic panel methods. The several factors commercial banks consider, apart from the policy rate, limit policy pass through. More competition reduces policy pass-through but it can improve monetary transmission provided it improves managerial efficiency.
    Keywords: Banks, panel data, interest rates, net interest income, operating cost
    JEL: G20 G21 C23 E43 L10
    Date: 2014–01
  23. By: Homburg, Stefan
    Abstract: In recent contributions, Weizsäcker (2014) and Summers (2014) maintain that mature economies accumulate too much capital. They suggest large and lasting public deficits as a remedy. This paper argues that overaccumulation cannot occur in an economy with land. It presents novel data of aggregate land values, analyzes the issue in a stochastic framework, and conducts an empirical test of overaccumulation.
    Keywords: Dynamic efficiency; overaccumulation; land; fiscal policy; public debt
    JEL: D9 E62 H21
    Date: 2014–02
  24. By: Ramayandi, Arief (Asian Development Bank); Rawat, Umang (Faculty of Economics, University of Cambridge); Tang, Hsiao Chink (Asian Development Bank)
    Abstract: Events surrounding the global financial crisis have brought to light the potential role of monetary policy in precipitating the crisis. Numerous studies on advanced economies have documented a significant negative relationship between interest rates and bank risk-taking. This paper also finds the presence of the risk-taking channel based on a panel of publicly listed bank data in Asia. Using both annual and quarterly data, "too low" interest rates are found to lead to an increase in bank risk-taking.
    Keywords: Bank risk-taking; interest rates; panel data; monetary policy; Asian banks
    JEL: E43 E52 G21
    Date: 2014–01–01
  25. By: Stephen Pollock
    Abstract: The claim that linear filters are liable to induce spurious fluctuations has been repeated many times of late. However, there are good reasons for asserting that this cannot be the case for the filters that, nowadays, are commonly employed by econometricians. If these filters cannot have the effects that have been attributed to them, then one must ask what effects the filters do have that could have led to the aspersions that have been made against them.
    Keywords: business cycles, linear filters, spurious fluctuations
    JEL: C22 E32
    Date: 2014–02
  26. By: Elliott, Douglas J. (Asian Development Bank Institute)
    Abstract: As Asia considers greater harmonization and integration of its financial systems, it would be well-advised to consider the experience of Europe, particularly the eurozone. There are many lessons to be drawn from Europe about how to implement such integration, mostly negative. It is particularly evident that moving to a currency union had major unanticipated consequences for the ability to manage integration of financial systems within the eurozone. Monetary union sharply reduced the ability of the member states of the eurozone to manage their macroeconomic and macroprudential policies to preserve financial stability. Even setting aside these additional problems created by monetary union, Europe suffered substantial harm from integrating its financial systems so closely in many ways, while simultaneously establishing only very weak coordinating mechanisms among their national financial supervisors. It was also a mistake to forbid the European Central Bank from operating formally as a lender of last resort in a financial crisis. Europe’s experiences should not dissuade Asia from seeking appropriate further harmonization and integration. However, they do argue strongly for Asia to take the kind of careful, step-by-step, long-term approach for which many of the countries within Asia are well known. In particular, Asia should only move forward to the extent that it is willing to take the necessary steps toward common supervisory approaches, information sharing, and cooperation in crises. Trying to have the benefits of integration without the responsibilities would be a recipe for future disaster.
    Keywords: harmonization; integration; eurozone; asia; european union
    JEL: E44 F15 F36
    Date: 2014–02–16
  27. By: Michal Brzoza-Brzezina (National Bank of Poland, Warsaw School of Economics); Marcin Kolasa (National Bank of Poland, Warsaw School of Economics)
    Abstract: We evaluate two most popular approaches to implementing financial frictions into DSGE models: the Bernanke et al. (1999) setup, where frictions affect the price of loans, and the Kiyotaki and Moore (1997) model, where they concern the quantity of loans. We take both models to the data and check how well they fit it on several margins. Overall, comparing the models favors the Bernanke et al. framework. However, even this model does not make a clear improvement over the New Keynesian benchmark in terms of marginal likelihood and similarity of impulse responses to those obtained from a VAR. These findings point at the need for further research to develop macrofinancial models that would better describe the business cycle dynamics.
