nep-mac New Economics Papers
on Macroeconomics
Issue of 2014‒08‒16
73 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Russia’s Monetary Policy in 2013 By Alexandra Bozhechkova; Anna Kiyutsevskaya; Pavel Trunin
  2. The Monetary Transmission Mechanism in the Euro Area: has it changed with the EMU? A VAR approach, with fiscal policy and financial stress considerations By António Afonso; António Jorge Silva
  3. Optimal monetary policy and financial stability in a non-Ricardian economy. By Salvatore Nisticò
  4. Fiscal shocks and the exchange rate. By Giorgio Di Giorgio; Salvatore Nisticò; Guido Traficante
  5. Latin American Performance to External Shocks: What Has Really Been Sweat? By Pagliacci, Carolina
  6. The economic outlook and implications for monetary policy By Dudley, William
  7. Macroprudential Rules in Small Open Economies By Amado, María
  8. Output Gap in Presence of Financial Frictions and Monetary Policy Trade-offs By Francesco Furlanetto; Paolo Gelain; Marzie Taheri Sanjani
  9. QE: when and how should the Fed exit? By Wen, Yi
  10. Monetary Policy and Real Borrowing Costs at the Zero Lower Bound By Gilchrist, Simon; Lopez-Salido, J. David; Zakrajsek, Egon
  11. Monetary Dialogue 2009-2014: Looking backward, looking forward By Ansgar Belke
  12. Reserve Requirements, Liquidity Risk, and Credit Growth By Koray Alper; Mahir Binici; Selva Demiralp; Hakan Kara; Pinar Ozlu
  13. Exit State-of-play in Implementing Macroeconomic Adjustment Programmes in the Euro Area By Ansgar Belke; Daniel Gros; Alcidi Cinzia; Leonor Coutinho; Alessandro Giovannini
  14. Iceland: Fourth Post-Program Monitoring Discussions-Staff Report; Press Release; and Statement by the Executive Director for Iceland By International Monetary Fund. European Dept.
  15. Small and Large Price Changes and the Propagation of Monetary Shocks By Fernando Alvarez; Hervé Le Bihan; Francesco Lippi
  16. Transparency and Deliberation within the FOMC: a Computational Linguistics Approach By Stephen Hansen; Michael McMahon; Andrea Prat
  17. Political Budget Cycles Revisited, the Case for Social Capital By Kouvavas, Omiros
  18. Monetary Policy Indeterminacy and Identification Failures in the U.S.: Results from a Robust Test By Efrem Castelnuovo; Luca Fanelli
  19. Business Cycle (De)Synchronization in the Aftermath of the Global Financial Crisis: Implications for the Euro Area By Stelios Bekiros; Duc Khuong Nguyen; Gazi Salah Uddin; Bo Sjö
  20. Colombia: 2014 Article IV Consultation-Staff Report; Press Release; and Statement by the Executive Director for Colombia By International Monetary Fund. Western Hemisphere Dept.
  21. Uruguay: Staff Report for the 2013 Article IV Consultation By International Monetary Fund. Western Hemisphere Dept.
  22. Consumer cash usage: A cross-country comparison with payment diary survey data By John Bagnall; David Bounie; Kim Huynh; Anneke Kosse; Tobias Schmidt; Scott Schuh; Helmut Stix
  23. Monetary Policy and Financial Stability : a speech at the 2014 Michel Camdessus Central Banking Lecture, International Monetary Fund, Washington, D.C., July 2, 2014 By Yellen, Janet L.
  24. Trade and Uncertainty By Dennis Novy; Alan M. Taylor
  25. Tests of Policy Ineffectiveness in Macroeconometrics By M. Hashem Pesaran; Ron P Smith
  26. Russian Federation: 2014 Article IV Consultation-Staff Report; Informational Annex; Press Release By International Monetary Fund. European Dept.
  27. The Exchange Rate Pass-Through to Import and Export Prices: The Role of Nominal Rigidities and Currency Choice By Ehsan U. Choudhri; Dalia S. Hakura
  28. Hot Money Flows, Cycles in Primary Commodity Prices, and Financial Control in Developing Countries By Ronald McKINNON
  29. Republic of Latvia: 2014 Article IV Consultation-Staff Report; Press Release; and Statement by the Executive Director for the Republic of Latvia By International Monetary Fund. European Dept.
  30. The risk of financial crises: Is it in real or financial factors? By Karolin Kirschenmann; Tuomas Malinen; Henri Nyberg
  31. Taxing top earners: a human capital perspective By Badel, Alejandro; Huggett, Mark
  32. Hungary: 2014 Article IV Consultation-Staff Report; Press Release; and Statement by the Executive Director for Hungary By International Monetary Fund. European Dept.
  33. Euro Area Policies: 2014 Article IV Consultation-Staff Report; Press Release; and Statement by the Executive Director By International Monetary Fund. European Dept.
  34. An estimation of the exchange rate pass-through to prices in Mexico By Josué Fernando Cortés Espada
  35. What kind of jobs have been created during the recovery? By Dudley, William
  36. Analysis of the main tax receipts to the budgetary system of the Russian Federation By Sergey Belev
  37. Ukraine: 2013 Article IV Consultation and First Post-Program Monitoring-Staff Report; Press Release; and Statement by the Executive Director for Ukraine By International Monetary Fund. European Dept.
  38. Can Economic Uncertainty, Financial Stress and Consumer Senti-ments Predict U.S. Equity Premium? By Rangan Gupta; Shawkat Hammoudeh; Mampho P. Modise; Duc Khuong Nguyen
  39. Disaggregated Credit Extension and Financial Distress in South Africa By Leroi Raputsoane
  40. Fiscal Rules and the Procyclicality of Fiscal Policy in the Developing World By Elva Bova; Nathalie Carcenac; Martine Guerguil
  41. Deconstructing Canada's Housing Markets: Finance, Affordability and Urban Sprawl By Calista Cheung
  42. Heterogeneity and Government Revenues: Higher Taxes at the Top? By Guner, Nezih; Lopez-Daneri, Martin; Ventura, Gustavo
  43. Direct purchases of U.S. Treasury securities by Federal Reserve banks By Garbade, Kenneth D.
  44. Republic of Croatia: 2014 Article IV Consultation-Staff Report; Press Release; and Statement by the Executive Director for the Republic of Croatia By International Monetary Fund. European Dept.
  45. Multiple Interior Steady States in the Ramsey Model with Elastic Labor Supply By Takashi Kamihigashi
  46. Gamma discounters are short-termist By Gollier, Christian
  47. A Forest Fire Theory of Recessions and Unemployment By Pietro Tebaldi; Matthew Jackson
  48. Israel: Staff Report for 2013 Article IV Consultation By International Monetary Fund. European Dept.
  49. Fertility Choice in a Life Cycle Model with Idiosyncratic Uninsurable Earnings Risk By Sommer, Kamila
  50. Economic Growth and Jobs Creation in Morocco: Overall and Sectors’ Analysis By Ezzahidi, Elhadj; El Alaoui, Aicha
  51. Activist Funds, Leverage, and Procyclicality By Mike Burkart; Amil Dasgupta
  52. Optimum and Adequate Level of International Reserves By Gerencia Técnica
  53. Foreign Investments in Russia in 2013 By Ekaterina Ilyukhina
  54. Evaluating Treatment Effect and Causal Effect of Fiscal Rules on Procyclicality New assessments on old debate: rules vs. discretion By Pierre MANDON
  55. Business Cycles and Household Formation By Greg Kaplan
  56. Republic of Korea: 2013 Article IV Consultation-Staff Report; Press Release and Statement by the Executive Director for the Republic of Korea By International Monetary Fund. Asia and Pacific Dept
  57. Investigating the Role of Real Divisia Money in Persistence-Robust Econometric Models By Ryan S. Mattson; Philippe De Peretti
  58. The ECB as Lender of Last Resort:Banks versus Governments By Adalbert Winkler
  59. Germany: Selected Issues By International Monetary Fund. European Dept.
  60. Canada: 2013 Article IV Consultation By International Monetary Fund. Western Hemisphere Dept.
  61. The Bahamas: 2013 Article IV Consultation-Staff Report; Press Release By International Monetary Fund. Western Hemisphere Dept.
  62. Russia’s Domestic Investments in Fixed Assets in 2013 By Olga Izryadnova
  63. Russia’s Financial Markets and Financial Institutions in 2013 By Alexander Abramov
  64. Resource Allocation and Inefficiency in the Financial Sector By Kinda Hachem
  65. Preventing bank runs By Andolfatto, David; Nosal, Ed; Sultanum, Bruno
  66. The Economic Consequences of Delay in U.S.Climate Policy By Warwick J McKibbin; Adele C. Morris; Peter J. Wilcoxen
  67. Euro Area Policies: Selected Issues By International Monetary Fund. European Dept.
  68. Wealth Distribution and the Business Cycle By Benjamin Moll
  69. Mongolia: 2013 Article IV Consultation-Staff Report; Press Release and Statement by the Executive Director for Mongolia By International Monetary Fund. Asia and Pacific Dept
  70. Heterogeneous Forecasters and Nonlinear Expectation Formation in the U.S. Stock Market By Christian Pierdzioch; Stefan Reitz; Jan-Christoph Ruelke
  71. The Great Shift : Macroeconomic projections For the World Economy at the 2050 Horizon By Jean Fouré; Agnès Bénassy-Quéré; Lionel Fontagné
  72. Belgium: 2014 Article IV Consultation-Staff Report; Press Release By International Monetary Fund. European Dept.
  73. A justification for the role of audits?: adoption of International Financial Reporting Standards (IFRS) and jurisdictional analyses (Brazil, China,Japan and South Africa) By Ojo, Marianne

  1. By: Alexandra Bozhechkova (Gaidar Institute for Economic Policy); Anna Kiyutsevskaya (Gaidar Institute for Economic Policy); Pavel Trunin (Gaidar Institute for Economic Policy)
    Abstract: This paper deals with Russia's monetary policy in 2013
    Keywords: Russian economy; monetary policymoney market; inflation; balance of payments; exchange rate;
    JEL: E31 E43 E44 E51 E58 E52
    Date: 2014
  2. By: António Afonso; António Jorge Silva
    Abstract: We study whether the adoption of the Euro and a single monetary policy have brought about a change in the monetary transmission mechanism and between the interactions of monetary policy, fiscal policy and financial stress in the Euro area. We find that the stylized facts of monetary transmission remain valid, but the response of output and, especially, fiscal and financial stress variables to a monetary policy shock, seems to be stronger in the post-EMU period. Regarding fiscal and financial stress shocks, the inclusion in the post-EMU period of subprime and sovereign debt crises yields, changes, not only in the scale, but also in the patterns of the responses of our model’s main variables.
