nep-mac New Economics Papers
on Macroeconomics
Issue of 2014‒04‒11
sixty-five papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Macroprudential Regulation and the Role of Monetary Policy By Tayler, William; Zilberman, Roy
  2. Fiscal Policy and the Inflation Target By Peter Tulip
  3. Fiscal and monetary policies in complex evolving economies By Mauro Napoletano; Andrea Roventini; Giovanni Dosi; Giorgio Fagiolo; Tania Treibich
  4. Monetary Policy Switching in the Euro Area and Multiple Equilibria: An Empirical Investigation By Gilles Dufrénot; Anwar Khayat
  5. Information in the yield curve: A Macro-Finance approach By Hans Dewachter; Leonardo Iania; Marco Lyrio
  6. Spillovers, capital flows and prudential regulation in small open economies By Armas, Adrián; Castillo, Paul; Vega, Marco
  7. Fiscal policy, institutional quality and central bank transparency. By Meixing Dai; Moïse Sidiropoulos; Eleftherios Spyromitros
  8. Inflation expectation dynamics: the role of past present and forward looking information By Paul Hubert; Mirza Harun
  9. Der Weg in die Nullzins- und Hochverschuldungsfalle By Gunther Schnabl
  10. Exchange Rate Adjustment, Monetary Policy and Fiscal Stimulus in Japan's Escape from the Great Depression By Masahiko Shibamoto; Masato Shizume
  12. Source of Underestimation of Monetary Policy Effect: Re-examination of the Policy Effectiveness in Japan's 1990s By Masahiko Shibamoto
  13. Noisy News in Business Cycles By Mario Forni; Luca Gambetti; Marco Lippi; Luca Sala
  15. Assessing the link between Price and Financial Stability By Christophe Blot; Jérôme Creel; Fabien Labondance; Francesco Saraceno; Paul Hubert
  16. Inflation Targeting and Inflation Expectations: Evidence for Brazil and Turkey By Sumru Altug; Cem Cakmakli
  17. Assessing the Interest Rate and Bank Lending Channels of ECB Monetary Policies By Jérôme Creel; Mathilde Viennot; Paul Hubert
  18. Does Interbank Market Matter for Business Cycle Fluctuation? An Estimated DSGE Model with Financial Frictions for the Euro Area By Federico GIRI
  19. The Fiscal Compact and Current Account Patterns in Europe By Stefan Behrendt
  21. EMU: The Sustainability Issue By Frederic Teulon
  22. Noise Bubbles By Mario Forni; Luca Gambetti; Marco Lippi; Luca Sala
  23. Government Expenditure Determination on the Basis of Macroeconomics By durongkaveroj, wannaphong
  24. The Euro crisis and contradictions of Neoliberalism in Europe By Stockhammer, Engelbert
  25. Why is Old Workers' Labor Market More Volatile? Unemployment Fluctuations over the Life-Cycle By Hairault, Jean-Olivier; Langot, François; Sopraseuth, Thepthida
  26. Guidelines for Exploiting Natural Resource Wealth By Rick Van der Ploeg
  27. Self-Monitoring or Reliance on Newswire Services: How Do Financial Market Participants Process Central Bank News? By Bernd Hayo; Matthias Neuenkirch
  28. A new recession-dating algorithm for South Africa By Pieter Laubscher
  29. Social Security and the Interactions Between Aggregate and Idiosyncratic Risk By Daniel Harenberg; Alexander Ludwig
  30. News and Labor Market Dynamics in the Data and in Matching Models By Francesco Zanetti; Konstantinos Theodoridis
  31. Crisis continues to smoulder By IMK Düsseldorf; OFCE Paris; WIFO Wien
  32. "Minsky and the Subprime Mortgage Crisis: The Financial Instability Hypothesis in the Era of Financialization" By Eugenio Caverzasi
  33. La macroéconomie à l'épreuve des faits By Jean-Luc Gaffard
  34. "From the State Theory of Money to Modern Money Theory: An Alternative to Economic Orthodoxy" By L. Randall Wray
  35. Assessing future sustainability of french public finances By Jérôme Creel; Paul Hubert; Francesco Saraceno
  36. Inequality debt and taxation the perverse relation between the productive and the non productive assets of the economy By Jean-Luc Gaffard; Mario Amendola; Fabricio Patriarca
  37. Competitiveness disparities behind the economic crisis in the euro area By Rantala, Olavi
  38. Redemption? By Catherine Mathieu; Henri Sterdyniak
  39. Outperforming IMF Forecasts by the Use of Leading Indicators By Katja Drechsel; S. Giesen; Axel Lindner
  40. Revisting the Steady-State Equilibrium Conditions of Neoclassical Growth Models By Li, Defu; Huang, Jiuli; Zhou, Ying
  41. Shaky emerging economies in view of the global financial crisis : the Turkish economy after three decades of liberal reforms By Faruk Ülgen
  42. Macroeconomic and fiscal challenges faced by the Southern and Eastern Mediterranean region By Marek Dabrowski
  43. Crisis Mismanagement in The United States And Europe: Impact On Developing Countries And Longer-Term Consequences By Yýlmaz Akyüz
  44. De la monnaie cosmopolitique By Maxime Parodi
  45. Exchange rate and commodity price pass‐through in New Zealand By Miles Parker; Benjamin Wong
  46. Housing and Relative Risk Aversion By Francesco Zanetti
  47. Residential Property Price Indexes for Japan: An Outline of the Japanese Official RPPI By Diewert, W. Erwin; Nishimura , Kiyohiko; Shimizu, Chihiro; Watanabe, Tsutomu
  48. La spesa pubblica in Italia prima e dopo la crisi By A. Affuso; V. Bravi
  49. Some revisions to the sectoral factor model of core inflation By Gael Price
  50. Calculating the real return of the Norwegian Government Pension Fund Global by alternative measures of the deflator By Andreas Benedictow; Pål Boug
  51. Global Implications of the Renminbi’s Ascendance By Prasad, Eswar
  52. Cyclical components and dual long memory in the foreign exchange rate dynamics: the Tunisian case By Rania Jammazi; Chaker Aloui
  53. Effects of Unconventional Monetary Policy on Financial Institutions By Gabriel Chodorow-Reich
  54. Is the supply side all that counts? By Alexander Herzog-Stein; Fabian Lindner; Rudolf Zwiener
  55. Recursive utility and jump-diffusions By Aase, Knut K.
  56. Is Harrod-neutrality Needed for Balanced Growth? Uzawa's Theorem Revisited By Li, Defu; Huang, Jiuli; Zhou, Ying
  57. The ACA: Some Unpleasant Welfare Arithmetic By Casey B. Mulligan
  58. Revisiting an important Canadian natural experiment with new methods: an evaluation of the impact of the 1994 tax decrease on smoking. By Philip Merrigan; François Gardes
  59. The Elephant in the Ground: Managing Oil and Sovereign Wealth By Rick Van der Ploeg; Samuel Wills; Ton van den Bremer
  60. Explaining Educational Attainment across Countries and over Time By Diego Restuccia; Guillaume Vandenbroucke
  61. Crises and Productivity in Good Booms and in Bad Booms By Gary Gorton; Guillermo Ordonez
  62. Short-term Indicator Models for Quarterly GDP Growth in the BRIICS: A Small-scale Bridge Model Approach By Thomas Chalaux; Cyrille Schwellnus
  63. "Growth with Unused Capacity and Endogenous Depreciation" By Fabrizio Patriarca; Claudio Sardoni
  64. Family Firms, Soft Information and Bank Lending in a Financial Crisis By Leandro D’Aurizio; Tommaso Oliviero; Livio Romano
  65. "Structural Asymmetries at the Roots of the Eurozone Crisis: What’s New for Industrial Policy in the EU?" By Alberto Botta

  1. By: Tayler, William; Zilberman, Roy
    Abstract: This paper examines the macroprudential roles of bank capital regulation and monetary policy in a Dynamic Stochastic General Equilibrium model with endogenous financial frictions and a borrowing cost channel. We identify various transmission channels through which credit risk, commercial bank losses, monetary policy and bank capital requirements affect the real economy. These mechanisms generate significant financial accelerator effects, thus providing a rationale for a macroprudential toolkit. Following credit shocks, countercyclical bank capital regulation is more effective than monetary policy in promoting financial, price and overall macroeconomic stability. For supply shocks, macroprudential regulation combined with a strong response to inflation in the central bank policy rule yield the lowest welfare losses. The findings emphasize the importance of the Basel III regulatory accords and cast doubt on the desirability of conventional Taylor rules during periods of financial distress. --
    Keywords: Bank Capital Regulation.,Macroprudential Policy,Basel III,Monetary Policy,Cost Channel
    JEL: E32 E44 E52 E58 G28
    Date: 2014–03–31
  2. By: Peter Tulip (Reserve Bank of Australia)
    Abstract: Low interest rates in the United States have recently been accompanied by large fiscal stimulus. However, discussions of monetary policy have neglected this fiscal activism, leading to over-estimates of the costs of the zero lower bound and, hence, of the appropriate inflation target. To rectify this, I include countercyclical fiscal policy within a large-scale model of the US economy. I find that fiscal activism can substitute for a high inflation target. An increase in the inflation target is not warranted, despite increased volatility of macroeconomic shocks, so long as fiscal policy behaves as it has recently.
