nep-mac New Economics Papers
on Macroeconomics
Issue of 2014‒05‒24
eighty-two papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. House prices, credit and the effect of monetary policy in Norway: Evidence from Structural VAR Models By Ørjan Robstad
  2. Choice of Monetary Policy Instrument under Targeting Regimes in a Simple Stochastic Macro Model By Haider Ali; Eatzaz Ahmad
  3. Financial stability indicators and public debt developments By Athanasios O. Tagkalakis
  4. Has U.S. monetary policy tracked the efficient interest rate? By Curdia, Vasco; Ferrero, Andrea; Ng, Ging Cee; Tambalotti, Andrea
  5. Interest Rates and Money in the Measurement of Monetary Policy By Michael T. Belongia; Peter N. Ireland
  6. Unemployment and Endogenous Reallocation over the Business Cycle By Carlos Carrillo-Tudela; Ludo Visschers
  7. The effect of asymmetries in fiscal policy conducts on business cycle correlation in the EU By Petr Rozmahel; Ladislava Grochová; Marek Litzman
  8. Is it really more dispersed? Measuring and comparing the stress from the common monetary policy in the euro area By Quint, Dominic
  9. A Comparison of Optimal Policy Rules for Pre and Post Inflation Targeting Eras : Empirical Evidence from Bank of Canada By Neslihan Kaya
  10. International Capital Flows and the Boom-Bust Cycle in Spain By Jan in’t Veld; Robert Kollmann; Beatrice Pataracchia; Marco Ratto; Werner Roeger
  11. The myth of “neutrality” and the rhetoric of “stability”: macroeconomic policy in democratic South Africa By Isaacs, Gilad
  12. Towards a "New" Inflation Targeting Framework: The Case of Uruguay By Martín Sola; Martin González-Rozada
  13. Has the Financial Crisis Permanently Changed the Practice of Monetary Policy? Has It Changed the Theory of Monetary Policy? By Benjamin M. Friedman
  14. A Model of Monetary Policy and Risk Premia By Itamar Drechsler; Alexi Savov; Philipp Schnabl
  15. Output Composition of the Monetary Policy Transmission Mechanism: Is Australia Different? By Tuan Phan
  16. Central Bank Liquidity Management and "Unconventional" Monetary Policies By Enrique Kawamura; Javier García-Cicco
  17. The Economic Stimulus Payments of 2008 and the Aggregate Demand for Consumption By Christian Broda; Jonathan A. Parker
  18. Do loss profiles on the mortgage market resonate with changes in macro economic prospects, business cycle movements or policy measures? By Noordegraaf-Eelens, L.H.J.; Franses, Ph.H.B.F.
  19. Signals from the Government: Policy Uncertainty and the Transmission of Fiscal Shocks By Ricco, Giovanni; Callegari, Giovanni; Cimadomo, Jacopo
  20. Government spending multipliers in contraction and expansion By Walid Qazizada; Engelbert Stockhammer
  21. Inflation Targeting and Quantitative Tightening: Effects of Reserve Requirements in Peru By Adrián Armas; Paul Castillo; Marco Vega
  22. Pseudo-Goodwin Cycles in a Minsky Model By Engelbert Stockhammer; Jo Michell
  23. Stale Forward Guidance By Gunda-Alexandra Detmers; Dieter Nautz; ;
  24. Uncertainty Shocks and Unemployment Dynamics in U.S. Recessions By Giovanni Caggiano; Efrem Castelnuovo; Nicolas Groshenny
  25. Inflation Targeting in Colombia, 2002-2012 By Miguel Urrutia; Marc Hofstetter; Franz Hamann
  26. China’s Monetary Policy and Commodity Prices By Shawkat Hammoudeh; Duc Khuong Nguyen; Ricardo M. Sousa
  27. Macro Micro Model with a Post-keynesian Perspective in the banking industry By cho, hyejin
  28. A Tourism Financial Conditions Index By Chang, C-L.; Hsu, H-K.; McAleer, M.J.
  29. Global House Price Fluctuations: Synchronization and Determinants. By Hideaki Hirata; M. Ayhan Kose; Chris Otrok; Marco TerronesÂ
  30. Decomposing Beveridge curve dynamics by correlated unobserved components By Klinger, Sabine; Weber, Enzo
  31. Treasury's medium-term economic projection methodology By Jared Bullen; Jacinta Greenwell; Michael Kouparitsas; David Muller; John O’Leary; Rhett Wilcox
  32. Coordination and Crisis in Monetary Unions By Mark Aguiar; Manuel Amador; Emmanuel Farhi; Gita Gopinath
  33. The Effects of Oil Prices On Inflation and Growth: Time Series Analysis In Turkish Economy For 1988:01-2013:04 Period By KARGI, Bilal
  34. Sectoral interdependence and business cycle synchronization in small open economies By Drago Bergholt; Tommy Sveen
  35. Searching under the lamp-post: the evolution of fiscal surveillance By Deborah Mabbett & Waltraud Schelkle
  36. An Empirical Analysis of the Relationship between US and Colombian Long-Term Sovereign Bond Yields? By Alexander Guarín; José Fernando Moreno; Hernando Vargas
  37. Cash-in-advance constraint with status and endogenous growth By Kawagishi, Taketo; Kaminoyama, Ken-ichi
  38. Fostering Renewables and Recycling a Carbon Tax: Joint Aggregate and Intergenerational Redistributive Effects By Gonand, Frédéric
  39. Population Aging, Policy Reforms, and Lifetime Net Tax Rate in Japan: A Generational Accounting Approach By Shimasawa, Manabu; Oguro, Kazumasa; Masujima, Minoru
  40. Self-fulfilling and fundamentals based speculative attacks on public debt. By Pompeo Della Posta
  41. Economic Growth from a Structural Unobserved Component Modeling: The Case of Senegal By Ndiaye, Cheikh Tidiane; Bates, Samuel
  42. Modelling the service sector By King, Philip; Millard, Stephen
  43. The economic outlook and housing By Plosser, Charles I.
  44. Purchase of SME-related ABS by the Bank of Japan: Monetary Policy and SME Financing in Japan By Hideaki Hirata; Tokiko Shimizu
  45. Bitcoin: something seems to be ‘fundamentally’ wrong By José E. Gómez-González; Julián A. Parra-Polania
  46. The Economics of BitCoin Price Formation By Pavel Ciaian; Miroslava Rajcaniova; d'Artis Kancs
  47. How much does a single graduation cohort from further education colleges contribute to an open regional economy By Kristinn Hermannsson; Patrizio Lecca; J Kim Swales
  48. Institutions, experiences and inflation aversion By Berleman, Michael; Enkelmann, Sören
  49. Does Optimal Government Size Exist for Developing Economies? The Case of Nigeria By Alimi, R. Santos
  50. Impact of Monetary Policy on Financial Markets Efficiency and Speculative Bubbles: A Non-linear Entropy-based Approach By Alonso-Rivera, Angélica; Cruz-Aké, Salvador; Venegas-Martínez, Francisco
  51. An Empirical Analysis of the Relationship between US and Colombian Long-Term Sovereign Bond Yields By Alexander Guarín; José Fernando Moreno; Hernando Vargas
  52. Adaptación del Banco de la República a los cambios en la política monetaria, cambiaria y de crédito: 1923-2013 By Miguel Urrutia
  53. Consumption, labor income uncertainty, and economic news coverage By Garz, Marcel
  54. A Cycle-Adjusted Fiscal Rule for Sustainable and More Equitable Growth in Argentina By Jimena Zúñiga; Marcelo Capello; Inés Butler; Nester Grión
  55. Dealer financial conditions and lender-of-last resort facilities By Acharya, Viral V.; Fleming, Michael J.; Hrung, Warren B.; Sarkar, Asani
  56. Preference Shocks, International Frictions, and International Business Cycles By Hideaki Hirata
  57. Smoothing the adjustment to trade liberalization By Wolfgang Lechthaler; Mariya Mileva
  58. Instabilitatea financiara, ciclurile si rolul institutiilor By Iancu, Aurel
  59. The wage differential between college and high-school graduates in the 2000s: The effect of labor substitution between age groups By Kozue SEKIJIMA
  60. Simecs, Ithaca Hours, Berkshares, Bitcoins and Walmarts By Martin Shubik
  61. Costs and Benefits to Phasing Out Paper Currency By Kenneth S. Rogoff
  62. Penetration of MFIs among Indian States: An Understanding Through Macro Variables By Sougata Ray; Sushanta Kumar Mahapatra
  63. Financial Crisis and Economic Depression: 'Post Hoc Ego Propter Hoc'? Implications for Financial Asset Valuation and Financial Regulation. By Stravelakis, Nikos
  64. Un indicador Líder para la actividad económica de Colombia By Edgar Vicente MARCILLO YÉPEZ
  65. An Analysis of the Impact of Government Size on Economic Growth of Pakistan: An Endogenous Growth By Zareen, Shumaila; Qayyum, Abdul
  66. Terms of Trade and Fiscal Sustainability when the Sovereign Exploits a Natural Resource By Marcelo P. Oviedo; Leandro Andrian
  67. The housing market: the impact of macroprudential measures in France By Labonne, Claire; Lecat, Rémy; Avouyi‑Dovi, Sanvi
  68. Determinantes del perfil de Ahorro en Colombia: Una estimación para hogares e individuos By Nancy Aireth DAZA BAEZ
  69. The Intensity of Job Search and Search Duration By Faberman, R. Jason; Kudlyak, Marianna
  70. DEF 2014: le fonti mancanti della crescita By Paolo Pini; Roberto Romano
  71. Estimation of Affine Term Structure Models with Spanned or Unspanned Stochastic Volatility By Drew D. Creal; Jing Cynthia Wu
  72. The critique of capital in the twenty first century in search of the macroeconomic foundations of inequality By Guillaume Allegre; Xavier Timbeau
  73. Long run forecasts of Australia’s terms of trade By Jared Bullen; Michael Kouparitsas; Michal Krolikowski
  74. Eckpunkte eines ökologisch tragfähigen Wohlfahrtskonzepts. By Prof. Dr. Bernd Meyer; Gerd Ahlert; Prof. Dr. Hans Diefenbacher; Roland Zieschank; Prof. Dr. Hans Nutzinger
  75. Exploring the effect of economic growth and government expenditure on the environment By Halkos, George; Paizanos, Epameinondas
  76. Efectos calendario sobre la producción industrial en Colombia By Luis Fernando Melo Velandia; Daniel Parra Amado
  77. Capital goods trade and economic development By Mutreja, Piyusha; Ravikumar, B.; Sposi, Michael J.
  78. Do Consumers Pay More Using Debit Cards than Cash? An Experiment By Runnemark, Emma; Hedman, Jonas; Xiao, Xiao
  79. Crecimiento económico y desempleo: Retos a largo plazo By Mauricio SANTAMARIA SALAMANCA; Gabriel PIRAQUIVE GALEANO; Gustavo HERNANDEZ DIAZ; Norberto ROJAS DELGADILLO
  80. La Visión de La Prosperidad del Gobierno Santos By Juan Carlos ECHEVERRY
  81. Intensity-Based Permit Quotas and the Business Cycle: Does Flexibility Pay Off? By Kwok Ping Tsang; Gregory S. Amacher; Olli-Pekka Kuuselaa
  82. Governance and the Effectiveness of Foreign Capital By Unbreen Qayyum; Hasan Siftain

  1. By: Ørjan Robstad (Norges Bank)
    Abstract: This paper investigates the responses of house prices and household credit to monetary policy shocks in Norway, using Bayesian structural VAR models. I find that the effect of a monetary policy shock on house prices is large, while the effect on household credit is muted. This is consistent with a relatively small refinancing rate of the mortgage stock each quarter. Using monetary policy to guard against - financial instability by mitigating property-price movements may prove effective, but trying to mitigate household credit may prove costly in terms of GDP and inflation variation.
