nep-mac New Economics Papers
on Macroeconomics
Issue of 2014‒08‒02
fifty-one papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Overaccumulation, Interest, and Prices By Christopher M. Gunn
  2. A Model of Housing and Credit Cycles with Imperfect Market Knowledge By Pei Kuang
  3. Sintonía fina de la política monetaria mexicana entre objetivos e instrumentos durante la crisis 2007-2009 By Galán-Figueroa, Javier; Venegas-Martínez, Francisco
  4. Demand, credit and macroeconomic dynamics: A microsimulation model By Meijers H.H.M.; Nomaler Z.O.; Verspagen B.
  5. The Excess Demand Theory of Money By Kehrwald, Bernie
  6. The Macroeconomics of Shadow Banking By Alan Moreira; Alexi Savov
  7. A DSGE model with endogenous entry and exit By Miguel Casares; Jean-Christophe Poutineau
  8. A Note on Learning in a Credit Economy By Pei Kuang
  9. Structural reforms in a debt overhang By Javier Andrés; Óscar Arce; Carlos Thomas
  10. The European Monetary Union and Imbalances: Is it an Anticipation Story ? By D. Siena
  11. Signalling fiscal stress in the euro area: A country-specific early warning system By Pablo Hernández de Cos; Enrique Moral-Benito; Gerrit B. Koester; Christiane Nickel
  12. Estimation of the Basic New Keynesian Model for the Economy of Romania By Ifrim, Adrian
  13. Inflating Away the Public Debt? An Empirical Assessment By Jens Hilscher; Alon Raviv; Ricardo Reis
  14. Identification of financial factors in economic fluctuations By Francesco Furlanetto; Francesco Ravazzolo; Samad Sarferaz
  15. Presidents and the U.S. Economy: An Econometric Exploration By Alan S. Blinder; Mark W. Watson
  16. A Tourism Financial Conditions Index By Chia-Lin Chang; Hui-Kuang Hsu; Michael McAleer
  17. Rebalancing Frequency and the Welfare Cost of Inflation By Andre C. Silva
  18. Bank Capital Adjustment Process and Aggregate Lending. By T. Duprey; M. Lé
  19. The role of liquidity shocks in the housing market By de La Paz, Paloma Taltavull; White, Michael
  20. A Home Individual Savings Account, An opportunity for the English underprivileged? By De KONING, Kees
  21. A Minimum-Wage Model of Unemployment and Growth: The Case of a Backward-Bending Demand Curve for Labor By Richard A. Brecher; Till O. Gross
  22. Foreign exchange reserve diversification and the "exorbitant privilege" By Pietro Cova; Patrizio Pagano; Massimiliano Pisani
  23. BoGGEM: a dynamic stochastic general equilibrium model for policy simulations By Dimitris Papageorgiou
  24. Selected Macroeconomic Variables and Stock Market Movements: Empirical evidence from Thailand By Forson, Joseph Ato; Janrattanagul, Jakkaphong
  25. On the Quantity Theory of Money, Credit, and Seigniorage By Soldatos, Gerasimos T.; Varelas, Erotokritos
  26. Competitive Search Equilibrium in the Credit Market under Asymmetric Information and Limited Commitment By Song, Jae Eun
  27. Property Bubbles and the Driving Forces in the PIGS Countries By Klotz, Philipp; Lin, Tsoyu Calvin; Hsu, Shih-Hsun
  28. The Social Aversion to Intergenerational Inequality and the Recycling of a Carbon Tax By Frederic Gonand
  29. Macroeconomic and credit forecasts in a small economy during crisis: A large Bayesian VAR approach By Dimitris P. Louzis
  30. Implications of Heterogeneity in Preferences, Beliefs and Asset Trading Technologies for the Macroeconomy By YiLi Chien; Harold L. Cole; Hanno Lustig
  31. Shake me the money! By Francesco Porcelli; Riccardo Trezzi
  32. What drives Estonian housing market cycles ? By Kolbre, Ene; Aus, Veronika; Kahre, Kristian
  33. The determinants of vat revenue efficiency: recent evidence from Greece By Athanasios O. Tagkalakis
  34. Aggregate Demand, Idle Time, and Unemployment By Pascal Michaillat; Emmanuel Saez
  35. Une théorie des relations sociales emploi et inégalité By Jellal, Mohamed
  36. The impact of the business cycle on the construction companies’ sector inselected states By Wolski, Rafal; Zaleczna, Magdalena
  37. Asset Price Inflation in Dutch Real Estate Office Markets By Schoenmaker, Dennis; Van der Vlist, Arno
  38. Behind and beyond the (headcount) employment rate By Andrea Brandolini; Eliana Viviano
  39. Banking crises and sovereign defaults in emerging markets: exploring the links By Irina Balteanu; Aitor Erce
  40. Information, Misallocation and Aggregate Productivity By Joel M. David; Hugo A. Hopenhayn; Venky Venkateswaran
  41. Inflation and indivisible investment in developing economies By Eden, Maya; Nguyen, Ha
  42. An Exploration of the International Comparison Program’s New Global Economic Landscape By Martin Ravallion
  43. Does fairness matter for the success of fiscal consolidation? By Georgia Kaplanoglou; Vassilis T. Rapanos; loanna C. Bardakas
  44. Trade, Wages, and Collective Bargaining: Evidence from France. By J. Carluccio; D. Fougère; E. Gautier
  45. Containing housing price inflation in China: is local intervention more effective than central intervention? By Cao, Albert
  46. Capital Needed: Canada Needs More Robust Business Investmen By Benjamin Dachis; William B.P. Robson; Nicholas Chesterley