    Keywords: fiscal policy; zero bound; inflation target
    JEL: E52 E62
    Date: 2014–03
  3. By: Mauro Napoletano (OFCE); Andrea Roventini (Department of economics); Giovanni Dosi (Laboratory of Economics and Management); Giorgio Fagiolo (Laboratory of Economics and Management (LEM)); Tania Treibich
    Abstract: In this paper we explore the effects of alternative combinations of fiscal and monetary policies under different income distribution regimes. In particular, we aim at evaluating fiscal rules in economies subject to banking crises and deep recessions. We do so using an agent-based model populated by heterogeneous capital- and consumption-good forms, heterogeneous banks, workers/consumers, a Central Bank and a Government. We show that the model is able to reproduce a wide array of macro and micro empirical regularities, including stylised facts concerning financial dynamics and banking crises. Simulation results suggest that the most appropriate policy mix to stabilise the economy requires unconstrained counter-cyclical fiscal policies, where automatic stabilisers are free to dampen business cycles fluctuations, and a monetary policy targeting also employment. Instead, discipline-guided" fiscal rules such as the Stability and Growth Pact or the Fiscal Compact in the Eurozone always depress the economy, without improving public finances, even when escape clauses in case of recessions are considered. Consequently, austerity policies appear to be in general self-defeating. Furthermore, we show that the negative effects of austere fiscal rules are magnified by conservative monetary policies focused on ination stabilisation only. Finally, the effects of monetary and fiscal policies become sharper as the level of income inequality increases.
    Keywords: Agent based model; fiscal policy; monetary policy; banking crises; income inequality; austerity policies; disequilibrium dynamics
    JEL: C63 E32 E6 E52 G21 O4
    Date: 2014–02
  4. By: Gilles Dufrénot (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS, CEPII, Banque de France, Aix-Marseille School of Economics); Anwar Khayat (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS)
    Abstract: This paper provides evidence that the European Central Bank (ECB) has adjusted its interest rate since 1999 nonlinearly according to the macroeconomic and financial environment in the euro zone. Its policy function is described by a Taylor rule with regime shifts implying that the stance of reaction to the inflation-gap and output-gap has varied according to the credit risk in the private and sovereign bond markets, the monetary base and past levels of inflation, output and the shocks affecting the European economies. We provide evidence of regimes corresponding to low to high levels of inflation with the possibility of a situation near a zero low bound (ZLB) for the interest rate. We study the implications of such a rule for the economy in a simple new-Keynesian framework and show that it is consistent with several stable long-run steady states equilibria among which one that is consistent with the recent situation of a near liquidity trap in the euro area. We also find that around this liquidity trap steady state the equilibrium is locally determinate for most plausible parameter values. We discuss the issue of moving from a situation of low nominal interest rate to a policy that have been more typically implemented in the past by relying on an analysis of the impact of shocks (supply and demand) to the economy.
    Keywords: Nonlinear Taylor rules; multiple steady state equilibria; Euro area.
    JEL: C54 E52 E58
    Date: 2014–03
  5. By: Hans Dewachter (National Bank of Belgium, Research Department; Center for Economic Studies, University of Leuven; CESifo); Leonardo Iania (National Bank of Belgium, Research Department; Louvain School of Management (UCL)); Marco Lyrio (Insper Institute of Education and Research)
    Abstract: We use a macro-finance model, incorporating macroeconomic and financial factors, to study the term premium in the U.S. bond market. Estimating the model using Bayesian techniques, we find that a single factor explains most of the variation in bond risk premiums. Furthermore, the model-implied risk premiums account for up to 40% of the variability of one- and two-year excess returns. Using the model to decompose yield spreads into an expectations and a term premium component, we find that, although this decomposition does not seem important to forecast economic activity, it is crucial to forecast inflation for most forecasting horizons.
    Keywords: Macro-finance model, Yield curve, Expectations hypothesis
    JEL: E43 E44 E47
    Date: 2014–03
  6. 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 extends the model of Aoki et al. (2009) considering a two sector small open economy. We study the interaction of borrowing, asset prices, and spillovers between tradable and non-tradable sectors. Our results suggest that when it is difficult to enforce debtors to repay their debt unless it is secured by collateral, a productivity shock in the tradable sector generates an increase in asset prices and leverage that spills over to the non-tradable sector, generating an appreciation of the real exchange and an increase in domestic lending. Macro-prudential instruments are introduced under the form of cyclical loan-to-value ratios that limit the amount of capital that entrepreneurs can pledge as collateral. Cyclical taxes that respond to the movements in the price of non-tradable goods are analyzed. Simulation results show that this type of instruments significantly lessen the amplifying effects of borrowing constraints on small open economies and consequently reduce output and asset price volatility.
    Keywords: Collateral, productivity, small open economy.
    JEL: E21 E23 E32 E44 G01 O11 O16
    Date: 2014–04
  7. By: Meixing Dai; Moïse Sidiropoulos; Eleftherios Spyromitros
    Abstract: This paper examines monetary and fiscal interactions in a framework where the government worries about political costs of low institutional quality and central bank opacity acts as a disciplinary device leading the government to reduce distortionary taxes and public expenditures. Greater opacity could thus lower the reactions of inflation expectations and inflation but increase those of the output gap to supply shocks and the target of public expenditures, and would be beneficial in terms of less macroeconomic volatility. Under the least favourable assumptions on the effect of corruption, i.e. ‘sanding-the-wheels’ effect or weak ‘greasing-the-wheels’ effect, we have shown that there is a fiscal disciplining effect of central bank opacity in a game framework where the government is a Stackelberg leader. Imperfect transparency could increase corruption only if the ‘greasing-the-wheels’ effect is relatively large. These results could be reinforced by the presence of grand corruption.
    Keywords: Central bank opacity, fiscal disciplining effect, distortions, institutional quality, corruption.
    JEL: D73 E52 E58 E61 E63 H50
    Date: 2014
  8. By: Paul Hubert; Mirza Harun
    Abstract: Assuming that private agents need to learn inflation dynamics to form their inflation expectations and that they believe a hybrid New-Keynesian Phillips Curve (NKPC) is the true data generating process of inflation, we aim at establishing the role of forward-looking information in inflation expectation dynamics. We find that longer term expectations are crucial in shaping shorter-horizon expectations. Professional forecasters put a greater weight on forward-looking information presumably capturing beliefs about the central bank inflation target or trend inflation while lagged inflation remains significant. Finally,the NKPC-based inflation expectations model fits well for professional forecasts in contrast to consumers.
    Keywords: survey expectations; inflation; new keynesian; Philipps curve
    JEL: E31
    Date: 2014–03
  9. By: Gunther Schnabl (Universität Leipzig)
    Abstract: Das Papier zeigt den Ursache-Wirkungs-Zusammenhang zwischen expansiver Geldpolitik und Boom-und-Krisen-Zyklen auf Finanzmärkten einschließlich der Rückwirkungen auf die Finanzpolitik und Wachstumsperspektiven auf. Seit den 1990er Jahren reagierten die großen Zentralbanken mit Zinssenkungen auf Krisen in den Finanzmärkten. Die Liquiditätszufuhr in der Krise bewirkte erneute Spekulationsphasen, die beim Platzen der Blasen neue Zinssenkungen notwendig machten. Es wird gezeigt, dass die daraus resultierenden strukturellen Zinssenkungen gegen Null in den großen Industrieländern einen Anreiz zur Erhöhung der Staatsverschuldung gegeben haben. Hohe Staatsverschuldung wird als treibende Größe der Persistenz der Nullzinsfalle sowie für die Zerstörung der Allokations- und Signalfunktion von Zinsen identifiziert. Der Artikel zeigt am Beispiel Japan, wie die resultierende Niedrigzins- und Hochverschuldungsfalle die Wachstumsperspektiven eintrübt.