    Keywords: monetary transmission mechanism, fiscal policy, financial stress, Euro area, vector autoregressions
    JEL: E42 E44 E52 E58 E63
    Date: 2014–06
  3. By: Salvatore Nisticò (Dipartimento di Scienze Sociali ed Economiche, Sapienza University of Rome and LUISS Guido Carli)
    Abstract: This paper presents a normative analysis of monetary policy in a non-Ricardian economy with an active stock market: it derives a welfare-based monetary policy loss function consistent with Calvo and Obstfeld (1988), and shows that financial stability arises as an additional and independent target, besides inflation and output stability. Evaluation of optimal policy under discretion and commitment reveals that price stability is no longer optimal, even absent inefficient supply shocks: some fluctuations in output and inflation will be optimal as long as they reduce financial instability. Ignoring the non-Ricardian features of this economy potentially leads monetary policy to induce substantially higher welfare losses.
    Keywords: Optimal Monetary Policy, Perpetual Youth, Financial Stability, DSGE Model, Asset Prices.
    JEL: E12 E44 E52
    Date: 2014–07
  4. By: Giorgio Di Giorgio (LUISS Guido Carli, Department of Economics and Finance, Rome (Italy)); Salvatore Nisticò (Dipartimento di Scienze Sociali ed Economiche, Sapienza University of Rome); Guido Traficante (European University of Rome)
    Abstract: This paper studies how the interaction between the monetary policy regime and the degree of home bias in public consumption affects the exchange-rate response to fiscal shocks in dynamic open-economy models. Our analysis compares the classic Redux model of Obstfeld and Rogoff (1995) and a modern New Keynesian DSGE two-country model, and highlights the substantially different transmission mechanism between the two.
    Keywords: Redux Model, Exchange Rate, Fiscal Shocks, Endogenous Monetary and Fiscal Policy.
    JEL: E52 E62 F41 F42
    Date: 2014–07
  5. By: Pagliacci, Carolina
    Abstract: How have external shocks affected the LA region? To what extent such shocks relate to US domestic conditions? Has the region engaged in procyclical or countercyclical monetary and fiscal policy in response to external shocks? In this paper we address these questions through an empirical exercise that involves the identification of US domestic structural shocks as LA external shocks, in a two-block model. We find that domestic US fluctuations have a significant impact on commodity prices, and such effect heavily conditions LA capital inflows and LA performance in terms of economic activity, inflation, domestic currency movements, and reserve accumulation. There is no clear evidence that regional fiscal policy has been countercyclical. On the contrary, monetary policy reactions have been visibly countercyclical, driven in part by the impact of capital flows. Capital outflows also seemed to have played an important role in reducing banking currency mismatches in the context of domestic currency depreciations.
    Keywords: emerging markets, commodity prices, capital inflows, policy cyclicality
    JEL: E32 F32 Q02
    Date: 2014–07
  6. By: Dudley, William (Federal Reserve Bank of New York)
    Abstract: Remarks before the New York Association for Business Economics, New York City.
    Keywords: balance sheet; economic growth; fiscal restraint; capital spending; lift-off; tapering; capital requirements; reverse repo facility (RRP)
    JEL: E2 E52
    Date: 2014–05–20
  7. By: Amado, María (UCLA)
    Abstract: This document to evaluates the effectiveness, in terms of macroeconomic stability, of monetary policy rules and instruments of prudential supervision. Specifically, it seeks to distinguish between the gains of including in the standard monetary policy rule indicators of financial stress, such as credit growth -augmented rule-; and the gains of applying, in parallel to this augmented rule, a macroprudential instrument that allows a supervisory authority to affect credit interest rates directly. This analysis is performed using a dynamic stochastic general equilibrium model for a small open economy with financial rigidities, and is evaluated in the context of four shocks: financial, productivity, foreign demand and foreign interest rate. The model is calibrated in order to reflect the stylized facts of the Peruvian economy. The results obtained suggest that the effectiveness of the rules depends on the nature of the shock affecting the economy.
    Keywords: macroprudential, monetary policy, small open economy, DSGE model
    JEL: E52 E61
    Date: 2014–07
  8. By: Francesco Furlanetto; Paolo Gelain; Marzie Taheri Sanjani
    Abstract: The recent global financial crisis illustrates that financial frictions are a significant source of volatility in the economy. This paper investigates monetary policy stabilization in an environment where financial frictions are a relevant source of macroeconomic fluctuation. We derive a measure of output gap that accounts for frictions in financial market. Furthermore we illustrate that, in the presence of financial frictions, a benevolent central bank faces a substantial trade-off between nominal and real stabilization; optimal monetary policy significantly reduces fluctuations in price and wage inflations but fails to alleviate the output gap volatility. This suggests a role for macroprudential policies.
    Keywords: Economic growth;Business cycles;Monetary policy;Macroprudential Policy;Econometric models;Financial Frictions, Potential output, Optimal Monetary Policy, Output Gap.
    Date: 2014–07–18
  9. By: Wen, Yi (Federal Reserve Bank of St. Louis)
    Abstract: The essence of Quantitative Easing (QE) is to reduce the costs of private borrowing through large-scale purchases of privately issue debts, instead of public debts (Ben Bernanke, 2009). Notwithstanding the effectiveness of this highly unconventional monetary policy in reviving private investment and the economy, it is time to think about the likely impacts of the unwinding of QE (or the reversed private-asset purchases) on the economy. In a standard economic model, if monetary injections can increase aggregate output and employment, then the reversed action will likely undo such effects. Would this imply that the U.S. economy will dive into a recession once the Fed starts its large-scale asset sales (under the assumption that QE has successfully pulled the economy out of the Great Recession)? This paper shows that three aspects of the Federal Reserve’s exit strategy matter for achieving (or maintaining) maximum gains in aggregate output and employment under QE (if any): (i) the timing of exit, (ii) the pace of exit, and (iii) the private sector’s expectations of when and how the Fed will exit.
    Keywords: Large-Scale Asset Purchases; Unconventional Monetary Policies; Quantitative Easing; Qualitative Easing; Optimal Exit Strategies.
    JEL: E50 E52
    Date: 2014–07–21
  10. By: Gilchrist, Simon (Boston University); Lopez-Salido, J. David (Board of Governors of the Federal Reserve System (U.S.)); Zakrajsek, Egon (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: This paper compares the effects of conventional monetary policy on real borrowing costs with those of the unconventional measures employed after the target federal funds rate hit the zero lower bound (ZLB). For the ZLB period, we identify two policy surprises: changes in the 2-year Treasury yield around policy announcements and changes in the 10-year Treasury yield that are orthogonal to those in the 2-year yield. The efficacy of unconventional policy in lowering real borrowing costs is comparable to that of conventional policy, in that it implies a complete pass-through of policy-induced movements in Treasury yields to comparable-maturity private yields.
    Keywords: Unconventional monetary policy; LSAPs; forward guidance; term premia; corporate bond yields; mortgage interest rates
    Date: 2014–05–07
  11. By: Ansgar Belke
    Abstract: This paper comments on the role of the Monetary Dialogue in the context of an evolving monetary policy. The discussion is conducted in terms of the adoption of forward guidance on interest rates by the European Central Bank (ECB), the ECB’s model choice and data revision policies in inflation forecasts, its membership in the Troika, its activities as a financial supervisor, as well as regards its bond purchasing activities and the implication for ECB monetary policy stemming from Fed’s envisaged exit from unconventional monetary policies. This paper also assesses on a case-by-case basis the actual exchange of information between the European Parliament (EP) and the ECB. We argue that the new ECB supervisory role has made the Monetary Dialogue exercise even more important "now" than in “normal” times. Still, we suggest changes, both procedural as well as regarding its focus range, to make it even more effective. In our view, the transparency/accountability issue represented by a Supervisory Board 'hosted' by ECB needs to be addressed. A crucial challenge for the Monetary Dialogue is also to assess the optimal degree of ECB transparency and accountability towards the EP, the key democratic institution.
    Keywords: accountability, European Parliament, forward guidance, Monetary Dialogue, transparency.
    JEL: E52 E58
    Date: 2014–04
  12. By: Koray Alper (Central Bank of Turkey); Mahir Binici (Central Bank of Turkey); Selva Demiralp (Department of Economics, Koc University); Hakan Kara (Central Bank of Turkey); Pinar Ozlu (Central Bank of Turkey)
    Abstract: Many central banks in emerging economies have used reserve requirements (RR) to alleviate the trade-off between financial stability and price stability in recent years. Notwithstanding their widespread use, transmission channels of RR have remained largely as a black-box. In this paper, we use bank-level data to explore the interaction between RR and bank lending behavior. Our empirical findings suggest that short-term borrowing from the central bank is not a close substitute for deposits for banks. Bank lending behavior responds significantly to reserve requirements and liquidity positions. Our analysis allows us to identify a new channel that we name as the “liquidity channel”. The channel works through a decline in bank liquidity and loan supply due to an increase in reserve requirements.