    Keywords: House Prices, Credit, Monetary Policy, Structural VAR
    JEL: E32 E37 E44 E52
    Date: 2014–05–15
  2. By: Haider Ali (Pakistan Institute of Development Economics, Islamabad); Eatzaz Ahmad (Quaid-i-Azam University, Islamabad)
    Abstract: This paper analyzes the relative performance of inflation and price-level targeting regimes in an AS-IS-LM framework under alternative policy instruments used by the central bank. Being general in its nature, the results are further used to derive equilibrium values of the important macroeconomic variables under the two targeting regimes for two limiting cases; when LM schedule becomes vertical (Quantity Theory of Money) and when it becomes horizontal (Endogenous Money Hypothesis). Contrary to Svensson’s findings, our results imply a ‘free lunch’ in case of inflation targeting rather than pricelevel targeting. Calibration results for Pakistan also support these theoretical findings and point towards inadequacy of using interest rate, rather than money supply, as a policy instrument both under the inflation and price level targeting regimes.
    Keywords: Monetary Policy; Inflation Targeting; Endogenous Money Hypothesis; Calibration
    JEL: E52 E31 E12 C63
    Date: 2014
  3. By: Athanasios O. Tagkalakis (Bank of Greece)
    Abstract: This paper investigates the inter-linkages between financial stability and fiscal policy. It analyzes the effect of selected financial stability indicators on the probability of future debt deterioration, controlling for several macroeconomic variables. We find significant evidence that a fragile banking system can put at risk public finances. Weak bank profitability, low asset quality and a weak capital base increase the fragility of the banking system, thus, raising the probability of future fiscal troubles.
    Keywords: E44; E58; G21; G28; E61; E62; H61; H62; E32
    Date: 2014–04
  4. By: Curdia, Vasco (Federal Reserve Bank of San Francisco); Ferrero, Andrea (University of Oxford); Ng, Ging Cee (University of Chicago); Tambalotti, Andrea (Federal Reserve Bank of New York)
    Abstract: Interest rate decisions by central banks are universally discussed in terms of Taylor rules, which describe policy rates as responding to inflation and some measure of the output gap. We show that an alternative specification of the monetary policy reaction function, in which the interest rate tracks the evolution of a Wicksellian efficient rate of return as the primary indicator of real activity, fits the U.S. data better than otherwise identical Taylor rules. This surprising result holds for a wide variety of specifications of the other ingredients of the policy rule and of approaches to the measurement of the output gap. Moreover, it is robust across two different models of private agents’ behavior.
    Keywords: U.S. monetary policy; Interest rate rules; DSGE models; Bayesian model comparison
    JEL: C11 E43 E58
    Date: 2014–05
  5. By: Michael T. Belongia; Peter N. Ireland
    Abstract: Over the last twenty-five years, a set of influential studies has placed interest rates at the heart of analyses that interpret and evaluate monetary policies. In light of this work, the Federal Reserve’s recent policy of “quantitative easing,” with its goal of affecting the supply of liquid assets, appears to be a radical break from standard practice. Alternatively, one could posit that the monetary aggregates, when measured properly, never lost their ability to explain aggregate fluctuations and, for this reason, represent an important omission from standard models and policy discussions. In this context, the new policy initiatives can be characterized simply as conventional attempts to increase money growth. This view is supported by evidence that superlative (Divisia) measures of money often help in forecasting movements in key macroeconomic variables. Moreover, the statistical fit of a structural vector autoregression deteriorates significantly if such measures of money are excluded when identifying monetary policy shocks. These results cast doubt on the adequacy of conventional models that focus on interest rates alone. They also highlight that all monetary disturbances have an important “quantitative” component, which is captured by movements in a properly measured monetary aggregate.
    JEL: E51 E52 E58
    Date: 2014–05
  6. By: Carlos Carrillo-Tudela; Ludo Visschers
    Abstract: This paper studies unemployed workers’ decisions to change occupations, and their impact on fluctuations in aggregate unemployment and its underlying duration distribution. We develop an analytically and computationally tractable stochastic equilibrium model with heterogenous labor markets. In this model three different types of unemployment arise: search, rest and reallocation unemployment. We document new evidence on unemployed workers’ gross occupational mobility and use it to calibrate the model. We show that rest unemployment is the main driver of unemployment fluctuations over the business cycle and causes cyclical unemployment to be highly volatile. The resulting unemployment duration distribution generated by the model responds realistically to the business cycle, creating substantial longer-term unemployment in downturns. Finally, rest unemployment also makes our model simultaneously consistent with procyclical occupational mobility of the unemployed, countercyclical job separations into unemployment and a negatively-sloped Beveridge curve.
    Keywords: Unemployment, Business Cycle, Rest, Search, Occupational Mobility
    JEL: E24 E30 J62 J63 J64
    Date: 2014–04
  7. By: Petr Rozmahel; Ladislava Grochová; Marek Litzman
    Abstract: The paper examines the effects of asymmetries in fiscal policy conduct upon the correlation of business cycles in the European Union. In particular the paper estimates the effects of fiscal indiscipline and dissimilarity on business cycle correlation in the period 1996-2012 using a panel of 27 EU countries. The paper pays special attention to Central and Eastern European countries and examines the effects of interactions between fiscal policy measures and the fact that the country has not yet adopted the Euro. The results show a significant and robust negative effect of fiscal indiscipline and dissimilarity upon business cycle correlation in the EU. The paper also provides some evidence for the significance of intra-industry trade as well as of the interactions between fiscal measures and non-Euro area membership. The study provides arguments for fiscal policy harmonisation and fiscal discipline of the Euro area member as well as acceding countries, as undisciplined and dissimilar fiscal policies are shown as sources of business cycle deviations from the average European cycle.
    Keywords: European integration, Euro area, business cycle correlation, fiscal divergence, fiscal irresponsibility, optimum currency area
    JEL: E32 E62 F15
    Date: 2014–05
  8. By: Quint, Dominic
    Abstract: The ECB's one size monetary policy is unlikely to fit all euro area members at all times, which raises the question of how much monetary policy stress this causes at the national level. I measure monetary policy stress as the difference between actual ECB interest rates and Taylor-rule implied optimal rates at the member state level. Optimal rates explicitly take into account the natural rate of interest to capture changes in trend growth. I find that monetary policy stress within the euro area has been steadily decreasing prior to the recent financial crisis. Current stress levels are not only lower today than in the late 1990s, they are also in line with what is commonly observed among U.S. states or pre-euro German Länder. --
    Keywords: euro area,currency union,European Central Bank,ECB,Taylor rule,real natural rate,common monetary policy,monetary policy stress,inflation
    JEL: C22 E53 E58
    Date: 2014
  9. By: Neslihan Kaya
    Abstract: In this paper, we derive policy rules of Bank of Canada for different preferences over the goal variables in their loss functions. The optimal rules are derived for the pre and post inflation-targeting eras. According to the results, the monetary policy rule of the Bank of Canada for the pre inflation-targeting era is best described with a loss function that attaches equal weight to inflation, interest rate smoothing incentive and the output gap in the loss function. In the post-inflation targeting era the optimal interest rate attaches the highest weight to inflation rate in the loss function; followed by the interest rate smoothing incentive and then the output gap. The inclusion of the exchange rate as another goal variable in the loss function does not significantly alter the results in approximating the actual policy rate of Bank of Canada. Next, simulations of demand (positive) and supply (negative) shocks are carried out for the post-IT period for two cases where the monetary policy rule is mimicked by (i) an ad-hoc Taylor rule and (ii) the derived optimal rule. The results indicate that the ad-hoc Taylor rule brings down inflation rates more quickly compared to the derived optimal rule, but only at the cost of higher contraction in output and more volatile interest rates.
    Keywords: Inflation targeting, optimal monetary policy rule, linear-quadratic regulator problem.
    JEL: E52 E58 C63
    Date: 2014
  10. By: Jan in’t Veld; Robert Kollmann; Beatrice Pataracchia; Marco Ratto; Werner Roeger
    Abstract: We study the joint dynamics of foreign capital flows and real activity during the recent boom-bust cycle of the Spanish economy, using a three-country New Keynesian model with credit-constrained households and firms, a construction sector and a government. We estimate the model using 1995Q1-2013Q2 data for Spain, the rest of the Euro Area (REA) and the rest of the world. We show that falling risk premia on Spanish housing and non-residential capital, a loosening of collateral constraints for Spanish households and firms, as well as a fall in the interest rate spread between Spain and the REA fuelled the Spanish output boom and the persistent rise in foreign capital flows to Spain, before the global financial crisis. During and after the global financial crisis, falling house prices, and a tightening of collateral constraints for Spanish borrowers contributed to a sharp reduction in capital inflows, and to the persistent slump in Spanish real activity. The credit crunch was especially pronounced for Spanish households; firm credit constraints tightened later and more gradually, and contributed much less to the slump.
    Keywords: international capital flows, boom-bust cycle, sudden stop, housing market, financial frictions, Spain, European Monetary Union
    JEL: C11 E21 E32 E62
    Date: 2014–05
  11. By: Isaacs, Gilad
    Abstract: This paper offers a comprehensive review of macroeconomic policy in democratic South Africa. It does so with two distinctive features. First, macroeconomic policy is analysed on four interlocking, and sometimes conflicting, levels: [1] policy as provided “on paper” in government plans and programmes; [2] the scholarship upon which policy is (purportedly) premised; [3] the rhetoric/ideology that surrounds policy and sometimes obscures its true nature and even intentions; and [4] policy as actually implemented in practice. Second, the manner in which macroeconomic policy has facilitated the restructuring of the South African economy is carefully examined. This runs contrary to the orthodox assertion that macroeconomic policy only plays a “neutral” and/or “stabilising” role. It is shown that the restructuring that has occurred has not reoriented the economy away from its traditional reliance on minerals and energy, mineral-related sectors and finance; rather it has consolidated this structure and corresponding dynamics, albeit with novel features. Macroeconomic policy has, thus, played a leading role in facilitating particular forms of restructuring that, rather than reorienting the economy towards the needs of the impoverished majority, have reinforced the pre-existing dominant sections of capital while incorporating a newly emerging black bourgeoisie.
    Keywords: South Africa; Macroeconomic Policy; MEC; Financialization; Neoliberalism
    JEL: E6 E60 E61 E62 E63 E65 E66 G0 N1
    Date: 2014–03–13
  12. By: Martín Sola; Martin González-Rozada
    Abstract: Using a dynamic stochastic general equilibrium model with financial frictions, this paper evaluates the effects of a rule that incorporates not only the interest rate but also the legal reserve requirements as instruments of monetary policy. It is found that reserve requirements can be used to achieve the Central Bank's inflation objectives. The use of this instrument, however, produces a real appreciation of the Uruguayan peso. When the Central Bank uses the monetary policy rate as an instrument, the effect of an increase in reserve requirements is to contribute to reducing the negative impact on consumption, investment and output. Nevertheless, the quantitative results in terms of inflation reduction are rather poor. The policy rate becomes more effective in reducing inflation when the reserve requirement instrument is solely directed at achieving financial stability. The paper's main policy conclusion is that a well-targeted non-conventional policy instrument can help to effectively control inflation.