    Keywords: Geldpolitik, Finanzpolitik, Niedrigzinsfalle, Hochverschuldungsfalle, Finanzmarktkrisen
    JEL: E32 E44 E58 E62
    Date: 2014–03–31
  10. By: Masahiko Shibamoto (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan); Masato Shizume (Institute for Monetary and Economic Studies, Bank of Japan)
    Abstract: A veteran finance minister, Takahashi Korekiyo, brought an early recovery for Japan from the Great Depression of the 1930s by prescribing a combination of expansionary fiscal, exchange rate, and monetary policies. To explore the comprehensive transmission mechanism of Takahashi's macroeconomic policy package, including the expectation channel, we construct a structural vector auto-regression (S-VAR) model with three state variables (output, price, and the inflation expectations) and three policy variables (fiscal balance, exchange rate, and money stock). Our analysis reveals that the exchange rate adjustment undertaken as an independent policy tool had the strongest effect, and that changes in people's expectations played a significant role for escaping from the Great Depression. During the second half of 1931, in particular, speculation on Japan's departure from the gold standard and the inflation that was likely to follow reversed the existing expectations: instead of expecting deflation, people began to expect inflation, months ahead of the actual departure from the gold standard. As a whole, the choice of the level of the exchange rate was crucial for changing people's expectations as well as promoting exports.
    Keywords: Great depression, Japanese economy, Macroeconomic policy, Expectation, Vector auto-regressive model, Commodity futures
    JEL: E52 E63 N15
    Date: 2014–03
  11. By: P. Siklos, B. Lavender (LCERPA)
    Abstract: Recent events highlight the importance of understanding the relationship between credit availability and real economic activity. This paper estimates macroeconomic models for Canada to investigate the relationship between changes in non-price lending standards, business loans and output. We allow for the possibility that macroeconomic and financial market conditions in the U.S. affect those in Canada. The responses to financial shocks are dissimilar in both countries. Real time data are also found to have a significant impact on the results. The U.S. and Canada may indeed be likened to 'two solitudes' insofar as the impact of credit conditions is concerned. Differences in the quality of banking standards and supervision of financial institutions, as well differences in the effectiveness of monetary policies in the two countries may partially explain the results.
    Keywords: macro-financial linkages, credit standards, Loan Officer Survey
    JEL: E32 E5 G21
    Date: 2014–03–10
  12. By: Masahiko Shibamoto (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)
    Abstract: This paper re-examines the empirical evidence on the potency of Japanese monetary policy in the 1990s by comparing the estimated impacts of various proxies of monetary policy shocks on the macro economy. My empirical results demonstrate that the surprise target changes as a proxy of monetary policy shocks had impacts on real output and financial variables over the period 1990–2001. I also show that the estimated effects of identified monetary policy shocks depend on whether the shocks are anticipated or not; The monetary policy effects on the economy are underestimated when the empirical models fail to control for the market expectation for monetary policy stance.
    Keywords: Monetary policy, Surprise target changes, Vector autoregression model, Japan
    JEL: E52 E58
    Date: 2014–03
  13. By: Mario Forni; Luca Gambetti; Marco Lippi; Luca Sala
    Abstract: The contribution of the present paper is twofold. First, we show that in a situation where agents can only observe a noisy signal of the shock to future economic fundamentals, the "noisy news", SVAR models can still be successfully employed to estimate the shock and the associated impulse response functions. Identification is reached by means of dynamic rotations of the reduced form residuals. Second, we use our identification approach to investigate the role of noise and news as sources of business cycle fluctuations. We find that noise shocks, the component of the signal unrelated to economic fundamentals, generate hump-shaped responses of GDP, consumption and investment and account for a third of their variance. Moreover, news and noise together account for more than half of the fluctuations in GDP, consumption and investment
    Keywords: Invertibility, Nonfundamentalness, SVAR, Imperfect Information, News, Noise, Signal, Business cycles
    JEL: C32 E32 E62
    Date: 2014–03
  14. By: M. Neuenkirch, P. Siklos (LCERPA)
    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: 2014–03–01
  15. By: Christophe Blot (OFCE); Jérôme Creel (OFCE); Fabien Labondance (Atelier de recherche sur la politique économique et la gestion des entreprises (ARPEGE)); Francesco Saraceno (OFCE); Paul Hubert
    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
  16. By: Sumru Altug (Department of Economics, Koc University, CEPR); Cem Cakmakli (Department of Economics, Koc University, Department of Quantitative Economics, University of Amsterdam)
    Abstract: In this paper, we study the evolution of inflation expectations for two key emerging economies, Brazil and Turkey, using a reduced form model in a state-space framework, where the level of inflation is modeled explicitly. We match the survey-based inflation expectations and inflation targets set by the central banks of Brazil and Turkey with the predictions implied by the model in a statistically coherent way. Confronting these expectations with inflation targets leads to a statistical measure of the discrepancy between inflation expectations and the target inflation. The results indicate that inflation expectations are anchored more closely the inflation target set by the Central Bank for Brazil. By contrast, there is more evidence that inflation expectations deviate significantly from the target inflation set by the Central Bank for Turkey.
    Keywords: Inflation targeting, survey-based inflation expectations, forecasting, state space model.
    JEL: E31 E37 C32 C51
    Date: 2014–04
  17. By: Jérôme Creel (OFCE); Mathilde Viennot; Paul Hubert
    Abstract: This paper assesses the transmission of ECB monetary policies, conventional and unconventional, to both interest rates and lending volumes for the money market, sovereign bonds at 6-month, 5-year and 10-year horizons, loans inferior and superior to 1M€ to non-financial corporations, cash and housing loans to households, and deposits, during the financial crisis and in the four largest economies of the Euro Area. We first identify two series of ECB policy shocks at the euro area aggregated level and then include them in country-specific structural VAR. The main result is that only the pass-through from the ECB rate to interest rates has been really effective, consistently with the existing literature, while the transmission mechanism of the ECB rate to volumes and of quantitative easing (QE) operations to interest rates and volumes has been null or uneven over this sample. One argument to explain the differentiated pass-through of ECB monetary policies is that the successful pass-through from the ECB rate to interest rates, which materialized as a huge decrease in interest rates during the sample period, had a negative effect on the supply side of loans, and offset itself its potential positive effects on lending volumes.
    Keywords: transmission channels; unconventional monetary policy; pass-through
    JEL: E51 E58
    Date: 2013–12
  18. By: Federico GIRI (Universit… Politecnica delle Marche, Dipartimento di Scienze Economiche e Sociali)
    Abstract: The aim of this paper is to assess the impact of the interbank market on the business cycle fluctuations. We build a DSGE model with heterogeneous households and banks. Two kind of banks are in the model: Deficit banks which are net borrowers on the interbank market and they provide credit to the real economy. The surplus bank are net lender and they could choose to provide interbank lending or purchase government bonds.;The portfolio choice of the surplus bank is affected by an exogenous shock that modifies the riskiness of the interbank lending thus allowing us to capture the collapse of the interbank market and the fl y to quality mechanism underlying the 2007 financial crisis.;The main result is that an interbank riskiness shock seems to explain part of the 2007 downturn and the rise of the interest rate on the credit market just after the financial turmoil.
    Keywords: Bayesan estimation, DSGE model, financial frictions, interbank market
    JEL: E30 E44 E51
    Date: 2014–03
  19. By: Stefan Behrendt (Graduate Programme "Global Financial Markets")
    Abstract: This paper shall give an overview of the implications to the sectoral balances stemming from the implementation of the Fiscal Compact in the Euro area in 2013. Since there is now a more or less strict limit to deficit spending-absent from cyclical factors-some other sector has to make up for the reduction of the financial deficit of Euro area gov- ernments. While applying sensible estimates on the trajectories of the sectoral balances in the Euro area, I reach the conclusion that the only logical outlet for these (potentially) reduced deficits would be the for- eign sector, reflecting the inability of the private sector to run a sizeable surplus of investments over savings over the long-run. Under the sce- nario described in the paper, the Euro area would run a considerable current account surplus in the foreseeable future.
    Keywords: fiscal policy, Fiscal Compact, current account, sectoral balances
    JEL: E27 E61 E62 E66 F32 H62 H63
    Date: 2014–03–26
  20. By: Cristos Shiamptanis (LCERPA)
    Abstract: This study revisits the sectoral shifts hypothesis for the US for the period 1948 to 2011. A quantile regression approach is employed in order to investigate the asymmetric nature of the relationship between sectoral employment and unemployment. Significant asymmetries emerge. Lilien's dispersion index is significant only for relatively high levels of unemployment and becomes insignificant for low levels suggesting that reallocation affects unemployment only when the latter is high. More job reallocation is associated with higher unemployment.