    Keywords: Monetary transmission mechanism; liquidity risk; bank lending channel; Turkey.
    JEL: E44 E51 E52
    Date: 2014–07
  13. By: Ansgar Belke; Daniel Gros; Alcidi Cinzia; Leonor Coutinho; Alessandro Giovannini
    Abstract: Two of the four macroeconomic adjustment programmes, Portugal and Ireland’s, can be considered a success in the sense that the initial expectations in terms of adjustment, both fiscal and external, were broadly fulfilled. A rebound based on exports has taken hold in these two countries, but a full recovery will take years. In Greece the initial plans were insufficient. While the strong impact of the fiscal adjustment on demand could have been partially anticipated at the time, the resistance to structural reforms was more surprising and remains difficult to cure. The fiscal adjustment is now almost completed, but the external adjustment has not proceeded well. Exports are stagnating despite impressive falls in wage costs. In Cyprus, the outcome has so far been less severe than initially feared. It is still too early to find robust evidence in any country that the programmes have increased the long-term growth potential. Survey-based evidence suggests that structural reforms have not yet taken hold. The EU-led macroeconomic adjustment programmes outside the euro area (e.g. Latvia) seem to have been much stricter, but the adjustment was quicker and followed by a stronger rebound.
    Keywords: macroeconomics coordination, sudden stop
    JEL: G01 G12 E58 H12
    Date: 2014–06
  14. By: International Monetary Fund. European Dept.
    Abstract: KEY ISSUES Context: The recovery is continuing and the growth outlook is positive, but crisis legacies continue to weigh on the economy. The government is undertaking efforts to address them but this entails significant risks. Sound macroeconomic and financial sector policies are key to mitigating these risks and facilitating strong, durable growth. Capital account liberalization: The authorities are taking welcome initial steps to update the 2011 liberalization strategy. A comprehensive approach consistent with macroeconomic and financial stability and conditioned on balance of payments prospects and maintaining adequate reserve buffers will best support macroeconomic and financial stability. Monetary policy: The current stance is appropriate. The central bank should stand ready to respond to possible pressures stemming from factors such as 2015 wage formation, the fiscal stance, and a closing output gap. Maintaining a financially sound, independent, and accountable central bank is important for policy credibility and anchoring inflation expectations, which in turn supports stability and growth. Fiscal policy: The government’s objectives of a balanced budget and lower debt are appropriate. Achieving them will require some 1 to 1½ percent of GDP in measures and a well-formulated medium-term fiscal plan. Their firm implementation will help ease budding wage and inflation pressures, lower borrowing costs, and rebuild fiscal buffers. The draft organic budget law now before Parliament will underpin these efforts. Financial sector policy: Prudent financial sector policies and practices—including maintaining capital and liquidity buffers and enhancing supervision—are needed to safeguard financial stability as capital controls are eased. The proposal to put the loss-making Housing Financing Fund in an orderly runoff mode is welcome.
    Keywords: Post-program monitoring;Economic growth;Fiscal policy;Capital account liberalization;Monetary policy;Inflation targeting;Financial sector;Bank supervision;Capital controls;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Iceland;
    Date: 2014–07–10
  15. By: Fernando Alvarez; Hervé Le Bihan; Francesco Lippi
    Abstract: We document the presence of both small and large price changes in individual price records from the CPI in France and the US. After correcting for measurement error and cross-section heterogeneity, the size-distribution of price changes has a positive excess kurtosis. We propose an analytical menu cost model that encompasses several classic models, as Taylor (1980), Calvo (1983), Reis (2006), Golosov and Lucas (2007) and accounts for observed cross-sectional patterns. We show that the ratio of kurtosis to the frequency of price changes is a sufficient statistics for the real effects of monetary policy in a large class of models.
    JEL: E3
    Date: 2014–05
  16. By: Stephen Hansen (Barcelona Graduate School of Economics (Barcelona GSE)); Michael McMahon (University of Warwick, Department of Economics; Centre for Macroeconomics (CFM)); Andrea Prat (Columbia University, Graduate School of Business)
    Abstract: How does transparency, a key feature of central bank design, affect the deliberation of monetary policymakers? We exploit a natural experiment in the Federal Open Market Committee in 1993 together with computational linguistic models (particularly Latent Dirichlet Allocation) to measure the effect of increased transparency on debate. Commentators have hypothesized both a beneficial discipline effect and a detrimental conformity effect. A difference-in-differences approach inspired by the career concerns literature uncovers evidence for both effects. However, the net effect of increased transparency appears to be a more informative deliberation process.
    Keywords: Monetary policy, deliberation, FOMC, transparency, career concerns
    JEL: E52 E58 D78
    Date: 2014–04
  17. By: Kouvavas, Omiros
    Abstract: Recent literature on Political Budget Cycles has provided appealing evidence that their existence is conditional to country specific characteristics. In this paper we hypothesize that the level of social capital prevailing in a country might be an underlying fundamental reason that might be driving these results. We provide strong evidence that political budget cycles are only present in low social capital countries by utilizing a large panel data set for 63 democratic countries. We also show that the political budget cycles occur both in developing and developed countries under low social capital. Simultaneously, our results are robust under most other conditional effects considered by the literature. Finally, we also propose a theoretical model of conditional capital budget cycles by adapting a moral hazard model to account for different distributions of social capital.
    Keywords: Political Budget Cycles; Political Processes; Trust; Social Capital;
    JEL: D72 E02 E32 E62 H60
    Date: 2013–06–20
  18. By: Efrem Castelnuovo (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne; and Department of Economics and Management, University of Padova); Luca Fanelli (Department of Statistical Sciences, University of Bologna)
    Abstract: We propose a novel identification-robust test for the null hypothesis that an estimated new- Keynesian model has a reduced form consistent with the unique stable solution against the alternative of sunspot-driven multiple equilibria. Our strategy is designed to handle identification failures as well as the misspecification of the relevant propagation mechanisms. We invert a likelihood ratio test for the cross-equation restrictions (CER) that the new- Keynesian system places on its reduced form solution under determinacy. If the CER are not rejected, sunspot-driven expectations can be ruled out from the model equilibrium and we accept the structural model. Otherwise, we move to a second-step and invert an Anderson and Rubin-type test for the orthogonality restrictions (OR) implied by the system of Euler equations. The hypothesis of indeterminacy and the structural model are accepted if the OR are not rejected. We investigate the finite sample performance of the suggested identificationrobust two-steps testing strategy by some Monte Carlo experiments and then apply it to a new-Keynesian AD/AS model estimated with actual U.S. data. In spite of some evidence of weak identification as for the ‘Great Moderation’ period, our results offer formal support to the hypothesis of a switch from indeterminacy to a scenario consistent with uniqueness which occurred in the late 1970s. Our identification-robust full-information confidence set for the structural parameters computed on the ‘Great Moderation’ regime turns out to be more precise than the intervals previously reported in the literature through ‘limited-information’ methods.
    Keywords: Confidence set, determinacy, identification failures, indeterminacy, misspecification, new-Keynesian business cycle model, VAR system
    JEL: C31 C22 E31 E52
    Date: 2014–07
  19. By: Stelios Bekiros; Duc Khuong Nguyen; Gazi Salah Uddin; Bo Sjö
    Abstract: The introduction of Euro currency was a game-changing event intended to induce convergence of
    Keywords: Convergence; wavelet coherence; integration; Eurozone
    JEL: C22 E32
    Date: 2014–07–24
  20. By: International Monetary Fund. Western Hemisphere Dept.
    Abstract: KEY ISSUES Context. Colombia’s economic performance has been robust, underpinned by a very strong policy framework. Last year, real GDP grew by 4.3 percent, with low inflation. The country has a strong external position; the financial system is sound; and fiscal policy remains guided by a structural fiscal balance rule. The authorities intend to undertake an ambitious infrastructure program to be executed through public-private partnerships. Outlook and risks. Real GDP growth is projected to converge to potential (about 4½ percent) in 2014, with inflation remaining within the 2–4 percent target range. The medium-term outlook is favorable, but risks are tilted to the downside. Colombia’s important and growing ties with the global economy expose the economy to external risks. The most important sources of risk are a decline in oil prices, a deterioration in global financial conditions, and volatility from the normalization of monetary policy in the U.S. Near-term policy mix. The current policy mix is broadly adequate. As the ongoing economic recovery takes hold, monetary and fiscal policies are expected to shift to a more neutral stance. Colombia continues to rely on a flexible exchange rate to absorb external shocks. The authorities are also taking advantage of abundant foreign inflows, primarily foreign direct investment, to strengthen their international reserve buffer. Medium-term challenges. Colombia’s key challenge is to sustain strong and inclusive growth with macroeconomic stability. To this purpose, it will be important to: (i) adhere to the fiscal consolidation plan, supporting it with revenue mobilization; (ii) address the infrastructure gap, without increasing fiscal risks; (iii) enhance the social security system by increasing coverage and improving equity, and containing health care costs; (iv) address remaining weaknesses in financial sector supervision; and (v) foster financial inclusion.
    Keywords: Article IV consultation reports;Economic growth;Fiscal consolidation;Current account deficits;Government expenditures;Infrastructure;Monetary policy;Reserves adequacy;Bank supervision;Debt sustainability;Economic indicators;Staff Reports;Press releases;Colombia;
    Date: 2014–05–28
  21. By: International Monetary Fund. Western Hemisphere Dept.
    Abstract: This 2013 Article IV Consultation highlights that growth in Uruguay has moderated to a more sustainable pace since 2012, mostly owing to weaker external demand. Real GDP growth is projected at 4 percent in 2013 and 3.5 percent in 2014. Fiscal policy loosened in 2012 and is set to remain slightly expansionary in 2013. Annual inflation, at 9 percent in September, remains outside the current target range. The Uruguayan peso appreciated against the backdrop of swelling capital inflows in the year to May 2013. The outlook for the Uruguayan economy is solid, but risks and challenges remain.