  47. Do balanced-budget rules increase growth? By Stone, Joe
  48. Inflation-Protecting Asset Allocation: A Downside Risk Analysis By Koniarski, Tim; Sebastian, Steffen S.
  49. A finite set of equilibria for the indeterminacy of linear rational expectations models By Jean-Bernard, Chatelain; Kirsten, Ralf
  50. Density forecasts with MIDAS models By Knut Are Aastveit; Claudia Foroni; Francesco Ravazzolo
  51. The Representative Household Assumption Requires sustainable Heterogeneity in Dynamic Models By Harashima, Taiji

  1. By: Christopher M. Gunn (Department of Economics, Carleton University)
    Abstract: An emerging view of business cycles from the news-shock literature suggests that recessions may occur when agents depress their demand for new capital upon the realization that they have accumulated too much conditional on current information. In this paper I use a New Keynesian model with a financial accelerator to study the behaviour of interest and prices under both a "technology boom-bust" driven by changes in expectation about TFP, and a "credit boom-bust" driven by changes in expectations about the efficiency of the financial sector. While the two scenarios are similar in that they both lead to a run-up and then sharp drop-off in new capital and debt, I show that the behaviour of interest and prices depends critically on the nature of the new-shock driving the overaccumulation. In particular, the boom-phase of the TFP boom-bust is characterized by below-trend inflation or deflation, whereas that of the credit boom-bust is characterized by above-trend but low inflation. In contrast, inflation falls below-trend in the bust phases of both. I show that consistent with results elsewhere in the literature, stricter inflation-targeting fails to pull the economy toward the efficient equilibrium during the boom phase of the TFP boom-bust. In contrast, stricter inflation targeting pushes the economy closer to the flexible-price response during the boom-phase of the credit boom-bust. In both cases however, conditional on realization of overaccumulation, in inflation-targeting pulls the economy towards the flexible price equilibrium.
    Keywords: expectations-driven business cycle, boom-bust, news shock, monetary policy, overaccumulation, in?ation, ?nancial accelerator, Great Recession.
    JEL: E3 E44
    Date: 2014–07–10
  2. By: Pei Kuang
    Abstract: The paper presents a model of housing and credit cycles featuring distorted beliefs and comovement and mutual reinforcement between house price expectations and price developments via credit expansion/contraction. Positive (negative) development in house price fuels optimism (pessimism) and credit expansion (contraction), which in turn boost (dampen) housing demand and house prices and reinforce agents' optimism (pessimism). Bayesian learning about house prices can endogenously generate self-reinforcing booms and busts in house prices and significantly strenthen the role of collateral constraints in aggregate fluctuations. The model can quantitatively account for the 2001-2008 U.S. boom-bust cycle in house prices and associated household debt and consumption dynamics. It also demonstrates that allowing for imperfect knowledge knowledge of agents, a higher leveraged economy is more prone to self-reinforcing fluctuations.
    Keywords: Boom Bust, Collateral Constraints, Learning, Leverage Housing
    JEL: D83 D84 E32 E44
    Date: 2014–03
  3. By: Galán-Figueroa, Javier; Venegas-Martínez, Francisco
    Abstract: This paper carries out an exploration of how the Mexican Bank Central conducted its monetary policy during the crisis 2007-2009 based on the analytical framework of the neoclassical macroeconomics. It is shown that in that period it was followed a countercyclical policy to reduce the crisis adverse effect on economic activity. To accomplish the above, Central Bank used a fine-tuning strategy between objectives and instruments. We estimate a Structural Vector Autoregressions model (SVAR), which allows us to show empirical evidence that Mexican monetary authority reacted in the short term with a countercyclical policy to stimulate economic activity through of a monetary expansion accompanied by a slow reaction of the general price level; while in the long term the dynamics of the general price level increased the interest rate due to an augment in agents’ inflation expectations, thereby the economic activity was negatively affected.
    Keywords: Política monetaria, reglas de política y blancos de inflación.
    JEL: E52
    Date: 2014–07–24
  4. By: Meijers H.H.M.; Nomaler Z.O.; Verspagen B. (UNU-MERIT)
    Abstract: We develop a microsimulation model for the macroeconomic business cycle. Our model is based on three main ideas i we want to specify how macroeconomic coordination is achieved without a dominating influence of price mechanisms, ii we want to incorporate the stock-flow-consistent approach that has become popular in post-Keynesian macroeconomics, and iii we want to allow for bankruptcies as a major mechanism in the business cycle. Compared to existing stock-flow-consistent models, our model has relatively few equations. It is operationalized using micro, agent-based simulation. The results show a clear business cycle that is driven by accumulation of financial assets and the effects this has on the real economy. By changing some of the key parameters, we show how the nature of the business cycle changes as a result of changes in the assumed behaviour of agents.
    Keywords: Current Heterodox Approaches: General; Current Heterodox Approaches: Institutional; Evolutionary; Macroeconomics and Monetary Economics: General; Business Fluctuations; Cycles;
    JEL: E00 E32 B50 B52
    Date: 2014
  5. By: Kehrwald, Bernie
    Abstract: This paper introduces a new monetary theory. A simple model is described in which a central bank sets the interest rate in a way that the excess demand for credits equals the preferred amount of money. It is compatible with the Keynesian liquidity preference theory and the neoclassical loanable funds theory and can be used to explain a series of phenomena. It is very suitable for introductory textbooks.
    Keywords: money, interest rate, credit, central bank, savings, investments
    JEL: E40 E50 E51
    Date: 2014–07–27
  6. By: Alan Moreira; Alexi Savov
    Abstract: We build a macroeconomic model that centers on liquidity transformation in the financial sector. Intermediaries maximize liquidity creation by issuing securities that are money-like in normal times but become illiquid in a crash when collateral is scarce. We call this process shadow banking. A rise in uncertainty raises demand for crash-proof liquidity, forcing intermediaries to delever and substitute toward safe, collateral- intensive liabilities. Shadow banking shrinks, causing the liquidity supply to contract, discount rates and collateral premia spike, prices and investment fall. The model produces slow recoveries, collateral runs, and flight to quality and it provides a framework for analyzing unconventional monetary policy and regulatory reform proposals.
    JEL: E44 E52 G01 G21 G23
    Date: 2014–07
  7. By: Miguel Casares (Universidad Pública de Navarra University); Jean-Christophe Poutineau (Université de Rennes I)
    Abstract: This paper describes a DSGE model where the extensive margin of activity —the number of varieties available for consumption—, depends on micro-founded decisions of entry and exit in the goods market. Both the extended model and a more conventional version have been estimated with US data during the Great Moderation period. Our main ?ndings are two. First, the role of technology shocks for business cycle ?uctuations increases signi?cantly due to the ?ows of entry and exit. Second, the extensive margin of activity explains most of the business cycle reactions to supply-side shocks, whereas the intensive margin (?rm-level output) takes most of the adjustment after demand-side shocks.
    Keywords: entry and exit, DSGE models, US business cycles
    JEL: E20 E32
    Date: 2014–07
  8. By: Pei Kuang
    Abstract: This paper studies the interaction of agents' collateral price beliefs, credit constraint and aggregate economic activity over the business cycle. Learning strengthens the role of collateral constraints in aggregate fluctuations. Under Heterogeneous learning rules, numerical simulations illustrate that bankruptcy on the part of borrowers arises sooner as they track the economy faster.