    Keywords: unemployment, employment reallocation, sectoral shifts, aggregate shocks, conditional quantile regression model, bootstrapping; Nonlinear Öscal rule, Fiscal Sustainability, Solvency Crisis, Policy Switching, Canada
    JEL: C63 E62 E63 F34 H63
    Date: 2014–03–01
  21. By: Frederic Teulon
    Abstract: The euro area is experiencing a sovereign debt crisis; as a result, the foundations of its monetary union have been shattered. This crisis, which is an extension of an international financial crisis, shows that the European Union is not an optimum currency area. Robert Mundell’s work remains an indispensable reference on this subject: a monetary union among greatly different countries and propelled by considerably weak solidarity is problematic. In the present context, the possibilities are limited for permanently improving the situation, for transforming sovereign debts into sustainable ones, and for regaining a higher level of growth. Experience seems to show that a single currency cannot accommodate national budgetary policies and that national policies are hindered by the existence of a single currency in a context of asymmetries. Eventually, a scenario where the euro area would collapse becomes highly probable. This paper puts forward a model of debt sustainability and discusses eight related proposals.
    Keywords: European Monetary Union; European Central Bank (EBC); Eurozone; Stability growth pact; Financial crisis; Fiscal policy and debt sustainability; Optimal currency area; Sovereign debt
    JEL: E42 E44 G38
    Date: 2014–03–28
  22. By: Mario Forni; Luca Gambetti; Marco Lippi; Luca Sala
    Abstract: We introduce noisy information into a standard present value stock price model. Agents receive a noisy signal about the structural shock driving future dividend variations. The resulting equilibrium stock price includes a transitory component —the “noise bubble”— which can be responsible for boom and bust episodes unrelated to economic fundamentals. We propose a non-standard VAR procedure to estimate the structural shock and the “noise” shock, their impulse response functions and the bubble component of stock prices. We apply such procedure to US data and find that noise explains a large fraction of stock price volatility. In particular the dot-com bubble is entirely explained by noise. On the contrary the stock price boom peaking in 2007 is not a bubble, whereas the following stock market crisis is largely due to negative noise shocks.
    JEL: C32 E32 E62
    Date: 2014–03
  23. By: durongkaveroj, wannaphong
    Abstract: Government expenditure is realized to be the exogenous variable and its change impacts national income through Aggregate Demand expression. The purpose of this study is to derive new macroeconomic expression based on Keynesian basis with SAM multiplier through mathematical approach. The study reveals that there are factors determined government spending including exogenous shock (government subsidy), taxation, and money supply.
    Keywords: macroeconomics, government expenditure
    JEL: C02 E12
    Date: 2014–04–04
  24. By: Stockhammer, Engelbert (Kingston University London)
    Abstract: Neoliberalism has not given rise to a sustained profit-led growth process, but to a finance-dominated accumulation regime in which growth relies either on financial bubbles and rising household debt (‘debt-driven growth’) or on net exports (‘export-driven growth’). The financial crisis that began in the market for derivatives on the US subprime mortgage market has translated into the worst recession since the 1930s. In Europe the crisis has been amplified by an economic policy architecture (the Stability and Growth Pact) that aimed at restricting the role of fiscal policy and insulating monetary policy and central banks from national governments. The crisis has thus led to a sharp economic divergence between core and peripheral countries. Contrary to the situation in the (export-driven) Germanic core of Europe, the crisis is escalating in the (debt-driven) southern countries of Europe. The paper interprets the policy regime as the outcome of national elites’ attempt to use European integration as a means to constrain nation states. The result is a policy regime that has fatally weakened nation states as regards their fiscal and monetary capacities without creating a European state.
    Keywords: Euro crisis; Neoliberalism; European economic policy; European integration; financial crisis; sovereign debt crisis.
    JEL: B50 E60
    Date: 2013–12–08
  25. By: Hairault, Jean-Olivier (University of Paris 1 Panthéon-Sorbonne); Langot, François (University of Le Mans); Sopraseuth, Thepthida (University of Cergy-Pontoise)
    Abstract: Since the last recession, it is usually argued that older workers are less affected by the economic downturn because their unemployment rate rose less than the one of prime-age workers. This view is a myth: older workers are more sensitive to the business cycle. We document volatilities of worker flows and hourly wage across age groups on CPS data. We find that old worker's job flows are characterized by a higher responsiveness to business cycles than their younger counterparts. In contrast, their wage cyclicality is lower than prime-age workers'. Beyond this empirical contribution, we show that a life-cycle Mortensen & Pissarides (1994) model is well suited to explain these facts: older workers' shorter work-life expectancy endogenously reduces their outside options and leads their wages to be less sensitive to the business cycle. Thus, in a market where wage adjustments are small, quantities vary a lot: this is the case for older workers, whereas the youngest behave like infinitively-lived agents. Our theoretical results point out that Shimer (2005)'s view on the MP model is consistent with prime-age workers' labor market while aging endogenously introduces real wage rigidities, allowing to match what we observe for old workers, without specific assumptions as in Hagendorn & Manovskii (2008).
    Keywords: search, matching, business cycle, life-cycle
    JEL: E32 J11 J23
    Date: 2014–03
  26. By: Rick 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: 2013–12–31
  27. By: Bernd Hayo (University of Marburg); Matthias Neuenkirch (University of Trier)
    Abstract: We study how financial market participants process news from four major central banks - the Bank of England (BoE), the Bank of Japan (BoJ), the European Central Bank (ECB), and the Federal Reserve (Fed), using a novel survey of 450 financial market participants from around the world. Our results indicate that, first, respondents rely more on newswire services to learn about central bank events than on self-
    Keywords: Central Bank Communication, Financial Market Participants, Information Processing, Interest Rate Decisions, Newswire Services, Reliability, Survey.
    JEL: D83 E52 E58
    Date: 2014
  28. By: Pieter Laubscher (Bureau for Economic Research, University of Stellenbosch)
    Abstract: The SA Reserve Bank (SARB) regularly determines the upper and lower turning points of the South African business cycle, but this is only completed after all the relevant information has been obtained, confirmed and analysed, causing a lengthy time lag between the actual determination and the event. The current research aimed to design a recession-dating algorithm, which could allow the Bureau for Economic Research (BER) to make accurate calls on business cycle turning points substantially sooner after the event than is the case with the official SARB determination, which typically lags actual turning points by 18 to 24 months. The proposed algorithm includes, as a point of departure, the advance signals given by the yield spread (between 3-month and 10-year government bonds), as well as a consideration of the local moments of five high-frequency economic time series. The turning point signals provided by these indicators (and after the application of censoring rules) are integrated by reconciling the differences through the use of the median date in order to derive true business cycle turning points. The algorithm was tested for the five recessions experienced over the 1981 to 2013 period. It was found that the algorithm could be applied successfully in calling the business cycle turning points over this 32-year period avoiding any false positives. A high degree of accuracy was also obtained, i.e. a median two month lag in respect of upper turning points (or peaks) of the SARB-determined business cycle and a one month lead in respect of lower turning points (i.e. troughs). The algorithm will not only allow the BER to make close calls on business cycle turning points, it will be able to do this with a much shorter time delay following actual turning points compared to the SARB’s official determination.
    Keywords: Business cycles, turning points, quantitative analysis of business cycles
    JEL: C41 E32
    Date: 2014
  29. By: Daniel Harenberg; Alexander Ludwig
    Abstract: We ask whether a PAYG-financed social security system is welfare improving in an economy with idiosyncratic and aggregate risk. We argue that interactions between the two risks are important for this question. One is a direct interaction in the form of a countercyclical variance of idiosyncratic income risk. The other indirectly emerges over a household's life-cycle because retirement savings contain the history of idiosyncratic and aggregate shocks. We show that this leads to risk interactions, even when risks are statistically independent. In our quantitative analysis, we find that introducing social security with a contribution rate of two percent leads to welfare gains of 2.2% of lifetime consumption in expectation, despite substantial crowding out of capital. This welfare gain stands in contrast to the welfare losses documented in the previous literature, which studies one risk in isolation. We show that jointly modeling both risks is crucial: 60% of the welfare benefits from insurance result from the interactions of risks.
    Keywords: social security, idiosyncratic risk, aggregate risk, welfare
    JEL: C68 E27 E62 G12 H55
    Date: 2014–03–20
  30. By: Francesco Zanetti; Konstantinos Theodoridis
    Abstract: This paper uses a VAR model estimated with Bayesian methods to identify the effect of productivity news shocks on labor market variables by imposing that they are orthogonal to current technology but they explain future observed technology.� In the aftermath of a positive news shock, unemployment falls, whereas wages and the job finding rate increase.� The analysis establishes that news shocks are important in explaining the historical developments in labor market variables, whereas they play a minor role for movements in real activity.� We show that the empirical responses to news shocks are in line with those of a baseline search and matching model of the labor market and that the job destruction rate and real wage rigidities are critical for the variables' responses to the news shock.