    Keywords: Article IV consultation reports;Economic growth;Fiscal policy;Wage adjustments;Monetary policy;Inflation targeting;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Uruguay;Housing;Housing prices;central bank, public debt, current account, external debt, public sector debt, current account deficit, net debt, currency debt, short-term debt, debt dynamics, debt management, balance of payments, total external debt, external financing, domestic currency, government debt, external shocks, debt ratio, external debt sustainability, current account balance, reserve assets, debt stock, public debt management, private banks, foreign currency debt, excessive volatility, external public debt, debt management strategy, excess volatility, treasury notes, debt management operations, domestic debt, external debt service, central banks, debt burden, debt management office, public enterprises ’ debt, currency composition, long-term debt, reserve accumulation
    Date: 2014–01–10
  22. By: John Bagnall; David Bounie; Kim Huynh; Anneke Kosse; Tobias Schmidt; Scott Schuh; Helmut Stix
    Abstract: We measure consumers' use of cash by harmonizing payment diary surveys from seven countries. The seven diary surveys were conducted in 2009 (Canada), 2010 (Australia), 2011 (Austria, France, Germany and the Netherlands), and 2012 (the United States). Our paper finds cross-country differences - for example, the level of cash usage differs across countries. Cash has not disappeared as a payment instrument, especially for low-value transactions. We also find that the use of cash is strongly correlated with transaction size, demographics, and point-of-sale characteristics such as merchant card acceptance and venue.
    Keywords: Money Demand; Payment Systems; Harmonization
    JEL: E41 D12 E58
    Date: 2014–04
  23. By: Yellen, Janet L. (Board of Governors of the Federal Reserve System (U.S.))
    Date: 2014–07–02
  24. By: Dennis Novy; Alan M. Taylor
    Abstract: We offer a new explanation as to why international trade is so volatile in response to economic shocks. Our approach combines the uncertainty shock idea of Bloom (2009) with a model of international trade, extending the idea to the open economy. Firms import intermediate inputs from home or foreign suppliers, but with higher costs in the latter case. Due to fixed costs of ordering firms hold an inventory of intermediates. We show that in response to an uncertainty shock firms optimally adjust their inventory policy by cutting their orders of foreign intermediates disproportionately strongly. In the aggregate, this response leads to a bigger contraction in international trade flows than in domestic economic activity. We confront the model with newly-compiled monthly aggregate U.S. import data and industrial production data going back to 1962, and also with disaggregated data back to 1989. Our results suggest a tight link between uncertainty and the cyclical behaviour of international trade.
    Keywords: Uncertainty shock, trade collapse, inventory, real options, imports, intermediates
    JEL: E3 F1
    Date: 2014–05
  25. By: M. Hashem Pesaran (University of Southern California; Trinity College Cambridge); Ron P Smith (Department of Economics, Mathematics & Statistics, Birkbeck)
    Abstract: This paper proposes tests of policy ineffectiveness in the context of macroeconometric rational expectations models. It is assumed that there is a policy intervention that takes the form of changes in the parameters of a policy rule, and that there are sufficient observations before and after the intervention. The test is based on the difference between the realisations of the outcome variable of interest and counterfactuals based on no policy intervention, using only the pre-intervention parameter estimates, and in consequence the Lucas Critique does not apply. The paper develops tests of policy ineffectiveness for a full structural model, with and without exogenous, policy or non-policy, variables. Asymptotic distributions of the proposed tests are derived both when the post intervention sample is fixed as the pre-intervention sample expands, and when both samples rise jointly but at different rates. The performance of the test is illustrated by a simulated policy analysis of a three equation New Keynesian Model, which shows that the test size is correct but the power may be low unless the model includes exogenous variables, or if the policy intervention changes the steady states, such as the inflation target.
    Keywords: Counterfactuals, policy analysis, policy ineffectiveness test, macroeconomics.
    JEL: C18 C54 E65
    Date: 2014–06
  26. By: International Monetary Fund. European Dept.
    Abstract: KEY ISSUES AND RECOMMENDATIONS Context. The growth slowdown continued in 2013, reflecting pre-existing structural reasons, despite accommodative policies. The fallout from geopolitical tensions relating to Ukraine is bringing the economy to a standstill. Fiscal tightening is expected this year as the non-oil deficit remains near record high. In response to mounting pressures on the ruble, the Central Bank of Russia (CBR) raised interest rates to address risks to medium- term inflation and increased intervention to support the ruble. Some structural reforms were initiated, including a partial pension reform and a new procurement law. Near-term macroeconomic policy mix. Faced with exceptional circumstances, policies should aim at preserving macroeconomic stability. A tighter monetary stance is required over the next year to attain the 2015 inflation target. The CBR should resume its policy towards greater exchange rate flexibility as soon as the current uncertainty subsidies. Modest fiscal tightening, despite the economic slowdown, appears justified as output remains close to potential. Adhering to the fiscal rule is essential to support its credibility and the needed medium-term fiscal consolidation. Medium-term policy challenges. Structural reforms remain essential to enhance Russia’s growth potential. Continued efforts at global integration are necessary to attract investment and boost potential growth. Reforms discussed in the context of the stalled OECD accession negotiations should continue, including improving labor markets and reducing tax burden, administrative barriers, and corruption. Pushing ahead with the privatization plans should enhance economic efficiency. Additional fiscal consolidation in outer years is recommended to rebuild buffers and to safeguard intergenerational equity.
    Keywords: Article IV consultation reports;Economic conditions;Monetary policy;Fiscal policy;Exchange rate policy;Economic reforms;Inflation targeting;Political economy;Financial soundness indicators;Sanctions;Financial Sector Assessment Program;Staff Reports;Press releases;Russian Federation;
    Date: 2014–07–01
  27. By: Ehsan U. Choudhri (Department of Economics, Carleton University); Dalia S. Hakura (International Monetary Fund)
    Abstract: Using both regression- and VAR-based estimates, the paper finds that the exchange rate pass-through to import prices for a large number of countries is incomplete and larger than the pass-through to export prices. Previous studies have reported similar results, which give rise to the puzzle that while local currency pricing is needed to account for incomplete import price pass-through, it would not imply a lower export price pass-through. Recent explanations of this puzzle have emphasized markup adjustment in response to exchange rate changes. This paper suggests an alternative explanation based on the presence of both producer and local currency pricing. Using a dynamic general equilibrium model, the paper shows that a mix of producer and local currency pricing can explain the pass-through evidence even with a constant markup. The model can also explain the observed variability of key variables as well as the fact that the regression and VAR estimates tend to be similar.
    Keywords: Exchange rate pass-through; import and export prices; nominal rigidities; currency choice
    JEL: E31 F42 E52 F41
    Date: 2014–07
  28. By: Ronald McKINNON (University of Stanford)
    Abstract: Because the U.S. Federal Reserve’s monetary policy is at the center of the world dollar standard, it has a first-order impact on global financial stability. However, except during international crises, the Fed focuses on domestic American economic indicators and generally ignores collateral damage from its monetary policies on the rest of the world. Currently, ultra-low interest rates on short-term dollar assets ignite waves of hot money into Emerging Markets (EM) with convertible currencies. When each EM central bank intervenes to prevent its individual currency from appreciating, collectively they lose monetary control, inflate, and cause an upsurge in primary commodity prices internationally. These bubbles burst when some accident at the center, such as a banking crisis, causes a return of the hot money to the United States (and to other industrial countries) as commercial banks stop lending to foreign exchange speculators. World prices of primary products then collapse. African countries with exchange controls and less convertible currencies are not so attractive to currency speculators. Thus, they are less vulnerable than EM to the ebb and flow of hot money. However, African countries are more vulnerable to cycles in primary commodity prices because food is a greater proportion of their consumption, and—being less industrialized—they are more vulnerable to fluctuations in prices of their commodity exports. Supply-side shocks, such as a crop failure anywhere in the world, can affect the price of an individual commodity.  But joint fluctuations in the prices of all primary products— minerals, energy, cereals, and so on—reflect monetary conditions in the world economy as determined by the ebb and flow of hot money from the United States, and increasingly from other industrial countries with near-zero interest rates.
    Date: 2014–07
  29. By: International Monetary Fund. European Dept.
    Abstract: Latvia entered the euro area in January 2014 with the fastest rate of growth in Europe. The 2014 Article IV Consultation highlights that a slowdown in investment and exports was partly compensated by robust consumption demand, supported by rising real wages, bringing GDP growth in 2013 to 4.1 percent. Strong job creation reduced the unemployment rate to 11.3 percent by end-2013, close to its structural level. Consumer price inflation fell to an average of about zero in 2013, mainly owing to weakening energy prices. The 2013 general government deficit outturn of 1.0 percent of GDP was below the target of 1.4 percent.
    Keywords: Article IV consultation reports;Economic recovery;Economic growth;Fiscal policy;Labor markets;Fiscal reforms;Banking sector;Bank credit;Bank supervision;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Latvia;
    Date: 2014–05–08
  30. By: Karolin Kirschenmann (Aalto University School of Business, Helsinki, Finland); Tuomas Malinen (Helsinki Center of Economic Research, University of Helsinki, Finland); Henri Nyberg (Helsinki Center of Economic Research, University of Helsinki, Finland)
    Abstract: Are macroeconomic factors such as income inequality the real root causes of financial crises? We explore a variety of financial and macroeconomic variables to find the most reliable predictors for financial crises in 14 developed countries over a period of more than 100 years. Our results, based on a general-to-specific model selection process, indicate that the power to predict financial crises is distributed among several predictors, including income inequality and growth of bank credit. This is in line with the argument that the best predictive factors tend to vary in time.