    Keywords: financial frictions, DSGE models, Bayesian analysis
    JEL: E30 E44
    Date: 2014–02–13
  28. 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
  29. By: António Afonso; Ana Catarina Ramos Félix
    Abstract: Since the beginning of the sovereign debt crisis in the Euro Area, a main concern for European leaders is the prevention of the possible contagion from distressed countries. In our research, we assess if there is a spillover effect from those countries and which determinants can be considered transmission mechanisms of the sovereign debt crisis. We use a panel of 13 EU countries (Austria, Belgium, Denmark, Finland, France, Greece, Ireland, Italy, The Netherlands, Portugal, Spain, Sweden and the United Kingdom), covering the period Q1:2000 to Q1:2013 and we also analyse each country individually, on the basis of a SUR analysis. We find that those countries with worse macro and fiscal fundamentals are more vulnerable to contagion and are more affected by international liquidity and credit risks.
    Keywords: sovereign yield spreads, spillover effects, contagion.
    JEL: C33 E62 G15 H62
    Date: 2014–01
  30. By: Christophe Starzec (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris 1 - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); François Gardes (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris 1 - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    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
    Date: 2014–01
  31. By: Frederick van der Ploeg
    Abstract: The principles of how best to manage the various components of national wealth are outlined, where the permanent income hypothesis, the Hotelling rule and the Hartwick rule play a prominent role. As far as managing natural resource wealth is concerned, a case is made to use an intergenerational sovereign wealth fund to smooth consumption across generations, a liquidity fund for the precautionary buffers to deal with commodity price volatility, and an investment fund to park part of the windfall until the country is ready to absorb extra spending on domestic investment. Capital scarcity implies that a positive part of the windfall should be spent on domestic investment. The conclusions highlight the political economy problems that will have to be tackled with these normative proposals for managing wealth.
    Keywords: permanent income, Hotelling rule, Hartwick rule, precaution, capital scarcity, absorption constraints, Dutch disease, investing to invest, political economy
    JEL: E21 E22 D91 Q32
    Date: 2014
  32. By: Maciej Krzak; Grzegorz Poniatowski; Katarzyna Wasik
    Abstract: This report presents the methodology for the construction of the Financial Stress Index (FSI) and the Economic Sensitivity Index (ESI) and investigates the economic situation in twelve Central and East European Countries (CEECs) between 2001 and 2012. The objective of this paper is to capture key features of financial and economic vulnerability and examine the co-movement of economic turmoil and financial disturbances that strongly affected the CEECs in the last decade. Our main finding is that the FSI can be used as a leading indicator and can be used to recognize changing trends in the index. A shift in the value of the index proves that EU accession has a positive, but minor influence on financial stability in the CEECs. On the other hand, the impact of the introduction of the euro in Estonia, Slovakia and Slovenia is ambiguous. For most of the countries in our sample, in 2007, the FSI started to grow rapidly, reaching its peak around the third quarter of 2008. Consequently, financial stress reained high for a few quarters and started to fall gradually. For a number of countries, we observe higher financial stress in the latest period of our analysis, i.e. 2010-2012. However, the value of the FSI was significantly lower than three years earlier. The results show that indices might be helpful in predicting future recessions. However, forecasting properties seem to be limited at this stage of our work.