    Keywords: Monetary Policy, Inflation targeting, IDB-WP-486
    Date: 2014–02
  13. By: Benjamin M. Friedman
    Abstract: I argue in this paper that one of the two forms of hitherto unconventional monetary policy that many central banks have implemented in response to the 2007 financial crisis – large-scale asset purchases, or to put the matter more generically, use of the central bank’s balance sheet as a distinct tool of monetary policy – is likely to become part of the standard toolkit of monetary policymaking in normal times as well. As intended, these purchases have lowered long-term interest rates relative to short-term rates, and lowered interest rates on more-risky compared to less-risky obligations. Moreover, their introduction fills a conceptual vacuum that has long stood at the heart of monetary policy analysis and implementation. By contrast, forward guidance on the future trajectory of monetary policy has been less successful. Public statements by central banks about their actions and intentions will no doubt continue, but transparency for the sake of transparency is not the same as the deliberate attempt to shape market expectations for purposes of achieving specific monetary policy objectives. Finally, there is a conceptual component to all this as well. In contrast to the last century or more of monetary theory, which has focused on central banks’ liabilities, the basis for the effectiveness of central bank asset purchases turns on the role of the asset side of the central bank’s balance sheet. The implications for monetary theory are profound.
    JEL: E52 E58
    Date: 2014–05
  14. By: Itamar Drechsler; Alexi Savov; Philipp Schnabl
    Abstract: We present a dynamic heterogeneous-agent asset pricing model in which monetary policy affects the risk premium component of the cost of capital. Risk tolerant agents (banks) borrow from risk averse agents (depositors) and invest in risky assets subject to a reserve requirement. By varying the nominal interest rate, the central bank affects the spread banks pay for external funding (i.e., leverage), a link that we show has strong empirical support. Lower nominal rates result in increased leverage, lower risk premia and overall cost of capital, and higher volatility. The effects of policy shocks are amplified via bank balance sheet effects. We use the model to implement dynamic interventions such as a ``Greenspan put'' and forward guidance, and analyze their impact on asset prices and volatility.
    JEL: E52 E58 G12 G21
    Date: 2014–05
  15. By: Tuan Phan
    Abstract: This paper compares the output composition of the monetary policy transmission mechanism in Australia to those for the Euro area and the United States. Four Vector Autoregressive (VAR) models are used to estimate the contributions of private consumption and investment to output reactions resulting from nominal interest rate shocks for the period 1982Q3–2007Q4. The results suggest that the investment channel plays a more important role than the consumption channel in Australia, while the contributions of the two channels are indistinguishable in the Euro area and the U.S. The difference between Australia and the Euro area comes from differences in housing investment responses, whereas Australia is different to the U.S. mainly because it has a lower share of household consumption in total demand.
    Keywords: output composition, monetary policy transmission mechanism, interest rate, housing investment, durable consumption
    JEL: E52 E2
    Date: 2014–05
  16. By: Enrique Kawamura; Javier García-Cicco
    Abstract: This paper presents a small open economy model to analyze the role of central bank liquidity management in implementing "unconventional" monetary policies within an inflation targeting framework. In particular, the paper explicitly models the facilities that the central bank uses to manage liquidity in the economy, which creates a role for the central bank balance sheet in equilibrium. This permits the analysis of two "unconventional" policies: sterilized exchange-rate interventions and expanding the list of eligible collaterals accepted at the liquidity facilities operated by the central bank. These policies have been recently implemented by several central banks: the former as a way to counteract persistent appreciations in the domestic currency, and the latter as a response to the recent global financial crisis in 2008. As a case study, the paper provides a detailed account of the Chilean experience with these alternative tools, as well as a quantitative evaluation of the effects of some of these policies.
    Keywords: Inflation targeting, Monetary Policy, Exchange rates, IDB-WP-484
    Date: 2014–02
  17. By: Christian Broda; Jonathan A. Parker
    Abstract: Using a survey of households in the Nielsen Consumer Panel and the randomized timing of disbursement of the 2008 Economic Stimulus Payments, we find that a household’s spending rose by ten percent the week it received a Payment and remained high cumulating to 1.5–3.8 percent of spending over three months. Our estimates imply partial-equilibrium increases in aggregate demand of 1.3 percent of consumption in the second quarter of 2008 and 0.6 percent in the third. Spending is concentrated among households with low wealth or low past income; a household’s spending did not increase significantly when it learned about its Payment.
    JEL: D12 D91 E21 E62
    Date: 2014–05
  18. By: Noordegraaf-Eelens, L.H.J.; Franses, Ph.H.B.F.
    Abstract: __Abstract__ Over the years we see that mortgages with less risk of loss, due to more asset accumulation, have become more popular. We examine if this popularity resonates with macroeconomic features, business cycle movements and policy measures. Using detailed data from an important player in the Dutch mortgage market, covering 1990 to 2012, we seek to elicit the time series patterns of the loss profiles of customers. Over time we indeed find changes in loss profiles. The theoretical perspective used to situate this change in profile is prospect theory. Key findings of prospect theory are: interaction between framing of a decision, the attitude towards loss, and loss-averse behavior. Next, we find only very limited impact of changes in the macro economic situation on the loss profiles, that is, business cycle movements on the housing markets do not matter, nor do general business cycle movements. In contrast, we find that some changes in loss profiles are related to tax policy measures. Hence, we conclude that if policy makers want to stimulate loss-averse behavior through asset accumulation, they should actively encourage it.
    Keywords: mortgage market, macroeconomic policy, business cycles
    JEL: G0 G18 G21 R31 E32 F
    Date: 2014–04–08
  19. By: Ricco, Giovanni; Callegari, Giovanni; Cimadomo, Jacopo
    Abstract: In this paper, we investigate the influence of fiscal policy uncertainty in the propagation of government spending shocks in the US economy. We propose a new index to measure fiscal policy uncertainty which relies on the dispersion of government spending forecasts as presented in the Survey of Professional Forecasters (SPF). This new index is solely focused on the uncertainty surrounding federal spending and is immune from the influence of general macroeconomic uncertainty by as much as is possible. Our results indicate that, in times of elevated fiscal policy uncertainty, the output response to policy announcements about future government spending growth is muted. Instead, periods of low policy uncertainty are characterised by a positive and persistent output response to fiscal announcements. Our analysis also shows that the stronger effects of fiscal policy in less uncertain times is mainly the result of agents’ tendency to increase investment decisions in these periods, in line with the prediction of the option value theory in Bernanke (1983).
    Keywords: Fiscal policy uncertainty, Government spending shock, Fiscal transmission mechanism.
    JEL: D80 E60
    Date: 2014–05
  20. By: Walid Qazizada (Kingston University); Engelbert Stockhammer (Kingston University)
    Abstract: This paper investigates the impact of government spending on output and the size of the spending multiplier during periods of output contraction vs. expansion. It also investigates the impact of spending when the economy hits the nominal zero lower bound. It uses a panel of 21 advanced countries over the period of 1979-2011, applying a TSLS estimation technique. We find a spending multiplier of close to 1 during expansion and values of up to 3 during contractions. However, our results do not indicate a difference in the impact of spending during nominal zero lower bound periods.
    Keywords: fiscal multiplier, fiscal policy, panel analysis, output contraction
    JEL: E62 C36
    Date: 2014–05
  21. By: Adrián Armas; Paul Castillo; Marco Vega
    Abstract: This paper provides an overview of the reserve requirement measures undertaken by the Central Bank of Peru. It provides a rationale for the use of these instruments as well as empirical evidence of their effectiveness. In general, the results show that tightening reserve requirements has the desired effects on interest rates and credit levels at both banks and smaller financial institutions (cajas municipales).
    Keywords: Monetary Policy, Interest rates, Exchange rates, Fiscal Policy, Policy evaluation, Inflation targeting, Financial system, Foreign currency liabilities, Reserve requirements, Nonconventional monetary policy, Foreign currency, Domestic currency, IDB-WP-499
    Date: 2014–04
  22. By: Engelbert Stockhammer (Kingston University); Jo Michell (University of the West of England)
    Abstract: Goodwin cycles result from the dynamic interaction between a profit-led demand regime and a reserve army effect in income distribution. The paper proposes the concept of a pseudo-Goodwin cycle. We define this as a counter-clockwise movement in output and wage share space which is not generated by the usual Goodwin mechanism. In particular, it does not depend on a profit-led demand regime. To illustrate this, a simple Minsky-type model is extended by a reserve army distribution adjustment. In this model the cycle is generated by the interaction of financial fragility and demand. The wage share rises at higher levels of output but this generates no feedback so that, by design, demand does not react to changes in income distribution. But the model does exhibit a pseudo-Goodwin cycle in the output-wage share space. This holds true even if we introduce a wage-led demand regime. This demonstrates that the existence of a counter-clockwise movement of output and the wage share cannot be regarded as proof of the existence of a Goodwin cycle and a profit-led demand regime.
    Keywords: business cycles, Goodwin cycle, Minsky cycle, financial fragility, distribution cycles, Post Keynesian economics
    JEL: E11 E12 E32
    Date: 2014–05
  23. By: Gunda-Alexandra Detmers; Dieter Nautz; ;
    Abstract: An increasing number of central banks manage market expectations via interest rate projections. Typically, those projections are updated only quarterly and thus, may become stale when new information enters the market. We use data from New Zealand to investigate the time-varying and state-dependent effects of interest rate projections on market expectations and interest rate uncertainty. Confirming the stabilizing effect of fresh central bank announcements, we show that interest rate uncertainty rises between two projection releases. Moreover, rate uncertainty and the importance of macroeconomic news increase if expectations deviate from the rate projected by the central bank. Counterfactual analysis suggests that the efficiency of projections would improve if the central bank updated its projection whenever it becomes stale.
    Keywords: Central bank interest rate projections, central bank communication, quantitative forward guidance, interest rate uncertainty
    JEL: E52 E58
    Date: 2014–05
  24. By: Giovanni Caggiano (Department of Economics and Management, University of Padova); Efrem Castelnuovo (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne; Department of Economics and Management, University of Padova; and Research Unit, Bank of Finland); Nicolas Groshenny (School of Economics, The University of Adelaide)
    Abstract: We investigate the effects of uncertainty shocks on unemployment dynamics in the post- WWII U.S. recessions via non-linear (Smooth-Transition) VARs. The relevance of uncertainty shocks is found to be much larger than that predicted by standard linear VARs in terms of (i) magnitude of the reaction of the unemployment rate to such shocks, and (ii) contribution to the variance of the prediction errors of unemployment at business cycle frequencies. We discuss the ability of different classes of DSGE models to replicate our results.
    Keywords: Uncertainty shocks, unemployment dynamics, Smooth Transition Vector-AutoRegressions, recessions
    JEL: C32 E32 E52
    Date: 2014–05
  25. By: Miguel Urrutia; Marc Hofstetter; Franz Hamann
    Abstract: After decades using monetary aggregates as the main instrument of monetary policy and having different varieties of crawling peg exchange rate regimes, Colombia adopted a full-fledged inflation-targeting (IT) regime in 1999, with inflation as the nominal anchor, a floating exchange rate, and the short-term interest rate as the main instrument. This paper examines the experience of the Colombian Central Bank over the last decade, a period of consolidation and innovation of its IT strategy. The paper studies the increasing number of instruments used by the CB, including systematic foreign exchange interventions, announcements, and, sporadically, macro-prudential policies, capital controls, and changes in reserve requirements, among others. The study also examines some political economy dimensions that help explain the behavior of the CB during this period. To guide the discussion, a small-scale open-economy policy model is estimated.