    Keywords: Anticipated productivity shocks, Bayesian SVAR methods, labor market search frictions
    JEL: E32 C32 C52
    Date: 2014–02–26
  31. By: IMK Düsseldorf; OFCE Paris; WIFO Wien
    Abstract: The German economy achieved only a weak growth performance in 2012. GDP grew by 0.7 % on annual averages and by just 0.4 % over the course of the year. The prospects during the forecast period are mildly optimistic. The global economy will initially pick up only slowly, but the growth dynamic is expected to be stronger next year, boosting German exports. In the wake of the apparent stabilisation of the Euro area, uncertainty will gradually dissipate and investors will increasingly drop their wait-and-see attitude. Private consumption will, moreover, bolster growth in both the current and the coming year. The Institutes forecast GDP growth of 0.9 % on annual averages this year, a figure which understates the underlying dynamic: comparing the fourth quarter of 2013 with that of 2012 growth will reach a very much more substantial 1.9 %. In 2014 GDP growth is expected to be 1.5 %. The unemployment rate will remain more or less unchanged over the two years, at 5.1 % and 5.0 % on ILO definitions and 6.8 and 6.7 % respectively on German national definitions. Medium-term simulations indicate that the German economy is likely to remain constrained by the impact of the euro area crisis for an extended period. There are two main causal channels: German exports to the euro area will continue to be squeezed severely by the austerity policies being pursued across Europe, and even in Germany fiscal policy is expected to be contractionary, dampening the growth of incomes and domestic demand. Growth is expected to average 1.3 % in the years to 2017. Alternative scenarios show that by means of expansionary policies, including a European investment programme, far more favourable results could be obtained in the euro area as a whole and its member states individually than in the baseline scenario.The recession in the crisis-hit countries and the current stagnation in the remaining EMU member states must be overcome and give way to economic growth strong enough to increase capacity utilization and reduce unemployment. The necessary process of deleveraging must continue and public finances be put on a sustainable footing. At the same time, current account imbalances must be reduced and the financial sector stabilised. The current economic policy strategy, consisting first and foremost of fiscal austerity and a monetary policy rendered ineffective by country-specific risks, will almost certainly be unable to generate sustained improvements in these four key areas.A necessary condition for exiting from the crisis is to make monetary policy effective once more by re-establishing confidence in the government bonds of the crisis countries. This must be accompanied by a turnaround in fiscal policy. Fiscal consolidation must occur in such a way that it does not impinge negatively on aggregate demand. The Macro group proposes a European investment offensive. The crisis countries should receive external financing equal to 1 % of current GDP for a period of five years. This should be used to finance public investment and/or support for private investment. Member States with current account surpluses, especially Germany, should implement expansionary fiscal policy measures representing at least 1 % of GDP, such that they play the role of locomotive for the European business cycle. .
    Date: 2013
  32. By: Eugenio Caverzasi
    Abstract: The aim of this paper is to develop a structural explanation of the subprime mortgage crisis, grounded on the combination of two apparently incompatible financial theories: the financial instability hypothesis by Hyman P. Minsky and the theory of capital market inflation by Jan Toporowski. Our thesis is that, once the evolution of the financial market is taken into account, the financial Keynesianism of Minsky is still a valid framework to understand the events leading to the crisis.
    Keywords: Hyman Minsky; Financial Instability Hypothesis; Jan Toporowski; Capital Market Inflation; Financialization; Financial Crisis; Subprime Mortgage Crisis
    JEL: B2 B5 E44 G01
    Date: 2014–04
  33. By: Jean-Luc Gaffard (OFCE)
    Abstract: L’objet de cet article est de proposer une lecture de l’évolution des faits et des idées économiques, dans la perspective de montrer que les vieilles idées resurgissent sous de nouveaux atours, au point d’en cacher les lacunes et de rendre les crises, non seulement, difficiles à prévoir, mais même à imaginer. Vouloir incriminer la seule finance et l’incapacité des économistes d’en cerner les véritables arcanes pour les expliquer ne saurait suffire, pas plus d’ailleurs que ne le saurait la tentative de construire une macroéconomie pour temps de crise différente de celle pour temps calmes. Les crises ne viennent pas de nulle part. Elles sont le fruit d’une longue maturation dont les clés sont difficilement perceptibles par temps calme, mais existent bel et bien.
    Keywords: chômage; crise; depression; inflation
    Date: 2013–09
  34. By: L. Randall Wray
    Abstract: This paper explores the intellectual history of the state, or chartalist, approach to money, from the early developers (Georg Friedrich Knapp and A. Mitchell Innes) through Joseph Schumpeter, John Maynard Keynes, and Abba Lerner, and on to modern exponents Hyman Minsky, Charles Goodhart, and Geoffrey Ingham. This literature became the foundation for Modern Money Theory (MMT). In the MMT approach, the state (or any other authority able to impose an obligation) imposes a liability in the form of a generalized, social, legal unit of account--a money--used for measuring the obligation. This approach does not require the preexistence of markets; indeed, it almost certainly predates them. Once the authorities can levy such obligations, they can name what fulfills any obligation by denominating those things that can be delivered; in other words, by pricing them. MMT thus links obligatory payments like taxes to the money of account as well as the currency. This leads to a revised view of money and sovereign finance. The paper concludes with an analysis of the policy options available to a modern government that issues its own currency.
    Keywords: Modern Money Theory; Chartalism; State Money; Knapp; Innes; Schumpeter; Keynes; Minsky; Goodhart; Ingham; Sovereign Currency
    JEL: B1 B3 B15 B22 B25 B52 E40 E50 E62 H5 H60 N1
    Date: 2014–03
  35. By: Jérôme Creel (OFCE); Paul Hubert; Francesco Saraceno (OFCE)
    Abstract: This paper contributes to the debate on the French public finances’ consolidation by investigating the long-term sustainability of France’s fiscal position. We trace the historical trends of government’s tax receipts and expenditures. We find that while the level of public expenditure in France is larger than in the rest of the Euro Area (mostly because of public wages and social benefits), its trend is comparable to its neighbours. Net lending is also under control, thanks to the high levels of taxation, so that we see no real risk of future unsustainability. However, the French tax system is unfair, is not sufficiently progressive, and is too complex. The paper then proceeds to assess the future of France’s public finances on the basis of the current debate on the Euro Area fiscal rules. We report two analyses – theoretical and empirical – that project the inflation rate and output gap paths for the next twenty years. We finally assess fiscal rules on this ground. The ‘fiscal compact’ fares rather poorly compared to the alternative rules that we assess.
    Keywords: deficits; dettes; dettes management; fiscales rule; fiscale compact; golden rule
    JEL: E62 E63 H61
    Date: 2013–07
  36. By: Jean-Luc Gaffard (OFCE); Mario Amendola (Università di Roma "La Sapienza"); Fabricio Patriarca
    Abstract: The explosion of the global financial crisis in 2008 and its transmission to the real economies have been interpreted as calling for new kinds of regulation of the banking and the financial systems that would have allowed reestablishing a virtuous relation between the real and the financial sectors of the economy. In this paper we maintain the different view that the financial crisis and the ensuing real crisis have roots in the strong increase in incomes inequality that has been taking place in the Western world in the last thirty years or so. This has created an all around aggregate demand deficiency crisis that has strongly reduced prospects and opportunities for investments in productive capacities and shifted resources toward other uses, thus feeding a perverse relation between the productive and the non‐productive assets of the economy. In this context the way out of the crisis is re‐establishing the right distributive conditions: which cannot be obtained by a policy aimed at relieving the weight of private debts but calls for a redistribution through taxes on the incomes of non‐productive sectors, according to a fine tuning that should prevent from excessive taxations transforming positive into negative effects.
    Keywords: assets; debt; inequality; taxation
    JEL: D3 E2
    Date: 2013–10
  37. By: Rantala, Olavi
    Abstract: The euro area economic  crisis is largely a result of the competitiveness disparity between Germany and the rest of the euro area. The wage moderation in Germany has considerably improved  its competitiveness in relation to the rest of the euro area. Wage policy has been deflationary in Germany in the 2000s in the sense that real wage growth has fallen below labour productivity growth. In the rest of the euro area wage policy has been inflationary since real wage growth has exceeded labour productivity  growth. The input- output price model implies that due to the lower wage inflation the unit cost of production in industry has grown  much less in Germany than in the rest of the euro area. Restoring competitiveness necessitates a clear wage inflation halt in the rest of the euro area in the coming years.