    Keywords: financial stress, economic sensitivity, economic indicators, Central and Eastern Europe
    JEL: G01 E32 C43
    Date: 2014
  33. By: Eric Wong (Hong Kong Monetary Authority); Andrew Tsang (Hong Kong Monetary Authority); Steven Kong (Hong Kong Monetary Authority)
    Abstract: This paper sheds light on the transmission mechanism of loan-to-value (LTV) policy to financial stability by providing three findings from Hong Kong. First, there is evidence that LTV cap tightening since 2009 has dampened both borrowers' leverage and credit growth, and that lower leverage has played a major role in strengthening banks' resilience to property price shocks. Second, the effect on loan growth is found to be state-dependent due to loan market disequilibrium, with a much stronger impact on loan supply than on demand, suggesting that calibrating this tool to curb loan growth needs an accurate estimate of both loan demand and supply. Operationally, this could pose challenges for policymakers. Finally, we find evidence of low responsiveness of housing demand to caps on LTV ratios, which is suggestive of a weak direct pass-through of LTV policy to the property market. These findings together support the view that operationally it would be optimal for LTV policy to primarily target household leverage, and that there are limitations in using this instrument to stabilise credit growth and property prices.
    Keywords: Banking, Disequilibrium, Hong Kong, Loan-To-Value, Macroprudential Policy
    JEL: E58 G21
    Date: 2014–02
  34. By: Neuberger, Doris; Räthke-Döppner, Solvig
    Abstract: To sustain growth in an aging economy, it is important to ease the financing of small firms by bank loans. Using bank internal data of small business loans in Germany, we examine the determinants of loan rates in the period 1995-2010. Beyond characteristics of the firm, the loan contract, and the lending relationship, demographic aspects matter. However, collateral and relationship lending play a larger role in loan pricing than the entrepreneur's age. Banks do not seem to discriminate older borrowers by higher loan rates. We rather find statistical discrimination of younger borrowers because of their lower wealth. Single entrepreneurs obtain cheaper loans than married ones. Firms in peripheral regions with low population density are disadvantaged by higher loan rates compared to those in agglomerated regions. --
    Keywords: small business finance,savings banks,relationship lending,aging,demographic change
    JEL: D14 E43 G21 J14 L26
    Date: 2014
  35. By: Tomomi Miyazaki (Graduate School of Economics, Kobe University)
    Abstract: This paper examines how the adoption of a fiscal rule affects the sustainability of fiscal policy in two OECD countries; Australia and Sweden. While recent fiscal reforms undertaken in both these countries are useful for ensuring the sustainability of government budgets, there are a few differences. In Australia, we show that government revenues are not necessarily growing at a faster rate than government expenditures, at least from the viewpoint of a statistical long-run relationship. In contrast, in Sweden, we show the reform is more beneficial for the attainment of a budget surplus.
    Keywords: Fiscal reform; Sustainability of fiscal policy; Expenditure ceilings; Dynamic OLS
    JEL: E62 H61 H62
    Date: 2014–02
  36. By: Jonathan Heathcote; Kjetil Storesletten; Giovanni L. Violante
    Abstract: What shapes the optimal degree of progressivity of the tax and transfer system? On the one hand, a progressive tax system can counteract inequality in initial conditions and substitute for imperfect private insurance against idiosyncratic earnings risk. At the same time, progressivity reduces incentives to work and to invest in skills, and aggravates the externality associated with valued public expenditures. We develop a tractable equilibrium model that features all of these trade-offs. The analytical expressions we derive for social welfare deliver a transparent understanding of how preferences, technology, and market structure parameters influence the optimal degree of progressivity. A calibration for the U.S. economy indicates that endogenous skill investment, flexible labor supply, and the externality linked to valued government purchases play quantitatively similar roles in limiting desired progressivity.
    JEL: E20 H20 H40 J22 J24
    Date: 2014–02
  37. By: Khaled Guesmi; Salma Fattoum
    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 Engle’s (2002) Dynamic Conditional Correlation (DCC). This process detects eventual volatility spillovers, which are typically observed in stock markets and oil prices. Our sample consists of monthly frequencies stock indexes and oil price, covering 10 OECD countries for the period of January1990- September 2012. Oil price shocks in periods of world turmoil and political events have an important impact on the relationship between oil and stock market prices.