    Keywords: Monetary Policy, Interest rates, Capital flows, Investment, Inflation targeting, IDB-WP-487
    Date: 2014–02
  26. By: Shawkat Hammoudeh; Duc Khuong Nguyen; Ricardo M. Sousa
    Abstract: This paper examines the effects of the monetary policy of China on commodity prices. Using a Bayesian Structural VAR, we identify shocks to the interest rate as a price rule and to the monetary aggregate (M2) as a quantity rule, and then evaluate their impacts on commodity prices. Those prices include the aggre- gate commodity price index and all its major constituents. Our results suggest that a positive interest rate (contractionary) shock has a negative and persistent effect on commodity prices. Additionally, the bever- ages and metals are the commodities whose prices fall by most in response to changes in the Chinese monetary policy. In what concerns the positive shock to the growth rate of the monetary aggregate, we find that although it does not have a significant impact on the commodity price aggregate, such result “hides” important heterogeneity across different types of commodity prices. Finally, we show that while adjusting the growth rate of the monetary aggregate and changing the interest rates appear to be macroe- conomic stabilizing tools of similar power, the price instrument seems more effective in explaining the dynamics of commodity prices than the quantity one.
    Keywords: monetary policy, commodity prices, Bayesian Structural VAR, China
    JEL: E37 E52
    Date: 2014–05–19
  27. By: cho, hyejin
    Abstract: This article introduces the cascaded individual model of Post-keynesian economics. This differs from the representative agent model of the old-keynesian model mathematically and methodologically. The model builds from five assumptions containing original concepts: cascaded individuals, a social planner vs a regulator, aggregate deposits (stock) vs pyroclastic deposits (flow). Mainly, this Macro-Micro approach of Post-keynesian concepts suggests the regulation of the money flow. Then, this paper articulates fundamental concepts to solve problems of a sudden "micro" financial shock in the short run with the long run "macro" stabilization with a balanced perspective between macroeconomics and microeconomics.
    Keywords: macro micro model, Post-keynesian, banking industy, general equilibrium, endogenous money creation, representative agents, cascaded individuals, aggregate deposits, pyroclastic deposits, social planner, regulator, moral hazard problem
    JEL: E58 G0 N1
    Date: 2014–05–22
  28. By: Chang, C-L.; Hsu, H-K.; McAleer, M.J.
    Abstract: __Abstract__ The paper uses monthly data on financial stock index returns, tourism stock sub-index returns, effective exchange rate returns and interest rate differences from April 2005 – August 2013 for Taiwan that applies Chang’s (2014) novel approach for constructing a tourism financial indicator, namely the Tourism Financial Conditions Index (TFCI). The TFCI is an adaptation and extension of the widely-used Monetary Conditions Index (MCI) and Financial Conditions Index (FCI) to tourism stock data. However, the method of calculation of the TFCI is different from existing methods of constructing the MCI and FCI in that the weights are estimated empirically. The empirical findings show that TFCI is estimated quite accurately using the estimated conditional mean of the tourism stock index returns. The new TFCI is straightforward to use and interpret, and provides interesting insights in predicting the current economic and financial environment for tourism stock index returns that are based on publicly available information. In particular, the use of market returns on the tourism stock index as the sole indicator of the tourism sector, as compared with the general activity of economic variables on tourism stocks, is shown to provide an exaggerated and excessively volatile explanation of tourism financial conditions.
    Keywords: Monetary Conditions Index, Financial Conditions Index, model-based tourism, unbiased estimation
    JEL: B41 E44 E47 G32
    Date: 2014–05–01
  29. By: Hideaki Hirata; M. Ayhan Kose; Chris Otrok; Marco TerronesÂ
    Abstract: We examine the properties of house price fluctuations across eighteen advanced economies over the past forty years. We ask two specific questions: First, how synchronized are housing cycles across these countries? Second, what are the main shocks driving movements in global house prices? To address these questions, we first estimate the global components in house prices and various macroeconomic and financial variables. We then evaluate the roles played by a variety of global shocks, including shocks to interest rates, monetary policy, productivity, credit, and uncertainty, in explaining house price fluctuations using a wide range of FAVAR models. We find that house prices are synchronized across countries, and the degree of synchronization has increased over time. Global interest rate shocks tend to have a significant negative effect on global house prices whereas global monetary policy shocks per se do not appear to have a sizeable impact. Interestingly, uncertainty shocks seem to be important in explaining fluctuations in global house prices.
  30. By: Klinger, Sabine; Weber, Enzo
    Abstract: Between 1979 and 2009, the German labour market moved along a Beveridge curve with changing slope that used to shift outwards but shifted inwards after severe labour market reforms had come into force. We analyse these dynamics and focus on the macroeconomic outcome of the reforms. For that purpose, we construct a new empirical model that links equilibrium unemployment theory to a flexible unobserved components model: we disentangle permanent and transitory components of matching efficiency and separation rate as well as unemployment and vacancies. Cointegration and identification are addressed. We find that matching efficiency and separation rate each account for about half of the inward shift. Thereby, the increase in trend matching efficiency is extraordinary and testifies to a permanent improvement on the labour market. Its visibility, however, was retarded by an overlay with a structural increase in tightness.
    Keywords: Beveridge curve; worker flows; tightness; unobserved components; Hartz reforms
    JEL: C32 E24 E32 J2 J69
    Date: 2014–05–09
  31. By: Jared Bullen (Treasury, Government of Australia); Jacinta Greenwell (Treasury, Government of Australia); Michael Kouparitsas (Treasury, Government of Australia); David Muller (Treasury, Government of Australia); John O’Leary (Treasury, Government of Australia); Rhett Wilcox (Treasury, Government of Australia)
    Abstract: Treasury’s forecasting framework has evolved over the past 21 years from the outlook for a single financial year to the outlook for the Australian economy 40 years ahead for intergenerational analysis. A constant through this evolution has been the sharp distinction between the methodologies used for near and longer term forecasts. The economic estimates underlying Australian Government fiscal projections divide the forecast horizon into two distinct periods: the near term forecast period which covers the first two years beyond the current financial year; and the longer term projection period which includes the last two years of the forward estimates, and up to 36 more years for intergenerational analysis. The economic estimates over the forecast period are based on a range of short run forecasting methodologies, while those over the projection period are based on medium to long run rules. Treasury routinely assesses medium to long run projection rules in light of new data, improved modelling techniques and structural changes to the economy. The measured cyclical weakness of recent years calls for an enhancement to the existing trend growth rate rules, which recognises the need for an adjustment period over which the economy transitions from a cyclical high or low to its potential level of output. Working towards that end, this paper details changes to the projection methodology that overcome the cyclical limitations of the existing framework. Applying these methodological changes to the economic estimates in the 2014 15 Budget leads to a slight improvement in the Underlying Cash Balance of $0.9 billion (0.05 per cent of GDP) in 2017 18 and $3.4 billion (0.12 per cent of GDP) in 2024 25.
    Keywords: potential output, NAIRU, fiscal budget
    JEL: E30 E66 H68
    Date: 2014–05
  32. By: Mark Aguiar; Manuel Amador; Emmanuel Farhi; Gita Gopinath
    Abstract: We characterize fiscal and monetary policy in a monetary union with the potential for rollover crises in sovereign debt markets. Member-country fiscal authorities lack commitment to repay their debt and choose fiscal policy independently. A common monetary authority chooses inflation for the union, also without commitment.� We first describe the existence of a fiscal externality that arises in the presence of limited commitment and leads countries to over borrow; this externality rationalizes the imposition of debt ceilings in a monetary union. We then investigate the impact of the composition of debt in a monetary union, that is the fraction of high-debt versus low-debt members, on the occurrence of self-fulfilling debt crises. We demonstrate that a high-debt country may be less vulnerable to crises and have higher welfare when it belongs to a union with an intermediate mix of high- and low-debt members, than one where all other members are low-debt. This contrasts with the conventional wisdom that all countries should prefer a union with low-debt members, as such a union can credibly deliver low inflation. These findings shed new light on the criteria for an optimal currency area in the presence of rollover crises.
    Date: 2014–01
  33. By: KARGI, Bilal
    Abstract: In this study, the analysis was that the capacity of creating inflation depends on oil prices as the one of energy types that is a major input of aggregate output which becomes a source of economic growth with increasing in costs. The aggregate output is also a function of energy that is the one of production inputs. Moreover, energy is an imported by several countries because it is acquired from the limited sources around the world. It causes inflation of importing countries to exporting countries through oil prices. At the same time, the rises of oil prices causes inflation because it increases the product costs. The second argument is that the increasing of aggregate output is generally affected by energy use, and is privately affected by oil use. In that case, oil import is both efficient on inflation and on growth. Tested hypothesis in the study is that oil prices have an inflationary effect because of its effect on costs, and is that this activity will negatively affect the growth because of its effect on expectations. In this study, the effects of the crude oil import of Turkey for inflation and growth are analysed over the long term. The committed analyses show that GDP was affected by oil imports, and it also caused inflation in the Turkish economy.
    Keywords: Oil Import, Inflation, Economic Growth
    JEL: C32 E31 Q43
    Date: 2014–03
  34. By: Drago Bergholt (BI Norwegian Business School and Norges Bank); Tommy Sveen (BI Norwegian Business School and Norges Bank)
    Abstract: Existing DSGE models are not able to reproduce the observed influence of international business cycles on small open economies. We construct a two-sector New Keynesian model to address this puzzle. The set-up takes into account intermediate trade and producer heterogeneity, where goods and service industries differ in terms of i) price flexibility, ii) trade intensity, iii) technology, iv) I-O structure, and v) the volatility of productivity innovations. The combination of intermediate markets and heterogeneous producers makes international business cycles highly important for the small economy, even if it has a large service sector. Exploiting I-O matrices of Canadian and US industries, the model is able to reproduce the role of international disturbances typically found in empirical studies. Model simulations deliver cross-country correlations in macroeconomic variables of about 0:7, with half of the variation in domestic variables attributed to foreign shocks.
    Keywords: Small open economy, Multi-sector, Intermediate trade, International business cycles.
    JEL: E32 F41 F44
    Date: 2014–04–14
  35. By: Deborah Mabbett & Waltraud Schelkle
    Abstract: Fiscal surveillance was developed as a supranational regulatory process to counteract short-termism and deficit biases in government decision-making. With effective monetary policy to stabilize the economy, restraint on the fiscal discretion of national governments was seen as the key to macroeconomic stability. The financial crisis and its aftermath challenge this paradigm. Private debt caused the crisis and monetary policy is so weak that pro-cyclical fiscal retrenchment could worsen fiscal outturns. We argue, contrary to the ‘disciplinarian’ interpretation of the Stability and Growth Pact, that the regulatory process of fiscal surveillance is strongly affected by the potential perversities of fiscal restraint and is therefore resistant to the prescription of austerity. This claim is developed by tracing the technical difficulties encountered by fiscal surveillance since the financial crisis. The crisis has so destabilized expectations of the performance of the economy and the proper scope of government that the statistical and economic norms of surveillance have been undermined. We conclude that the problem with fiscal surveillance is not that the EU inflicts undue fiscal discipline on member states, but rather that the EU institutions are unable to protect member states against bond market panic, and therefore cannot coordinate stabilizing fiscal policies.
    Keywords: stability pact
    Date: 2014–05–07
  36. By: Alexander Guarín; José Fernando Moreno; Hernando Vargas
    Abstract: We study the relationship between US and Colombian sovereign debt interest rates. We also evaluate the response of the Colombian long-term bond yield and other asset prices to shocks to the US long-term Treasury rate. Two empirical exercises are performed. First, we use a moving window linear regression to examine the link between sovereign bond yields. Second, we estimate a VARX – MGARCH model to compute the short-term response of local asset prices to foreign financial shocks. Our exercises consider daily data between 2004 and 2013. The analysis is performed on three sample periods (i.e. before, during and after the global financial crisis). Our findings show that the link between sovereign bond yields has changed over time. Moreover, the short-run responses of local asset prices to foreign financial shocks have been qualitatively different in the three periods. The especial role of US Treasuries as a “safe haven asset” during highly volatile time spans seems to be at the root of these changes.
    Keywords: Long-term bond yields, global financial crisis, emerging markets, moving window linear regression, VARX – MGARCH model.