    Keywords: Learning, Collateral Constraint, Bankruptcy, Heterogeneity
    JEL: D83 E44 G14
    Date: 2013–12
  9. By: Javier Andrés (University of Valencia); Óscar Arce (Banco de España); Carlos Thomas (Banco de España)
    Abstract: We assess the effects of reforms in product and labor markets in a model economy featuring credit restrictions and pre-existing long-term debt. Both elements, which are core features of the current scenario faced by some euro area countries, combine to produce a slow and protracted deleveraging of the private sector and a persistent recession following a negative financial shock. In this environment, we show that product and labor market reforms may stimulate output and employment even in the short run, despite their defl ationary effects. Furthermore, by favoring a faster recovery of investment and collateral values, product market reforms bring forward the end of deleveraging and the exit from recession.
    Keywords: deleveraging, collateral constraints, long-run debt, structural reforms
    JEL: E43 E44 E65 G21
    Date: 2014–07
  10. By: D. Siena
    Abstract: This paper investigates the sources of current account imbalances accumulated within the European Monetary Union before the Great Recession. First, it documents that starting in 1996, before the actual introduction of the euro, countries in the euro area periphery experienced increasing current account deficits, appreciating real exchange rates and output growing faster than trends. Then, it develops and estimates a small open economy DSGE model which encompasses a variety of possible unanticipated and anticipated shocks. The main finding is that anticipated reductions in international borrowing costs can explain the observed evidence while productivity increases (anticipated or not) cannot: falling borrowing costs implies appreciation while increasing productivity implies depreciation. Quantitatively, anticipated shocks account for one third of output, half of real exchange rate and two third of current account fluctuations. In particular, anticipated fluctuations in international borrowing costs explain respectively 30 and 40 percent of current account and real exchange rate movements.
    Keywords: Current Account, Business cycles, Anticipated Shocks.
    JEL: E32 F32 F41
    Date: 2014
  11. By: Pablo Hernández de Cos (Banco de España); Enrique Moral-Benito (Banco de España); Gerrit B. Koester (Banco Central Europeo); Christiane Nickel (Banco Central Europeo)
    Abstract: The sovereign debt crisis in the euro area has raised interest in early warning indicators, aimed at signalling the build-up of fiscal stress in advance and helping prevent crises by means of a timely counteraction of fiscal and macroeconomic policies. This paper presents possible improvements to enhance existing early warning indicators for fiscal stress, especially for the euro area. We show that a country-specific approach could strongly increase the signalling power of early warning systems. Finally, we draw policy conclusions for the setting-up and application of a system of early warning indicators for fiscal stress.
    Keywords: fiscal policy, studies of particular policy episodes, general outlook and conditions, deficit, surplus, debt, debt management, sovereign debt, international lending and debt problems.
    JEL: E62 E65 E66 H62 H63 F34
    Date: 2014–07
  12. By: Ifrim, Adrian
    Abstract: In this paper a simple New-Keynesian DSGE model is derived and then estimated for the Romanian economy. Some parameters are calibrated and others are estimated on Romania’s data using Bayesian techniques. The model fit is evaluated and the effects of different types of shock are presented.
    Keywords: New-Keynesian,Romania,Impulse-Response
    JEL: C11 E32 E47
    Date: 2014
  13. By: Jens Hilscher; Alon Raviv; Ricardo Reis
    Abstract: We propose and implement a method that provides quantitative estimates of the extent to which higher- than-expected inflation can lower the real value of outstanding government debt. Looking forward, we derive a formula for the debt burden that relies on detailed information about debt maturity and claimholders, and that uses option prices to construct risk-adjusted probability distributions for inflation at different horizons. The estimates suggest that it is unlikely that inflation will lower the US fiscal burden significantly, and that the effect of higher inflation is modest for plausible counterfactuals. If instead inflation is combined with financial repression that ex post extends the maturity of the debt, then the reduction in value can be significant.
    JEL: E31 E64 G18
    Date: 2014–07
  14. By: Francesco Furlanetto (Norges Bank (Central Bank of Norway)); Francesco Ravazzolo (Norges Bank (Central Bank of Norway) and BI Norwegian Business School); Samad Sarferaz (ETH Zürich)
    Abstract: We estimate demand, supply, monetary, investment and financial shocks in a VAR identified with a minimum set of sign restrictions on US data. We find that financial shocks are major drivers of fluctuations in output, stock prices and investment but have a limited effect on inflation. In a second step we disentangle shocks originating in the housing sector, shocks originating in credit markets and uncertainty shocks. In the extended set-up financial shocks are even more important and a leading role is played by housing shocks that have large and persistent effects on output.
    Keywords: VAR, Sign restrictions, Financial shocks, External finance premium, Housing, Uncertainty
    JEL: C11 C32 E32
    Date: 2014–07–18
  15. By: Alan S. Blinder; Mark W. Watson
    Abstract: The U.S. economy has grown faster—and scored higher on many other macroeconomic metrics—when the President of the United States is a Democrat rather than a Republican. For many measures, including real GDP growth (on which we concentrate), the performance gap is both large and statistically significant, despite the fact that postwar history includes only 16 complete presidential terms. This paper asks why. The answer is not found in technical time series matters (such as differential trends or mean reversion), nor in systematically more expansionary monetary or fiscal policy under Democrats. Rather, it appears that the Democratic edge stems mainly from more benign oil shocks, superior TFP performance, a more favorable international environment, and perhaps more optimistic consumer expectations about the near-term future. Many other potential explanations are examined but fail to explain the partisan growth gap.
    JEL: E30 E60
    Date: 2014–07
  16. By: Chia-Lin Chang (Department of Applied Economics, Department of Finance, National Chung Hsing University, Taiwan); Hui-Kuang Hsu (Department of Finance and Banking National Pingtung Institute of Commerce, Taiwan); Michael McAleer (Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam and Tinbergen Institute, The Netherlands, Department of Quantitative Economics, Complutense University of Madrid, and Institute of Economic Research, Kyoto University.)
    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 Financial Conditions Index, Unbiased Estimation.