    Keywords: bank loans, income inequality, fixed effects logit.
    JEL: C33 C53 E44 G01
    Date: 2014–06
  31. By: Badel, Alejandro (Federal Reserve Bank of St. Louis); Huggett, Mark (Georgetown University)
    Abstract: We assess the consequences of substantially increasing the marginal tax rate on U.S. top earners using a human capital model. The top of the model Laffer curve occurs at a 53 percent top tax rate. Tax revenues and the tax rate at the top of the Laffer curve are smaller compared to an otherwise similar model that ignores the possibility of skill change in response to a tax reform. We also show that if one applies the methods used by Diamond and Saez (2011) to provide quantitative guidance for setting the tax rate on top earners to model data then the resulting tax rate exceeds the tax rate at the top of the model Laffer curve.
    Keywords: Human Capital; Marginal Tax Rates; Inequality; Laffer Curve
    JEL: D91 E21 H2 J24
    Date: 2014–07–23
  32. By: International Monetary Fund. European Dept.
    Abstract: KEY ISSUES Context. The economy is recovering gradually, helped by supportive macroeconomic policies, favorable external conditions, and improved market confidence. This, together with a welcome reduction in vulnerabilities, supported Hungary’s financial stability during bouts of volatility in emerging markets over the past year. Nevertheless, external and public debts remain high, thus making the economy susceptible to shocks; and the country faces subdued growth prospects. The government’s strategy to address these challenges included sizeable fiscal consolidation and unconventional measures that increased the state’s role in the economy and shifted the burden of adjustment to specific sectors. Policy recommendations. Policies should aim at building buffers and comprehensively addressing obstacles to strong, sustained growth. ? Fiscal policy. Adopt an ambitious and growth-friendly fiscal adjustment strategy to reduce the public debt ratio sustainably and build policy space. The strategy should rely on durable expenditure consolidation, enhanced composition of spending, and a gradual elimination of distortionary taxes. ? Monetary policy. Stop monetary policy easing and stand ready to raise the policy rate if market conditions warrant. A clear communication strategy will play a crucial role in guiding market expectations. Maintain adequate reserve coverage to support financial stability. ? Financial sector. Help restore financial intermediation by improving the banks’ operating environment, including steps to facilitate faster resolution of nonperforming loans and to reduce the tax burden on banks. The Funding for Growth Scheme should remain limited, targeted, and time-bound, with fiscal costs clearly recognized. ? Structural reforms. Advance structural reforms aimed at removing labor market bottlenecks, enhancing the business climate, and boosting productivity in the services sectors. Limited government interference in the economy and increased policy predictability could strengthen confidence, and foster private sector investment and employment creation.
    Keywords: Article IV consultation reports;Fiscal policy;Public debt;Fiscal consolidation;Fiscal reforms;Public enterprises;Monetary policy;Banking sector;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Hungary;
    Date: 2014–06–06
  33. By: International Monetary Fund. European Dept.
    Abstract: KEY ISSUES Context. Real output has expanded for four consecutive quarters, and financial market sentiment has improved markedly. But the recovery is weak and uneven. Inflation has been too low for too long, financial markets are still fragmented, and structural gaps persist: these hinder rebalancing and substantial reductions in debt and unemployment. Policies. The economic expansion is grounded in complementary policy actions at both the national and euro area levels, but more is needed to strengthen the recovery: Supporting Demand. Recent ECB actions—including a rate cut, negative deposit rates and policy support for new bank lending to companies—should help address low inflation and financial fragmentation. But if inflation remains too low the ECB should consider a substantial balance sheet expansion, including through asset purchases. The broadly neutral overall fiscal stance is appropriate but any negative growth surprises should not trigger additional consolidation efforts as this would be self-defeating. Mending balance sheets and completing the banking union. Successfully executing the ongoing asset quality review and stress tests should spur balance sheet repair and help reverse fragmentation. Agreement on a single resolution mechanism and bail-in rules comprise important milestones towards banking union, but a common fiscal backstop is still needed. Advancing structural reforms. Alternative sources of funding through securitization, especially to credit-constrained SME’s, should be promoted. A comprehensive strategy, which boosts demand and removes country-specific structural impediments, is needed to tackle high youth unemployment. Competitiveness-enhancing reforms in debtor countries and higher public investment in creditor countries would promote needed rebalancing.
    Keywords: Article IV consultation reports;Economic recovery;Inflation;Monetary policy;Banking sector;Bank supervision;European Central Bank;Fiscal reforms;Access to capital markets;Economic indicators;Staff Reports;Press releases;Statistics;Data quality assessment framework;Euro Area;
    Date: 2014–07–14
  34. By: Josué Fernando Cortés Espada
    Abstract: This paper estimates the magnitude of the exchange rate pass-through to consumer prices in Mexico. Moreover, it analyzes if the pass-through dynamics have changed in recent years. In particular, it uses a methodology that generates results consistent with the hierarchy implicit in the CPI. The results suggest that the exchange rate pass-through to the general price level is low and not statistically significant. However, the pass-through is positive and significant for goods prices. Furthermore, the exchange rate pass-through declined over the 2000's and the depreciation observed in 2011 did not change this trajectory.
    Keywords: Depreciation, Inflation, Exchange Rate Pass-through
    JEL: E31 F31 F41
    Date: 2013–03
  35. By: Dudley, William (Federal Reserve Bank of New York)
    Abstract: Remarks at the Regional Economic Press Briefing, New York City.
    Keywords: Great Recession; jobs; skills
    JEL: E2 J21
    Date: 2014–05–21
  36. By: Sergey Belev (Gaidar Institute for Economic Policy)
    Abstract: This paper deals with tax receipts of the Russia's budgetary system
    Keywords: Russian economy; state budget, budgetary system, tax receipts
    JEL: E62 H20 H50
    Date: 2014
  37. By: International Monetary Fund. European Dept.
    Abstract: KEY ISSUES Context: Weak external demand and inconsistent macroeconomic policies have contributed to a prolonged economic recession. A combination of an effectively pegged exchange rate, loose fiscal policy, and sizable quasi-fiscal losses in the energy sector has pushed the fiscal and external current account deficits to very high levels. A gradual depletion of international reserves and other buffers is making the economy particularly vulnerable to external shocks. Outlook and risks: A modest economic recovery should commence in late 2013. However, a difficult business climate and impaired external competitiveness are weighing on the medium-term outlook. The current policy mix is not sustainable as it generates large imbalances and depresses growth. The risk of a costly market-forced adjustment is high. Main policy recommendations: * Allow the exchange rate to adjust to its equilibrium level and increase its flexibility. Accelerate preparations for the introduction of inflation targeting. * Strengthen the financial system’s resilience to shocks, including by developing comprehensive contingency plans to cover potential capital and liquidity shortfalls under various scenarios. * Curtail the fiscal deficit through a reform-based current expenditure consolidation and the cancelation of unaffordable tax cuts. * Reduce the quasi-fiscal losses in the energy sector by increasing the very low household gas and heating tariffs in the context of a comprehensive energy sector reform plan, while protecting the most vulnerable households. * Launch broad structural and governance reforms to improve the business climate and boost sustainable growth.
    Keywords: Article IV consultation reports;Economic growth;Fiscal policy;Government expenditures;Fiscal consolidation;Fiscal reforms;Energy policy;Monetary policy;Devaluation;Flexible exchange rate policy;Economic indicators;Post-program monitoring;Staff Reports;Press releases;Ukraine;
    Date: 2014–06–11
  38. By: Rangan Gupta; Shawkat Hammoudeh; Mampho P. Modise; Duc Khuong Nguyen
    Abstract: This article attempts to examine whether the equity premium in the United States can be predicted from a comprehensive
    Keywords: Equity premium forecasting; asset pricing model; economic uncertainty; business cycle.
    JEL: C52 C53 C58 E37 G17
    Date: 2014–07–24
  39. By: Leroi Raputsoane
    Abstract: This study analyses the relationship between disaggregated credit extension and financial distress in South Africa. It commences by constructing a composite indicator of financial distress and then examines its correlation with components of disaggregated credit extension. Of particular interest is to isolate the components of disaggregated credit extension that show a strong relationship with the measure of financial distress for financial stability purposes. The empirical results reveal that aggregate total domestic credit extension is robustly positively correlated with the composite indicator of financial distress, while there is a mixed relationship between the components of disaggregated credit extension and the composite indicator of financial distress. In particular, the study finds that total domestic credit extension, instalment sale credit, loans and advances to households, investments and total loans and advances are highly correlated with the composite indicator of financial distress and hence conjures that these components could be aggregated into a single measure of credit extension that could be used for financial stability purposes in South Africa.
    Keywords: Disaggregated credit extension, Financial distress
    JEL: C32 E44 E51 G21
    Date: 2014
  40. By: Elva Bova; Nathalie Carcenac; Martine Guerguil
    Abstract: This paper documents the spread of fiscal rules in the developing world and investigates the relation between fiscal rules and procyclical fiscal policy. We find that, since the early 2000s, developing countries outnumbered advanced economies as users of fiscal rules. Rules were adopted either as part of the toolkit to join currency unions or to strengthen fiscal frameworks during and after large stabilization and policy reform episodes. The paper also finds that the greater use of fiscal rules has not shielded these countries from procyclicality, since fiscal policy remains procyclical following the adoption of a fiscal rule. We find partial evidence that some features of “second generation†rules, such as the use of cyclically-adjusted targets, well-defined escape clauses, together with stronger legal and enforcement arrangements, may be associated with less procyclicality.