    JEL: C30 E43 E58 F42 G15
    Date: 2014–05–19
  37. By: Kawagishi, Taketo; Kaminoyama, Ken-ichi
    Abstract: This paper explores a one-sector AK model with a cash-in-advance (CIA) constraint that itself depends on relative income, which implies status (we call this constraint the “CIA-status constraint”). The CIA-status constraint means that agents with higher income are more creditworthy and can make purchases with fewer money holdings. Under the Clower-Lucas-type CIA-status constraint, we show that the endogenous growth rate and money growth are positively correlated. On the other hand, under the Stockman-type CIA-status constraint, we confirm that the relationship between the endogenous growth rate and money growth changes from negative to positive when the elasticity of the CIA constraint with respect to status exceeds one.
    Keywords: Cash-in-advance constraint; Status; Endogenous growth; Money growth
    JEL: E41 E52 O42
    Date: 2014–05–14
  38. By: Gonand, Frédéric
    Abstract: A rising share of renewables in the energy mix push es up the average price of energy - and so does a carbon tax. However the former bolsters the accumulation of capital whereas the latter, if fully recycled, does not. Thus, in general equilibrium, the effects on growth and intertemporal welfare of these two environmental po licies differ. The present article assesses and compares these effects. It relies on a computable general equilibrium model with overlapping generations, an energy module and a pub lic finance module. The main result is that an increasing share of renewables in the energy mix and a fully recycled carbon tax have opposite (though limited) impacts on activity and i ndividuals’ intertemporal welfare in the long run. The recycling of a carbon tax fosters consumption and labour supply, and thus growth and welfare, whereas an increasing share of renewables does not. Results also suggest that a higher share of renewables and a recycled carbon tax trigger intergenerational redistributive effects, with the former being relat ively detrimental for young generations and the latter being pro-youth. The policy implication is that a social planner seeking to modify the structure of the energy mix while achieving some ne utrality as concerns the GDP and triggering some proyouth intergenerational equity, could usefully contemplate the joint implementation of higher quantitative targets for the future development of renewables and a carbon tax fully recycled through lower proportional taxes.
    Keywords: Energy transition; intergenerational redistribution; overlapping generations; carbon tax; general equilibrium;
    JEL: D58 D63 E62 L7 Q28 Q43
    Date: 2014–04
  39. By: Shimasawa, Manabu; Oguro, Kazumasa; Masujima, Minoru
    Abstract: We employed the Generational Accounting model in estimating the generation-specific lifetime (both past and the future) benefits/burdens and income and evaluating their values as of 2010, thus estimating the lifetime net burden ratio (= lifetime net burden/lifetime income). As a result, the following points were elucidated: 1) Among the current living generations, the lifetime net burden ratio of the 0-year-old generation is about 25 percentage points higher than that of the current 90-year-old generation; 2) The lifetime net burden ratio of the future generations is about 31 percentage points higher than that of the 0-year-old generation; 3) The net burden of the current generations would have to be increased in order to narrow the generational gap between the current generations and the future generations, which would inevitably lead to an expansion of the intragenerational gap of the current generations; and 4) In order to prevent conflict of interest between the current generations, in particular the younger generations and future generations, and at the same time, narrow the intergenerational gap, it is desirable to increase the income of the current generations, in particular that of the younger generations, by achieving a high economic growth rate and implementing macroeconomic policy management that would inhibit increase in the risk premium included in the interest rate.
    Keywords: Generational Accounting, falling birthrates and aging population, fiscal sustainability, government debt
    JEL: H61 E62 B41
    Date: 2014–05
  40. By: Pompeo Della Posta
    Abstract: The euro area crisis shows some similarities with the crisis that affected the European Monetary System in 1992-93. I argue that the theoretical framework to be used in order to analyze it can also be similar. As a matter of fact, together with the point of view of the government, that should compare costs and benefits of defaulting on the public debt–something already suggested in the literature–it should be considered the point of view of speculators, who look at the state of the economic fundamentals in order to decide whether to attack or not. This helps explaining and interpreting both the recent crisis and the effects of the fiscal and monetary policy measures that have been adopted in order to solve it.
    Keywords: Euro area crisis, economic fundamentals, self-fulfilling expectations,public debt, speculative attacks.
    JEL: E65 F34 F36
    Date: 2014–03–01
  41. By: Ndiaye, Cheikh Tidiane; Bates, Samuel
    Abstract: Using the structural unobserved component (UC) modeling, this study analyzes the Senegalese economic growth path after 5 decades of independence by focusing on the potential output, the GDP cycle and the type of shocks on the GDP. Empirical evidence suggests that an inventory cycle mainly drives the GDP short-term component with a time-varying extent of fluctuations. The main sources of shocks result from external determining factors with an impact on the long run. However, their persistent effects have been mitigated particularly since the devaluation of 1994. International institutions have partially motivated the relative successful GDP growth path of Senegal. Nevertheless, some structural internal improvements are needed to balance the financial and productive flaws in order to consolidate both the "resilience" to shocks and the macroeconomic stabilization.
    Keywords: GDP growth; Unobserved component modeling; Economic history of Senegal;
    JEL: C1 E3
    Date: 2014–05
  42. By: King, Philip (Bank of England); Millard, Stephen (Bank of England)
    Abstract: In the wake of the financial crisis output fell dramatically while inflation remained above its target and productivity collapsed relative to its previous trend. The fall in productivity relative to trend was particularly pronounced within the service sector, and then most particularly in certain subsectors such as ‘Professional, Scientific and Technical Activities’. Given the weight of services in the economy – 75% in GDP and 50% in the CPI – it would seem that understanding how this sector works is crucial if we are to understand how the economy as a whole responds to shocks. But our standard macroeconomic models are not well suited to analysing this sector. In this paper, we try to address these deficiencies by modelling better the service sector and then examine the implications of trying to take certain features of the service sector into account. In order to do this, we first embarked on a series of structured visits to a set of firms that span the service sector. The motivation for doing this was that we could use our findings from these visits to get a better feel for how service sector firms operate and, so, to be able to construct a model of a ‘typical’ service sector firm. We then build a model taking into account what we found from the visits and examined the effects of demand shocks within the model. We find that the model can explain some of the qualitative movements in productivity seen in response to the financial crisis.
    Keywords: Service sector; intangible investment
    JEL: D21 D24 E22 E23
    Date: 2014–05–16
  43. By: Plosser, Charles I. (Federal Reserve Bank of Philadelphia)
    Abstract: President Charles Plosser gives his views on the sustainable improvement in housing in the context of a broader economic recovery. He also discusses the Fed's monetary policy issues, including forward guidance.
    Date: 2014–05–20
  44. By: Hideaki Hirata; Tokiko Shimizu
    Abstract: The malfunction of the monetary transmission mechanism in Japan has been cited as one of the main reasons why the quantitative easing of monetary policy undertaken by the Bank of Japan (BOJ) has been insufficient in achieving the objective of an early escape from deflation and the economic slump. The BOJ has quantitatively eased monetary policy, promising to provide as much money as the market needs, and as a result, short term interest rates have fallen to very low levels. However, the growth rate of bank lending particularly to small and medium-sized enterprises (SMEs), has been drawing a secular downtrend for years (Chart 1), thus leading to considerable debate over the effectiveness of the monetary policy. The factors underlying the malfunction of the monetary transmission channel lurk both in the financial and non- financial sectors. Of all the underlying factors, there is broad consensus that the "health" of the Japanese financial sector should be considered as the problem of most concern. The financial sector has played a central role in providing external finance to the non- financial sectors through financial intermediation, accumulating credit risks within the financial sector itself. Associated with the non-performing loan problem, the excess accumulation of credit risks in the banking sector lowers the financial intermediation ability. Thus, it impairs the smooth propagation of monetary policy through the credit channel. On the side of non- financial enterprises, SMEs as a driving force in the Japanese economy, in particular, have been struggling with their fundraising. Limited availability of reliable information on SMEs, in other words, the asymmetric information problem of SMEs is pivotal as is often mentioned. Furthermore, it is important to bear in mind that the shortage of collateral is an obstacle to credit availability for SMEs. SMEs with lower credit status seek alternative sources of funding that strengthen the effects of monetary easing. The BOJ announced its intention to purchase asset backed securities (ABS) whose underlying assets are closely related to SME economic activities. One important motivation for this policy arises from the idea that utilizing modern financial tools, i.e., securitization, can be a possible way to solve the overconcentration or excess accumulation of credit risks in the banking sector, albeit it would be a rare move for central banks to buy private debt. The outright purchase is expected to restore the monetary transmission mechanism by helping diversify credit risks in the financial sector among other economic agents including the BOJ. The other motivation of the new policy is to increase fundraising options for SMEs. For example, the BOJ will purchase ABS backed by accounts receivable. The use of accounts receivable as collateral is not a popular fundraising method for SMEs in Japan. SMEs can take advantage of the BOJ's policy to utilize quality assets which have not been effectively used as collateral in the past. SME external financial sources can be multi-tracked, thereby reducing their heavy reliance upon traditional financial intermediation. Thus, through the implementation of "traditional" monetary policy tools to purchase "untraditional" financial assets, the policy is expected to strengthen the monetary transmission mechanism. The spirit of this policy is to effectively improve SME access to financing through accelerating the development of ABS markets, without causing distortions in the ABS markets. The scheme is carefully designed to avoid any moral hazards and to contribute to the removal of obstacles to SME financing through enhancing financial disintermediation.
  45. By: José E. Gómez-González; Julián A. Parra-Polania
    Abstract: In the present paper we remark that the absence of an intrinsic or fundamental value represents a problem for the stability of the bitcoin’s price as an asset. In addition, we consider some financial stability concerns that derive from the hypothesis that the bitcoin will survive as an asset subject to high speculation.
    Keywords: Bitcoin; fundamental value; financial stability.
    JEL: E42 G12 G23
    Date: 2014–05–12
  46. By: Pavel Ciaian; Miroslava Rajcaniova; d'Artis Kancs
    Abstract: This paper analyses the relationship between BitCoin price and supply-demand fundamentals of BitCoin, global macro-financial indicators and BitCoin’s attractiveness for investors. Using daily data for the period 2009-2014 and applying time-series analytical mechanisms, we find that BitCoin market fundamentals and BitCoin’s attractiveness for investors have a significant impact on BitCoin price. Our estimates do not support previous findings that the macro-financial developments are driving BitCoin price.
    Keywords: BitCoin, exchange rate, supply-demand fundamentals, financial indicators, attractiveness
    JEL: E31 E42 G12
    Date: 2014–01–08
  47. By: Kristinn Hermannsson (Shool of Education, University of Glasgow); Patrizio Lecca (Fraser of Allander Institute, Department of Economics, University of Strathclyde); J Kim Swales (Fraser of Allander Institute, Department of Economics, University of Strathclyde)
    Abstract: Econometric analysis has been inconclusive in determining the contribution that increased skills have on macroeconomic performance whilst conventional growth accounting approaches to the same problem rest on restrictive assumptions. We propose an alternative micro-to-macro method which combines elements of growth accounting and numerical general equilibrium modelling. The usefulness of this approach for applied education policy analysis is demonstrated by evaluating the macroeconomic impact on the Scottish economy of a single graduation cohort from further education colleges. We find the macroeconomic impact to be significant. From a policy point of view this supports a revival of interest in the conventional teaching role of education institutions.