    JEL: B41 E44 E47 G32
    Date: 2014–01
  17. By: Andre C. Silva
    Abstract: Cash-in-advance models usually require agents to reallocate money and bonds in fixed periods, every month or quarter, for example. I show that fixed periods underestimate the welfare cost of inflation. I use a model in which agents choose how often they exchange bonds for money. In the benchmark specification, the welfare cost of ten percent instead of zero inflation increases from 0.1 percent of income with fixed periods to one percent with optimal periods. The results are robust to different preferences, to different compositions of income in bonds or money, and to the introduction of capital and labor. JEL codes: E3, E4, E5
    Keywords: portfolio rebalancing frequency, welfare cost of inflation, money demand, cash-in-advance models, market segmentation
    Date: 2014
  18. By: T. Duprey; M. Lé
    Abstract: This paper proposes a new micro-founded measure to quantify the aggregate capitalisation of banking sectors taking into account both market discipline and regulatory constraints. It allows studying the connection between micro capital shortfalls from an implicit bank specific capital target and macro impacts of capital shortages on aggregate lending. (i) Our quantitative country-wide index of bank capitalisation is consistent with the qualitative reports of the ECB Bank Lending Survey. (ii) This index correlates with future fluctuations in aggregate lending,especially when a banking system is under-capitalised. (iii) The adjustment of capital constrained banks mostly impact loans to domestic non-financial agents. Thus our measure suggests that (a) countercyclical capital requirements may be less effective if market constraints are more important, and (b) slow moving balance sheet variables can help detect vulnerabilities and reversals in the lending cycle.
    Keywords: implicit bank capital target, dynamic panel model, bank lending survey, aggregate lending, early-warning indicator.
    JEL: C23 E51 G01 G21
    Date: 2014
  19. By: de La Paz, Paloma Taltavull; White, Michael
    Abstract: In a previous paper (Taltavull and White, 2012) we analysed the role of money supply, migration and mortgage finance in house price evolution. Using a VECM framework we examined these variables together with income, inflation, and interest rates for both Spain and the UK. The results indicated an important role for income, mortgages and migration in UK house price movements, more so than in Spain. Financial deregulation, and increasing monetary integration have been the background against which flows of liquidity have increased. Increasing interbank flows have also linked markets in different countries providing increased liquidity that can impact the mortgage market. Traditionally, monetary policy used interest rate changes to affect GDP. However this policy tool impacts asymmetrically in Eurozone economies and is generally constrained by the highly internationally interconnected money market. In this paper we build upon our previous work and focus on the role that changes in liquidity have played in the evolution of house prices. In doing this we identify the main channels of transmission affecting the housing market. In addition we also consider how the housing market, being impacted by increased liquidity can also feedback to aggregate money supply. The models tested examine Spain and the UK and identify short run and permanent effects in the relationship between liquidity and house prices.
    Date: 2014
  20. By: De KONING, Kees
    Abstract: In the U.K. public housing policy has sought to achieve (at least one of) three distinguished goals: to provide shelter and accommodation for all families, to encourage home ownership and to encourage construction as a tool of counter-cyclical macroeconomic policy. Over the last decade, individual households in England and Wales, especially the young and the below-median income ones, have struggled to buy or even rent their homes. For the most needy, income support and housing benefits are being granted to enable them to pay rent. More recently the U.K. government established a scheme to help first time buyers to get onto the property ladder. No scheme exists however, which would help the underprivileged to save more when house prices and rents rise faster than average wages. Such a scheme could be called the Home Individual Savings Account or HISA. The scheme will help to nullify the gap between average house price movements and average wages. Who could be eligible for participating in the scheme and how it could work is set out in this paper.
    Keywords: Home Individual Savings Account (HISA), savings depreciation, U.K. house prices and wages movements, underprivileged income earners, U.K. housing policy
    JEL: E21 E32 E61 R2
    Date: 2014–07–23
  21. By: Richard A. Brecher (Department of Economics, Carleton University); Till O. Gross (Department of Economics, Carleton University)
    Abstract: We add a minimum wage and hence involuntary unemployment to a conventional two-sector model of a perfectly competitive economy with optimal saving and endogenous growth. Our resulting model highlights the possible case of a backward-bending demand curve for labor, along which a hike in the minimum wage might increase total employment. This possibility provides theoretical support for some controversial empirical studies, which challenge the textbook prediction of an inverse relationship between employment and the minimum wage. Our model also implies that a minimum-wage hike has negative implications for both the growth rate and lifetime utility.
    Keywords: Optimal growth, Minimum wage, Learning by doing, Involuntary unemployment
    JEL: E24 O41
  22. By: Pietro Cova (Bank of Italy); Patrizio Pagano (Bank of Italy); Massimiliano Pisani (Bank of Italy)
    Abstract: We assess the global macroeconomic implications of different strategies of official reserve management by developing a large scale new-Keynesian dynamic general equilibrium model of the world economy, calibrated on the euro area, the United States, China, Japan and the rest of the world. An increase in global demand for euros would boost euro-area aggregate demand because of the reduction in euro-area interest rates (the main benefit associated with the “privilege” of being a global currency). If the higher demand for euros is associated with lower demand for US dollars, then US economic activity falls because of higher interest rates, which depress domestic aggregate demand, while the external balance improves; countries accumulating reserves continue to run a trade surplus, as exports to the euro-area increase. We also compute welfare gains/costs for all economies.
    Keywords: global imbalances, global currency, dynamic general equilibrium modelling
    JEL: F33 F41 C51 E52
    Date: 2014–07
  23. By: Dimitris Papageorgiou (Bank of Greece)
    Abstract: This paper presents the theoretical foundations and dynamic properties of a dynamic stochastic general equilibrium (DSGE) model designed for quantitative policy analysis and counterfactual exercises. The approach of the paper can be summarized as follows. First, we present the model’s theoretical framework and building blocks. Then, we calibrate the model to the Greek economy and examine the dynamic properties of the model by inspecting the sample moments produced by the model, reporting impulse response functions to a number of shocks, and by performing variance decomposition analysis. The results indicate that the model performs quite well in these contexts
    Keywords: Dynamic stochastic general equilibrium model; Small open economy; Greece
    JEL: E27 E30 E52 E60
    Date: 2014–05
  24. By: Forson, Joseph Ato; Janrattanagul, Jakkaphong
    Abstract: This paper investigates and analyzes the long-run equilibrium relationship between the Thai stock Exchange Index (SETI) and selected macroeconomic variables using monthly time series data that cover a 20-year period from January 1990 to December 2009. The following macroeconomic variables are included in our analysis: money supply (MS), the consumer price index (CPI), interest rate (IR) and the industrial production index (IP) (as a proxy for GDP). Our findings prove that the SET Index and the selected macroeconomic variables are cointegrated at I (1) and have a significant equilibrium relationship over the long run. Money supply demonstrates a strong positive relationship with the SET Index over the long run, whereas the industrial production index and consumer price index show negative long-run relationships with the SET Index. Furthermore, in non-equilibrium situations, the error correction mechanism suggests that the consumer price index, industrial production index and money supply each contribute in some way to restore equilibrium.In addition, using Toda and Yamamoto’s augmented Granger causality test,we identify a bi-causal relationship between industrial production and money supply and unilateral causal relationships between CPI and IR, IP and CPI, MS and CPI, and IP and SETI, indicating that all of these variables are sensitive to Thai stock market movements. The policy implications of these findings are also discussed.