    Keywords: Multivariate Fractional Cointegration, Oil Prices, stock markets, GARCH-DCC.
    JEL: C10 E44 G15
    Date: 2014–02–12
  38. By: Stephen Pollock
    Abstract: Alternative methods of trend extraction and of seasonal adjustment are described that operate in the time domain and in the frequency domain. The time-domain methods that are implemented in the TRAMO–SEATS and the STAMP programs are described and compared. An abbreviated time-domain method of seasonal adjustment that is implemented in the IDEOLOG program is also described. Finite-sample versions of the Wiener–Kolmogorov filter are described that can be used to implement the methods in a common way. The frequency-domain method, which is also implemented in the IDEOLOG program, employs a ideal frequency selective filter that depends on identifying the ordinates of the Fourier transform of a detrended data sequence that should lie in the pass band of the filter and those that should lie in its stop band. Filters of this nature can be used both for extracting a low-frequency cyclical component of the data and for extracting the seasonal component.
    Keywords: Signal extraction, Linear filtering, Frequency-domain analysis. Seasonal Adjustment
    JEL: E32 C22
    Date: 2014–02
  39. 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
  40. By: Alan L. Gustman; Thomas L. Steinmeier
    Abstract: This paper constructs and estimates a dynamic model of the evolution of health for those over the age of 50 and then embeds that model of health dynamics in a structural, econometric model of retirement and saving. The health model traces the effects of smoking, obesity, alcohol consumption, depression and other proclivities on medical conditions, including hypertension, diabetes, cancer, lung disease, heart problems, stroke, psychiatric problems and arthritis. These in turn influence an overall index of health status based on self-reported health, work limitations and ADLs, which is used to classify the population into good, fair, poor or terrible health. Compared to a situation where the entire population is in good health, the current health status of the population reduces the retirement age of the entire population by an average of about one year. While poor health or terrible health have a great impact on the disutility of work and thus on retirement, fair health as opposed to good health has a relatively minor effect. Smoking depresses full-time work effort by up to 3.5 percentage points by those in the early sixties, reducing the average retirement age by four to five months. Effects of trends in health care and health policies on retirement are also analyzed. Including detailed measurement of health dynamics in a retirement model improves understanding of the effects of health on retirement. It does not, however, influence estimates of the marginal effects of economic incentives on retirement.
    JEL: D31 D91 E21 H55 I1 I3 J14 J18 J26 J3 J32
    Date: 2014–02
  41. By: Byrne, Joseph P; Korobilis, Dimitris; Ribeiro, Pinho J
    Abstract: An expanding literature articulates the view that Taylor rules are helpful in predicting exchange rates. In a changing world however, Taylor rule parameters may be subject to structural instabilities, for example during the Global Financial Crisis. This paper forecasts exchange rates using such Taylor rules with Time Varying Parameters (TVP) estimated by Bayesian methods. In core out-of-sample results, we improve upon a random walk benchmark for at least half, and for as many as eight out of ten, of the currencies considered. This contrasts with a constant parameter Taylor rule model that yields a more limited improvement upon the benchmark. In further results, Purchasing Power Parity and Uncovered Interest Rate Parity TVP models beat a random walk benchmark, implying our methods have some generality in exchange rate prediction.
    Keywords: Exchange Rate Forecasting; Taylor Rules; Time-Varying Parameters; Bayesian Methods.