    Keywords: Graduates, Further Education Colleges, Labour Supply, Economic Impact, General Equilibrium
    JEL: E17 D58 R13
    Date: 2014–05
  48. By: Berleman, Michael (Helmut Schmidt University, Hamburg); Enkelmann, Sören (Leuphana University Lüneburg)
    Abstract: Are preferences exogenously given? Or do individual tastes and values evolve endogenously within a particular socio-economic environment? In this paper, we make use of a natural experiment to analyse the role of inflation experiences and institutions in the formation of individual inflation preferences. In particular, we exploit the division of post-war Germany to investigate to what extent the factual non-experience of inflation and 40 years of Communism have affected inflation preferences in East and West Germany. We find that historical experiences have a significant and long-lasting effect on people's preferences. Due to their specific political and economic background, East Germans are significantly more inflation averse than West Germans, even 20 years after reunification.
    Keywords: endogenous preferences; inflation aversion; natural experiment; Germany
    JEL: E02 E31 P22
    Date: 2014–05–15
  49. By: Alimi, R. Santos
    Abstract: Government size, its roles and the efficiency of the public sector has becomes a more important issue recently especially when the financial crisis has covered severely almost all Economies worldwide. Using time-series techniques, this study empirically tests the validity of existing theory (Barro, 1990; and Armey, 1995) which stipulates there is a nonlinear relationship between government size and economic growth; such that government spending is growth-enhancing at low levels but growth-retarding at high levels, with the optimal size occurring somewhere in between. This study employed three estimation equations. First, for the size of government, two measures are considered as follows: (i) share of total expenditures to gross domestic product, (ii) share of recurrent expenditures to gross domestic product. Second, the study adopted real GDP (without government expenditure component), as a variant measure of economic growth other than the real total GDP, in estimating the optimal level of government expenditure. The study is based on annual Nigeria country-level data for the period 1970 to 2012. Estimation results show that the inverted U-shaped curve exists for the two measures of government size and the estimated optimum shares are 19.81% and 10.98% respectively. Finally, with the adoption of real GDP (without government expenditure component),the optimum government size was found to be 12.58% of GDP. Our analysis shows that the actual share of government spending on average (2000 - 2012) is about 13.4%. This study adds to the literature confirming that the optimal government size exists not only for developed economies, but also for developing economy like Nigeria. Thus a public intervention threshold level that fosters economic growth is a reality; beyond this point economic growth should be left in the hands of the private sector. This finding has a significant implication for the appraisal of government spending and budgetary policy design.
    Keywords: Public Expenditure, Economic Growth, Optimum Level, Fully Modified OLS
    JEL: C22 E62 H1 H50
    Date: 2014–02
  50. By: Alonso-Rivera, Angélica; Cruz-Aké, Salvador; Venegas-Martínez, Francisco
    Abstract: This paper examines, through the concept of mutual information based on entropy, the impact of monetary policy on the loss of efficiency in the financial markets and speculative bubbles. The proposed information measure is useful to quantify the efficiency with which financial markets respond to the implementation of monetary policy. The findings show that an increase in both money supply and credit growth, as well as a declining of interest rates, generate strong inefficiencies during the initial periods of formation of a bubble. Moreover, empirical evidence suggests that when a loose monetary policy generates inefficiencies, its instruments are not effective to realign the performance of financial markets.
    Keywords: Monetary policy, speculative bubbles, market efficiency, non-linear models, entropy.
    JEL: E58
    Date: 2014–05–21
  51. By: Alexander Guarín; José Fernando Moreno; Hernando Vargas
    Abstract: We study the relationship between US and Colombian sovereign debt interest rates. We also evaluate the response of the Colombian long-term bond yield and other asset prices to shocks to the US long-term Treasury rate. Two empirical exercises are performed. First, we use a moving window linear regression to examine the link between sovereign bond yields. Second, we estimate a VARX – MGARCH model to compute the short-term response of local asset prices to foreign financial shocks. Our exercises consider daily data between 2004 and 2013. The analysis is performed on three sample periods (i.e. before, during and after the global financial crisis). Our findings show that the link between sovereign bond yields has changed over time. Moreover, the short-run responses of local asset prices to foreign financial shocks have been qualitatively different in the three periods. The especial role of US Treasuries as a “safe haven asset” during highly volatile time spans seems to be at the root of these changes. Classification JEL: C30, E43, E58, F42, G15
    Date: 2014–05
  52. By: Miguel Urrutia
    Abstract: El artículo discute como el Banco de la República de Colombia se ajustó durante un periodo largo a los cambios en la teoría y la legislación de la política monetaria, cambiaria y de crédito en el país. En el periodo la legislación transformo sus funciones, responsabilidades, y esquema de gobierno varias veces, pero la entidad logro mantener una cultura y seriedad administrativa muy sólida.
    Keywords: Política económica Siglo XX Colombia, política monetaria y cambiaria, inflación, Banco de la República.
    JEL: G28 N16 N26 O55 E52 E58
    Date: 2014–05–07
  53. By: Garz, Marcel
    Abstract: In the past decade, weak household consumption was an important reason for low rates of overall economic growth in Germany. Many explanations for the weakness have been provided and investigated in previous studies, but the role of media-driven uncertainty has not been addressed. Therefore, this study examines the link between economic news coverage and aggregate consumption. Consumption, information-processing, and decision-making theory all serve to derive hypotheses, which are evaluated using time-series data and information obtained from media content analyses. For the period from 2001 to 2009, the results indicate that consumption is mainly influenced by the long-run effects of news coverage. In this regard, decisions to consume are subject to an optimism bias, such that favorable news leads to a stronger increase in consumption than the decrease caused by unfavorable news. Media effects are erratic in the short run though, because it takes time for households to identify new economic trends.
    Keywords: Consumption; Uncertainty; News coverage
    JEL: C32 D83 E21
    Date: 2014
  54. By: Jimena Zúñiga; Marcelo Capello; Inés Butler; Nester Grión
    Abstract: This paper seeks to identify the most promising fiscal strategy to boost long-term economic growth in Argentina and quantify its effects. To this end, the authors updated a growth-diagnostics study for Argentina and corroborated that low appropriability of social returns and insufficient public infrastructure are key constraints to private investment. Further, low appropriability stands out among the key constraints to productivity-enhancing activities. Because low appropriability is largely rooted in macroeconomic volatility, the authors argue that a cycle-adjusted fiscal rule is one of the most promising fiscal reforms the country could implement to tackle this problem, and discuss the specific design features that such a rule could include. Then, the authors construct a model reflecting the stylized facts of the Argentine Republic's fiscal federalism structure to assess the effect that a cycle-adjusted fiscal rule, in different variants, would have on the volatility of key macro variables. The authors find that the rule would meaningfully reduce macroeconomic volatility, thereby contributing to improved appropriability and long-term growth.
    Keywords: Fiscal Policy, Investment, Macroeconomic policy, growth, fiscal policy, fiscal rules, Argentina, Latin America
    Date: 2013–10
  55. By: Acharya, Viral V. (Federal Reserve Bank of New York); Fleming, Michael J. (Federal Reserve Bank of New York); Hrung, Warren B. (Federal Reserve Bank of New York); Sarkar, Asani (Federal Reserve Bank of New York)
    Abstract: We examine the financial conditions of dealers that participated in two of the Federal Reserve’s lender-of-last-resort (LOLR) facilities--the Term Securities Lending Facility (TSLF) and the Primary Dealer Credit Facility (PDCF)--that provided liquidity against a range of assets during 2008-09. Dealers with lower equity returns and greater leverage prior to borrowing from the facilities were more likely to participate in the programs, borrow more, and--in the case of the TSLF--at higher bidding rates. Dealers with less liquid collateral on their balance sheets before the facilities were introduced also tended to borrow more. There also appear to be some interaction effects between financial performance and balance sheet liquidity in explaining dealer behavior. The results suggest that both financial performance and balance sheet liquidity play a role in LOLR utilization.
    Keywords: lender of last resort; central banking; crises; illiquidity; insolvency; stigma
    JEL: D44 E58 G01 G28
    Date: 2014–05–01
  56. By: Hideaki Hirata
    Abstract: Replicating the degree of cross-country comovements of macroeconomic aggregates, dynamics of prices and quantities of international trade, and the behavior of consumption and labor remains an important challenge in international business cycle literature. This paper incorporates preference shocks into a standard two-country model in which there exist international frictions, such as costs of transportation and restrictions to international asset trade. Country-specific preference shocks that generate fluctuations in each country’s consumption and labor solve the puzzles, except for the discrepancy between theory and data regarding international trade variables. The presence or absence of international frictions plays a limited role in solving the puzzles.
    Date: 2014–01
  57. By: Wolfgang Lechthaler; Mariya Mileva
    Abstract: We use a dynamic general equilibrium trade model with comparative advantage, heterogeneous firms, heterogeneous workers and endogenous firm entry to analyze economic policy to compensate the losers of trade liberalization and to reduce the ensuing wage inequality. We consider several instruments of economic policy: a wage tax to redistribute income between skilled and unskilled workers; sector-specific consumption taxes and profit taxes to affect inter-sectoral wage inequality; sector-specific firm entry subsidies, worker sector-migration subsidies and training subsidies to speed up the adjustment process. We find that the re-distributional and efficiency effects of these instruments differ very much. Probably the most potent tool to reduce the wage inequality after trade liberalization are training subsidies. Although the policy also generates inefficiencies because too many workers are trained, the costs of these inefficiencies are relatively low.
    Keywords: Trade liberalization, wage inequality, adjustment dynamics, re-distribution
    JEL: E24 F11 F16 J62
    Date: 2014–05
  58. By: Iancu, Aurel (Institutul National de Cercetari Economice al Academiei Române)
    Abstract: In this study I review the main scientific contributions of Minsky and other scholars to the financial instability and crisis issues, and the role of institutions in modeling the medium and long business and financial waves. The topics developed in this paper are the following: the relationships between financial instability, business and financial crisis and institutions; the thwarting of the explosive instability by the specific institutions' actions and regulations; the impact of the institutional changes on the business and financial cycles; the empiric approach to the business and financial cycles and their synchronization in the Central and Eastern Europe countries / members of the EU, taking into account the main characteristics of the changes in these countries' institutions.
    Keywords: financial instability, business cycles, financial cycles, institutions, long waves, basic cycles, supercycles, Central and Eastern Europe countries
    JEL: B52 B52 D53 G01 G2 L51 P11 P21 P31
    Date: 2014–04
  59. By: Kozue SEKIJIMA (Osaka School of International Public Policy, Osaka University)
    Abstract: This paper investigates whether labor substitution between age groups has become higher in the 2000s. I update Noro and Ohtake (2006) which uses the Basic Survey on Wage Structure in Japan and estimates elasticity of substitution between employees in three age groups before 2001. They employ a demand-supply framework of Card and Lemieux (2001) assuming an imperfect substitution between age cohorts. The assumption is still found to be reasonable in the estimates up to 2011. The elasticities of substitution have remained in the 2000s compared to estimates before the 1990s. This implies substitution between younger labor and older labor has not increased although it is thought to be part of a background of deteriorating youth employment..
    Keywords: wage differential, substitution between age groups, youth employment
    JEL: J21 J31 E24
    Date: 2014–05
  60. By: Martin Shubik (Cowles Foundation, Yale University)
    Abstract: The practical and theoretical meaning of the rise and fall of new local and virtual currencies suggest that two basic theories of money both have their validity and reasons for coexistence. The drive for increasing efficiency in the payment mechanisms is in full swing and still presents many opportunities for improvement.
    Keywords: Money, fiat, virtual currencies
    JEL: E41 E42 D23
    Date: 2014–05
  61. By: Kenneth S. Rogoff
    Abstract: Despite advances in transactions technologies, paper currency still constitutes a notable percentage of the money supply in most countries. For example, it constitutes roughly 10% of the US Federal Reserve’s main monetary aggregate, M2. Yet, it has important drawbacks. First, it can help facilitate activity in the underground (tax-evading) and illegal economy. Second, its existence creates the artifact of the zero bound on the nominal interest rate. On the other hand, the enduring popularity of paper currency generates many benefits, including substantial seigniorage revenue. This paper explores some of the issues associated with phasing out paper currency, especially large-denomination notes.