    Keywords: Macroeconomic Variables; Cointegration; Thai Stock Exchange Index (SETI); T-Y Augmented Granger-Causality
    JEL: C0 C01 C1 C2 C5 C58
    Date: 2014–06–30
  25. By: Soldatos, Gerasimos T.; Varelas, Erotokritos
    Abstract: According to this note, the sectoral approach towards a quantity theory of credit is too vague in its predictions. A quantity theory of seigniorage approach is proposed in its place, arriving at the conclusion that the financial system may be held responsible for price and output fluctuations to the extent commercial bank seigniorage alters the stock of money in circulation considerably. If not, the financial sector can become the source of instability by affecting profitability in the real sector through a Goodwin-type interaction. These trends could be countered by an interest rate rule based on deposit habits and on the deposit rate, and supplemented perhaps by a policy of influencing these habits and manipulating the deposit rate.
    Keywords: Quantity theory, Commercial bank seigniorage, Instability
    JEL: E3 E4 E5
    Date: 2014
  26. By: Song, Jae Eun
    Abstract: This paper develops a model of a competitive search credit market under hidden information and limited commitment. Using the model, it provides a theoretical account that links time delays and costs in financial intermediation as well as lack of collateral to the distribution of credit supply and interest rate spreads. The link sheds light on and explains the possibility of pure credit rationing due to the credit frictions. This paper also demonstrates the possibility of contract dispersion among homogeneous borrowers.
    Keywords: credit frictions, competitive search, contract, market tightness
    JEL: D82 E43 E51 G21
    Date: 2014–07
  27. By: Klotz, Philipp; Lin, Tsoyu Calvin; Hsu, Shih-Hsun
    Abstract: The PIGS countries stand in the spotlight of the current financial crisis in Europe. The boom and bust of the real estate sector was one of the major sources putting these countries into an economic downturn. This paper determines the extent to which these countries experienced property bubbles and sheds light on the role of monetary policy in the formation of bubbles. We draw from Stiglitz’s (1990) theory on asset bubbles and apply the direct capitalization approach through weighted average cost of capital (WACC) to identify real estate bubbles in the period from 1999 to 2012. In the next step we apply VAR and VECM models to investigate short- and long-run dynamics between the monetary policy of the ECB and property bubbles in the PIGS countries. Our findings indicate that Spain and Ireland experienced the largest positive bubble formation, followed by Portugal with a small bubble. In contrast to that, Greece experienced a strong negative bubble. While we find only a very weak short-run relationship between monetary policy and bubble formation in Portugal, we find both, evidence for a long- and short run relationship in the case of Ireland, Greece and Spain. The varying extent of the bubble formation and the differing impact of the monetary policy on the bubble across the PIGS countries can be mainly attributed to characteristics in the domestic financial-, fiscal- and macroprudential-system. This paper provides strong evidence that countries with very low interest rates and low to moderate tax rate as well as high loan-to-value ratios have the potential to experience large property bubbles. Central bank’s policies are crucial to trigger the boom and burst of property bubbles by manipulating the interest rate and availability of lending for house purchase. As this research only covers aggregate data for entire countries, diverging developments within each country are not captured. Future research could contribute to the literature by focusing on property market developments in specific cities or regions.
    Date: 2013
  28. By: Frederic Gonand
    Abstract: Redistributing the income of a carbon tax impacts the economic activity and the intergenerational inequality, which both influence the intertemporal social welfare. Thus the way a social planner recycles a carbon tax is influenced by its degree of aversion to intergenerational inequality. This article analyses the effect of social aversion to intergenerational inequality on the social choice as concerns implementing and redistributing a carbon tax. It relies on a detailed computable general equilibrium model with overlapping generations and an energy module, with a parameterisation on empirical data. We use two types of social welfare functionals which both incorporate a variable parameter measuring the degree of aversion of the social planner to intergenerational inequality. Results suggest that the social planner recycles a carbon tax through higher public expenditures if its aversion to intergenerational inequity is relatively high. This holds even if recycling through lower income taxes increases activity.
    Keywords: Energy transition, intergenerational redistribution, social choice, overlapping generations, carbon tax, general equilibrium.
    JEL: D58 D63 E62 L7 Q28 Q43
    Date: 2014
  29. By: Dimitris P. Louzis (Bank of Greece)
    Abstract: We examine the ability of large-scale vector autoregressions (VARs) to produce accurate macroeconomic (output and inflation) and credit (loans and lending rates) forecasts in Greece, during the latest sovereign debt crisis. We implement recently proposed Bayesian shrinkage techniques and we evaluate the information content of forty two (42) monthly macroeconomic and financial variables in a large Bayesian VAR context, using a five year out-of-sample forecasting period from 2008 to 2013. The empirical results reveal that, overall, large-scale Bayesian VARs, enhanced with key financial variables and coupled with the appropriate level of shrinkage, outperform their small- and medium-scale counterparts with respect to both macroeconomic and credit variables. The forecasting superiority of large Bayesian VARs is particularily clear at long-term forecasting horizons. Finally, empirical evidence suggests that large Bayesian VARs can significantly improve the directional forecasting accuracy of small VARs with respect to loans and lending rates variables.
    Keywords: Forecasting; Bayesian VARs; Crisis; Financial variables
    Date: 2014–06
  30. By: YiLi Chien; Harold L. Cole; Hanno Lustig
    Abstract: This paper extends the methodology developed in Chien, Cole and Lustig (2011 & 2012) (hereafter CCL2011 and CCL2012, respectively) to analyze and compute the equilibria of economies with heterogeneous agents who have different asset trading technologies and are subject to both aggregate and idiosyncratic income risk. The different asset trading technologies, which are designed to replicate the portfolio behavior seen in the data, fall into two classes. Active traders manage the composition of their portfolios among a given set of assets in addition to choosing how much to save. Passive traders take their portfolio composition as given and choose only how much to save. There can be a wide variety of different cases within each classes. For active traders, the trading technology varies depending on the set of assets that they can use, while for passive traders it varies with the specific portfolio composition rule. In CCL2011 and CCL2012, all of our agents had to have the same CRRA flow utility functions, discount rates, and beliefs. In this extension, this restriction is relaxed greatly extending the set of economies to which our method applies. This richer degree of heterogeneity allows the model to match a number of key features of the data.