    Keywords: Fiscal rules;Fiscal policy;Developing countries;Emerging markets;Business cycles;Fiscal rules, fiscal policty, cyclicality, emerging markets, developing economies
    Date: 2014–07–10
  41. By: Calista Cheung
    Abstract: House prices have increased significantly in Canada over the past decade, driving household debt and residential construction activity to historical highs. Although macro-prudential tightening has slowed the pace of household borrowing in the last few years, house prices have continued to trend higher, and affordability remains a major challenge in urban centres. First-time home buyers must therefore spend more of their incomes to purchase a house and are vulnerable to future interest rate hikes. Overbuilding in the condominium sectors of some cities appears to be a source of risk, especially if a major price correction in these segments spills over into other markets. The country benefits from a sound and effective housing finance system, which performed well throughout the global financial crisis thanks to strong regulatory oversight and explicit government backing of the mortgage market. Nonetheless, the dominance of the crown corporation CMHC in the mortgage insurance market concentrates a significant amount of risk in public finances. Improving competitive conditions in the mortgage insurance market could help diversify these risks and reduce taxpayer contingent liabilities, while introducing coverage limits on loan losses would better align private and social interests. There may be a shortage of rental housing in several cities, especially in the range that low-income households can afford. Urban planning policies have resulted in low-density residential development which contributes to relatively high transport-related carbon emissions. Addressing these externalities requires stronger pricing signals for land development, road use, congestion and parking, combined with better integration of public transit planning. To prevent the marginalisation of low-income households, planning policies should support social mix and increase incentives for private-sector development of affordable housing. This Working Paper relates to the 2014 OECD Economic Review of Canada (
    Keywords: housing, financial regulation, household debt, macroprudential regulation, land use, affordability, compact growth, development charge, densification, social housing, housing finance, house prices, financial system risk, mortgage securitisation, mortgage markets, property tax, urban planning, urban sprawl, subprime, rental markets
    JEL: E02 E44 E61 G21 G22 G23 G28 H21 H42 H71 R14 R21 R31 R38 R48 R52 R58
    Date: 2014–07–21
  42. By: Guner, Nezih (MOVE, Barcelona); Lopez-Daneri, Martin (University of Southern California); Ventura, Gustavo (Arizona State University)
    Abstract: We evaluate the effectiveness of a more progressive tax scheme in raising government revenues. We develop a life-cycle economy with heterogeneity and endogenous labor supply. Households face a progressive income tax schedule, mimicking the Federal Income tax, and flat-rate taxes that capture payroll, state and local taxes and the corporate income tax. We parameterize this model to reproduce aggregate and cross-sectional observations for the U.S. economy, including the shares of labor income for top earners. We find that a tilt of the Federal income tax schedule towards high earners leads to small increases in revenues which are maximized at an effective marginal tax rate of about 36.9% for the richest 5% of households – in contrast to a 21.7% marginal rate in the benchmark economy. Maximized revenue from Federal income taxes is only 8.4% higher than it is in the benchmark economy, while revenues from all sources increase only by about 1.6%. The room for higher revenues from more progressive taxes is even lower when average taxes are higher to start with. We conclude that these policy recommendations are misguided if the aim is to exclusively raise government revenue.
    Keywords: taxation, progressivity, labor supply
    JEL: E6 H2
    Date: 2014–07
  43. By: Garbade, Kenneth D. (Federal Reserve Bank of New York)
    Abstract: Until 1935, Federal Reserve Banks from time to time purchased short-term securities directly from the United States Treasury to facilitate Treasury cash management operations. The authority to undertake such purchases provided a robust safety net that ensured Treasury could meet its obligations even in the event of an unforeseen depletion of its cash balances. Congress prohibited direct purchases in 1935, but subsequently provided a limited wartime exemption in 1942. The exemption was renewed from time to time following the conclusion of the war but ultimately was allowed to expire in 1981. This paper addresses three questions: 1) Why did Congress prohibit direct purchases in 1935 after they had been utilized without incident for eighteen years, 2) why did Congress provide a limited exemption in 1942 instead of simply removing the prohibition, and 3) why did Congress allow the exemption to expire in 1981?
    Keywords: Treasury debt issuance; Federal Reserve; direct purchases
    JEL: E58 H62 H63
    Date: 2014–08–01
  44. By: International Monetary Fund. European Dept.
    Abstract: This 2014 Article IV Consultation highlights that Croatia remains stuck in an unusually drawn out recession. In 2013, real GDP contracted for the 5th consecutive year, and stands now at less than 90 percent of the end-2008 level. Unemployment has risen to 17 percent. Domestic demand remains depressed as corporations and households focus on reducing excessive debts accumulated in the 2000s. Exports and foreign direct investment are also feeble. The outlook is for an additional contraction in 2014 of almost 1 percent. Real domestic demand would remain feeble, reflecting both weak private sector demand and fiscal consolidation.
    Keywords: Article IV consultation reports;Economic growth;Fiscal policy;Fiscal consolidation;Labor market reforms;Monetary policy;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Croatia;
    Date: 2014–05–19
  45. By: Takashi Kamihigashi (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)
    Abstract: In this paper we show that multiple interior steady states are possible in the Ramsey model with elastic labor supply. In particular we establish the following three results: (i) for any discount factor and production function, there is a utility function such that a continuum of interior steady states exist; (ii) the number of interior steady states can also be any finite number; and (iii) for any discount factor and production function, there is a utility function such that there is no interior steady state. Some numerical examples are provided.
    Keywords: Multiple steady states, Ramsey model, Elastic labor supply, Neoclassical growth
    JEL: C61 C62 E13 O41
    Date: 2014–07
  46. By: Gollier, Christian
    Abstract: Weitzman (1998, 2001) proposed a simple “gamma discounting” method to characterize the term structure of discount rates today from the sole distribution of future spot interest rates. This rule which justifies using a smaller discount rate for longer maturities is now used for long-term policy evaluations in the UK, France, Norway, and potentially in the US. But we show that there is no social preference within the discounted expected utility framework that generically supports this pricing model and its underlying criterion, the expected net present value rule. Considering a standard Lucas tree economy, we characterize the term structure from the joint distribution of future spot interest rates and future consumption levels. When future growth rates are serially correlated, efficient discount rates today are decreasing with maturity, and the gamma discounting rule yields discount rates that are larger than the efficient ones.
    Keywords: decreasing discount rates, term structure, uncertain growth, Weitzman-Gollier puzzle.
    JEL: E43 G11 G12 Q54
    Date: 2014–06
  47. By: Pietro Tebaldi (Stanford University); Matthew Jackson (Stanford University)
    Abstract: We develop a model of matching from firms' perspectives and draw resulting conclusions for the macro-dynamics of an economy. The key insight is that firms may wish to hire workers that are bad matches (having low productivity) in high-demand states, even if the worker must be hired to a long-run contract. This results an increasing fraction of bad worker-firm matches as an economy booms, making it increasingly likely that a recession will occur the longer it has been since the last recession, and increasing the depth of the recession when it occurs. While employment is lowest immediately following a recession, an economy has its highest fraction of good to bad matches as it emerges from a recession. These dynamics result in fully-rational, endogenous business cycles featuring non-stationary distributions of unemployment for a given stationary exogenous shock: in particular, the longer it has been since the last recession the more fragile the economy becomes and the more dramatic its response to exogenous shocks. Examining US economic areas data from 1969-2011, we find that the longer the time elapsed since the last recession, the larger the drop in employment during the recession.
    Date: 2014
  48. By: International Monetary Fund. European Dept.
    Abstract: This 2013 Article IV Consultation highlights that Israel’s economic fundamentals has remained strong. GDP growth is solid, unemployment is low, and inflation remains firmly anchored within the 1–3 percent target range. The financial sector is in good health, and the external position is strong. On the structural front, concerted action is required to boost competition in the non-tradable sector, although it is imperative to promote the participation of Haredi and Israeli–Arab populations in the labor force to reduce poverty and inequality and bolster the economy’s long-run productive capacity.
    Keywords: Article IV consultation reports;Economic growth;Fiscal policy;Monetary policy;Financial sector;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Israel;
    Date: 2014–02–12
  49. By: Sommer, Kamila (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: This paper studies the link between rising income uncertainty and household fertility patterns in an Aiyagari-Bewley-Huggett framework augmented to include fertility decisions and infertility risk. Building on Becker and Tomes (1976), I model fertility decisions as sequential, irreversible choices over the number of children, accompanied by parental choices of time and money invested toward improving children's quality. The calibrated model is used to quantify the contribution of earnings uncertainty to the changes in the key fertility indicators between steady states. I show that realistic increases in uninsurable earnings risk lead to a postponement in births by young households, and are associated with a decline in the total number of births. The linkage between earnings risk and fertility patterns highlights the important role that labor market conditions can play in determining both short-term cyclical fluctuations in fertility (such as those in the recent U.S. data) and longer-term demographic trends (such as persistently depressed fertility rates in Southern Europe where youth unemployment rates are high and unemployment spell are very persistent).
    Keywords: Fertility choice; life cycle; heterogenous agents; uninsurable idiosyncratic income risk
    Date: 2014–04–04
  50. By: Ezzahidi, Elhadj; El Alaoui, Aicha
    Abstract: Employment is linked to growth at least in the long-run. Thus, to reduce structurally unemployment it is necessary to boost growth. Thus, any strategy seeking to reduce unemployment must be devised with a good knowledge of the growth content in terms of jobs. In this paper, we use Okun’s law, arc point elasticity, and a simple econometric model to assess the intensity of the links between economic growth and (un)employment in Morocco. Okun’s law provides evidence that economic growth in Morocco is linked with a reduction of the unemployment rate. The sectors intensities to create jobs are very different and provide unsystematic results. Using an average measure of elasticity over the period 1999-2009, we find that many sectors were net losers of jobs. The overall growth-elasticity of employment is positive but low.