    Date: 2014–01
  62. By: Sougata Ray (cef.up, University of Porto, Portugal and Amrita School of Business, Coimbatore, India); Sushanta Kumar Mahapatra (Department of Economics, University of Bologna, Bologna, Italy and Amrita School of Business, Amrita University, Coimbatore, India)
    Abstract: The Indian Microfinance Industry witnessed one of the fastest growths in the recent times. However, the sticking feature of the growth is that the Microfinance Institutions (MFIs) are concentrated in only some regions of the country. There is a huge geographical skew in the distribution of the MFIs. In this paper an attempt has been made to explain these geographical skew by using the macro variables at the state levels. The purpose of this study is to identify the causes for the regional disparity of the growth of MFIs. The analysis is likely to help in identifying factors which need attention for developing the MFIs in states which are lagging behind and also in framing necessary regulations which can ensure uniform growth of MFIs among all the states. The study suggests that state level macro factors are significant in explaining the geographical skew. MFIs in India have concentrated in states which are richer, have good rural infrastructure, lack adequate banking facility and have low human capital.
    Keywords: Microfinance Institutions, Penetration, Regional disparity, Macro variables
    JEL: G21 E44 R5 E44
    Date: 2014–05
  63. By: Stravelakis, Nikos
    Abstract: It was more than four decades ago when James Tobin stressed the fallacy underlying the Latin motto "Post Hoc ergo Propter Hoc". His point was that a causal relation, back then between money and income, must rely on something more than time precedence. However, this fact has not received proper attention, contemporary literature explains the current depression from the financial crisis which preceded it and its' resolution depends on proper rules of financial regulation. This paper argues different, the current depression resulted from weak growth reflecting weak profitability. We show that under this reasoning financial crisis episodes are highly probable, serving as the trigger of depressions. The latter implies that financial assets valuation depends on a highly variable required rate of return, contrary to the postulations of modern investment theory. Highly volatile asset returns places financial markets in a world of true uncertainty as opposed to calculable risk. This shred of realism gives different meaning and limitations to financial regulation. Any regulatory policy monitoring liquidity or solvency ratios can prove insufficient as zero or weak growth turns unstable, an event usually preceded by increased amounts of speculative investments. Therefore, financial regulation should focus on what kind of assets financial intermediaries can sell and what kind of assets banks, pension funds, corporations and the broad public can hold to protect taxpayers from future bailout costs at least in part.
    Keywords: Crisis, Financial Crisis, Asset Valuation, Rate of Profit, Rate of Profit of Enterprise, Financialization.
    JEL: E11 E32 G12
    Date: 2014–03–15
  64. By: Edgar Vicente MARCILLO YÉPEZ
    Abstract: En este documento se realiza la construcción de un indicador líder para anticipar al comportamiento cualitativo de la actividad económica de Colombia, medida a través del comportamiento del Producto Interno Bruto (PIB), se utiliza la metodología de factor dinámico. Para su aplicación se utilizaron 77 series que describen el comportamiento de la actividad económica. El documento muestra que hay 14 series económicas que anticipan el comportamiento del PIB cuando se utilizan series ajustadas estacionalmente, mientras que cuando se utilizan series sin ajuste estacional, se encuentra que 12 series adelantas el PIB, y en promedio el indicador líder se adelanta tres trimestres al PIB.
    Keywords: Indicadores Líder, coincidente y rezagado, modelo de factor dinámico, componentes principales dinámicos.
    JEL: C43 C53 C82 E32
    Date: 2013–10–28
  65. By: Zareen, Shumaila; Qayyum, Abdul
    Abstract: Keeping in view the importance of economic growth in a country’s development, this study intended to examine the relationship between the government size and other determinants on economic growth using a time series data over the period 1973-2012. To specify the growth equation, we have followed the Barro (1990) model of endogenous growth. The exogenous variables in the model consisted of the government size, employment, inflation, capital and trade openness. To examine the impact of the 9/11 incident, the earth quake in 2005 and financial crises, we have introduced three dummies in our growth equation. Keeping in view the nature of variables and possible endogenity in the model, we have used the VAR methodology which is believed to overcome the possible endogenity. The estimation strategy comprised of two steps. In the first step, we have estimated the long run growth equation using the Johansen co-integration technique. In the second step, we have estimated the ECM model to arrive at the short run growth elasticities with respect to the variables concerned. The long run results indicated that almost all the variables have found out to be significant with their expected signs except for trade openness which carried negative coefficient. The negative and significant coefficient of the government size suggested that large government size negatively affect economic growth of Pakistan. On the other hand, the positive and significant coefficient of capital indicated that increase in capital holdings enhances economic growth. The positive and significant long run coefficients of inflation and employment highlight that economic growth increase along with increase in inflation and employment. The trade openness variable was found to be significant with positive sign which is the only significant variable in the ECM model except the dummies. The ECM term in the error correction model has carried out significant coefficient with negative sign and plausible magnitude that highlights the stability of the model.
    Keywords: Government size, Economic growth, Co-integration, Time Series Analysis
    JEL: C4 C5 C50 E1 O4 O41 O5
    Date: 2014
  66. By: Marcelo P. Oviedo; Leandro Andrian
    Abstract: When it comes to assess the sustainability of fiscal policy and public debt in Andean countries, two idiosyncratic facts of fiscal revenues have to be considered. First, fiscal revenues coming from natural resources represent up to 44% of total fiscal revenues, producing a strong correlation between terms of trade and the overall fiscal balance, ranging from 0.79 in Ecuador to 0.90 in Peru. Second, in most of Andean countries, it is the sovereign who exploits the natural resource by its own and who extends transfers to the private sector according to the results of that exploitation. Under these conditions, terms-of-trade shocks that could threaten the sustainability of a prevailing fiscal policy affect the fiscal balance through both direct and indirect mechanisms. A highly useful tool to discern the final effect of these and other shocks on the sustainability of fiscal policy is a general equilibrium model. This paper offers such a tool which is proven to be an appropriate resource for future evaluations of fiscal policy in Andean countries. Calibrations of the model to Peru and Colombia are used to explore variants of fiscal reactions that these two countries could have employed to withstand the effects of the negative terms-of-trade shock that Latin America experienced in 2009.
    Keywords: Production & Business Cycles, Natural Resources Management, Fiscal Policy
    Date: 2013–12
  67. By: Labonne, Claire; Lecat, Rémy; Avouyi‑Dovi, Sanvi
    Abstract: The housing market is a central macroprudential policy concern in France due to the significant proportion of residential property loans in bank balance sheets and the high weight of housing in household wealth. The surge in house prices at the start of the 2000s means we cannot rule out the risk of a bubble or a sharp downward correction, even though prices currently seem to be stabilising. However, if the evolution of house prices does start to pose a threat to financial stability, French authorities have access to a number of macroprudential tools that can be used to modify trends in factors such as the provision of housing loans. Using a model, this article attempts to examine the impact of measures which directly or indirectly influence loan interest rates and maturities, or the size of repayments in relation to household income. The empirical results show that these measures have a significant impact on trends in home lending, but a more limited impact on house prices due to the way variations in lending affect housing supply.
    Keywords: Mortgage loans; Housing; Cost and standard of living; Real estate business;
    JEL: E64 E63 E01 D91 D31
    Date: 2014–04
  68. By: Nancy Aireth DAZA BAEZ
    Abstract: En este documento se presenta un análisis de los determinantes del perfil de ahorro para hogares e individuos con el objetivo de contrastar la Hipótesis de Ciclo de Vida, utilizando la metodología expuesta en Deaton y Paxson (2000a y 2000b) con datos de la Encuesta Nacional de Ingresos y Gastos (ENIG) para los periodos 1984-1985, 1994-1995 y 2006-2007. Encontrándose que para el análisis por hogar no hay evidencia que determine el cumplimiento de la Hipótesis del Ciclo de Vida, mientras que para el análisis por individuo si existe.
    Keywords: Colombia, Ciclo de vida, Determinantes del ahorro, Encuesta Nacional de Ingresos y Gastos, Perfil de ahorro.
    JEL: C13 C81 D01 D91 E21
    Date: 2013–12–16
  69. By: Faberman, R. Jason (Federal Reserve Bank of Chicago); Kudlyak, Marianna (Federal Reserve Bank of Richmond)
    Abstract: We use micro data on applications to job openings by individuals on a job search website to study the relationship between search intensity and search duration. Our data allow us to control for several factors that can affect the measured relationship between intensity and duration, including the composition of job seekers and changes in the number of available job openings over the duration of search. We find that a job seeker sends fewer applications per week as search continues. We also find that job seekers who search on the website longer tend to send more applications in every period. We attribute this finding to job seeker heterogeneity. Controlling for the local stock of vacancies does little to affect the result, mainly because job seekers continue to apply to older vacancies well into their search spell.
    Keywords: Job applications; vacancies; labor market search effort; search duration
    JEL: E24 J24 J31
    Date: 2014–05–15
  70. By: Paolo Pini; Roberto Romano
    Abstract: EDF 2014: The Missing Sources for Growth. The Economic and Financial Document (EFD) 2014 for Italy describes a country which does not grow and will hardly grow even in the near future. The document announces a programme of structural reforms in the labour market and for competitiveness which will generate marginal impacts on domestic demand; at the same time, it foresees an over-optimistic growth for export and private investments although ti does not say how it will be realized, given (in a context of measures devoted to respect) the constraints of balanced budget and fiscal consolidation. The recipe for the next few years adopted in the Italian EFD 2014, recommended by the European Commission, is a perverse mix of “expansionary austerity†and “expansionary precariousness†which leaves no room for employment recovery, wage growth, and not even for economic policy supporting domestic demand and industrial policy for innovation.
    Keywords: Economic Growth; Wage Wedge; Jobs Act; Deregulations; Industrial and Innovation Policy
    JEL: E61 J08 J38 O47
    Date: 2014–05–08
  71. By: Drew D. Creal; Jing Cynthia Wu
    Abstract: We develop new procedures for maximum likelihood estimation of affine term structure models with spanned or unspanned stochastic volatility. Our approach uses linear regression to reduce the dimension of the numerical optimization problem yet it produces the same estimator as maximizing the likelihood. It improves the numerical behavior of estimation by eliminating parameters from the objective function that cause problems for conventional methods. We find that spanned models capture the cross-section of yields well but not volatility while unspanned models fit volatility at the expense of fitting the cross-section.
    JEL: C13 E43 G12
    Date: 2014–05
  72. By: Guillaume Allegre (OFCE); Xavier Timbeau (OFCE)
    Abstract: Thomas Piketty’s Capital in the Twenty-First Century proposes a critical analysis of the dynamics of capital accumulation. The book has several objectives: to present the historical dynamics of capital and its distribution up to the early twenty-first century; to offer a prospective analysis of these dynamics up to the end of this century; and, finally, to discuss policy measures that would make it possible to avoid the future it lays out.