    JEL: E21 E44 G11 G12
    Date: 2014–07
  31. By: Francesco Porcelli (University of Exeter, Business School); Riccardo Trezzi (University of Cambridge, Faculty of Economics)
    Abstract: During a natural disaster, the negative supply shock due to the destruction of productive capacity is counteracted by a positive demand shock due to public grants for assistance and reconstruction, positing an identification issue in empirical work. Focusing on the 2009 ’Aquilano’ earthquake in Italy as a case study, we take advantage of quantified measure of damages for 75,424 buildings to estimate the negative supply shock and of a law issued to allocate reconstruction grants, which resulted in a sharp, exogenous discontinuity in transfers and output behavior across neighboring municipalities to estimate the positive demand shock. Diff-in-diff analysis suggests that local output multipliers of reconstruction grants (net of marginal tax rebates) are below unity. Yet the size of the grants act as a public insurance scheme, preventing a fall in output.
    Keywords: Natural disasters, Fiscal multipliers, Mercalli scale
    JEL: C36 E62 H70
    Date: 2014–07
  32. By: Kolbre, Ene; Aus, Veronika; Kahre, Kristian
    Abstract: Housing market dynamics similarly to economic environment are cyclical, which inevitably leads to highs and lows in housing market prices. The purpose of this study was to find out in which market cycle phase Estonian housing market currently is in; which factors drive Estonian housing market price movements. Analysis in this study is based on housing markets’ demand and supply models, ratio analysis and regression analysis. As Estonian housing market is relevantly young capital market starting from the beginning of 1990s, it is also a reason why only studying historic data in Estonia is not enough to receive anticipated information about the housing market’s determinants. This study also collates other European counties’ housing market cycle phases with Estonian.The results of this study brought out a long line upward trend from the beginning of the 1990s until 2007 in Estonian housing market, which was driven by economic development, consumer’s expectations and easily accessible credit. Increasing housing prices made it possible for households to borrow more using housing wealth as collateral. In Estonian housing market and also in other countries, the financial sector has most of the times directly or indirectly been the main force behind the housing booms and crises. Added features here have also been poor monetary policy and government policies which encourage affording homeownership. In year 2007 real estate bubble in Estonia burst and from that time until 2010 a rapid decrease in prices followed. The situation in housing market stabilized at the end of 2010, moved into slow growth in 2011 and into fast growth phase in 2012. This study shows that compared to previous housing bubble, the situation has improved and there is not a housing boom currently in Estonian housing market.
    Date: 2014
  33. By: Athanasios O. Tagkalakis (Bank of Greece)
    Abstract: This paper examines the relationship between VAT revenue and economic activity in Greece by estimating the relationship between tax revenue efficiency and real GDP growth rate. We find a positive and significant relationship between these variables, and show that the responsiveness of tax revenue efficiency to economic activity fluctuations has increased in the recent years. Tax efficiency is affected by changes in the ability to curb tax evasion.
    Keywords: VAT; GDP; tax evasion; Greece.
    JEL: C32 E32 H20 O52
    Date: 2014–05
  34. By: Pascal Michaillat (London School of Economics (LSE), Economics Department; Centre for Macroeconomics (CFM)); Emmanuel Saez (University of California-Berkeley, Department of Economics)
    Abstract: This paper develops a model of unemployment fluctuations. The model keeps the architecture of the Barro and Grossman [1971] general disequilibrium model but replaces the disequilibrium framework on the labor and product markets by a matching framework. On the product and labor markets, both price and tightness adjust to equalize supply and demand. There is one more variable than equilibrium condition on each market, so we consider various price mechanisms to close the model, from completely flexible to completely rigid. With some price rigidity, aggregate demand influences unemployment through a simple mechanism: higher aggregate demand raises the probability that firms find customers, which reduces idle time for firms’ employees and thus increases labor demand, which in turn reduces unemployment. We use the comparative-statics predictions of the model together with empirical measures of quantities and tightnesses to re-examine the origins of labor market fluctuations. We conclude that (1) price and real wage are not fully flexible because product and labor market tightness fluctuate significantly; (2) fluctuations are mostly caused by labor demand and not labor supply shocks because employment is positively correlated with labor market tightness; and (3) labor demand shocks mostly reflect aggregate demand and not technology shocks because output is positively correlated with product market tightness.
    Date: 2014–07
  35. By: Jellal, Mohamed
    Abstract: In this paper, we consider a simple model that integrates the component of the social network as a research method of workers as well as a method of recruitment policy by firms. Indeed, taking into account the social sphere is fundamental to understand the labor market dynamic in developing countries. In particular, our dynamic model shows that when the cost of formal recruitment policy are very high then only individuals who have more effective social network find a job which creates social inequality and its reproduction. Indeed, in the context of social relations, firms use the density of the social network as a more efficient informal employment allocation mechanism. In terms of public policy, it would be socially desirable to subsidize the costs of formal recruitment policy to reduce the persistence of social inequality. Our theory applies to the problem of gender gap as well as employment of migrants
    Keywords: Social Networking, Job Search, Gender, Migrants, Dynamic Model, Recruitment Policy, Public Policy
    JEL: A13 E24 J16 J23 J64 J68 O12 Z13
    Date: 2014–07–23
  36. By: Wolski, Rafal; Zaleczna, Magdalena
    Abstract: The economy is a subject to a periodical changes. They are reflected infinancial situation of households and companies. However, the recenteconomic downturn is particularly acute. After strong growth of activity,in many states related to the real estate boom, there was a suddencessation of the activity of a construction sector. It contributed to aslowdown in an economic growth, or even a lasting economic downturn. Theauthors analyse the conditions of economy, the construction sectors and the state of the residential real estate markets in the Czech Republic, Poland,Slovakia, Hungary, Spain and Ireland to draw a wider picture of an impactof the boom and the slowdown on construction activity. Then on the basis of the database of the financial condition of chosen construction companies from these countries, they look for answers to the question how much these actors havechanged their activity in recent years. The database of constructioncompanies involved in the construction of buildings is established and anassessment of their financial health in the years 2003-2012 allows for therealization of the intended purpose. The analysis should allow torecognize the scale of the impact of the business cycle on constructionactivity in macro and mezzo scales in the chosen states.