    JEL: C53 E52 F31 F37 G17
    Date: 2014–02–14
  42. By: Ton van den Bremer; Frederick van der Ploeg; Samuel Wills
    Abstract: Many oil exporters accumulate large sovereign wealth funds, though their portfolio allocation does not take into account below-ground assets, like oil. Similarly, the above-ground portfolio does not affect the decision to extract oil. This paper shows that subsoil oil wealth should change a country’s above-ground asset allocation in two ways. First, the holding of all risky assets is leveraged because there is additional wealth outside the fund. Second, more (less) is invested in financial assets that are negatively (positively) correlated with oil to hedge against the riskiness of subsoil exposure. Furthermore, if marginal oil rents move pro-cyclically with the value of the financial assets in the fund, then oil will be extracted slower than predicted by the standard Hotelling rule. This leaves a buffer of oil to be extracted when both oil prices and asset returns are high. Finally, any unhedged residual volatility must be managed through additional precautionary saving.
    Keywords: oil, portfolio allocation, sovereign wealth fund, optimal extraction
    JEL: E21 G11 G15 O13 Q32 Q33
    Date: 2014
  43. By: Robert J. Gordon
    Abstract: The United States achieved a 2.0 percent average annual growth rate of real GDP per capita between 1891 and 2007. This paper predicts that growth in the 25 to 40 years after 2007 will be much slower, particularly for the great majority of the population. Future growth will be 1.3 percent per annum for labor productivity in the total economy, 0.9 percent for output per capita, 0.4 percent for real income per capita of the bottom 99 percent of the income distribution, and 0.2 percent for the real disposable income of that group. The primary cause of this growth slowdown is a set of four headwinds, all of them widely recognized and uncontroversial. Demographic shifts will reduce hours worked per capita, due not just to the retirement of the baby boom generation but also as a result of an exit from the labor force both of youth and prime-age adults. Educational attainment, a central driver of growth over the past century, stagnates at a plateau as the U.S. sinks lower in the world league tables of high school and college completion rates. Inequality continues to increase, resulting in real income growth for the bottom 99 percent of the income distribution that is fully half a point per year below the average growth of all incomes. A projected long-term increase in the ratio of debt to GDP at all levels of government will inevitably lead to more rapid growth in tax revenues and/or slower growth in transfer payments at some point within the next several decades. There is no need to forecast any slowdown in the pace of future innovation for this gloomy forecast to come true, because that slowdown already occurred four decades ago. In the eight decades before 1972 labor productivity grew at an average rate 0.8 percent per year faster than in the four decades since 1972. While no forecast of a future slowdown of innovation is needed, skepticism is offered here, particularly about the techno-optimists who currently believe that we are at a point of inflection leading to faster technological change. The paper offers several historical examples showing that the future of technology can be forecast 50 or even 100 years in advance and assesses widely discussed innovations anticipated to occur over the next few decades, including medical research, small robots, 3-D printing, big data, driverless vehicles, and oil-gas fracking.
    JEL: D24 E02 E66 J11 J15 O11 O31 Q43
    Date: 2014–02
  44. By: Bernardo, Giovanni; D'Alessandro, Simone
    Abstract: This paper analyses different policies that may promote the transition towards a low-carbon economy. We present a dynamic simulation model where three different strategies are identified: improvements in energy efficiency, the development of the renewable energy sector, and carbon capture and storage. Our aim is to evaluate the dynamics that the implementation of these strategies may produce in the economy, looking at different performance indicators, such as the GDP growth rate, unemployment, labour share, carbon emissions, and renewable energy production. Scenario analysis shows that a number of tradeoffs between social, economic and environmental indicators emerge. Such tradeoffs undermine an `objective' definition of sustainability.
    Keywords: sustainability, energy transition, system dynamics, scenario analysis.