    Keywords: Euro crisis, competitiveness
    JEL: C67 E64 F16
    Date: 2014–04–01
  38. By: Catherine Mathieu (OFCE); Henri Sterdyniak (OFCE)
    Abstract: The economic crisis which started in 2008 led to a strong rise in public debts. The sovereign debt crisis in euro area southern countries breached the unity of the euro area and weakened the ‘single currency’ concept. The paper shows that this situation is not due to a lack of fiscal discipline in Europe, but to drifts in financial capitalism and to an inappropriately designed euro area economic policy framework.Public debts homogeneity needs to be resettled in Europe. European public debts should become safe assets again, and should not be subject to financial markets’ assessment. European Member Statesshould not be requested to pay for past sins through austerity measures, and should not strengthen fiscal discipline through rules lacking economic rationale. The paper deals with recent proposals which have been made to improve euro area governance (redemption fund, Eurobonds, public debt guarantee by the ECB). The paper advocates for a full guarantee of government bonds for the Member States who commit to an economic policy coordination process, which should target GDP growth and coordinated reduction of imbalances.
    Keywords: EU fiscal policy; EU governance
    Date: 2013–05
  39. By: Katja Drechsel; S. Giesen; Axel Lindner
    Abstract: This study analyzes the performance of the IMF World Economic Outlook forecasts for world output and the aggregates of both the advanced economies and the emerging and developing economies. With a focus on the forecast for the current and the next year, we examine whether IMF forecasts can be improved by using leading indicators with monthly updates. Using a real-time dataset for GDP and for the indicators we find that some simple single-indicator forecasts on the basis of data that are available at higher frequency can significantly outperform the IMF forecasts if the publication of the Outlook is only a few months old.
    Keywords: IMF WEO forecasts, leading indicators, real-time data
    JEL: C52 C53 E02 E32 E37 O19
    Date: 2014–04
  40. By: Li, Defu; Huang, Jiuli; Zhou, Ying
    Abstract: Since the publication of Uzawa(1961), it has been widely accepted that technical change must be purely labor-augmenting for a growth model to exhibit steady-state path. But in this paper, we argue that such a constraint is unnecessary. Further, our model shows that, as long as the sum of the growth rate of marginal efficiency of capital accumulation and the rate of capital-augmenting technological progress equals zero, steady-state growth can be established without constraining the direction of technological change. Thus Uzawa’s theorem represents only a special case, and the explanatory power of growth models would be greatly enhanced if such a constraint is removed.
    Keywords: Neoclassical Growth Model; Uzawa’s Steady-state Growth Theorem; Direction of Technical Change;Adjustment Cost
    JEL: E13 O33 O41
    Date: 2013–05
  41. By: Faruk Ülgen (CREG - Centre de recherche en économie de Grenoble - Université Pierre-Mendès-France - Grenoble II : EA4625)
    Abstract: In the wake of the global change of a new accumulation regime in major capitalist economies, the opening up and liberalisation process of emerging economies from the 1980s has provoked great expectations that resulted in recurrent disappointing crises. Studied as a stylized fact, the Turkish experience leads us to assess the role of liberalised macroeconomic environment, unsuitable economic policies and hesitant and weak regulatory mechanisms as the main sources of perverse sequencing in the reform area. The paper shows that the Turkish crises since the 1980s arose from bad macroeconomic policies, which implemented the neo-liberal shock therapy model and triggered boom-and-bust cycles. After three decades of liberal reforms, the Turkish economy remains still subject to structural downturns. The economic recovery is not guaranteed by a hasty liberalisation. It requires consistent policies which should frame economic agents' forms of behaviour in order to induce a sustainable macroeconomic development.
    Keywords: liberalisation ; stability ; sustainable growth regime ; Turkish economy
    Date: 2013–10–28
  42. By: Marek Dabrowski
    Abstract: The current fiscal imbalances and fragilities in the Southern and Eastern Mediterranean countries (SEMC) are the result of decades of instability, but have become more visible since 2008, when a combination of adverse economic and political shocks (the global and European financial crises, Arab Spring) hit the region. In an environment of slower growth and higher public expenditure pressures, fiscal deficits and public debts have increased rapidly. This has led to the deterioration of current accounts, a depletion of official reserves, the depreciation of some currencies and higher inflationary pressure. To avoid the danger of public debt and a balance-of-payment crisis, comprehensive economic reforms, including fiscal adjustment, are urgently needed. These reforms should involve eliminating energy and food subsidies and replacing them with targeted social assistance, reducing the oversized public administration and privatizing public sector enterprises, improving the business climate, increasing trade and investment openness, and sector diversification. The SEMC may also benefit from a peace dividend if the numerous internal and regional conflicts are resolved. However, the success of economic reforms will depend on the results of the political transition, i.e., the ability to build stable democratic regimes which can resist populist temptations and rally political support for more rational economic policies.
    Keywords: Southern and Eastern Mediterranean, fiscal policy, macroeconomic policy, energy and food subsidies, Arab Spring, Arab transition
    JEL: E62 E63 H24 H56 H62 H63
    Date: 2014–04
  43. By: Yýlmaz Akyüz (South Centre)
    Abstract: The ultra-easy monetary policy has not been very effective in easing the debt overhang and stimulating spending – hence, the crisis is taking too long to resolve, entailing unnecessary losses of income and jobs and aggravating inequality. But it has generated financial fragility at home and abroad, exposing developing countries to a new boom-bust cycle. Tapering does not yet signal a return to monetary tightening and normalization of the Fed’s balance sheet. Besides, the policy rates are pledged to remain at historical lows for some time to come. Thus, ultra-easy money is still with us. But the markets have already started pricing-in the normalization of monetary policy and this is the main reason for the rise in long-term rates and the turbulence in emerging economies. The crisis has in effect demolished the myth that South has decoupled from the economic vagaries of the North and major emerging economies have become new global engines. Policy response to a deepening of the current financial turbulence in the South should depart from past practices. Emerging economies should avoid using their reserves to finance large and persistent outflows of capital and seek, instead, to involve private lenders and investors in crisis resolution. This may call for exchange restrictions and temporary debt standstills.
    Keywords: Monetary policy, quantitative easing, tapering, emerging markets
    Date: 2014
  44. By: Maxime Parodi
    Abstract: Une monnaie cosmopolitique est une monnaie commune à plusieurs nations et fondée explicitement sur une forme de co-souveraineté. Une telle monnaie n’est possible qu’en acceptant une politique monétaire et des politiques budgétaires et fiscales fondées sur des raisons partagées, où chacun est responsable des engagements monétaires qu’il prend et coresponsable de la capacité de chacun à mener une politique économique adéquate. Pour durer, cette monnaie exige une attention soutenue sur les divergences macroéconomiques entre les partenaires et les difficultés que rencontrent chacun; elle impose une concertation ouverte sur les raisons de ces divergences et de ces difficultés; elle nécessite une force de propositions sur les remèdes possibles, à court, moyen et long terme; enfin, elle exige la coopération volontaire de chacun, à condition toutefois d’en avoir la capacité.Une telle coopération monétaire repose sur une union cosmopolitique, qui est comme une société toujours en train de se faire mais jamais achevée entre des partenaires conservant leur souveraineté.Une telle union n’écrit pas de contrat social; elle ne promulgue pas nécessairement de lois ou de traités pour résoudre ses problèmes, même lorsqu’elle est convaincue de la nécessité d’une réponse collective au problème. Face à certains problèmes hautement conflictuels, il n’y aura ainsi pas d’autre choix que d’en passer à chaque fois par le jugement commun des gouvernements co- souverains. Dans ce cas, la seule garantie que peuvent espérer obtenir les partenaires de l’union, c’est que le jugement commun traduira le mieux possible l’esprit de l’union, la volonté de continuer à faire le chemin ensemble.
    Keywords: E42; E61; F42
    Date: 2013–06
  45. By: Miles Parker; Benjamin Wong (Reserve Bank of New Zealand)
    Abstract: Exchange rate changes affect prices in New Zealand. Using data from the last 25 years, this note illustrates how the inflation responses have differed depending on what caused the exchange rate to move.
    Date: 2014–03
  46. By: Francesco Zanetti
    Abstract: This paper derives closed-form and numerical solutions for relative risk aversion in a standard consumption-based model enriched with housing.� The presence of housing enables the household to hedge against unexpected shocks and may decrease relative risk aversion.� In addition, housing may generate state-dependent, time-varying risk aversion.