    Date: 2014–05
  73. By: Jared Bullen (Treasury, Government of Australia); Michael Kouparitsas (Treasury, Government of Australia); Michal Krolikowski (Treasury, Government of Australia)
    Abstract: Australia’s terms of trade rose significantly over the eight years to 2011 12 following a period of relative constancy over the preceding 40 years. Australian Government fiscal projections from the 2010 11 Budget to the 2013 14 Budget, assumed that beyond the near term forecast period the terms of trade would fall by 20 per cent over the subsequent 15 years. This approach was silent on when the expected decline would end and the level at which the terms of trade would eventually settle. This paper details the projection methodology underlying the terms of trade projection assumption in the 2013 14 MYEFO. In contrast to the earlier approach it provides guidance on the timing of the end of the current expected decline and the associated long run level of the terms of trade. The centrepiece of the new approach is detailed price and volume forecasting modules for Australia’s major export categories, including global demand and supply models for the three major bulk commodities (iron ore, metallurgical coal and thermal coal). Based on this methodology, Australia’s terms of trade are expected to fall at a more rapid rate than previously predicted in the 2013 14 Budget from 2012 13 to 2017 18 and remain reasonably constant thereafter at a level roughly equal to that recorded in 2006 07. As noted in the 2013 14 MYEFO, there are a number of downside risks to this outlook including uncertainty around the global economy, the nominal exchange rate and non-bulk commodity price forecasts. Applying prudent judgement to the model’s outcome results in a long-run terms of trade that settles at the level observed in 2005 06 by 2019 20.
    Keywords: Confidence commodity prices, production cost, mining boom
    JEL: Q00 F17 E37
    Date: 2014–05
  74. By: Prof. Dr. Bernd Meyer (GWS - Institute of Economic Structures Research); Gerd Ahlert (GWS - Institute of Economic Structures Research); Prof. Dr. Hans Diefenbacher (GWS - Institute of Economic Structures Research); Roland Zieschank (GWS - Institute of Economic Structures Research); Prof. Dr. Hans Nutzinger (GWS - Institute of Economic Structures Research)
    Abstract: Der GWS Research Report 2013/1 "Eckpunkte eines ökologisch tragfähigen Wohlfahrtskonzepts" ist die der Abschlussbericht zum gleichnamige dreijährigen Forschungsprojekt für das Bundesumweltministerium. Das Projekt zu einem Wohlfahrtskonzept für die Umweltpolitik mit dem dahinter liegenden Grundstrukturen eines empirisch operationalisierbaren Wohlfahrtsmodells wurde gemeinsam von FFU (Berlin: Roland Zieschank), FEST (Heidelberg: Prof. Dr. Diefenbacher) and GWS (Prof. Dr. Bernd Meyer & Gerd Ahlert) bearbeitet. Es wird im Detail erläutert, welche ökonomischen, ökologischen und sozialen Zusammenhänge im Zuge einer auf nachhaltige Wohlfahrtsentwicklung ausgerichteten empirisch fundierten umweltpolitischen Beratung Berücksichtigung finden sollten. Die entsprechenden Überlegungen bilden eine wichtige Grundlage bei der künftigen Analyse umweltpolitischer Innovations- und Transformationsprozesse unter der Perspektive einer ökologisch tragfähigen Wohlfahrtsentwicklung. Obwohl im Zentrum des Vorhabens die adäquate Berücksichtigung der ökologischen Dimension innerhalb des zu entwickelnden nachhaltigen Wohlfahrtsmodells steht, werden auch zentrale Ansatzpunkte zur Berücksichtigung der sozialen Dimension aufgezeigt.
    Keywords: Ökologische Ziele, planetare Belastungsgrenzen, nachhaltiges Wohlfahrtsmodel, ökologisch tragfähiges Wohlfahrtskonzept, sustainable development, Green Economy
    JEL: B41 E17 E61 I31 P48 O44 P48 Q58
    Date: 2013
  75. By: Halkos, George; Paizanos, Epameinondas
    Abstract: This paper examines the effect of economic growth and government spending on the environment using a panel of 71 countries for the time period 1970-2008. In particular, we test the hypothesis of the existence of an inverted U-shaped relationship between economic performance and pollution, as well as the hypothesis of a negative direct relationship between fiscal spending and pollution. To take into account that environmental degradation may respond to changes in income and government spending with a time lag, due to technological and institutional reasons, we apply appropriate dynamic econometric methods. We report the estimates for both the short-run and long-run effects on two different air pollutants, namely SO2 and CO2, distinguishing the results for different levels of economic development. Policy implications range depending on the level of income of the considered countries.
    Keywords: Government expenditure; economic growth; environment; dynamics.
    JEL: E60 H50 Q53 Q54 Q56
    Date: 2014–05
  76. By: Luis Fernando Melo Velandia; Daniel Parra Amado
    Abstract: Este documento estima los efectos calendario sobre la industria manufacturera en Colombia para el periodo comprendido entre enero de 1990 y febrero de 2014. Para ello, se implementaron las metodologías de TRAMO-SEATS de Gómez y Maravall [1994, 1996] y TBATS de De~Livera et al. [2011]. Los resultados muestran que los efectos calendario sobre la industria son significativos, siendo el más relevante la semana santa. Aunque en ambos métodos los coeficientes asociados a dichos efectos impactan negativamente la producción industrial, en TRAMO-SEATS la magnitud de ellos es mayor que la estimada por TBATS. Se encuentra que la diferencia entre las tasas de crecimiento anual de los métodos cuando se modelan los efectos calendario respecto a la serie original son, en promedio, 1,36% para el primero y 2,82% para el segundo. Por último, la semana santa tiene un impacto promedio de 5,13% y 4,60 %, respectivamente.
    Keywords: Efectos calendario, descomposición de series, estacionalidad.
    JEL: C22 C50 E23
    Date: 2014–05–14
  77. By: Mutreja, Piyusha (Syracuse University); Ravikumar, B. (Federal Reserve Bank of St. Louis); Sposi, Michael J. (Federal Reserve Bank of Dallas)
    Abstract: Almost 80 percent of capital goods production in the world is concentrated in 10 countries. Poor countries import most of their capital goods. We argue that international trade in capital goods has quantitatively important effects on economic development through two channels: (i) capital formation and (ii) aggregate TFP. We embed a multi country, multi sector Ricardian model of trade into a neoclassical growth model. Barriers to trade result in a misallocation of factors both within and across countries. We calibrate the model to bilateral trade flows, prices, and income per worker. Our model matches several trade and development facts within a unified framework. It is consistent with the world distribution of capital goods production, cross-country differences in investment rate and price of final goods, and cross-country equalization of price of capital goods and marginal product of capital. The cross-country income differences decline by more than 50 percent when distortions to trade are eliminated, with 80 percent of the change in each country’s income attributable to change in capital. Autarky in capital goods results in an income loss of 17 percent for poor countries, with all of the loss stemming from decreased capital.
    JEL: E22 F11 O11 O4
    Date: 2014–05–16
  78. By: Runnemark, Emma (Department of Economics, Lund University); Hedman, Jonas (Department of IT Management, Copenhagen Business School); Xiao, Xiao (Department of IT Management, Copenhagen Business School)
    Abstract: We conduct an incentivized experiment to test whether the willingness to pay is higher for debit cards compared to cash for three consumer products. Our findings support this conjecture also after controlling for cash availability, spending type, price familiarity and consumption habits of the products. The evidence thus suggests that different representations of money matters for consumer behavior.
    Keywords: payment methods; debit cards; cash; willingness-to-pay
    JEL: D03 D10 E42
    Date: 2014–05–21
    Abstract: Uno de los objetivos de la política económica de mayor relevancia en los próximos años es aprovechar las oportunidades internas y externas que tendrá el país. No obstante, la evidencia muestra que la economía colombiana no ha podido superar de manera sostenida niveles de crecimiento por encima del 4.5%. Al mismo tiempo que se presentan niveles de desempleo por encima de dos dígitos. Este trabajo presenta estimaciones por medio de diferentes metodologías del crecimiento económico potencial y de la tasa natural de desempleo. Se encuentra que el PIB potencial de la actualidad se ubica entre un 4.3 y 4.5% al año, y la tasa natural de desempleo actual está alrededor de 10.5%. Estas cifras contrastan con las necesidades que en materia social se requieren para conducir al país por una senda de progreso económico y social. De tal manera se han identificado las limitaciones al crecimiento en diferentes áreas, los desafíos que se enfrentan y presentamos la cuantificación del impacto sobre el crecimiento económico de largo plazo, el desempleo y la pobreza, si se logran superar.
    Keywords: Producto potencial, Tasa de desempleo, Tasa natural de desempleo, Brecha de producto, Modelos de estado espacio, Equilibrio general
    JEL: C01 J01 J64 C13 C51 E17
    Date: 2013–08–02
  80. By: Juan Carlos ECHEVERRY
    Abstract: En la última década se ha reactivado el debate académico sobre los determinantes fundamentales del crecimiento a largo plazo. Por lo menos cuatro tendencias intelectuales han luchado por la supremacía. La primera, apoya la primacía de la innovación y la difusión tecnológica; la segunda, defiende la primacía de las instituciones típicas de las economías de mercado, como son el estado de derecho, la validez de los derechos de propiedad, las restricciones al ejercicio del poder del ejecutivo y la preeminencia de un sistema de balances y contrapesos, que promueve el emprendimiento y la toma de riesgo en una economía. La tercera, destaca la geografía como el determinante o limitante clave de la prosperidad a largo plazo, a través de la influencia de la dotación de recursos naturales, el clima, las enfermedades y los desafíos topográficos, medio-ambientales. Por último, se destaca el comercio internacional y la integración económica, visión que obtuvo fuerza a raíz del éxito de una serie de economías del este de Asia entre los años sesenta y el fin del siglo XX. En este orden de ideas, la tarea futura, en las economías como la Colombiana, consiste en superar los cuellos de botella que limitan el desarrollo de largo plazo: el aislamiento geográfico de muchas de nuestras regiones, que requiere mejor infraestructura. Mejor la educación, la innovación y la tecnificación productiva, que permitirán acceder a los mercados más exigentes, con productos sofisticados, compitiendo en muchos bienes y servicios con lo mejor del mundo. De otro lado, las dos últimas décadas han dejado posibilidades inexplotadas en la agricultura y la vivienda. Esa es la verdadera lógica detrás de las locomotoras propuestas por el presidente Santos, tarea esencial de la presente década.
    Keywords: Crecimiento de largo plazo, locomotoras y vagones, ahorro, estabilidad, equidad, bonanza minero-energética, auge sostenido.
    JEL: E61 F43
    Date: 2014–01–28
  81. By: Kwok Ping Tsang; Gregory S. Amacher; Olli-Pekka Kuuselaa
    Abstract: Tradable permit markets for carbon dioxide (C02) emissions respond to short-run fluctuations in economic activity. To provide stability, both price and quantity interventions have been proposed. This paper focuses on the relative performance of fixed versus intensity allowances in the presence of both productivity and energy price uncertainty. Both instruments achieve the same steady-state emissions reduction target of 20 percent, which is similar to the current policy proposals, and the regulator then chooses the allowance policy that has the lowest expected abatement cost. A standard real business cycle (RBC) model is used to solve for the expected abatement cost under both policies. Expected cost outcomes are compared using data from the U. S. economy as the baseline scenario. Unlike previous studies, this paper's results show that, under a reasonable model calibration, fixed allowances outperform intensity allowances by a cost difference of as much as 30 percent.
    Keywords: Climate Finance, Productivity, IDB-WP-450
    Date: 2013–12
  82. By: Unbreen Qayyum (Pakistan Institute of Development Economics, Islamabad); Hasan Siftain (Pakistan Institute of Development Economics, Islamabad)
    Abstract: This study empirically investigates the impact of foreign capital and governance on the economic growth by employing country level data from 1984 to 2010 for Asian developing countries. Governance; foreign aid and FDI positively affect the growth (per capita income) however, higher levels of debt are associated with slow growth rates. Results of the study are statistically highly significant and in accordance to prior expectations and economic theory. The robustness of the results is confirmed by performing the sensitivity analysis.
    Keywords: External Debt; Foreign Aid; Governance; FDI; Economic Growth
    JEL: E02 E20 F34 F35 F43
    Date: 2014

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