    Date: 2014
  37. By: Schoenmaker, Dennis; Van der Vlist, Arno
    Abstract: This paper considers commercial real estate markets relative to credit cycles of expansion and contraction. In this paper we integrate insights from the credit literature with insights from the long-standing literature on rental price adjustments in the space market. Do rental prices determine real estate asset prices? What effect do bank loans have in real estate asset prices? These questions are central in this paper. We present a simultaneous equation model with fitted values to examine dynamics of asset prices, rental prices, capitalization rates, and credit availability. For this we use a unique dataset with office asset transaction and rental transaction prices from 1995-2010 for twenty-two cities in the Netherlands. These cities account for over 60 percent of the national office market. No previous European work has been able to address the interplay between the space market and asset market at such a comprehensive level of coverage. We investigate the time series properties by testing for unit root and co-integration of the series. Econometric analysis suggests that the asset price is significantly affected by the rent and credit availability whereas the capitalization rate is not significant.
    Date: 2013
  38. By: Andrea Brandolini (Bank of Italy); Eliana Viviano (Bank of Italy)
    Abstract: This paper argues that we need more general statistical indices to analyse European labour markets. First, the paper discusses some normative aspects implicit in the current definition of the employment rate, which is a fundamental policy target in the new Europe 2020 strategy. Second, it proposes a class of generalised indices based on work intensity, as approximated by the total annual hours of work relative to a benchmark value. Third, it derives household-level employment indices within a consistent framework. These indices provide a more nuanced picture of the European labour markets, which better reflects the diversity in the use of part-time and fixed-term jobs as well as other factors affecting the distribution of work across and within households.
    Keywords: employment rate, jobless household rate, work intensity
    JEL: J21 E24
    Date: 2014–07
  39. By: Irina Balteanu (Banco de España); Aitor Erce (Banco de España)
    Abstract: This paper provides a set of stylised facts on the mechanisms through which banking and sovereign distress feed into each other, using a large sample of emerging economies over three decades. We first define “twin crises” as events where banking crises and sovereign defaults combine, and further distinguish between those banking crises that end in sovereign debt crises, and vice-versa. We then assess what differentiates “single” episodes from “twin” ones. Using an event analysis methodology, we study the behaviour around crises of variables describing the balance sheet interconnection between the banking and public sectors, the characteristics of the banking sector, the state of public finances and the macroeconomic context. We find that there are systematic differences between “single” and “twin” crises across all these dimensions. Additionally, we find that “twin” crises are heterogeneous events: taking into account the proper time sequence of crises within “twin” episodes is important for understanding their drivers, transmission channels and economic consequences. Our results shed light on the mechanisms surrounding feedback loops of sovereign and banking stress
    Keywords: banking crises, sovereign defaults, feedback loops, balance sheets
    JEL: E44 F34 G01 H63
    Date: 2014–07
  40. By: Joel M. David; Hugo A. Hopenhayn; Venky Venkateswaran
    Abstract: We propose a theory linking imperfect information to resource misallocation and hence to aggregate productivity and output. In our setup, firms look to a variety of noisy information sources when making input decisions. We devise a novel empirical strategy that uses a combination of firm-level production and stock market data to pin down the information structure in the economy. Even when only capital is chosen under imperfect information, applying this methodology to data from the US, China, and India reveals substantial losses in productivity and output due to the informational friction. Our estimates for these losses range from 7-10% for productivity and 10-14% for output in China and India, and are smaller, though still significant, in the US. Losses are substantially higher when labor decisions are also made under imperfect information. We find that firms turn primarily to internal sources for information; learning from financial markets contributes little, even in the US.
    JEL: E44 O11 O16 O47
    Date: 2014–07
  41. By: Eden, Maya; Nguyen, Ha
    Abstract: In countries with limited access to finance, firms accumulate retained earnings to finance indivisible investment projects. McKinnon (1973) illustrates that when cash is used as a primary store of value, inflation may discourage investment as it increases the cost of accumulating retained earnings. This paper formalizes this argument in a dynamic framework and provides a simple calibration of the model that suggests sizable effects of inflation on investment. The mechanism is particularly relevant for small firms, as firms with lower cash flows must accumulate retained earnings for longer periods of time to meet the price of indivisible investment goods. Consistent with the model, empirical evidence suggests that inflation disproportionately reduces investment in small firms.
    Keywords: Investment and Investment Climate,Debt Markets,Economic Theory&Research,Access to Finance,Non Bank Financial Institutions
    Date: 2014–07–01
  42. By: Martin Ravallion
    Abstract: The Purchasing Power Parity (PPP) rates from the 2011 round of the International Comparison Program (ICP) imply some dramatic revisions to price levels and real incomes across the world. The paper tries to understand these changes. Domestic inflation rates account for a share of the PPP changes, although less so for the 2011 revisions than prior ICP rounds. A marked downward drift in ICP price levels for developing countries also emerged in 2011. Conditional on domestic price changes, the co-movement of PPPs with market exchange rates suggests that that the ICP puts higher weight on more internationally comparable traded-goods than do domestic indices. There is also evidence of a Dynamic Penn Effect, whereby economic growth comes with higher prices. The drift is concentrated in the Asia regional groupings used for ICP implementation. The results are not consistent with expectations based on the only methodological change identified to date although other explanations remain to be investigated.
    JEL: E31 I32 O47
    Date: 2014–07
  43. By: Georgia Kaplanoglou (University of Athens); Vassilis T. Rapanos (University of Athens); loanna C. Bardakas (Bank of Greece)
    Abstract: Does it matter for the success of fiscal consolidation programmes that they are fair? This question has never been empirically addressed despite its profound importance especially since many developed countries have embarked on fiscal consolidation programmes, which in many cases have led to sizeable increases in unemployment and poverty, and are met with public dissatisfaction. Using a data set for 29 OECD countries over the period 1971-2009, we argue that fairness matters, namely that improving the targeting of social transfers and their effectiveness in terms of poverty alleviation, higher public expenditure on training and active labor market policies and programmes like social housing directed to the poor, even decreasing the VAT rate on necessities, improve the success probabilities of consolidation attempts. Introducing such concerns sheds new light on the prevailing view that the successful fiscal adjustments are those that rely on spending-cuts rather than on tax increases. The results of this paper provide empirical evidence that ameliorating the effects of adjustment, by supporting the weaker parts of society, is crucial for the success of fiscal consolidations and argues that "fair fiscal adjustments" may provide the double dividend of enhancing the probability of success of the adjustment and of promoting social cohesion.