    Keywords: Relative risk aversion, housing
    JEL: D81 E21 R21
    Date: 2014–01–15
  47. By: Diewert, W. Erwin; Nishimura , Kiyohiko; Shimizu, Chihiro; Watanabe, Tsutomu
    Abstract: Fluctuations in housing prices have substantial economic impacts. Thus, it is essential to develop housing price indexes that can adequately capture housing market trends. However, construction of such indexes is very difficult due to the fact that residential properties are heterogeneous and do not remain at constant quality over time due to renovations and depreciation of the structure. In order to improve the quality of housing price statistics Eurostat published the Residential Property Price Indices Handbook in 2012. The present paper discusses alternative methods for obtaining constant quality housing price statistics and alternative data sources in the Japanese context.
    Keywords: House price indexes; hedonic price indexes; repeat sales price indexes; aggregation bias; housing depreciation; land and structure components; flexibl
    JEL: C2 C23 C43 D12 E31 R21
    Date: 2014–03–27
  48. By: A. Affuso; V. Bravi
    Abstract: In response to the recession, many European Countries, Italy included, are undertaking large spending cuts and tax hikes. This paper investigates whether the changes in the composition of public spending would hurt the long-run economic growth. If the composition of spending is strongly tilted towards nondiscretionary items, the resulting expenditure policies are adversely constrained. Flexibility is needed in reducing inefficient expenditure rather than restraining flexible components of the budget, such as public investment in research and development, and education. In this paper, the initial investigation analyzed the composition of Italian public spending, and then assessed the variation effects of the components of public expenditure on the European countries GDP growth using Panel Data Analysis. The results suggested that expenditure on social protection, pension and general services negatively affected the GDP growth rate, while education and public order expenditure had positive effects.
    Keywords: fiscal consolidation, public expenditure, panel, economic crisis
    JEL: E62 H50 C33
    Date: 2014
  49. By: Gael Price (Reserve Bank of New Zealand)
    Abstract: The sectoral core factor model of inflation is one of many series that the Reserve Bank uses to help interpret inflation developments. This Analytical Note explains the model and outlines some modifications that have led to revisions to the published historical series.
    Date: 2013–10
  50. By: Andreas Benedictow; Pål Boug (Statistics Norway)
    Abstract: According to the present guidelines for fiscal policy, the use of oil revenues in the Norwegian economy should over time equal the expected real return on the Government Pension Fund Global (GPFG). An important question is therefore how to measure the real return, taking into account that the aim of the investment strategy of the GPFG is to maximise the purchasing power with respect to future Norwegian imports. In this paper, we present estimates of average annual real return of the GPFG over the sample period running from 1998 to 2012 based on alternative measures of the deflator. We find that the choices of international price measure, weighting scheme and method of aggregation generally are of major importance for the measure of the deflator, and thereby for the estimate of the real return. Two major factors providing low estimates of inflation and, thus, high real return, are GPFG weights dominated by western, low inflation countries, and export prices growing relatively slow, possibly due to strong international competition. Applying a method of aggregation tailored to also capture the deflationary effects of Norwegian imports increasingly originating from low cost countries (known as the China effect), reduces the estimate of inflation by close to one percentage point. We present estimates of average annual real return of the GPFG ranging from 2.3 to 3.3 per cent, and up to 4.5 per cent including the China effect. The present practice of calculating the deflator, based on CPI inflation in the countries the GPFG invests in, delivers an estimate of average annual real return of 3.1 per cent, which is close to the middle of this range.
    Keywords: Government Pension Fund Global; Real return; Deflators; Index numbers
    JEL: C43 E31 F14
    Date: 2014–04
  51. By: Prasad, Eswar (Asian Development Bank Institute)
    Abstract: This paper evaluates the prospects for the renminbi’s role as an international currency and the implications for global financial markets. Although the People’s Republic of China (PRC) does not have either an open capital account or a flexible exchange rate, the renminbi has attained considerable traction as an international currency on account of the PRC’s rising shares of global trade and gross domestic product. Through bilateral swaps that the People's Bank of China has established with other central banks, the renminbi is also becoming more prominent in international finance. However, the renminbi is unlikely to become a major reserve currency in the absence of capital account convertibility, a flexible exchange rate, and better-developed financial markets. The renminbi’s rising prominence—if it is accompanied by significant economic reforms within the PRC—could add to the stability of Asian and global financial systems.
    Keywords: renminbi internationalization; reserve currency; capital account convertibility; exchange rate flexibility; currency swaps
    JEL: E50 F30 F40
    Date: 2014–03–28
  52. By: Rania Jammazi; Chaker Aloui
    Abstract: The purpose of this paper is to question the traditional conventional view on the exchange rate targeting that real shocks have
    Keywords: exchange rates; time series decomposition; HML test; dual long memory.
    JEL: E30 F31
    Date: 2014–03–28
  53. By: Gabriel Chodorow-Reich
    Abstract: Unconventional monetary policy affects financial institutions through their exposure to real project risk, the value of their legacy assets, their temptation to reach for yield, and their choice of leverage. I use high frequency event studies to show the introduction of unconventional policy in the winter of 2008-09 had a strong, beneficial impact on banks and especially on life insurance companies, consistent with the positive effect on legacy asset prices dominating any impulse for additional risk taking. Subsequent policy announcements had minor effects on these institutions. The interaction of low nominal interest rates and administrative costs led money market funds to waive fees, producing a possible incentive to reach for higher returns to reduce waivers. I find some evidence of high cost money market funds reaching for yield in 2009-11, but little thereafter. Private defined benefit pension funds with worse funding status or shorter liability duration also seem to have reached for higher returns beginning in 2009, but again the evidence suggests such behavior dissipated by 2012. Overall, in the present environment there does not seem to be a trade-off between expansionary policy and the health or stability of the financial institutions studied.
    Date: 2014–01
  54. By: Alexander Herzog-Stein; Fabian Lindner; Rudolf Zwiener
    Abstract: In the last decade economic policy in Germany was strongly focused on supply-side policies, and the demand side was mainly ignored. Labour-market and welfare-state reforms reduced firms' costs from wages, social security contributions, and taxes. The aim was to increase incentives for job creation. In the public debate many claim that the implemented supply-side policies were a success story. However, the question is how successful these one-sided supply-side policies have really been since the end of the 1990s. By comparing business cycles in Germany over time, comparing Germany's economic development to other European countries, and by using macro-econometric simulations this question is investigated and all the implemented supply- and demand-side policies of the last ten to fifteen years are examined. It is shown that the implemented structural reforms weakened aggregate demand for a long time. Since appropriate demand-side policies were neglected, the consequence was a long period of stagnating aggregate demand. During this period foreign demand for German goods was nearly the only source for growth impulses. Consequently, German economic and employment performance was worse than in other European economies. Only with more active anti-cyclical demand-side policies and the tripartite policy of safeguarding jobs during the global financial crisis 2008/09 did economic circumstances change. The macro-econometric simulations with the IMK-Model show that a macro-economically oriented wage policy and fiscal and welfare policies that stabilise aggregate demand would have led to a better and more evenly balanced economic performance, to more jobs and less inequality in Germany.
    Date: 2013
  55. By: Aase, Knut K. (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: We derive the equilibrium interest rate and risk premiums using recursive utility for jump-diffusions. Compared to to the continuous version, including jumps allows for a separate risk aversion related to jump size risk in addition to risk aversion related to the continuous part. We also consider a version that allows marginal utility to depend on past consumption. The models with jumps are shown to have a potential to give better explanation of empirical regularities than the recursive models based on merely continuous dynamics.
    Keywords: Recursive utility; jump dynamics; the stochastic maximum principle; early resolution; utility gradients
    JEL: D51 D53 D90 E21 G10 G12
    Date: 2014–03–25
  56. By: Li, Defu; Huang, Jiuli; Zhou, Ying
    Abstract: Taking into account the adjustment costs of investment, this paper proves that it is not the neoclassical growth model itself but the specific form of capital accumulation function that requires technical change to exclusively be Harrod neutral in steady state. Uzawa’s(1961)steady-state growth theorem holds only when the marginal efficiency of capital accumulation is constant, which implies that the capital supply is infinitely elastic. Therefore, it is unnecessary to make strong assumptions about the shape of the production function and the direction of technical change for neoclassical growth model to exhibit steady-state growth.