    Keywords: Growth, Jobs’ creation, Growth-elasticity of employment, Morocco
    JEL: E2 J2 J6 J60 O4
    Date: 2014–02–17
  51. By: Mike Burkart; Amil Dasgupta
    Abstract: We provide a theoretical framework to study blockholder activism by funds who com- pete for investor ?ow. In our model, activists are intrinsically able to raise the value of target ?rms through monitoring. Competition for investor ?ow induces them to enhance the returns generated by monitoring by raising external funding at the level of the target ?rm. We adopt a microfounded approach to account for the lack of macro-state con- tingency in such ?nancing contracts and show that debt is optimal for raising external funding. When good funds are su¢ ciently better than bad funds, competition for ?ow can generate excessive leverage which fosters debt overhang in low macroeconomic states and shuts down activist e¤ort. As a result, investing in activist hedge funds is more desirable when macroeconomic prospects are good. Our model thus links the observed procycli- cality of activism with documented increases in the leverage or payouts ratios of target ?rms. In addition, the model generates several new testable implications and reconciles seemingly contradictory evidence on the wealth e¤ects of activism for shareholders and bondholders.
    Date: 2014
  52. By: Gerencia Técnica
    Abstract: When managing international reserves, central banks generally face the problem of determining what their optimum or adequate level is. A critical review of some methodologies for calculating the optimum amount of reserves is presented in this document. Also, a combination of international liquidity indicators is shown to shed light on the proper level of international reserves, based on a method recently proposed by the International Monetary Fund (IMF). Different exercises are used to illustrate the high sensitivity of the optimum level or reserves when feasible variations in the models’ parameters are considered. In addition, these models rely on the questionable assumption that the country has a level of short term external liabilities that is independent of the level of reserves. These factors significantly limit the practical usefulness of these models in assessing the adequate level of international reserves. Classification JEL: E58, F32
    Date: 2014–05
  53. By: Ekaterina Ilyukhina (Gaidar Institute for Economic Policy)
    Abstract: This paper deals with foreign investments in Russia 2013
    Keywords: Russian economy, foreign invetment
    JEL: E22
    Date: 2014
  54. By: Pierre MANDON (CERDI - Centre d'études et de recherches sur le developpement international - CNRS : UMR6587 - Université d'Auvergne - Clermont-Ferrand I)
    Abstract: This article is the first to renews the old debate of "rules versus. discretion" by introducing propensity score matching methods in macro analysis, such as Tapsoba (2012), and by using instrumental methods, to consider the national stability culture. By taking into account, at the same time, the self-selection problem and the omitted unobserved factor bias, in a sample of 126 countries of all level of development over the period 1985-2010, we provide strong evidence about the positive causal effect of fiscal rules adoption on the reduction of fiscal policy procyclicality. We find an asymmetrical impact, since fiscal rules adoption contributed to upgrade budget balance in periods of expansion, while it doesn't increase budget deficit in periods of recession. Furthermore, we show that the budget balance rules and the debt rules are more effective to dampen procyclicality than expenditure rules. We also provide evidence that the coverage of fiscal rules is not a critical issue to strength against procyclicality. Empirical results also displays the positive impact of the adoption of flexible rules, but also the adoption of fiscal rules combined to improve policy responsiveness. Finally, we find that FRs are effective when taking into account the national stability culture. This positive impact of fiscal rules adoption on fiscal policy cyclicality comes from an improvement of fiscal policy disciplinary, by ensuring a sustainable path of deficit and debt, or by smoothing business cycles.
    Keywords: cerdi
    Date: 2014–06–27
  55. By: Greg Kaplan (Princeton University)
    Abstract: We provide new evidence on the the cyclical behavior of household size in the United States from 1979 to 2010. During economic downturns, people live in larger households. This is mostly, but not entirely, driven by young people moving into or delaying departure from the parental home. We assess the importance of these cyclical movements for aggregate labor supply by building a model of endogenous household formation within a real business cycle structure. We use the model to measure how much more volatile are hours due to two mechanisms: (i) the presence of a large group of mostly young individuals with non-traditional living arrangements; and (ii) the possibility for these individuals to change their living situation in response to aggregate conditions. Our exercise assumes that older people living in stable households have a Frisch elasticity that is consistent with the micro evidence that is based on such people. The inclusion of people living in unstable households yields an implied aggregate, or macro, Frisch elasticity that is around 45% larger than the assumed micro elasticity.
    Date: 2014
  56. By: International Monetary Fund. Asia and Pacific Dept
    Abstract: This 2013 Article IV Consultation highlights that the Republic of Korea has experienced impressive growth since the 1970s, enabling it to escape the middle-income trap. Policies should aim to tackle the weakness of domestic demand and counter forthcoming headwinds to potential growth. Korea is reaping the benefits of prudent macroeconomic management and financial moderation. The economy faces significant medium-term growth and inclusiveness challenges. Slow household income growth hinders stabilization in household debt and weighs on domestic demand, while services sector productivity is very low.
    Keywords: Article IV consultation reports;Economic growth;Demand;Fiscal policy;Fiscal reforms;Labor market reforms;Monetary policy;Financial sector;Economic indicators;Staff Reports;Press releases;Korea, Republic of;
    Date: 2014–04–17
  57. By: Ryan S. Mattson (Department of Economics - University of Arkansas); Philippe De Peretti (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)
    Abstract: This paper investigates the causal relationships between real money and real activity. Whereas previous literature has mainly focused on simple-sum aggregates, we instead use Divisia ones, thus avoiding the so-called Barnett Critique. Standard Granger non-causality tests are implemented in two di¤erent frameworks: Fully Modi…ed VARs (Phillips, 1995) and surplus-lag VARX models (Bauer and Maynard, 2012). These two environments allow modeling mixtures of I(0)/I(1) variables with possible cointegration without pretesting for ntegration nor for the dimension of the cointegration space. Moreover the latter method is also robust to various other forms of persistence such as local-to-unity processes, long memory/fractional integration, or unmodeled breaks-in-mean in the causal variables. By implementing the tests on di¤erent sub-samples identi…ed by standard structural break tests, and using three di¤erent measures of money (DM4, DM4- and DM3), the tests suggest a unidirectional causality from activity to money. Moreover, from one period to another, the whole causal structure of the systems seem to change, as well as the stationarity of the series. At last, the two methodologies return similar results.
    Keywords: Divisia Money; Granger Causality; Activity
    Date: 2014–02–04
  58. By: Adalbert Winkler
    Abstract: With the OMT program the ECB has de facto taken over the role as a lender of last resort (LoLR) for euro area governments. While this has been welcomed by some, many policymakers and economists, in particular in Germany, have strongly criticized the ECB for taking this step, even though it has been motivated by the same monetary policy considerations as the ECB’s role as a LoLR for banks. This paper addresses four arguments that are used to explain why it is acceptable to have the ECB as a LoLR for banks, while a LoLR role for governments has to be rejected. Overall we find that the arguments fail to convince. At the same time, all of them suggest that decisive steps towards fiscal and banking union are needed for the ECB to act as a successful LoLR for governments in the medium and long term.
    Date: 2014
  59. By: International Monetary Fund. European Dept.
    Keywords: Fiscal policy;Public investment;Private investment;Insurance;Fiscal reforms;Services sector;Banking sector;Bank supervision;Monetary policy;Macroprudential Policy;Selected issues;Germany;
    Date: 2014–07–21
  60. By: International Monetary Fund. Western Hemisphere Dept.
    Abstract: This 2013 Article IV Consultation highlights that the Canadian economy strengthened in 2013 after a subdued performance in 2012, but the underlying growth has remained modest. Despite the depreciating exchange rate, non-energy exports remained well below the levels reached after earlier recessions. The housing market has cooled, owing in part to macro-prudential measures adopted in the past. Economic growth is expected to accelerate to 2¼ percent in 2014, up from an estimated 1¾ percent in 2013. Canada’s export growth should benefit from the projected pick-up in U.S. growth in 2014, boosting business investment.
    Keywords: Article IV consultation reports;Economic growth;Fiscal consolidation;Fiscal policy;Housing;Energy sector;Financial sector;Monetary policy;Debt sustainability analysis;Fiscal sustainability;Staff Reports;Press releases;Canada;Housing prices;
    Date: 2014–02–03
  61. By: International Monetary Fund. Western Hemisphere Dept.
    Abstract: This 2013 Article IV Consultation highlights economic developments and policies in The Bahamas. The paper focuses on policies to secure fiscal, external, and the financial sector stability, and strengthen medium-term growth. It outlines that the authorities need to implement comprehensive policies to restrict the central government deficit and reduce debt to comfortable levels. It suggests that economic activity in The Bahamas is expected to pick up more strongly from 2014 onward as the U.S. recovery accelerates and The Bahamas starts operations. Also, investment is projected to remain strong in the near future.
    Keywords: Article IV consultation reports;Economic growth;Fiscal policy;Fiscal consolidation;Fiscal reforms;Currency pegs;Bank supervision;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Bahamas, The;
    Date: 2014–03–07
  62. By: Olga Izryadnova (Gaidar Institute for Economic Policy)
    Abstract: This paper deals with domestic capital investments in Russia in 2013.