    Keywords: fiscal consolidation; success; fairness; expenditure; social transfers
    JEL: D63 E62 H23 H53 H50 H62 I38
    Date: 2014–05
  44. By: J. Carluccio; D. Fougère; E. Gautier
    Abstract: Using a unique French firm-level dataset, we study how international trade affects the wage bargaining process at the firm level. Using instrumental variables techniques, we find that exports shocks have a positive effect on the probability that a firm-level wage agreement is signed, while shocks increasing imports of finished goods have the opposite effect. Exports increase wages for all occupational categories, whereas offshoring has heterogeneous effects. In firms where wage agreements are frequently signed, the export wage premium is larger, and blue-collar workers are protected against the negative impact of offshoring on wages.
    Keywords: trade, wages, collective bargaining.
    JEL: F16 J51 E24
    Date: 2014
  45. By: Cao, Albert
    Abstract: China’s housing market has had 18 years of rapid price inflation. To prevent deterioration of affordability, from 2005 to 2013 the central government used a combination of administrative interventions and macro-economic measures to contain housing price rises. However, centrally formulated housing policies and intervention measures could not be fully implemented at local levels and thus have only limited short-term successes. From 2013, the central government retreated from direction intervention at the national level and left local governments to intervene to contain renewed rapid price hikes. This paper analysed demand and supply in China’s housing market and evolution of institutional arrangements that increase demand but distort supply using data obtained from fieldwork conducted in 2011 and 2013. It argues that localisation of intervention could be more effective than the one-size-fits-all approach adopted by the central government but reforms on institutional arrangements that prioritise high-end housing market and housing investors rather than owner occupiers are necessary to re-position the housing market to the middle class and ease affordability problems.
    Date: 2014
  46. By: Benjamin Dachis; William B.P. Robson; Nicholas Chesterley
    Abstract: Canada’s performance in business investment per worker relative to its peers is sliding, led by dismal performances in Quebec and Ontario, according to a new C.D. Howe Institute report. In “Capital Needed: Canada Needs More Robust Business Investment,” authors Benjamin Dachis, William B.P. Robson and Nicholas Chesterley find that Canada, after several years of improved performance, is equipping its workers less well than countries like Australia and the US.
    Keywords: Economic Growth and Innovation
    JEL: E2
  47. By: Stone, Joe
    Abstract: This study tests the hypothesis that balanced-budget rules (BBRs) that restrict public borrowing to investments in public infrastructure increase growth by increasing the productivity of debt, either because investments in public infrastructure are more productive than other uses for which states borrow funds or because BBRs lower borrowing costs. Results are based on data at 5-year intervals for 49 US states over the period 1957-2007. The tests strongly support the hypothesis that BBRs increase growth by increasing the productivity of debt and withstand a variety of robustness checks, including alternative lags, exogeneity tests, GMM estimation, a placebo test, and the influence of outliers.
    Keywords: balanced budget rule, infrastructure, fiscal policy, regional growth
    JEL: A1 E6 H2 R1
    Date: 2014–07–20
  48. By: Koniarski, Tim; Sebastian, Steffen S.
    Abstract: This paper studies the ability of cash, bonds, stocks and direct real estate to hedge inflation and optimal inflation-protecting asset allocations within a downside risk framework. Using a VAR model to capture predictable price dynamics, we find that the inflation-hedging properties of assets substantially change over the investment horizon. Cash clearly hedges inflation best in the short run. However, as the investment horizon increases, bonds, stocks and real estate become more attractive with respect to inflation-hedging. Real estate has the best qualities to protect investors against inflation on a medium and long-term basis. While cash plays the most important role in short-term portfolios, the weights of the inflation-protecting portfolios shift to real estate, stocks and bonds as the investment horizon increases.
    Date: 2013
  49. By: Jean-Bernard, Chatelain; Kirsten, Ralf
    Abstract: This paper demonstates the existence of a finite set of equilibria in the case of the indeterminacy of linear rational expectations models. The number of equilibria corresponds to the number of ways to select n eigenvectors among a larger set of eigenvectors related to stable eigenvalues. A finite set of equilibria is a substitute to continuous (uncountable) sets of sunspots equilibria, when the number of independent eigenvectors for each stable eigenvalue is equal to one.
    Keywords: Linear rational expectations models, indeterminacy, multiple equilibria, Riccati equation, sunspots.
    JEL: C60 C61 C62 E13 E60
    Date: 2014–07–23
  50. By: Knut Are Aastveit (Norges Bank (Central Bank of Norway)); Claudia Foroni (Norges Bank (Central Bank of Norway)); Francesco Ravazzolo (Norges Bank (Central Bank of Norway))
    Abstract: In this paper we derive a general parametric bootstrapping approach to compute density forecasts for various types of mixed-data sampling (MIDAS) regressions. We consider both classical and unrestricted MIDAS regressions with and without an autoregressive component. First, we compare the forecasting performance of the different MIDAS models in Monte Carlo simulation experiments. We find that the results in terms of point and density forecasts are coherent. Moreover, the results do not clearly indicate a superior performance of one of the models under scrutiny when the persistence of the low frequency variable is low. Some differences are instead more evident when the persistence is high, for which the ARMIDAS and the AR-U-MIDAS produce better forecasts. Second, in an empirical exercise we evaluate density forecasts for quarterly US output growth, exploiting information from typical monthly series. We find that MIDAS models applied to survey data provide accurate and timely density forecasts.
    Keywords: Mixed data sampling, Density forecasts, Nowcasting
    JEL: C11 C53 E37
    Date: 2014–07–18
  51. By: Harashima, Taiji
    Abstract: The assumption of the representative household defined as the average of all households is impossible in dynamic models if households are heterogeneous in their time preference rates because, as is well known, the most patient household eventually prevails. Because time preference rates are unquestionably heterogeneous across economies and time periods, macroeconomics studies using the representative household assumption in dynamic models are fallacious. I present an alternative definition of the representative household based on the concept of sustainable heterogeneity. By this definition, use of the representative household assumption becomes possible in dynamic models.
    Keywords: The representative household; Sustainable heterogeneity; Dynamic models; The rate of time preference; Macroeconomics
    JEL: C60 E10
    Date: 2014–07–25

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