    Keywords: Neoclassical Growth Model; Uzawa’s Steady-state Growth Theorem; Direction of Technical Change;Adjustment Cost
    JEL: E13 O33 O41
    Date: 2014
  57. By: Casey B. Mulligan
    Abstract: Under the Affordable Care Act, between six and eleven million workers would increase their disposable income by cutting their weekly work hours. About half of them would primarily do so by making themselves eligible for the ACA's federal assistance with health insurance premiums and out-of-pocket health costs, despite the fact that subsidized workers are not able to pay health premiums with pre-tax dollars. The remainder would do so primarily by relieving their employers from penalties, or the threat of penalties, pursuant to the ACA's employer mandate. Women, especially those who are not married, are more likely than men to have their short-term financial reward to full-time work eliminated by the ACA. Additional workers, beyond the six to eleven million, could increase their disposable income by using reduced hours to climb one of the "cliffs" that are part of the ACA's mapping from household income to federal assistance.
    JEL: E24 H21 I38
    Date: 2014–03
  58. By: Philip Merrigan (CIRPEE - Université du Québec Montéal); François Gardes (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: The panel structure of the Survey on Smoking in Canada (1994-95) and novel methods are used to estimate the impact of an important decrease in the levels of taxation of cigarettes occurring in five out of the ten Canadian provinces that intended to eradicate black market sales of cigarettes in the spring of 1994. Given that black market sales have recently increased substantially because of new taxes, a complete and thorough analysis of the 1994 policy is of particular importance for policy makers. We revisit the issue with new econometric methods to address this evaluation problem as well as focus on particular sub-groups in the Canadian population. The large sample permits precise estimation of the impact of the policy by sub-group showing that females, young males, the poorly educated and separated or divorced individuals were particularly sensitive to these dramatic changes in cigarette prices. We also compute under realistic assumptions a price-elasticity for the probability of smoking and a lower bound on the price-elasticity for the quantities of cigarettes smoked.
    Keywords: Cigarette, price-elasticity, difference in difference.
    JEL: D1 E2 H2 I1
    Date: 2014–03
  59. By: Rick Van der Ploeg; Samuel Wills; Ton van den Bremer
    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: 2013–12–31
  60. By: Diego Restuccia; Guillaume Vandenbroucke
    Abstract: Consider the following facts. In 1950, the richest countries attained an average of 8 years of schooling whereas the poorest countries 1.3 years, a large 6-fold difference. By 2005, the difference in schooling declined to 2-fold because schooling increased faster in poor than in rich countries. What explains educational attainment differences across countries and their evolution over time? We consider an otherwise standard model of schooling featuring non-homothetic preferences and a labor supply margin to assess the quantitative contribution of productivity and life expectancy in explaining educational attainment. A calibrated version of the model accounts for 90 percent of the difference in schooling levels in 1950 between rich and poor countries and 71 percent of the faster increase in schooling over time in poor relative to rich countries. These results suggest an alternative view of the determinants of low education in developing countries that is based on low productivity.
    Keywords: schooling, productivity, life expectancy, labor supply.
    JEL: O1 O4 E24 J22 J24
    Date: 2014–03–28
  61. By: Gary Gorton (Department of Economics, Yale University); Guillermo Ordonez (Department of Economics, University of Pennsylvania)
    Abstract: Credit booms usually precede financial crises. However, some credit booms end in a crisis (bad booms) and other booms do not (good booms). We document that, while all booms start with an increase in the growth of Total Factor Productivity (TFP), such growth falls much faster subsequently for bad booms. We then develop a simple framework to explain this. Firms finance investment opportunities with short-term collateralized debt. If agents do not produce information about the collateral quality, a credit boom develops, accommodating firms with lower quality projects and increasing the incentives of lenders to acquire information about the collateral, eventually triggering a crisis. When the quality of investment opportunities also grow, the credit boom may not end in a crisis because there is a gradual adoption of low quality projects, but those projects are also of better quality, not inducing information about collateral.
    Keywords: Financial Crises, Credit booms, Productivity
    JEL: E3 E5
    Date: 2014–02–01
  62. By: Thomas Chalaux; Cyrille Schwellnus
    Abstract: This paper extends the OECD Economics Department’s suite of short-term indicator models for quarterly GDP growth, which currently cover only the G7 countries, to the BRIICS countries. Reflecting the relative scarcity of high-quality macroeconomic time series, the paper adopts a small-scale bridge model approach. The results suggest that in terms of short-term forecast accuracy for the first and second quarter following the most recent GDP release these models outperform simple autoregressive or constant growth benchmarks. The small-scale indicator models would have allowed the identification of the growth slowdown during the global crisis of 2008-09 and the subsequent rebound several months ahead of official GDP releases. Overall, forecast accuracy appears to be similar to that of the existing indicator model suite for the G7 countries, especially once the higher GDP growth volatility in most BRIICS is accounted for. Modèles d'indicateurs de la croissance du PIB à court terme dans les BRIICS : une approche avec des modèles d'étalonnage à petite échelle Ce papier étend aux BRIICS les modèles de prévision de croissance à court terme du Département des Affaires économiques de l’OCDE qui n’englobent pour l’instant que les pays du G7. Considérant le manque de séries macroéconomiques de qualité, ce papier adopte une approche avec des modèles d’étalonnage à petite échelle. Les résultats suggèrent que les prévisions de ces modèles pour les deux trimestres suivant la publication la plus récente du PIB sont plus précises que celles des modèles autorégressifs ou qu’une hypothèse de croissance constante. Ces modèles à petite échelle auraient permis l’identification du ralentissement puis du rebond de la croissance durant la crise globale de 2008-2009 et ce plusieurs mois avant les publications officielles du PIB. Dans l’ensemble, la précision des prévisions semble être similaire à celle des modèles existants pour les pays du G7, particulièrement lorsque la forte volatilité du PIB que connaît la plupart des BRIICS est prise en compte.
    Keywords: growth, forecasting, bridge models, short-term indicators, indicateurs de court terme, modèle d’étalonnage, prévisions, croissance
    JEL: C53 E37
    Date: 2014–03–31
  63. By: Fabrizio Patriarca; Claudio Sardoni
    Abstract: This paper contributes to the debate on income growth and distribution from a nonmainstream perspective. It looks, in particular, at the role that the degree of capacity utilization plays in the process of growth of an economy that is not perfectly competitive. The distinctive feature of the model presented in the paper is the hypothesis that the rate of capital depreciation is an increasing function of the degree of capacity utilization. This hypothesis implies analytical results that differ somewhat from those yielded by other Kaleckian models. Our model shows that, in a number of cases, the process of growth can be profit-led rather than wage-led. The model also determines the value to which the degree of capacity utilization converges in the long run.
    Keywords: Kaleckian Models of Growth; Capital Accumulation; Capital Depreciation; Income Distribution and Growth
    JEL: E12 E25 O40
    Date: 2014–04
  64. By: Leandro D’Aurizio; Tommaso Oliviero (CSEF, University of Naples Federico II.; CSEF, University of Naples); Livio Romano (Confindustria)
    Abstract: This paper studies how access to bank lending differed between family and non-family firms in the 2007-2009 financial crisis. The theoretical prediction is that family block-holders’ incentive structure results in lower agency conflict in the borrower-lender relationship. Using highly detailed data on bank-firm relations, we exploit the reduction in bank lending in Italy following the crisis in October 2008. We find statistically and economically significant evidence that the contraction in credit for family firms was smaller than that for non-family firms. Results are robust to ex-ante observable differences between the two types of firms and to time-varying bank fixed effects. We further show that the difference in the amount of credit granted to family and non-family firms is related to an increased role for soft information in Italian banks’ operations, following the Lehman Brothers’ failure. Finally, by identifying a match between those banks and family firms, we can control for time-varying unobserved heterogeneity among the firms and validate the hypothesis that our results are supply driven.
    Keywords: Family firms, Financial crisis, Soft information, Bank lending
    JEL: C81 D22 E44 G21 G32 L26
    Date: 2014–03–29
  65. By: Alberto Botta
    Abstract: In this paper, we analyze and try to measure productive and technological asymmetries between central and peripheral economies in the eurozone. We assess the effects such asymmetries would likely bring about on center–periphery divergence/convergence patterns, and derive some implications as to the design of future industrial policy at the European level. We stress that future European Union (EU) industrial policy should be regionally focused and specifically target structural changes in the periphery as the main way to favor center–periphery convergence and avoid the reappearance of past external imbalances. To this end, a wide battery of industrial policy tools should be considered, ranging from subsidies and fiscal incentives to innovative firms, public financing of R and D efforts, sectoral policies, and public procurements for home-produced goods. All in all, future EU industrial policy should be much more interventionist than it currently is, and dispose of much larger funds with respect to the present setting in order to effectively pursue both short-run stabilization and long-run development goals.
    Keywords: Center–Periphery Structural Symmetries, EU Industrial Policy
    JEL: E12 F15 O25 O52
    Date: 2014–03

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