    Keywords: Russian economy, domestic investment
    JEL: F34 G24
    Date: 2014
  63. By: Alexander Abramov (Gaidar Institute for Economic Policy)
    Abstract: This paper deals with a wide scope of issues, starting with the post-crisis recovery of Russia's financial market. The author analyzes the market for shares issued by Russian companies, investigates dependence on the global conjuncture of prices and inflow and outflow of foreign portfolio investment. He also studies currency exchange rate, looks at the competition on the domestic share market, and analyzes preliminary results of the merger of the RTS and MICEX. The article deals with the market for ruble-denominated bonds. The author provides analysis of financial market risks and looks at the development of Russia's domestic savings system
    Keywords: Russia's financial market; portfolio investment; exchange rate; share market; financial institutions; bond market;
    JEL: J14 G15 G32 E44
    Date: 2014
  64. By: Kinda Hachem
    Abstract: I analyze whether banks are efficient at allocating resources across intermediation activities. Competition between lenders means that resources are needed to draw borrowers into credit matches. At the same time, imperfect information between lenders and borrowers means that resources are also needed for screening. I show that the privately optimal allocation of resources is constrained inefficient. In particular, too many resources are spent on getting rather than vetting borrowers but, once properly vetted, not enough matches are retained. Uninformed lending is thus inefficiently high, informed lending is inefficiently low, and a tax on matching activities helps remedy the situation.
    JEL: D62 D83 E44
    Date: 2014–08
  65. By: Andolfatto, David (Federal Reserve Bank of St. Louis); Nosal, Ed (Federal Reserve Bank of Chicago); Sultanum, Bruno (The Pennsylvania State University)
    Abstract: Diamond and Dybvig (1983) is commonly understood as providing a formal rationale for the existence of bank-run equilibria. It has never been clear, however, whether bank-run equilibria in this framework are a natural byproduct of the economic environment or an artifact of suboptimal contractual arrangements. In the class of direct mechanisms, Peck and Shell (2003) demonstrate that bank-run equilibria can exist under an optimal contractual arrangement. The difficulty of preventing runs within this class of mechanism is that banks cannot identify whether withdrawals are being driven by psychology or by fundamentals. Our solution to this problem is an indirect mechanism with the following two properties. First, it provides depositors an incentive to communicate whether they believe a run is on or not. Second, the mechanism threatens a suspension of convertibility conditional on what is revealed in these communications. Together, these two properties can eliminate the prospect of bank-run equilibria in the Diamond-Dybvig environment.
    Keywords: bank runs; optimal deposit contract; financial fragility
    JEL: D82 E58 G21
    Date: 2014–08–04
  66. By: Warwick J McKibbin; Adele C. Morris; Peter J. Wilcoxen
    Abstract: The United States Environmental Protection Agency (EPA) has begun regulating existing stationary sources of greenhouse gases (GHG) using its authority under the Clean Air Act (the Act). The regulatory process under the Act is long and involved and raises the prospect that significant U.S. action might be delayed for years. This paper examines the economic implications of such a delay. We analyze four policy scenarios using an economic model of the U.S. economy embedded within a broader model of the world economy. The first scenario imposes an economy-wide carbon tax that starts immediately at $15 and rises annually at 4 percent over inflation. The second two scenarios impose different (and generally higher) carbon tax trajectories that achieve the same cumulative emissions reduction as the first scenario over a period of 24 years, but that start after an eight year delay. All three of these policies use the carbon tax revenue to reduce the federal budget deficit. The fourth policy imposes the same carbon tax as the first scenario but uses the revenue to reduce the tax rate on capital income. We find that by nearly every measure, the delayed policies produce worse economic outcomes than the more modest policy implemented now, while achieving no better environmental benefits.
    Keywords: fiscal policy, carbon tax, general equilibrium
    JEL: Q54 H2 E17
    Date: 2014–07
  67. By: International Monetary Fund. European Dept.
    Keywords: Fiscal policy;Labor markets;Unemployment;Capital markets;Investment;Current account;Public debt;Fiscal reforms;Selected Issues Papers;Euro Area;
    Date: 2014–07–14
  68. By: Benjamin Moll (Princeton University)
    Abstract: We study a class of continuous time heterogeneous agent models with idiosyncratic shocks and incomplete markets. This class can be boiled down to a system of two coupled partial differential equations: a Hamilton-Jacobi-Bellman equation and a Kolmogorov Forward equation, a system that Lasry and Lions (2007) have termed a "Mean Field Game." We study two concrete model economies to show that continuous time allows for both tighter theoretical results compared to traditional discrete time methods as well as precise and efficient computations. The first one is an exact reformulation of Aiyagari (1994) and we obtain three theoretical results: a tight characterization of household savings behavior near the borrowing constraint, uniqueness of a stationary equilibrium (not yet in the current draft), and a tight link between the amount of capital "overaccumulation" and the number of borrowing constrained households. In our second economy, heterogeneous producers face collateral constraints and fixed costs in production, creating the possibility of a ``poverty trap," i.e. multiple stationary equilibria. We find that such ``poverty traps" arise only in extreme special cases. Instead the economy typically features a unique but twin-peaked stationary distributions to which it converges extremely slowly. The precision of our algorithm is key for this finding, and a coarse, simulation-based algorithm may have obtained misleading results. We conclude by discussing an extension of our framework to the case with both idiosyncratic and aggregate shocks as in Krusell and Smith (1998).
    Date: 2014
  69. By: International Monetary Fund. Asia and Pacific Dept
    Abstract: This 2013 Article IV Consultation highlights economic developments and policies of Mongolia between 2003 and 2013. The resulting balance-of-payments (BOP) pressures have been compounded by negative shocks to foreign direct investment (FDI) and coal exports. The IMF report analyzes that various banking sector vulnerabilities and weaknesses in the business climate need to be addressed to steady the progress of the economy. Launch of new investment law is important to be introduced by the government to improve the business climate and encourage FDI inflows.
    Keywords: Article IV consultation reports;Economic growth;External shocks;Fiscal policy;Fiscal reforms;Monetary policy;Staff Reports;Press releases;Mongolia;
    Date: 2014–03–06
  70. By: Christian Pierdzioch; Stefan Reitz; Jan-Christoph Ruelke
    Abstract: We use a Panel Smooth Transition Regression (STR) model to study nonlinearities in the expectation-formation process in the U.S. stock market. To this end, we use data from the Livingston survey to investigate how the importance of regressive and extrapolative expectations fluctuates over time as market conditions summarized by stock-market misalignments and recent returns change. We find that survey participants form stabilizing expectations in the long run. Short-run expectations, in contrast, are consistent with weak mean reversion of stock prices
    Keywords: non-linear expectation formation, survey data, stock market, heterogeneous agents
    JEL: G17 E47 C53
    Date: 2014–07
  71. By: Jean Fouré (CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique); Agnès Bénassy-Quéré (CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Lionel Fontagné (CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, Department of Economics - European University Institute)
    Abstract: We present growth scenarios for 147 countries to 2050, based on MaGE (Macroeconometrics of the Global Economy), a three-factor production function that includes capital, labour and energy. We improve on the literature by accounting for the energy constraint through dynamic modelling of energy productivity, and departing from the assumptions of either a closed economy or full capital mobility by applying a Feldstein-Horioka-type relationship between savings and investment rates. Our results suggest that, accounting for relative price variations, China could account for 33% of the world economy in 2050, which would be much more than the United States (9%), India (8%), the European Union (12%) and Japan (5%). They suggest also that China would overtake the United States around 2020 (2040 at constant relative prices). However, in terms of standards of living, measured through GDP per capita in purchasing power parity, China would still lag 10 percent behind the United States at the 2050 horizon.
    Keywords: GDP projections ; Llong run ; Global economy
    Date: 2014–03–21
  72. By: International Monetary Fund. European Dept.
    Abstract: The 2014 Article IV Consultation discusses economic developments and policies in Belgium. It highlights that despite its resilience, the Belgium economy has been losing competitiveness due to higher labor cost and lower productivity growths than peer countries. The government has taken measures to close the wage gap, but it is highlighted that the economy also needs to become more productive and adaptable through deeper product and labor market reforms. The supervisory and regulatory frameworks are being strengthened with a new draft banking law that restrains trading activities and improves the recovery and resolution framework.
    Keywords: Article IV consultation reports;Fiscal policy;Public debt;Fiscal reforms;Labor market reforms;Pension reforms;Banks;Bank supervision;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Belgium;Housing;Housing prices;
    Date: 2014–03–12
  73. By: Ojo, Marianne
    Abstract: As well as consolidating on the existing literature on fair value accounting, by way of reference to jurisdictional analyses which include a focus on China, Japan, Brazil, and South Africa, this paper not only highlights why there is need for a re-think of the use of fair values as the primary basis for the implementation of IFRS, but also accentuates the links between systemic risk and information asymmetries – hence the justification for greater focus on information channels as well as disclosure and financial reporting requirements. Audits, which serve as vital signalling mechanisms in capital markets, have limited roles in many emerging economies than is the case with industrial nations. In contributing to the extant literature on the topic, this paper also aims to address the vital and crucial question relating to whether certain emerging economies are justified in their reluctance to fully embrace audits – based on cost- benefit considerations, as well as other inadequacies relating to fair value measurements. Furthermore, it will be highlighted that whilst audits may appear to have more limited roles in certain jurisdictions, there appears to be greater willingness to embrace Basel III requirements – and in particular, the Basel III leverage ratios in jurisdictions such as China. Ultimately the paper also aims to investigate whether there are any justifications or rationales for a jurisdiction's willingness and pace to adopt IFRS, Basel III requirements, in relation to the existing role assumed by audits in such jurisdictions.
    Keywords: fair value accounting; Finance Theory; information asymmetries; risk; corporate governance; ownership structures; auditor; disclosure; principal; agent; regulation; moral hazard; IFRS; China; Japan; Brazil; South Africa
    JEL: D8 E3 G3 G38 K2
    Date: 2014–08–08

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