    JEL: C63 E2 Q01 Q43
    Date: 2014–02–15
  45. By: Zied Ftiti; Aviral Tiwari; Ibrahim Fatnassi
    Abstract: The aim of this paper is to focus on whether or not an interaction relationship (or dependence) exists between the oil price and fundamental macroeconomic variables (that is industrial production, a proxy of macroeconomic activity, and inflation, measured by wholesale price index, Trade deficit, a measure of external account sustainability, and India-US exchange rate), calling upon the notion of correlation and then dynamic correlation. In our contribution we used the evolutionary co-spectral analysis (ESA) as presented Priestley and Tong (1973) and based on the methodology of Ftiti (2010), to analyze the impact of oil price changes in three macroeconomic variables namely industrial production, CPI based inflation and trade deficit. The ESA illustrates the evolution of the co-variance of a time-series at the different frequencies; the ESA demonstrates the correlation coefficient in the time–frequency space; and the information on the delay between the oscillations of two time-series i.e., lead–lag relationships provided by phase-difference. Our results show. Our results show that the degree of co-movement between the oil price index and the overall macroeconomic variables exhibit different patterns across the macroeconomic indicators. However, a common feature among the calculated comovements is that they re are higher in the short-term than in long-term. As economic implication, this later traduces that an oil shocks has lower long-run effect (weak persistent effect) on the India macroeconomy.
    Date: 2014–01–06
  46. By: Aymen Belgacem; Anna Creti; Khaled Guesmi; Amine Lahiani
    Abstract: The paper employs an event study methodology to investigate the macroeconomic announcements effects on S&P500 and oil prices. Our results provide evidence of a significant impact of the US macroeconomic news on oil prices. This impact is split into two components, namely the direct effect (common response) and indirect effect (volatility transmission). Altogether our results show that the volatility transmission is bidirectional since a significant volatility transmission from the oil market to the US stock market is revealed. Furthermore, a higher volatility transmission is recorded from the oil market to the stock market especially after the release of consumption indicators.
    Keywords: Stock Prices, Oil prices, Macroeconomic Announcements, Volatility Spillovers.
    JEL: G14 G15 C58
    Date: 2014–01–06
  47. By: Karolina Goraus (Faculty of Economic Sciences, University of Warsaw); Krzysztof Makarski (National Bank of Poland, Warsaw School of Economics); Joanna Tyrowicz (Faculty of Economic Sciences, University of Warsaw; National Bank of Poland)
    Abstract: The objective of this paper is to analyze the welfare effects of raising the retirement age. With aging populations, in many countries de iure retirement age has been raised. With a standard assumption that individuals prefer leisure to work, such policy necessitates some welfare deterioration. This could be outweighed by lower taxation (defined benefit schemes becoming more balanced) or higher pension benefits (defined contribution schemes yield higher effective replacement rate). Moreover, it is often argued that actuarially fair pension systems provide sufficient incentives for individuals to extend the number of working years, which undermines the need to change de iure retirement age. In this paper we construct an OLG model in which we analyze welfare effects of extending the retirement age under PAYG defined benefit, PAYG defined contribution and partially funded defined contribution pension schemes. We find that such policy is universally welfare improving. However, postponed retirement translates to lower savings, which implies decrease in per capita capital and output.
    Keywords: PAYG, retirement age, pension system reform, time inconsistency, welfare
    JEL: C68 E17 E25 J11 J24 H55 D72
    Date: 2014
  48. By: Klapper, Leora; Love, Inessa; Randall, Douglas
    Abstract: This paper uses new panel data on the number of new firm registrations in 109 countries during 2002-2012 to study the relationship between entrepreneurship and economic growth. The data show strong evidence of a pro-cyclical pattern in entrepreneurship. An examination of heterogeneous relationships between new firm registration and the business cycle finds that higher levels of financial development and better business environments are associated with stronger pro-cyclicality of entrepreneurship both across countries and within countries over time. The results are robust to various measures of business regulation, such as the cost and time of starting a new firm and closing an insolvent firm. These findings suggest that fostering an efficient regulatory environment for the financial and private sector is important for encouraging a speedier recovery in the formation of new firms during economic expansions and aiding the efficient wind-down of insolvent firms during economic slowdowns.
    Keywords: Environmental Economics&Policies,Business in Development,Business Environment,Competitiveness and Competition Policy,E-Business
    Date: 2014–02–01

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